STATEMENT ON CORPORATE GOVERNANCE 6-11 AUDIT COMMITTEE REPORT AUDIT COMMITTEE REPORT -TERMS OF REFERENCE 14-16

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2 CONTENTS CORPORATE INFORMATION 2 DIRECTORS STATEMENT 3-4 DIRECTOR S PROFILE 5 STATEMENT ON CORPORATE GOVERNANCE 6-11 AUDIT COMMITTEE REPORT AUDIT COMMITTEE REPORT -TERMS OF REFERENCE STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL CORPORATE SOCIAL RESPONSIBILITY (CSR) STATEMENT 20 STATEMENT ON DIRECTORS RESPONSIBILITY 21 FINANCIAL STATEMENTS LIST OF PROPERTIES STATEMENT OF SHAREHOLDINGS STATEMENT OF WARRANT B (2008/2018) HOLDINGS NOTICE OF ANNUAL GENERAL MEETING STATEMENT ACCOMPANYING NOTICE OF 89 ANNUAL GENERAL MEETING PROXY FORM

3 CORPORATE INFORMATION BOARD OF DIRECTORS Teo Kiew Leong John Lee Yan John Lee Tan Kok Chor Michael Moo Kai Wah (Executive Director) (Independent Non-Executive Director) (Independent Non-Executive Director) (Independent Non-Executive Director) AUDIT COMMITTEE Chairman Tan Kok Chor (Independent Non-Executive Director ) Member John Lee Yan John Lee (Independent Non-Executive Director) Member Michael Moo Kai Wah (Independent Non-Executive Director) COMPANY SECRETARIES Chin Siew Kim (L.S ) Chin Chee Kee (MIA 3040) REGISTERED OFFICE 1st & 2nd Floor, Victoria Point, Jalan OKK Awang Besar, 87007, W.P. Labuan Tel : Fax : REGISTRAR Labuan Corporate Services Sdn Bhd 1st & 2nd Floor, Victoria Point, Jalan OKK Awang Besar, 87007, W.P. Labuan Tel : Fax : AUDITORS STYL Associates (AF-1929) Chartered Accountants 107-B, Jalan Aminuddin Baki Taman Tun Dr. Ismail, Kuala Lumpur PRINCIPAL BANKERS Alliance Bank Malaysia Berhad (88103-W) Hong Leong Bank Berhad (97141-X) HSBC Bank Malaysia Berhad ( V) Malayan Banking Berhad ( 3813-K) RHB Bank Berhad (6171-M) Standard Chartered Bank Malaysia Berhad ( P) Hong Leong Investment Bank Berhad (10209-W) SOLICITORS Jie Nyuk Choo & Co. J. Ambrose & Partners S. Vanugopal & Partners STOCK EXCHANGE LISTING Main Market Bursa Malaysia Securities Berhad Stock Name : BORNOIL Stock Code : 7036 WEBSITE 2 ANNUAL REPORT 2014

4 DIRECTORS STATEMENT Dear Shareholders, On behalf of the Board of Directors, I have pleasure to present herewith the Annual Report of Borneo Oil Berhad and the Group for the financial year ended 31 January, I believe most of you would have read our recent announcements made to Bursa Malaysia Securities Berhad on the Company s corporate proposals involving par value reduction of its existing ordinary share of RM1.00 each, private placement and diversifi cation to other core businesses. The details of the corporate proposals and their rationales were as stated in the said announcements. As at the date of this Annual Report, the necessary application which had since been made to the relevant authorities through our Corporate Adviser, RHB Investment Bank Berhad, is now pending their approvals. The success of which will mark the beginning of the Company s new milestone in the corporate era which would eventually place it and the Group in a much stronger fi nancial footing and overall profi tability in the future. To be able to reach this far, I would like to take this opportunity to humbly express my heartfelt thanks to all my fellow directors and management team for their continuing efforts and commitments as well as the relevant government agencies and authorities, bankers, suppliers, franchisees, experts, auditors, advisors and all others who have one way or another given their support and guidances. Gold Mining Division With the new venture into gold and related mining activities, the Board is optimistic that, barring any unforeseen circumstances, it will positively contribute to the Group s overall profi tability in the future.the Company s rationale for entering into gold mining is based on its strong belief that precious metals will eventually be a benchmark for value and collateral against pump priming activities of governments all over the world. This is on the premise that the physical gold holding in the world, based on 2013 statistic of 170,000 metric tons, represents only less than 30% of the US Federal Reserve Debt alone, which is now standing at over US$17 trillion, not taking into account the total debt of the European Union. It is thus the Company s belief that gold will become more and more a prominent feature in determining values and collaterals in the near future.the entry by the Group s mining division into gold mining is by way of an operator agreement through an exclusive sub-contract with Champmark Sdn Bhd on a hectares mining lease situated in the Merapoh Area, Pahang and registered under Perbadanan Kemajuan Negeri Pahang in an area known as Area 4-1 under mining lease ML 08/2008. Champmark Sdn Bhd, through its holding company Federal Mining Resources Ltd s consultant, Minarco Mine Consult conducted in January 2012 a mineral resources and site review which had estimated that there are both indicated and inferred resources of 4.02 tons of gold in the alluvial. As for Hard Rock Resources, the internal studies by Professor Li Sezhuan of Champmark Sdn Bhd had estimated a potential of 30 tons of both indicated and inferred gold reserve. We are currently in the process of conducting exploration drilling under JORC s compliant standards to verify the results before deciding on the processing methods and design of the plants for the next phase in the mining operations. Apart from area 4-1,there are 6 other mining leases awaiting approval from the relevant authorities. Since the division s entry into gold mining activity, a total of 187,255 tons of alluvial has been processed in which kg of gold has been recovered. During this short period, the Company has experimented with various methods of recovering alluvial gold. The fi rst phase of plants and equipments were installed in early June 2014 and they are now in the commissioning stage. The Company had also conducted an in depth research into the recovery of gold from the existing tailings, standing at almost 900,000 tons as at June The designing of a suitable and effective process to recover more gold from the same is now in its fi nal stage. This new process is expected to be implemented by the end of In order to mitigate various risks inherent in the gold mining industry, the Group will among others, employ more relevant personnels experienced in this fi eld as well as to leverage on the technical expertise and experience of Champmark Sdn Bhd s geologists by working closely with them in the area of exploration and matters related to it. The next 12 to 36 months will be an exciting time for the mining division. ANNUAL REPORT

5 DIRECTORS STATEMENT Franchise Division The Group s Fast Food and Franchise division continued to perform remarkably well. As I had mentioned in the previous Annual Report for the year ended 31 January, 2013, the total number of outlets then was 62, out of which 6 were overseas. But as at now, we have a total of 72 outlets, out of which 11 are overseas while an additional 17 new outlets are in the midst of opening. Recently we have signed up Area Franchisees for the states of Johor and Sabah in Malaysia, while overseas we have signed up for West Kalimantan, City of Jakarta and Medan respectively in Indonesia. Under the terms of the Area Franchise agreements, the franchisees are committed to open minimum 20 outlets under their fi rst term of 5 years. This continuing achievement was due largely to our proven established business models, consistent research and innovation by our R&D team in introducing creative and quality foods that could cater to all ages and range of customers. The good relationship and close rapport our franchising, marketing and servicing teams have with our valued franchisees, who constantly gave their feedbacks and supports further contributed to it. Oil & Gas Division Property & Management In the case of our Oil, Gas & Energy related division, it had positioned itself to focus on renewable energy, bio-fuel and activities related to the same. In pursuing this, the division had participated in the implementation of bio-diesel storage tanks in anticipation of the government s move into compulsory usage of 5% Palm Oil Methyl Ethylene (POME) on diesel which will be on sale to all end users in all the petrol stations throughout Malaysia. Shell International s subsidiary company, Shell Timur Sdn Bhd, had recently awarded the Company with a contract for the engineering, procurement, construction and commissioning of 2 POME storage tanks facilities in Kuala Baram and Labuan respectively. Should the division perform well, there is a strong possibility that more similar contracts will be awarded to our Company as there are plans by the government to get all the oil majors to build storage tanks all over the country to support its bio-diesel roll out plan by the end of In addition to the above, the division is actively following up on an in depth research with Frontier Bio-fractions LLC over the past few years on its vertrolysis process which converts palm oil wastes and biomass by-products to bio-fuel, bio-char and bio-gas. A pilot plant is now in operation in Holyoke, Massachusetts, USA. The division will make further studies and researches before deciding in the very near future on the next course of action as to whether it will enter into any role in this process. While all the above divisions of the Group are actively involved in their respective activities, our Property and Management division performed equally well as planned during the year and is expected to improve further in the future. On behalf of the Board, I would like to thank once again all those that I have mentioned above, our loyal and dedicated employees and most of all, to all our shareholders who have been with us throughout. It is our sincere wish that all of you will be rewarded for your support, loyalty and patience in the near future. We assure you that the Board and our management team will continue with our commitments and efforts to work diligently to further strengthen the fi nancial stability and profi tability of the Company and the Group. My sincere thanks to all of you. Teo Kiew Leong Executive Director 4 ANNUAL REPORT 2014

6 DIRECTOR S PROFILE Raymond Teo Kiew Leong Executive Director Raymond Teo Kiew Leong, aged 49, obtained his college education at Graphic Design & Photography, Regent Fine Art & Design Academy, Kuala Lumpur. He has been with the Group since Through his commitment and dedication, he progressed to become the head of the Graphic Department. With his active involvement and contribution in restaurant development, he was subsequently promoted as the Regional General Manager in 2003, to implement the same concept in Sarawak and West Malaysia. He has worked closely with Marketing, Operations, Processing and Distribution within the Group towards achieving the Company s goals and aspirations. In June 2005, he was appointed as a General Manager for SB Franchise Management Sdn Bhd to oversee all existing franchised restaurants and new development of Sugar Bun of franchised restaurants locally and also overseas. He is now an Executive Director in Borneo Oil Berhad responsible for the overall running of the Group s fast food, restaurant and franchising division. Tan Kok Chor Independent Non-Executive Director Tan Kok Chor, aged 64, was appointed to the Board of Borneo Oil Berhad on 21st August He has more than 5 years experience in legal line which involved litigation, conveyancing and preparing legal documentation and related matters. He is also a very experienced businessman involved in property investment. He holds various directorships in several other private limited companies, incorporated in Malaysia. Michael Moo Kai Wah Independent Non-Executive Director Michael Moo Kai Wah, aged 62, is a Non Executive Director appointed to the Board of Borneo Oil Berhad on 15th January He obtained his college education at the University of Huddersfi eld, United Kingdom in 1977 in Business Studies. He had more than 10 years working experience in the United Kingdom and in Malaysia in accounting, tax, audit and secretarial matters. He is also actively involved in his alma mater as board treasurer for the past 9 years. John Lee Yan John Lee Independent Non-Executive Director John Lee Yan John Lee, 44, obtained his Diploma in Music Production and Engineering at the Fullsail Centre of Arts in Orlando, USA in Throughout his career, he has garnered vast experience in the music and entertainment industry. Having joined the Southern Pacifi c Hotel Group in 1991, he immediately made an impact on the industry by introducing creative events to assist the Parkroyal Chain of hotels. The hotel transformed and became known for its continuous party-fever events. Having spent nearly a decade in various Asian Clubs and resorts, he then joined ASTRO as Hitz FM s Music Director/ Announcer in In 2001 he was commissioned by Warner Music Asia as a music producer. John Lee Yan John Lee is currently an Independent Non-Executive Director of the Company. ANNUAL REPORT

7 STATEMENT ON CORPORATE GOVERNANCE The Board of Directors of Borneo Oil Berhad acknowledges that good corporate governance is vital to uphold business integrity and to sustain the performance and profi tability of the Group s business operations. In this context, the Board strives to ensure that the principles and best practices on structures and processes as set out in the Malaysian Code of Corporate Governance are practiced throughout the Group as a fundamental part of discharging its responsibilities to protect and enhance shareholder value and fi nancial performance of the Group. The Board is pleased to present to the shareholders the following statement on corporate governance and the extent of compliance with the best practices of the Malaysian Code On Corporate Governance pursuant to Paragraph of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad throughout the fi nancial year ended 31 January THE BOARD OF DIRECTORS 1.1 Roles and responsibilities The Board is led and managed by experienced Directors with a wide range of expertise. The Board is responsible for the Company in achieving the highest level of business conduct. Its duties and responsibilities include, amongst others, the following : The roles and functions of the Board including the executive and non-executive Directors are clearly defi ned in the Board Charter which regulates how business is to be conducted by the Board in accordance with the principles of good Corporate Governance. 1.2 Board composition and balance The composition of the Board together bring a balance of skills and a wealth of experience to effectively lead and manage the Company. The presence of the Independent Non-executive Directors fulfi ll a pivotal role in corporate accountability as they provide unbiased and independent judgement, advice and views. For the fi nancial year ended 31 January 2014, the Board has four(4) members comprising : The Board composition complies with Chapter of the Listing Requirements which require a minimum of 2 or 1/3 of the Board to be independent directors. A brief profi le of each director is presented on page 5 of this Annual Report. 1.3 Board Meetings The Board meets at quarterly intervals and on other occasions, as and when necessary, to inter-alia approve on quarterly results, fi nancial statements, the annual report as well as to review the performance of the Group and other business development and corporate activities. For the Board to deliberate effectively on agenda of meetings, relevant meeting papers or proposals will be furnished prior to and in advance of each meeting. This enables the Board to study the facts and have productive discussion and make informed decision at the meeting. Minutes of proceedings and resolutions passed at each Board and Board Committees Meetings are kept in the minutes book at the registered offi ce of the Company. In the event of a potential confl ict of interest, the Director in such position will make a declaration to that effect as soon as practicable. The Director concerned will then abstain from any decision-making process in which he has an interest in. During the fi nancial year under review, fi ve (5) Board meetings were held. Details of the attendance of the Directors at the Board Meetings are disclosed in their respective personal profi les set out as follows:- 6 ANNUAL REPORT 2014

8 STATEMENT ON CORPORATE GOVERNANCE 1.THE BOARD OF DIRECTORS (cont d) 1.3 Board Meetings (cont d) Directors No.of meetings attended Teo Kiew Leong 1 out of 5 John Lee Yan John Lee 5 out of 5 Tan Kok Chor 4 out of 5 Michael Moo Kai Wah 5 out of 5 The Board is satisfi ed with the level of time commitment given by the Directors towards fulfi lling their duties and responsibilities as Directors of the Company. This is evidenced by their attendance at the Board and various Board Committees meetings held during the year. 1.4 Directors Training The Board fully supports the need for its members to further enhance their skills and knowledge on relevant new laws and regulations and changing commercial risk to keep abreast with the developments in the economy, industry, technology and the changing business environment within which the Group operates. All the Directors have completed the Mandatory Accreditation Programme and Continuing Education Programme ( CEP ) as required by Bursa Malaysia Securities Berhad. The Directors are mindful that they should receive continuous training in order to broaden their perspectives and equip them with the necessary skills to effectively discharge their duties as Directors of the Company. 1.5 Supply Of Information to the Board The Board members were presented with comprehensive information concerning the performance and fi nancial status of the Company at the Board Meetings. Each Director was provided with an agenda and a full set of the Board papers prior to Board Meetings. This is issued in suffi cient time to enable the Directors to prepare and deliberate on the issues prior to the meeting. Senior management members are also invited to attend Board Meetings to provide the Board with their views and explanations on certain agenda items tabled to the Board, and to clarify on issues that have been raised by the Directors. All Directors have access to the advice and services of the Company Secretaries, who is responsible for ensuring that Board Meeting procedures are adhered to and that applicable rules and regulations are complied with. The Board is updated and advised by the Company Secretaries from time to time on new statutes and directives issued by the regulatory authorities. Where necessary, the Directors may engage independent professionals at the Group s expense on specialized issues to enable the Board to discharge their duties with adequate knowledge on the matters being deliberated. The proceedings and resolutions reached at each Board Meeting are recorded in the minutes of the meetings, which are kept in the Minutes Book at the Registered offi ce. Besides Board Meetings, the Board also exercise controls on matters that require Board s approval through circulation of Directors Resolutions. 1.6 The Board Committees To assist in the execution of its responsibilities, the Board has established a number of Board Committees. a. Audit Committee The Audit Committee reviews issues of accounting policy and presentation for external fi nancial reporting, monitors the work of the internal audit function and ensures an objective and professional relationship is maintained with the external auditors. The Committee has full access to the auditors both internally and externally who, in turn, have access at all times to the Chairman of the Committee. The Committee meets with the external auditors in the absence of management, at the start of each meeting except for the Company Secretaries. The report on the Audit Committee may be found on pages 12 to 16. ANNUAL REPORT

9 STATEMENT ON CORPORATE GOVERNANCE 1.THE BOARD OF DIRECTORS (cont d) 1.6 The Board Committees (cont d) b. Nominating Committee The Nominating Committee comprises of all 3 independent non-executive directors. The terms of reference of the Nominating Committee are as follows: i. To review regularly the Board structure, size and composition, and make recommendations to the Board with regard to any adjustments that are deemed necessary and to recommend Directors to Committees of the Board; ii. To be responsible for identifying and nominating candidates for the approval of the Board to fi ll Board vacancies as and when they arise; iii. To review the required mix of skills and to assess the effectiveness of the Board, Committees of the Board and contributions of Directors of the Board; iv. To review the balance between Executive and Non-Executive Directors and to ensure at least one third (1/3) of the Board is comprised of Independent Directors in compliance with the Listing Requirements; v. To recommend to the Board for the continuation (or not) in service of an Executive Director as an Executive or Non- Executive Director; vi. To recommend to the Board for the continuation (or not) in service of any Director who has reached the age of 70; vii. To recommend Directors who are retiring by rotation to be put forward for re-election ; and viii. To recommend to the Board the employment of the services of such advisers as it deems necessary to fulfi ll its responsibilities. During the year, upon its assessment, the Nominating Committee was satisfi ed and has recommended that : Moo Kai Wah who shall be retiring by rotation and have offered himself for re-election. decision making. The Committee meets as and when required and at least once a year. c. Remuneration Committee The Remuneration Committee is responsible for determining the level and make up of Executive Directors remuneration for Borneo Oil Berhad and its subsidiaries so as to ensure that the Group attracts and retains the Directors of the necessary caliber, experience and quality needed to run the Group successfully. 1.7 Appointment and Re-election of the Directors The procedures for appointments to the Board are formal and transparent. The Nominating Committee is responsible for making recommendations for any appointments to the Board by considering the mix of skills, knowledge, expertise and experience which the Director(s) brings to the Board. For the position of independent non-executive director, the Nominating Committee also evaluates the candidate s caliber, credibility and necessary skill and experience to being an independent judgement and endorsement. The Company s Articles of Association provide that all Directors who are appointed by the Board are subject to election by shareholders at the fi rst Annual General Meeting after their appointment. In accordance with the Company s Articles of Association, one third (1/3) of the directors shall retire from offi ce and be eligible for re-election at each Annual General Meeting. The Directors to retire in every year shall be those who have been longest in offi ce since their last election, but as between persons who become Directors on the same day those to retire(unless they otherwise agree among themselves) shall be determined by lot. Re-appointments are not automatic and all directors shall retire from offi ce at least once in every three(3) years but shall be eligible for re-election by shareholders in the Annual General Meeting. Pursuant to Section 129 of the Companies Act, 1965, Directors who are or over the age of seventy(70) years shall retire at every Annual General Meeting and may offer themselves for re-appointment to hold offi ce until the next Annual General Meeting. In accordance with Bursa Malaysia Securities Berhad Main Market Listing Requirements, each member of the Board holds not more than ten(10) directorships in public listed companies and not more than fi fteen(15) directorships in non-public listed companies. This ensures that the Board s commitment, resources and time are focused on the affairs of the Group to enable them to discharge their duties effectively 8 ANNUAL REPORT 2014

10 STATEMENT ON CORPORATE GOVERNANCE 1. THE BOARD OF DIRECTORS (cont d) 1.7 Appointment and Re-election of the Directors (cont d) The Directors who are due for re-election and/or re-appointment at the Annual General Meeting will fi rst be assessed by the Nominating Committee, which will then submit its recommendation to the Board for deliberation and endorsement. Thereafter, Shareholders approval will be sought for the re-election and/or re-appointment Audit Committee The objective of the Audit Committee is to assist the Board to review the adequacy and integrity of the Company s and the Group s internal control systems and management information systems. The composition, summary of activities and terms of reference of the Audit Committee can be found in the Audit Committee Report of this Annual Report. 2. DIRECTORS REMUNERATION a. Directors Remuneration The Board endeavours to ensure that the levels of remuneration offered for directors are suffi cient to attract and retain people needed to run the Group successfully. In the case of Executive Directors, the component parts of remuneration are structured to link rewards to corporate and individual performance. In the case of Non-Executive Directors, the level of remuneration refl ects the contribution and level of responsibilities undertaken by the particular non-executive concerned. The details of Directors remuneration payable to all the Directors of the Company during the fi nancial year ended 31 January 2014 are as follows :- Category of Directors Fees #Salary Bonus Benefi ts-in-kind Total RM RM RM RM RM Executive Director 96, , ,000 Non-Executive Directors 130, ,000 Total 226, , ,000 # The salary is inclusive of statutory employer s contribution to Employees Provident Fund The number of Directors whose total remuneration falls within the following bands for the fi nancial year ended 31 January 2014 is as follows : Number of Directors Executive Non-Executive Range of Remuneration Director Directors Below RM50,000-3 RM50,001 to RM100, RM100,001 to RM150, RM150,001 to RM200, b. Directors Continuing Development Recognising the ever increasing demands of their role, the Directors of the Company have continued to attend and participate in various programmes which they have individually or collectively considered as relevant for them to keep abreast with the changes in regulation and trends in the business practices, environment and markets. From time to time, the Board will be updated on the companies and securities legislations and other relevant rules and regulations at the Board meetings, in order to acquaint them with the latest developments in these areas. The Company Secretaries facilitate the participation of the Directors in the external training programmes. The Board is responsible for the overall corporate governance of the Group, including its strategic plan, overall management and business performance, management of principal risks and controls. It focuses mainly on the Group s responsibilities as follows: - identifying principal risks and ensuing the implementation of appropriate systems to manage these risks. - reviewing and adopting a strategic business plan for the Group. - overseeing the conduct of the Company s business to evaluate whether the business is being properly managed. ANNUAL REPORT

11 STATEMENT ON CORPORATE GOVERNANCE 3. INVESTOR RELATIONS AND SHAREHOLDER COMMUNICATION (i) Dialogue with Shareholders and Investors The Board acknowledges the need for shareholders to be informed of all material business matters affecting the Company. In addition to various announcements and disclosures made to Bursa Malaysia Securities Berhad during the fi nancial year under review, the timely release of fi nancial results on a quarterly basis provides shareholders with an overview of the Group s performance and operations. The Board has maintained an effective communication policy that enables the Board to convey information with regards to the Group s performance, corporate strategy and other matters that affect shareholders interests. The Company s website, also provide shareholders and the public quick access to corporate information, fi nancial statements, news and events relating to the Group. (ii) The Annual General Meeting The Annual General Meeting (AGM) represents the principal forum for dialogue with shareholders. Besides the usual agenda for the AGM, the Board encourages shareholders to participate through questions on the business activities of the Group. The Directors and external auditors are available to respond to questions from shareholders during the meeting. A full explanatory statement of the effects of the proposed resolutions will accompany each item of special business as mentioned in the notice of meeting. 4. ACCOUNTABILITY AND AUDIT (a) Financial Reporting In presenting the annual fi nancial statements and quarterly announcement of results to shareholders, the Directors aim to present a balanced and understandable assessment of the Group s position and prospects. The Directors consider that in preparing the fi nancial statements, the Group has used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates. All accounting standards which the Board considers to be applicable have been followed, and the fi nancial statements represent a true and fair assessment of the Company and the Group s fi nancial position. The Board vested responsibilities on the Audit Committee to ensure that the Company maintains proper accounting records, review and assess the accuracy and adequacy of all the information to be disclosed and ensure that the fi nancial statements are in compliance with the Companies Act, 1965, the Main Market Listing Requirements and applicable approved accounting standards in Malaysia. A statement by the Directors of their responsibilities for the fi nancial statements is incorporated within the Director s Report and Statement by Directors. (b) Related Party Transactions The Company practices an internal compliance framework in identifying and assessing related party transactions. The Board, through the Audit Committee reviews all related party transactions. A Director who has an interest in a transaction must abstain from deliberation and voting on the relevant resolution in respect of such transaction. (c ) Internal Control The Directors acknowledge their responsibility for the Group s system of internal controls, which is designed to identify and manage the risks facing the business in pursuit of its objectives. The system of internal control covers management and fi nancial risks, organizational, operational and compliance controls to safeguard shareholders investments and the Group s assets. This system, by its nature, can only provide reasonable and not absolute assurance against misstatement or loss. The Board undertakes ongoing reviews of the key operational and fi nancial risks facing the Group s businesses together with those areas relating to compliance with laws and regulations. The monitoring arrangements in place give reasonable assurance that the structure of controls and operation is appropriate to the Company s and the Group s situation and that there is an acceptable level of risk throughout the Group s businesses. The state of internal control within the Group and reports of the results are set out in the Statement on Risk Management and Internal Control. 10 ANNUAL REPORT 2014

12 STATEMENT ON CORPORATE GOVERNANCE 4. ACCOUNTABILITY AND AUDIT (cont d) ( d) Relationship with the Auditors The Audit Committee and the Board have established formal and transparent arrangements with the Company s external auditors to maintain appropriate relationship in seeking professional advice and ensuring compliance with the accounting standards and statutory requirements. The external auditors will from time to time highlight to the Audit Committee and the Board of Directors on matters that require the Board s attention. The Audit Committee had on certain meetings, met up with the external auditors without the presence of the Executive Directors and Management during the fi nancial year ended 31 January ADDITIONAL COMPLIANCE INFORMATION i. Share Buy-Back The Company had obtained its shareholders approval at the Extraordinary General Meeting to buy back shares of the Company. Treasury shares relate to ordinary shares of the Company that are held by the Company. The amount consists of the acquisition costs of treasury shares net of proceeds received on their subsequent sale or issuance. The Company acquired 420,000 (2013 Nil) shares in the Company through purchase from the open market during the fi nancial year. The total amount paid to acquire the shares was RM194,593 (2013-Nil) and this was presented as a component within shareholder s equity. The average cost paid for the shares repurchased during the fi nancial year was RM0.46 (2013-Nil) per share, including transaction costs, and the repurchase transactions were fi nanced by internally generated funds. The shares repurchased are being held as treasury shares. As at 31 January 2014, the Company has 420,000 (2013 Nil) ordinary shares held as treasury shares. ii. Options, Warrants or Convertible Securities The Company has not issued any options, warrants or convertible securities during the fi nancial year, other than the granting/exercise of options under the Employees; Share Option Scheme as disclosed in the Directors Report. The exercise period for the warrants 2008/2018 is ten years commencing from 29 February 2008 and expiring 28 February iii. American Depository Receipt (ADR) or Global Depository Receipt (GDR) Programme During the fi nancial year, the Group did not sponsor any ADR or GDR programme. iv. Non-Audit Fees The amount of Non-audit fees amounting to RM164, were paid to the external auditors for the services rendered in connection with the audit for the fi nancial year ended 31st January v. Profit Guarantees There were no profi t guarantees given by the Group during the fi nancial year ended 31 January vi. Variance in results There were no material variances of 10% or more in the profi t after tax and minority interest between the audited and unaudited results announced for the fi nancial year ended 31 January vii. Imposition of sanctions and penalties There were no sanctions or penalties imposed on the Company and its subsidiaries, directors or management by the relevant regulatory bodies during the fi nancial year ended 31 January COMPLIANCE TO THE CODE The Board of Directors of Borneo Oil Group is of the opinion that the Group is in compliance with the principles of and best practices in corporate governance throughout the fi nancial year ended 31 January ANNUAL REPORT

13 AUDIT COMMITTEE REPORT The Board of Directors of Borneo Oil Berhad is pleased to present the Audit Committee report for the fi nancial year ended 31st January 2014 in compliance with Paragraph of the Main Market Listing Requirement. COMPOSITION The Audit Committee was established in July 1999 to act as a committee for the Board of Directors. It comprises of 3 independent non-executive Directors as follows, in compliance with Paragraph 15.09(1)(a) of the Main Market Listing Requirement : Tan Kok Chor (Chairman) (Independent Non Executive Director) John Lee Yan John Lee (Member) (Independent Non Executive Director) Michael Moo Kai Wah (Member) (Independent Non Executive Director) OBJECTIVES The principal objectives of the Audit Committee are :- 1. to assist the Board of Directors in fulfi lling its fi duciary responsibilities by ensuring that the results of internal and external audit fi ndings are fully considered and properly resolved. 2. to ensure compliance with Paragraph 15, Part C of the Bursa Malaysia Securities Berhad ( BURSA ) Listing Requirements. 3. to ensure the independence of the External Auditors, the integrity of management and the adequacy of disclosures to shareholders. TERMS OF REFERENCE The Audit Committee is governed by the Terms of Reference as stipulated on pages 14 to 16 of the Annual Report. All the requirements under the Terms of Reference were fully complied with. MEETINGS During the fi nancial year under review, the Audit Committee held Four(4) meetings.the Meeting attendance record of the members are as follows : Name of Members No. of meetings attended Tan Kok Chor 4/4 John Lee Yan John Lee 4/4 Michael Moo Kai Wah 4/4 SUMMARY OF ACTIVITIES OF THE AUDIT COMMITTEE During the fi nancial year ended 31st January 2014, the Audit Committee undertook the following activities :- approval before the quarterly announcements to Bursa Malaysia Securities Berhad ( Bursa ) were made. signifi cant accounting and audit issues, impact of new or proposed changes in the accounting standards and any other regulatory requirements. he accounting issues arising from the audit of the Company s and of the Group s annual fi nancial results before submitting its recommendation to the Board for approval. 12 ANNUAL REPORT 2014

14 AUDIT COMMITTEE REPORT SUMMARY OF ACTIVITIES OF THE INTERNAL AUDIT FUNCTION The internal audit function is outsourced and independent of the operations of the Group. It provides reasonable assurance that the Group s system of internal control is satisfactory and operating effi ciently. The internal auditor adopts a risk based approach towards the planning and conduct of audits that are consistent with the Group s framework in designing, implementing and monitoring of its internal control system. Upon completion of the audits, the internal auditor is to closely monitor the implementation progress of the recommendations made in order to assure that Management has duly addressed all major risks and control issues. All audit reports on the results of work undertaken together with the recommended action plans and the implementation status were presented to the Management and the Committee. REVIEW OF SHARE OPTION SCHEME The Company s Employee Share Option scheme ( ESOS ) is governed by the by-laws approved by the shareholders at an Extraordinary General Meeting held on 28 December The ESOS was implemented on 28 February 2012 and is to be in force for a period of 5 years from the date of implementation, with extension of a further 5 years. The total number of shares to be issued under the ESOS shall not in aggregate exceed 15% of the issued and paid up share capital of the Company at any point of time during the tenure of the ESOS. Some of the main features are disclosed and explained in the fi nancial statements. ANNUAL REPORT

15 CONSTITUTION AUDIT COMMITTEE REPORT -TERMS OF REFERENCE The Audit Committee was formed by the Board pursuant to its meeting in July MEMBERSHIP The members of the Audit Committee shall be appointed by the Board from amongst their number and shall comprise no fewer than three(3) directors all of whom shall be Non-Executive Directors. The majority of the Audit Committee members shall be independent directors. An Independent Director shall be a director who fulfi ls the requirements as provided in the Bursa Malaysia Securities Berhad Main Market Listing Requirements. An alternate director shall not be appointed as a member of the Audit Committee. At least one(1) member of the Audit Committee must be : a. A member of the Malaysian Institute of Accountants (MIA) ; or b. If he/she is not a member of MIA, he/she must have at least three(3) years of working experience and ;- i. passed the examinations specifi ed in Part 1 of the First Schedule of the Accountants Act 1967 ; or ii. is a member of one of the associations of accountants specifi ed in Part II of the First Schedule of the Accountants Act 1967 ; and c. Fulfi lls such other requirements as prescribed or approved by Bursa Malaysia. The members of the Audit Committee shall elect a Chairman from amongst their number who shall be an independent Director. If a member of the Audit Committee resigns, dies, or for any reason ceases to be a member with the result that the number of members is reduced to below three(3), the Board shall within three(3) months of that event appoint such number of new members as may be required to fi ll the vacancy. The terms of offi ce and performance of the Audit Committee and each of its members shall be reviewed by the Board periodically to ensure their duties are carried out accordingly. MEETINGS To form a quorum, the majority of the members present must be Independent Directors and one of whom shall be the Chairman of the Audit Committee. The Audit Committee shall be able to convene meetings with the external and internal auditors or both without the presence of any other directors or employees whenever it deems necessary. The external and internal auditors have the right to appear and be heard at any meeting of the Audit Committee. The Company Secretary shall be the Secretary of the Audit Committee. Minutes of the meetings shall be duly entered in the books provided thereof. The Audit Committee normally meets four (4) times annually on a quarterly basis although additional meetings may be called at any time whenever necessary. Representatives from the internal auditors will attend the meetings, if required. Other Board members may attend the meeting upon invitation of the Audit Committee. Each Audit Committee member receives written reports and supporting information, including operating results, comprehensive review and analysis, at least one week ahead of the Audit Committee meeting. Prior to each meeting, the members are provided with an agenda and full set of Audit Committee papers for each agenda item to be discussed at the meeting. This is issued in suffi cient time to enable the members to obtain further explanations, where necessary, in order to be briefed properly before the meeting. AUTHORITY The Audit Committee is authorized by the Board to:- 1. investigate any activity within its terms of reference; 2. seek any information it requires from any employee and all employees are directed to cooperate with any request made by the Audit Committee; 3. communicate directly with the internal and external auditors, as well as the members of the top management on a continuous basis in order to be informed and updated with matters related to the Company; 4. obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary; 5. promptly report such matter to Bursa Malaysia Securities Berhad where the Audit Committee is of the view that the matter reported by it to the Board has not been satisfactorily resolved resulting in a breach of the Listing Requirements. 14 ANNUAL REPORT 2014

16 AUTHORITY AUDIT COMMITTEE REPORT -TERMS OF REFERENCE The Audit Committee is authorized by the Board to:- 1. investigate any activity within its terms of reference; 2. seek any information it requires from any employee and all employees are directed to cooperate with any request made by the Audit Committee; 3. communicate directly with the internal and external auditors, as well as the members of the top management on a continuous basis in order to be informed and updated with matters related to the Company; 4. obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary; 5. promptly report such matter to Bursa Malaysia Securities Berhad where the Audit Committee is of the view that the matter reported by it to the Board has not been satisfactorily resolved resulting in a breach of the Listing Requirements. DUTIES AND FUNCTIONS The duties and functions of the Audit Committee shall be :- 1. External Audit i. To Consider the appointment of the external auditors, the audit fee and any question in relation to resignation or dismissal of the external auditors before making recommendation to the Board. ii. To review and discuss with the external auditors, before the audit commences, the nature and scope of audit, and ensure coordination where more than one (1) audit fi rm is involved; iii. To discuss issues, problems and reservations arising from the interim and fi nal audit, and any matter the auditors may wish to discuss and ; iv. To review external auditors management letters and management s response. 2. Internal audit i. To review the adequacy of the scope, functions, competency and resources of the internal auditors, and that it has the necessary authority to carry out its work ; ii. To Review the internal audit programme, consider the major fi ndings of internal audits and Management s responses, and ensure coordination between the internal and external auditors. iii. To review the audit reports. iv. To direct and where appropriate supervise any special project or investigation considered necessary. v. To prepare periodic reports to the Board summarizing the work performed in fulfi lling the Audit Committee s primary responsibilities. vi. To determine the remit of internal audit function which reports directly to the Audit Committee. The internal audit function should be independent of the activities they audit and should be performed with impartiality, profi ciency and due professional care. 3. Financial Reporting Review To review with the management and the external auditors the quarterly results and year end fi nancial statements prior to the approval by the Board, focusing particularly on : (a) (b) (c) (d) (e) (f) (g) Any change in accounting policies and practices. Signifi cant and unusual events. Major judgmental areas. Signifi cant adjustments resulting from the audit. The going concern assumption. Compliance with accounting standards. Compliance with other legal requirements and the Main Market Listing Requirements. ANNUAL REPORT

17 DUTIES AND FUNCTIONS (Cont d) 4. Related Party Transactions To review any related party transaction and confl ict of interest situation that may arise in the Company including any transaction, procedure or course of conduct that raises the questions of management integrity. 5. Risk Management To review the adequacy and effectiveness of risk management practices and procedures as well as conducting risk profi ling reviews on the Company, on a quarterly basis. 6. Internal Control To keep under review the effectiveness of internal control systems and the internal and/or external auditors evaluation of these systems. 7. Other Matters AUDIT COMMITTEE REPORT -TERMS OF REFERENCE a) To arrange for periodic reports from Management, the external auditors and the internal auditors to assess the impact of signifi cant regulatory changes, and accounting or reporting developments proposed by accounting and other bodies, or any signifi cant matter that may have a bearing on the annual examination. b) To discuss problems and reservations arising from the internal audits, interim and fi nal audits, and matters whereby both the internal and external auditors may wish to discuss. c) To review the ESOS allocation to ensure that it is in compliance with the criteria as approved by the ESOS Committee and the By-laws. d) To consider the major fi ndings of internal investigation and the management s responses. e) To report to Bursa Malaysia Securities Berhad any breach of the Listing Requirements which has not been satisfactorily resolved. f) Carrying out any other functions that may be mutually agreed upon by the Audit Committee and the Board. REPORTING PROCEDURES The secretary shall circulate the minutes of meetings of the Audit Committee to all members of the Board. 16 ANNUAL REPORT 2014

18 STATEMENT ON RISK MANAGEMENT AND INTERNAL CONTROL (Pursuant to paragraph (b) of Bursa Malaysia Securities Main Market Listing Requirements and Practice Note No. 9 and as guided by the Statement on Internal Control : Guidance for Directors of Public Listed Companies) The Board of Directors of Borneo Oil Berhad is pleased to provide the following statement as a group for the fi nancial year ended 31 January During the year under review, Borneo Oil Berhad and its subsidiaries ( Group ) continued to enhance its system of internal control and risk management in order to better quantify its compliance with the Malaysian Code on Corporate Governance and Bursa Malaysia Securities Main Market Listing Requirements. Board Responsibility The Board acknowledges the importance of having an effective internal control system and a well structured risk management framework to safeguard the interest of shareholders, customers, employees and as well as the Group s assets. The Board understands its overall responsibility for establishing an effi cient and effective system of internal control covering not only fi nancial controls but also relating to operational, compliance and risk management and for reviewing the adequacy and integrity of the system. However due to the limitations that are inherent in any system of internal control, those systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. The Board has established an ongoing process for identifying, evaluating and managing the principal risks faced, or potentially exposed to, by the Group in pursuing its business objectives. The process is being continually monitored and reviewed for its adequacy and effectiveness to ensure it is in accordance with the Internal Control Guidance. The Group s system of internal control can be summarised as follows: 1. Risk Management framework The Board and management are proactive in identifying signifi cant risks associated with its business processes. The Risk Management committee coordinate the implementation of an enterprise-wide risk management programme for the Group. Several meetings were conducted to review and re-evaluate the risk profi les identifi ed by the respective business units within the Group as well as assessing the effectiveness of the controls in place to address those risks. 2. Internal Audit Function The Board acknowledges the importance of internal audit function and has in place an internal audit unit which reports directly to the Audit Committee on a quarterly basis. The internal audit function adopts a risk-based approach in developing its audit strategy and plan which focuses on identifying principal risks affecting the achievement of the Group s business objectives, assessing the likelihood and impact of these risks, evaluating the effectiveness of the existing controls in place and formulating action plans to improve the internal control system. During the year, scheduled internal audit visits were carried out by the internal audit unit based on the audit plan presented to and approved by the Audit Committee. On a quarterly basis, the internal auditors report to the Audit Committee on areas for improvement and will subsequently follow up to ensure that corrective actions on reported weaknesses are remedied within the required time frame by the Management of the respective subsidiaries. As part of the ongoing process, the Internal Auditor has conducted detailed risk audits on the following areas as identifi ed in the approved audit plan: (a) (b) (c) (d) (e) (f) (g) Review of business planning and strategic Management, Review of credit assessment, granting of credit limits and terms, Policies and procedures review on inventories management, Review of sales and marketing strategies and development, Review of cash sales monitoring recoverability, Review of human resource management, Policies and procedures Review on production planning and monitoring. ANNUAL REPORT