EXHIBIT 1
DOBI MEDICAL INTERNATIONAL, INC.
(the "Company")
AUDIT COMMITTEE CHARTER
PURPOSES
The purposes of the Audit Committee (the "Committee") shall be as
follows:
To oversee the accounting and financial reporting processes of the
Company and audits of the financial statements of the Company.
1. To provide assistance to the Board of Directors with respect to its
oversight of the following:
(a) The integrity of the Company's financial statements.
(b) The Company's compliance with legal and regulatory
requirements.
(c) The independent auditor's qualifications and independence.
(d) The performance of the Company's internal audit function, if
any, and independent auditor.
2. To prepare the report that SEC rules require be included in the
Company's annual proxy statement.
COMPOSITION
The Committee shall consist of three or more members of the Board of
Directors, each of whom is determined by the Board of Directors to be
"independent" under the rules of the American Stock Exchange and Rule
10A-3(b)(1) under the Securities Exchange Act of 1934 adopted pursuant to the
Sarbanes-Oxley Act; provided, however, for so long as the Company qualifies as a
small business issuer under SEC Regulation S-B, it is only required to maintain
an Audit Committee of at least two members, a majority of the members of which
are independent directors.
One director who is not independent as defined in the rules and
regulations of the American Stock Exchange and who satisfies the requirements of
Rule 10A-3(b)(1) under the Securities Exchange Act of 1934 may serve as a member
of the Committee, in the following circumstances:
o the director, other than in his or her capacity as a member of
the Committee, the Board of Directors, or another Board
committee, does not accept directly or indirectly any consulting,
advisory, or other compensatory fee from the Company or any of
its subsidiaries other than the receipt of fixed amounts of
compensation under a retirement plan (including deferred
compensation) for prior service with the Company so long as such
compensation is not contingent in any way on continued service;
o the director is not an affiliated person of the Company or any of
its subsidiaries;
o the director is not a current officer or employee of the Company
or an immediate family member of a current officer or employee;
o the Board determines, under exceptional and limited
circumstances, that membership by the individual on the Committee
is required by the best interests of the Company and its
shareholders;
o the Board of Directors discloses, in the Company's next annual
meeting proxy statement (or its next annual report on Form 10-KSB
or its equivalent if the Company does not file an annual proxy
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statement) subsequent to such determination, the nature of the
relationship and the reason for that determination;
o no such person may serve as the Chairman of the Committee; and
o no such person may serve on the Committee for more than two
years.
No member of the Committee shall receive directly or indirectly any consulting,
advisory, or other compensatory fees from the Company other than (1) director's
fees for service as a director of the Company, including reasonable compensation
for serving on Board committees and regular benefits that other directors
receive; and (2) a pension or similar compensation for past performance,
provided that such compensation is not conditioned on continued or future
service to the Company. In addition, no member of the Committee may be an
affiliate of the Company or any subsidiary of the Company whether by being an
officer or owning more than 10 percent of the Company's voting securities.
QUALIFICATIONS
All members of the Committee shall be able to read and understand
fundamental financial statements (including a company's balance sheet, income
statement, and cash flow statement) and at least one member must either have
past employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background,
which results in the individual's financial sophistication, including being or
having been a chief executive officer, chief financial officer, or other senior
officer with financial oversight responsibilities or be an "audit committee
financial expert" as defined by the SEC. Committee members may enhance their
familiarity with finance and accounting by participating in educational programs
conducted by the Company or by an outside organization.
APPOINTMENT AND REMOVAL
The members of the Committee shall be appointed by the Board of
Directors. A member shall serve until such member's successor is duly elected
and qualified or until such member's earlier resignation or removal. The members
of the Committee may be removed, with or without cause, by a majority vote of
the Board of Directors.
CHAIRMAN
Unless a Chairman is elected by the full Board of Directors, the
members of the Committee shall designate a Chairman by the majority vote of the
full Committee membership. The Chairman will chair all regular sessions of the
Committee and set the agendas for Committee meetings.
DELEGATION TO SUBCOMMITTEES
In fulfilling its responsibilities, the Committee shall be entitled to
delegate any or all of its responsibilities to a subcommittee of the Committee
in accordance with its By-laws.
MEETINGS
The Committee shall meet as frequently as circumstances dictate, but at
least on a quarterly basis. The Chairman of the Committee or a majority of the
members of the Committee may call meetings of the Committee. Any one or more of
the members of the Committee may participate in a meeting of the Committee by
means of conference call or similar communication device by means of which all
persons participating in the meeting can hear each other.
All non-management directors who are not members of the Committee may
attend meetings of the Committee, but may not vote. In addition, the Committee
may invite to its meetings any director, member of
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management of the Company, and such other persons as it deems appropriate in
order to carry out its responsibilities. The Committee may also exclude from its
meetings any persons it deems appropriate.
As part of its goal to foster open communication, the Committee shall
periodically meet separately with each of management, the director of the
internal auditing department, if any, and the independent auditor to discuss any
matters that the Committee or any of these groups believe would be appropriate
to discuss privately. In addition, the Committee should meet with the
independent auditor and management periodically to review the Company's
financial statements in a manner consistent with that outlined in this Charter.
Duties and Responsibilities
The Committee shall carry out the duties and responsibilities set forth
below. These functions should serve as a guide with the understanding that the
Committee may determine to carry out additional functions and adopt additional
policies and procedures as may be appropriate in light of changing business,
legislative, regulatory, legal, or other conditions. The Committee shall also
carry out any other duties and responsibilities delegated to it by the Board of
Directors from time to time related to the purposes of the Committee outlined in
this Charter. The Committee may perform any functions it deems appropriate under
applicable law, rules, or regulations, the Company's by-laws, and the
resolutions or other directives of the Board, including review of any
certification required to be reviewed in accordance with applicable law or
regulations of the SEC.
In discharging its oversight role, the Committee is empowered to study
or investigate any matter of interest or concern that the Committee deems
appropriate. In this regard and as it otherwise deems appropriate, the Committee
shall have the authority, without seeking Board approval, to engage and obtain
advice and assistance from outside legal and other advisors as it deems
necessary to carry out its duties. The Committee also shall have the authority
to receive appropriate funding, as determined by the Committee, in its capacity
as a committee of the Board of Directors, from the Company for the payment of
compensation to any accounting firm engaged for the purpose of preparing or
issuing an audit report or performing other audit, review, or attest services
for the Company; to compensate any outside legal or other advisors engaged by
the Committee; and to pay the ordinary administrative expenses of the Committee
that are necessary or appropriate in carrying out its duties.
The Committee shall be given full access to the Company's internal
audit group, if any, Board of Directors, corporate executives, and independent
auditor as necessary to carry out these responsibilities. While acting within
the scope of its stated purpose, the Committee shall have all the authority of
the Board of Directors, except as otherwise limited by applicable law.
Notwithstanding the foregoing, the Committee is not responsible for
certifying the Company's financial statements or guaranteeing the independent
auditor's report. The fundamental responsibility for the Company's financial
statements and disclosures rests with management and the independent auditor. It
also is the job of the Chief Executive Officer and senior management, rather
than that of the Committee, to assess and manage the Company's exposure to risk.
Documents/Reports Review
1. Discuss with management and the independent auditor, prior to public
dissemination, the Company's annual audited financial statements and
quarterly financial statements, including the Company's disclosures
under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and discuss with the independent auditors the
matters required to be discussed by Statement of Auditing Standards No.
61.
2. Discuss with management and the independent auditor, prior to the
Company's filing of any quarterly or annual report, (a) whether any
significant deficiencies in the design or operation of internal control
over
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financial reporting exist that could adversely affect the Company's
ability to record, process, summarize, and report financial data;
(b) the existence of any material weaknesses in the Company's
internal control over financial reporting; and (c) the existence of any
fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal control
over financial reporting.
3. Discuss with management and the independent auditor the Company's
earnings press releases (paying particular attention to the use of any
"pro forma" or "adjusted" non-GAAP information), as well as financial
information and earnings guidance provided to analysts and rating
agencies.
4. Discuss with management and the independent auditor the Company's major
financial risk exposures, the guidelines and policies by which risk
assessment and management is undertaken, and the steps management has
taken to monitor and control risk exposure.
Independent Auditors
5. Appoint, retain, compensate, evaluate, and terminate any accounting
firm engaged by the Company for the purpose of preparing or issuing an
audit report or performing other audit, review, or attest services for
the Company and, in its sole authority, approve all audit engagement
fees and terms as well as all non-audit engagements with the accounting
firm.
6. Oversee the work of any accounting firm engaged by the Company for the
purpose of preparing or issuing an audit report or performing other
audit, review, or attest services for the Company, including the
resolution of any disagreements between management and the independent
auditor regarding financial reporting.
7. Pre-approve, or adopt procedures to pre-approve, all audit,
audi-related, tax, and other services permitted by law or applicable
SEC regulations (including fee and cost ranges) to be performed by the
independent auditor. Any pre-approved services that will involve fees
or costs exceeding pre-approved levels will also require specific
pre-approval by the Committee. Unless otherwise specified by the
Committee in pre-approving a service, the pre-approval will be
effective for the 12-month period following pre-approval. The Committee
will not approve any non-audit services prohibited by applicable SEC
regulations or any services in connection with a transaction initially
recommended by the independent auditor, the purpose of which may be tax
avoidance and the tax treatment of which may not be supported by the
Internal Revenue Code and related regulations.
8. To the extent it deems it appropriate, delegate pre-approval authority
to the Chairman of the Committee or any one or more other members of
the Committee provided that any member of the Committee who has
exercised such delegation must report any such pre-approval decisions
to the Committee at its next scheduled meeting. The Committee will not
delegate the pre-approval of services to be performed by the
independent auditor to management.
9. Require that the independent auditor, in conjunction with the Chief
Financial Officer, be responsible for seeking pre-approval for
providing services to the Company and that any request for pre-approval
must inform the Committee about each service to be provided and must
provide detail as to the particular service to be provided.
10. Inform each accounting firm engaged for the purpose of preparing or
issuing an audit report or to perform audit, review, or attest services
for the Company that such firm shall report directly to the Committee.
11. Review, at least annually, the qualifications, performance, and
independence of the independent auditor. In conducting its review and
evaluation, the Committee should do the following:
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(a) At least annually obtain and review a report by the Company's
independent auditor describing (i) the auditing firm's
internal quality-control procedures; (ii) any material issues
raised by the most recent internal quality-control review, or
peer review, of the auditing firm, or by any inquiry or
investigation by governmental or professional authorities,
within the preceding five years, respecting one or more
independent audits carried out by the auditing firm, and any
steps taken to deal with any such issues; and (iii) all
relationships between the independent auditor and the Company.
(b) Ensure the receipt from the independent auditor of a formal
written statement delineating all relationships between the
auditor and the Company, consistent with Independence
Standards Board Standard No. 1.
(c) Actively engage in a dialogue with the independent auditor
with respect to any disclosed relationships or services that
may impact the objectivity and independence of the auditor.
(d) Take, or recommend that the full Board of Directors take,
appropriate action to oversee the independence of the
independent auditor.
(e) Ensure the rotation of the lead audit (or coordinating)
partner at least every five years, and consider whether there
should be regular rotation of the audit firm itself.
(f) Confirm with the independent auditor that the lead (or
coordinating) audit partner, the concurring (or reviewing)
partner, and each other active audit engagement team partner
satisfies the rotation requirements of Rule 2-01(c)(6) of
Regulation S-X.
(g) Take into account the opinions of management and the Company's
internal auditor (or other personnel responsible for the
internal audit function), if any.
Financial Reporting Process
1. In consultation with the independent auditor, management, and the
internal auditor, if any, reviews the integrity of the Company's
financial reporting processes, both internal and external. In that
connection, the Committee should obtain and discuss with management and
the independent auditor reports from management and the independent
auditor regarding (a) all critical accounting policies and practices to
be used by the Company and the related disclosure of those critical
accounting policies under "Management's Discussion and Analysis of
Financial Condition and Results of Operations"; (b) analyses prepared
by management and/or the independent auditor setting forth significant
financial reporting issues and judgments made in connection with the
preparation of the financial statements, including all alternative
treatments of financial information within generally accepted
accounting principles that have been discussed with the Company's
management, the ramifications of the use of the alternative disclosures
and treatments, and the treatment preferred by the independent auditor;
(c) all alternative treatments of financial statements within generally
accepted accounting principals that have been discussed with the
Company's management, the ramifications of the use of alternative
disclosures and treatments, and the treatment preferred by the
independent auditor; (d) major issues regarding accounting principles
and financial statement presentations, including any significant
changes in the Company's selection or application of accounting
principles; (e) major issues as to the adequacy of the Company's
internal controls and any specific audit steps adopted in light of
material control deficiencies; (f) issues with respect to the design
and effectiveness of the Company's disclosure controls and procedures,
management's evaluation of those controls and procedures, and any
issues relating to such controls and procedures during the most recent
reporting period; (g) the effect of regulatory and accounting
initiatives, as well as off-balance sheet structures on the financial
statements of the Company; (h) any significant matters arising from any
audit,
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including audit problems and difficulties, whether raised by
management, the internal auditor, if any, and the independent auditor,
relating to the Company's financial statements; and (i) any other
material written communications between the independent auditor and
the Company's management.
2. Review periodically the effect of regulatory and accounting
initiatives, as well as off-balance sheet structures, on the financial
statements of the Company.
3. Review with the independent auditor any audit problems or difficulties
encountered and management's response thereto. In this regard, the
Committee will regularly review with the independent auditor (a) any
audit problems or other difficulties encountered by the auditor in the
course of the audit work, including any restrictions on the scope of
the independent auditor's activities or on access to requested
information, and any significant disagreements with management; and (b)
management's responses to such matters. Without excluding other
possibilities, the Committee may review with the independent auditor
(i) any accounting adjustments that were noted or proposed by the
auditor but were "passed" (as immaterial or otherwise); (ii) any
communications between the audit team and the audit firm's national
office respecting auditing or accounting issues presented by the
engagement; and (iii) any "management" or "internal control" letter
issued, or proposed to be issued, by the independent auditor to the
Company.
4. Obtain from the independent auditor assurance that the audit of the
Company's financial statements was conducted in a manner consistent
with Section 10A of the Securities Exchange Act of 1934, which sets
forth procedures to be followed in any audit of financial statements
required under the Securities Exchange Act of 1934.
5. Discuss the scope of the annual audit and review the form of the
opinion the independent auditor proposes to issue.
6. Review and discuss with management and the independent auditor the
responsibilities, budget, and staffing of the Company's internal audit
function, if any.
Legal Compliance/General
7. Review periodically, with the Company's General Counsel, and outside
legal counsel, if appropriate, any legal matter that could have a
significant impact on the Company's financial statements.
8. Discuss with management and the independent auditor the Company's
guidelines and policies with respect to risk assessment and risk
management. The Committee will discuss the Company's major financial
risk exposures and the steps management has taken to monitor and
control such exposures.
9. Set clear hiring policies for employees or former employees of the
independent auditor. At a minimum, these policies should provide that
any accounting firm may not provide audit services to the Company if
the Chief Executive Officer, Chief Financial Officer, Chief Accounting
Officer, Controller, or any person serving in an equivalent position
for the Company was employed by the accounting firm and participated in
any capacity in the audit of the Company within one year of the
initiation of the current audit.
10. Establish procedures for (i) the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal
accounting controls, or auditing matters; and (ii) the confidential,
anonymous submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
11. Unless assigned to a comparable committee or group of independent
directors, review and approve all related party transactions as
specified in Item 404 of Regulation S-K.
12. Review and reassess the adequacy of this Charter on an annual basis.
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Reports
13. Prepare all reports required to be included in the Company's proxy
statement pursuant to and in accordance with applicable rules and
regulations of the SEC.
14. Report regularly to the full Board of Directors. In this regard, the
Committee should review with the full Board any issues that arise with
respect to the quality or integrity of the Company's financial
statements, the Company's compliance with legal or regulatory
requirements, the performance and independence of the Company's
independent auditor, and the performance of the internal audit
function, if any.
15. The Committee shall provide such recommendations as the Committee may
deem appropriate. The report to the Board of Directors may take the
form of an oral report by the Chairman or any other member of the
Committee designated by the Committee to make such report.
16. Maintain minutes or other records of meetings and activities of the
Committee.
LIMITATION OF AUDIT COMMITTEE'S ROLE
With respect to the foregoing responsibilities and processes, the
Committee recognizes that the Company's financial management, including the
internal audit staff, if any, as well as the independent auditor have more time,
knowledge, and detailed information regarding the Company than do Committee
members. Consequently, in discharging its oversight responsibilities, the
Committee will not provide or be deemed to provide any expertise or special
assurance as to the Company's financial statements or any professional
certification as to the independent auditors' work.
While the Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Committee to plan or conduct audits or
to determine that the Company's financial statements and disclosures are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. These are the responsibilities
of management and the independent auditor. It also is not the duty of the
Committee to conduct investigations or to assure compliance with laws and
regulations and the Company's internal policies and procedures.
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