The purpose of the Audit Committee of the Board of Directors of Xponential, Inc. is to assist the Board of Directors in its oversight of financial accounting and reporting practices of the Company, the quality and integrity of the financial statements of the Company, the qualifications and independence of the Company's independent auditors, the performance of the Company's independent auditors and the Company's internal audit function and compliance with applicable legal, ethical and regulatory require¬ments and to prepare the report that the rules of the Securities and Exchange Commission require to be included in the Company's annual proxy statement. The primary responsibility of the Committee is to oversee the Company's financial reporting process on behalf of the Board of Directors and to report the results of its activities to the Board of Directors. It is not the responsibility of the Committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Management of the Company is responsible for preparing the Company's financial statements, and the independent auditors are responsible for auditing the Company's financial statements.
The Committee shall be comprised of at least three members, consisting solely of (a) “independent” directors as defined by the rules of The NASDAQ Stock Market and the Securities and Exchange Commission, (b) who have not participated in the preparation of the financial statements of the Company or any subsidiary of the Company at any time during the past three years, and (c) who are able to read and understand fundamental financial statements, including a balance sheet, an income statement, and a cash flow statement. Committee members may enhance their familiarity with finance and accounting by participating in educational programs. The Board of Directors may determine that at least one member of the Committee shall be an “audit committee financial expert” as defined by the rules of the Securities and Exchange Commission.
The members of the Committee will be appointed by the Board of Directors after taking into account the recommendations of the Nominating and Governance Committee. A member will serve until his or her successor is appointed, until his or her resignation from the Committee, until his or her position on the Committee is eliminated due to a reduction in the size of the Committee, until he or she is removed from the Committee by the Board of Directors, or until his or her service on the Board of Directors terminates. The chairperson of the Committee will be the member of the Committee appointed to serve in such capacity by the Board of Directors from time to time.
Except as otherwise determined by the Board of Directors, no member of the Committee will simultaneously serve on the audit committees of more than two other public companies.
Meetings and Reports
The Committee shall meet as frequently as the Committee deems necessary, but the Committee shall meet at least four times each year. Meetings of the Committee may be called by the chairperson of the Committee or otherwise as provided in the bylaws of the Company. The Committee shall report periodically to the Board of Directors regarding the Committee's activities, findings, conclusions and recommenda¬tions, including any material 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 auditors, and the performance of the internal audit function.
Responsibilities and Powers
The Committee's responsibilities shall include the following:
1. Independent Auditors. The Committee shall have the ultimate authority and responsibility to select, retain, evaluate and, where appropriate, replace the independent auditors and to submit the selection of independent auditors for ratification by the stockholders in any proxy statement; provided that the Committee may consult with the Company's senior management regarding these matters. With respect to the independent auditors, the Committee shall have the following additional specific responsibilities:
(a) Approve all of the terms of engagement of the independent auditors, including the audit services within the scope of the engagement, and the fees to be paid to the independent auditors and review the appointment of and fee arrangements with any other external auditors employed for other specific audit purposes.
(b) At least annually, obtain and review a report by the independent auditors describing: (a) the independent auditors' internal quality-control procedures, (b) any material issues raised by the most recent internal quality control review, or peer review, of the 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 firm, and (c) any steps taken by the independent auditors to address any issues described in subparagraph (b).
(c) Receive the written disclosures and confirmation from the independent auditors required by Independence Standards Board Standard No.1 (Independence Discussions with Audit Committees), as may be modified or supplemented from time to time, discuss with the independent auditors the independent auditors' independence, including actively engaging in a dialog with the independent auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent auditors, and take appropriate action in response to the independent auditors' report to satisfy itself of the independent auditors' independence.
(d) Periodically evaluate the independent auditors' qualifications, performance and independence and the experience and qualifications of the senior individuals assigned by the independent auditors to the Company's account, including the lead partner. This evaluation shall be based on a review of the report and the statement referred to above, as well as other factors deemed appropriate by the Committee. The evaluation shall also take into account the opinion of the Company's management and members of the Company's internal audit department. The Committee shall present the conclusions with respect to this evaluation to the full Board of Directors.
(e) Ensure the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law, and periodically consider whether the Company should regularly rotate its independent auditors.
(f) Initially establish and periodically review hiring policies for employees and former employees of the independent auditors, and periodically review a list of employees and former employees of the independent auditors hired by the Company and the positions for which they were hired.
2. Quarterly and Annual Financial Statements.
(a) Review each year the planned scope of the examination of the Company's financial statements by the independent auditors.
(b) Review with management and the independent auditors the quarterly financial statements to be included in each of the Company's Quarterly Reports on Form 10-QSB and upon completion of their audit, the annual financial statements to be included in the Company's Annual Report on Form 10-KSB, and the Company's disclosures under “Management's Discussion and Analysis of Financial Condition and Results of Operations.”
(c) Review any disclosures made to the Committee by the Company's chief executive officer and chief financial officer regarding any significant deficiencies in the design or operation of the Company's internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data, material weaknesses in the Company's internal controls and any fraud involving management or other employees who have a significant role in the Company's internal controls.
(d) Review and discuss with the independent auditors and management (a) the development, selection, application and disclosure of all critical accounting policies and practices used in the audited financial statements, (b) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditors, (c) other material written communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences, (d) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the Company's financial statements, and (e) any significant audit adjustments proposed by the independent auditors.
(e) Discuss with the independent auditors the matters required to be discussed by SAS 61 as may be modified or supplemented from time to time.
(f) Based on the review and discussions referred to in Sections A.3, B.2 and B.5, make a recommendation to the Board of Directors regarding inclusion of the audited financial statements in the Company's Annual Report on Form 10-KSB filed each year.
(g) Review any recommendations of the independent auditors resulting from the audit and monitor management's response in an effort to ensure that appropriate actions are taken.
(h) Review with the independent auditors any matter of significant disagreement between management and the independent auditors and any other problems or difficulties encountered during the course of the audit and management's response to such disagreements, problems or difficulties As part of this review, the Committee shall discuss with the independent auditors (a) any difficulties relating to any restrictions on the scope of the independent auditors' activities and (b) any difficulties relating to restrictions on the independent auditors' access to requested information. The Committee may also discuss with the independent auditors (a) any accounting adjustments that were noted or proposed by the independent auditors but that were “passed” by management as immaterial or otherwise, (b) any communications between the individuals assigned by the independent auditors to the Company's account and the independent auditors' national office relating to auditing or accounting issues presented by the engagement and
(c) any management letter or internal control letter of a material nature issued or proposed to be issued by the independent auditors to the Company and the Company's response to any such letter.
3. Non-Audit Services.
(a) Review and pre-approve all permitted non-audit services to be performed by the independent auditor.
(b) Establish policies and procedures for the engagement of the independent auditor to provide permitted non-audit services.
4. Internal Audit and Accounting.
(a) Monitor the staffing and competency of the internal audit department and significant changes in the duties and responsibilities of the internal audit department.
(b) Review the activities of the internal audit department, including the annual internal audit plan.
(c) Meet privately periodically (but at least three times each year) with the head of the Company's internal audit department to review the adequacy of the Company's internal controls, accounting policies and procedures, the internal audit function, and particular concerns of the Committee or the internal audit department.
(d) Meet privately periodically (but at least annually) with the independent auditors to review the adequacy of the Company's internal controls, accounting policies and procedures, the internal audit function (including responsibilities, budget and staffing), special audit steps adopted in light of material control deficiencies and particular concerns of the Committee or the independent auditors.
(e) Meet privately periodically (but at least annually) with management to review the adequacy of the Company's internal controls, accounting policies and procedures, the internal audit function, and particular concerns of the Committee or management.
(f) Review with management the status of tax returns and tax audits.
(g) Review expense account reimbursements of the Company's executive officers.
5. Risk Assessment and Risk Management.
(a) Periodically discuss with management the guidelines and policies that govern the process by which the Company assesses and manages risk.
(b) Periodically discuss with management the Company's major financial risk exposures and the steps that management has taken to assess, monitor and control such exposures.
6. Business Conduct and Ethics.
(a) Monitor the Company's policies and procedures regarding compliance with the Foreign Corrupt Practices Act.
(b) Monitor compliance with the Company's Code of Business Conduct and Ethics by the employees of the Company.
7. Special Investigations.
(a) Direct any special investigations concerning matters relating to the Company's financial statements, internal controls, compliance with applicable laws or business ethics.
(b) Initially establish and periodically review procedures for (a) the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters, and (b) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
8. Use of Advisors. In the course of fulfilling its duties, the Committee has authority to retain its own independent legal, accounting and other advisors in its sole discretion, including sole authority to approve the fees and other retention terms of any advisor and to terminate such advisor.
(a) Review and assess the adequacy of this Charter on at least an annual basis.
(b) As required under the rules of the Securities and Exchange Commission, provide an Audit Committee Report to be included in the Company's annual proxy statement which:
(1) states whether the Committee has reviewed and discussed with management the Company's audited financial statements,
(2) states whether the Committee has discussed with the independent auditors the matters required to be discussed by SAS 61,
(3) states whether the Committee has received the written disclosures in the letter from the independent auditors required by Independence Standards Board Standard No. 1 and discussed with the independent auditors the independent auditors' independence,
(4) states whether the Committee has recommended to the Board of Directors that the audited financial statements be included in the Company's Annual Report on Form 10-KSB for the last fiscal year for filing with the Securities and Exchange Commission,
(5) states whether the Committee has approved each engagement of the independent auditors to perform non-audit services requiring the Committee's approval under the Company's Policy Regarding Non-Audit Services, and
(6) states whether the Committee has considered whether the provision of non-audit services is compatible with the independent auditors' independence and satisfied itself as to the independence of the independent auditors.
(c) Periodically discuss with management the types of information to be disclosed in the Company's earnings releases, including the use of non-GAAP financial measures, and the manner in which this information will be presented.
(d) Discuss with management and the independent auditors the quarterly and annual reported earnings of the Company prior to the release of this information to the public and discuss the results of the quarterly review and any other matters required to be communicated to the Committee by the independent auditors under generally accepted auditing standards. The Chairman of the Committee may represent the entire Committee for the purposes of these discussions and reviews.
(e) Periodically discuss with management the types of financial information and earnings guidance to be disclosed to analysts and, if applicable, rating agencies, and the manner in which this information will be presented.
(f) Monitor any litigation involving the Company which may have a material financial impact on the Company or relate to matters entrusted to the Committee.
(g) The Committee shall be available at all times to receive reports, suggestions, questions or recommendations relating to the matters for which it has responsibility from the independent auditors, the internal audit department, or management personnel.
The Committee will evaluate its performance on an annual basis.