AUDIT COMMITTEE CHARTER
OF
NF ENERGY SAVING CORPORATION
 
Purpose
 
The Audit Committee is appointed by the Board of Directors (“Board”) of NF
Energy Saving Corporation (“Company”) to assist the Board in fulfilling its
oversight responsibility for monitoring (1) the integrity of the Company’s
accounting and financial reporting and its systems of internal controls, (2) the
performance, qualifications and independence of the Company’s independent
auditors, and (3) the Company’s compliance with legal and regulatory
requirements.
 
The Audit Committee shall prepare the report required by the rules of the
Securities and Exchange Commission (“Commission”) to be included in the
Company’s annual proxy statement.
 
Committee Membership
 
The Audit Committee shall consist of no fewer than three members, absent a
temporary vacancy. Notwithstanding the foregoing, for such time as the Company
qualifies as a “Smaller Reporting Company” as defined in Regulation S-K, Item
10(f)(1), the Audit Committee need only consist of no fewer than two members.
 
The members of the Audit Committee shall meet the independence and experience
requirements of the NYSE AMEX, Section 10A(m)(3) of the Securities Exchange Act
of 1934 (“Exchange Act”) and the rules and regulations of the
Commission.  Notwithstanding the foregoing, membership of the Audit Committee
will comply with the credential requirements of applicable law, regulation and
listing requirements, as applicable to the Company from time to time.
 
At a minimum, the members of the Audit Committee shall meet the following
requirements: (i) satisfies the independence standards specified in Section 803A
of the NYSE AMEX Rules (see attached Annex A) and Rule 10A-3 under the
Securities Exchange Act of 1934; (ii) must not have participated in the
preparation of the financial statements of the issuer or any current subsidiary
of the issuer at any time during the past three years; and (iii) is able to read
and understand fundamental financial statements, including a company's balance
sheet, income statement, and cash flow statement.
 
The Board of Directors will assess and certify that it has, and will continue to
have, at least one member of the audit committee who is financially
sophisticated, in that he or she has 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 but not limited to being or having been a chief
executive officer, chief financial officer, other senior officer with financial
oversight responsibilities. A director who qualifies as an audit committee
financial expert under Items 407(d)(5)(ii) and (iii) of Regulation S-K is
presumed to qualify as financially sophisticated.
 
 
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The Board of Directors will assess and determine the qualifications of the Audit
Committee members. The members of the Audit Committee shall be appointed by the
Board, and may be replaced by the Board.
 
The Board of Directors shall select the Audit Committee Chair. If a Chair is not
designated or present, a Chair may be designated by a majority vote of the Audit
Committee members present.
 
Director’s compensation is the only compensation which members of the Audit
Committee may receive from the Company.
 
Meetings and Procedures
 
The Audit Committee shall meet at least quarterly and more frequently as
circumstances dictate.  The Audit Committee shall meet periodically with
management and the independent auditor in separate executive sessions. The Audit
Committee may request any officer or employee of the Company or the Company’s
outside counsel or independent auditor to attend a meeting of the Audit
Committee or to meet with any members of, or consultants to, the Audit
Committee.
 
The Committee will keep written minutes of its meetings, which minutes will be
maintained with the books and records of the Company. The Committee will provide
the Board with regular reports of its activities.
 
The Audit Committee shall review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval. The Audit
Committee annually shall review the Audit Committee’s own performance.
 
The Committee may form subcommittees for any purpose that the Committee deems
appropriate and may delegate to such subcommittees such power and authority as
the Committee deems appropriate. The Committee will not delegate to a
subcommittee any power or authority required by any law, regulation or listing
standards to be exercised by the Committee as a whole.
 
Committee Authority and Responsibilities
 
The primary responsibility of the Committee is to oversee the Company’s
financial controls and reporting processes on behalf of the Board and report the
results of its activities to the Board.  The Audit Committee recognizes that the
Company’s management is responsible for the completeness and accuracy of the
Company’s financial statements and disclosures and for maintaining effective
internal controls. The Committee also realizes that the independent auditor is
responsible for auditing the Company’s financial statements. Accordingly,
management and the independent auditor have more knowledge and more detailed
information about the Company than do Audit Committee members and the Audit
Committee’s primary responsibility is oversight. In carrying out its oversight
responsibilities, the Audit Committee will rely, in part, on the expertise of
management and the independent auditor. The Committee should take the
appropriate actions to set the overall corporate “tone” for quality financial
reporting, sound business risk practices, and ethical behavior.
 
 
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The Audit Committee shall have the authority, to the extent it deems necessary
or appropriate, to retain independent legal, accounting or other advisors. The
Company shall provide for appropriate funding, as determined by the Audit
Committee, for payment of compensation to (i) the independent auditor for the
purpose of rendering or issuing an audit report and (ii) any advisors (including
counsel) employed by the Audit Committee.
 
The following shall be the principal recurring processes of the Committee in
carrying out its oversight responsibilities. The Committee may perform such
other duties and responsibilities as are consistent with its purpose and as the
Board or the Committee deems appropriate.
 
Financial Reporting and Internal Controls
 
Review of Annual Audited Financial Statements.  The Committee shall review with
management and the independent auditors the financial statements to be included
in the Company’s Annual Report to be filed with the Securities and Exchange
Commission (or the annual report to shareholders if distributed prior to the
filing of the Annual Report with the Securities and Exchange Commission). The
Committee will review the (a) quality, not just acceptability, of the Company’s
accounting principles, including significant financial reporting issues and
judgments made in connection with the preparation of the financial statements
including alternative methods for presenting financial information that have
been discussed with management, the impact of the use of the alternative
methods, the methods preferred by management and all material written
communications between the independent auditor and management; (b) the clarity
and adequacy of disclosures in the financial statements; and the Company’s
disclosures under Management’s Discussion and Analysis of Financial Condition
and Results of Operations, including the critical accounting policies; and (c)
major issues regarding the adequacy of internal controls and steps taken in
light of material deficiencies (if any were noted).
 
The Committee will discuss the results of the annual audit and any difficulties
the independent auditors encountered in the course of their audit work,
including any restrictions on the scope of the auditors’ activities or access to
requested information, and any significant disagreements with management. The
Committee will also discuss any other matters required to be communicated to the
Committee by the independent auditors under generally accepted auditing
standards, and the annual report on controls by the Chief Executive Officer and
the Chief Accounting Officer, as received by the independent auditors.
 
Based on these reviews and the discussions with management and the independent
auditors, the Committee will make a recommendation to the Board whether the
audited financial statements should be included in the Company’s Annual Report
to be filed with the Securities and Exchange Commission.
 
 
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Review of Interim Financial Statements; Earnings Releases.  The Committee shall
review the interim financial statements, and the Company’s disclosures under
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, with management and the independent auditors prior to the filing of
any Company quarterly report. The Committee shall also review any other report
to be filed with the Securities and Exchange Commission that includes financial
disclosures prior to its filing. The Committee will discuss with management any
proposed release of earnings or guidance information, and financial information
and earnings guidance provided to analysts and rating agencies. The Committee
will 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.
 
Risk Assessment and Risk Management.  The Audit Committee shall review with
management and independent auditors the Company’s policies for assessing and
managing financial risk and the actual risk exposure of the Company.
 
Internal Controls, Disclosure Controls and Procedures.  The Audit Committee
shall review with management and the independent auditors the Company’s policies
and procedures for maintaining the adequacy and effectiveness of internal
controls and disclosure controls procedures. As part of this effort, the
Committee will inquire of management and the independent auditor about controls
management has implemented to minimize significant risks to the Company and the
effectiveness of these controls. The Committee will review the quarterly
assessments of such controls and procedures by the Chief Executive Officer and
Chief Accounting Officer.
 
The Committee will also review with management and the independent auditor the
effect on the Company’s financial statements of regulatory and accounting
initiatives and off balance sheet structures.
 
Independent Auditors
 
The Audit Committee shall have the sole authority to appoint or replace the
independent auditor. The Audit Committee shall be directly responsible for
determining the compensation and oversight of the work of the independent
auditor (including resolution of disagreements between management and the
independent auditor regarding financial reporting) for the purpose of preparing
or issuing an audit report or related work. The independent auditor shall report
directly to the Audit Committee.
 
The Committee shall review the auditors’ independence from management and the
Company, including whether the auditors’ performance of permissible non-audit
services is compatible with their independence. This process will include, as
least annually, the Committee’s review of the independent auditors’ internal
control procedures, any material issues raised by the most recent internal
quality-control review, or peer review, of the independent auditors, 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 independent auditors, and any steps taken to deal with any such issues; and
(to assess the auditors’ independence) all relationships between the independent
auditors and the Company.
 
 
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Annually, the Committee will review the qualifications and performance of the
Company’s current independent auditors and select the Company’s independent
auditors for the next year.
 
The Committee shall review with the independent auditors prior to the audit the
overall scope, planning and staffing of their audit. The Audit Committee shall
pre-approve all auditing services and permitted non-audit services to be
performed for the Company by its independent auditor, including the fees and
terms thereof (subject to the de minimus exceptions for non-audit services
described in Section 10A(i)(1)(B) of the Exchange Act which are approved by the
Audit Committee prior to the completion of the audit).
 
The Committee shall verify 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. The Committee shall
consider whether, in order to assure continuing auditor independence, it is
appropriate to adopt a policy of rotating the independent auditing firm on a
regular basis.
 
The Committee shall oversee the Company’s hiring of employees or former
employees of the independent auditor who participated in any capacity in the
audit of the Company.
 
Compliance with Legal and Regulatory Requirements
 
The Committee shall inquire and review with management the Company’s compliance
with applicable laws and regulations and, where applicable, recommend policies
and procedures for future compliance. The Committee shall review with management
and the independent auditor any correspondence with regulators or governmental
agencies and any published reports that raise material issues regarding the
Company’s financial statements or accounting policies. The Committee shall also
review with the Company’s General Counsel legal matters that may have a material
impact on the financial statements or the Company’s compliance policies
 
The Committee shall review and approve all related-party transactions.
 
The Committee shall establish procedures for the receipt, retention and
treatment of complaints received by the Company regarding accounting, internal
accounting controls or reports which raise material issues regarding the
Company’s financial statements or accounting policies.
 
Limitation of Audit Committee’s Role
 
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit 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.
 
 
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Annex A – Definition of Independent under Rule 803A of NYSE AMEX Rules.

[(2) "Independent director" means a person other than an executive officer or
employee of the company. No director qualifies as independent unless the
issuer's board of directors affirmatively determines that the director does not
have a relationship that would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director. In addition to the
requirements contained in this Section 803A, directors serving on audit
committees must also comply with the additional, more stringent requirements set
forth in Section 803B(2) below. The following is a non-exclusive list of persons
who shall not be considered independent:

(a) a director who is, or during the past three years was, employed by the
company, other than prior employment as an interim executive officer (provided
the interim employment did not last longer than one year) (See Commentary .08);

(b) a director who accepted or has an immediate family member who accepted any
compensation from the company in excess of $120,000 during any period of twelve
consecutive months within the three years preceding the determination of
independence, other than the following:

(i) compensation for board or board committee service,

(ii) compensation paid to an immediate family member who is an employee (other
than an executive officer) of the company,

(iii) compensation received for former service as an interim executive officer
(provided the interim employment did not last longer than one year) (See
Commentary .08), or

(iv) benefits under a tax-qualified retirement plan, or non-discretionary
compensation;

(c) a director who is an immediate family member of an individual who is, or at
any time during the past three years was, employed by the company as an
executive officer;

(d) a director who is, or has an immediate family member who is, a partner in,
or a controlling shareholder or an executive officer of, any organization to
which the company made, or from which the company received, payments (other than
those arising solely from investments in the company's securities or payments
under non-discretionary charitable contribution matching programs) that exceed
5% of the organization's consolidated gross revenues for that year, or $200,000,
whichever is more, in any of the most recent three fiscal years;
 
 
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(e) a director who is, or has an immediate family member who is, employed as an
executive officer of another entity where at any time during the most recent
three fiscal years any of the issuer's executive officers serve on the
compensation committee of such other entity; or

(f) a director who is, or has an immediate family member who is, a current
partner of the company's outside auditor, or was a partner or employee of the
company's outside auditor who worked on the company's audit at any time during
any of the past three years. ]

 
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