Tag: FLX

Falanx Group Limited (LON:FLX), the AIM listed provider of cyber security and strategic intelligence services, announced today that it has made changes to certain outstanding share options to reduce potential tax charges on both option holders and the Company.  

This will be achieved by the cancellation of certain existing share options which are unapproved from a UK tax perspective and the issue of an identical number under the Company’s EMI scheme with identical terms (including, but not limited to, exercise price, vesting criteria and expiry date).  This prospective change was referenced in the annual report for the year ended 31 March 2020.

The total number of options to be cancelled and then reissued is 29,119,200, representing 5.5% of issued capital as set out in the table below.  No options, other than those set out in the table below, are affected by this change. 

Holder	Number & (Scheme)	Issue Date	Old Exercise Price	New Exercise Price	Expiry Date (Original)	Expiry Date (Revised)
Mike Read (CEO)	5,000,000 (A)	25 September 2019	1.92p	1.92p	31 March 2030	31 March 2030
Mike Read (CEO)	6,600,000 (B)	21 April 2020	1.00p	1.00p	31 March 2030	31 March 2030
Ian Selby (CFO)	5,000,000 (A)	25 September 2019	1.92p	1.92p	31 March 2030	31 March 2030
Ian Selby (CFO)	2,520,000 (B)	21 April 2020	1.00p	1.00p	31 March 2030	31 March 2030
Rick Flood (PDMR)	5,000,000 (A)	25 September 2019	1.92p	1.92p	31 March 2030	31 March 2030
Rick Flood (PDMR)	4,999,200 (B)	21 April 2020	1.00p	1.00p	31 March 2030	31 March 2030

Following the cancellation and reissue the Falanx Group will continue to have 71.8m employee options outstanding representing 13.6% of issued capital. Of these 33.0m (6.3% of issued capital) were issued on 21 April 2020 by the direct and permanent sacrifice of salaries by Executives and other employees in response to the COVID-19 disruptions as announced at that time 

Scheme details and vesting criteria

There have been no changes to the vesting criteria in either scheme which remain as set out below

Scheme A (Options granted 25 September 2019)

The Options have an exercise price of 1.925 pence per Ordinary Share, being the closing mid-market price on 24 September 2019, and will vest:

·      33% of vest immediately (originally vested 25 September 2019).

·      33% of the total Options), provided that the share price of the Company exceeds 2.89 pence (50% share price growth over the Exercise Price) for a period of one calendar month; and

·      34% of the total Options), provided that the share price of the Company exceeds 3.85 pence (100% growth over the Exercise Price) for a period of one calendar month.

These options have accelerated vesting in certain customary scenarios.

Scheme B Salary (Salary Sacrifice Options granted 21 April 2020)

These were issued as part of a Group wide scheme which was open to all employees whereby cash remuneration was permanently waived in return for option grants to support the Group through the worst phase of the COVID-19 pandemic in 2020.  These options vest immediately (original vesting date 1 October 2020).  For reference a separate waiver of 25.7 million share options was also made by members of staff on that day, including waivers by staff who did not participate in the salary sacrifice scheme.

Falanx Group Limited (LON:FLX), the AIM listed provider of cyber security and strategic intelligence services, has announced today new contract wins and renewals alongside discussions in relation to the UK government backed Coronavirus Business Interruption Loan.

 
Cyber Security Division

The division has since November 2020 signed a further five new customers as well as an expansion to some existing contracts for Triarii, its enhanced cyber security monitoring service. The new customers span a range of sectors, namely charity, financial services, pharma, defence and IT – clearly illustrating the universal appeal of the Triarii offering. This has been achieved through a combination of direct and indirect sales including the SolarWinds and Trustmarque partnerships. In terms of service coverage, they include Triarii MDR, Managed EDR and Triarii for Sentinel – the Microsoft Azure-based service which was launched on 13 January 2021 and which was developed in partnership with Trustmarque, part of Capita plc.  Further details are on https://www.trustmarque.com/cyber-security/managed-detection-and-response-service/

The division has also maintained the strong performance of its penetration testing business, and this is materially above the pre-COVID-19 sales order run rate achieved this time last year.  Clients are from several sectors including insurance and construction, with one client signing a three year framework agreement worth approximately £180,000 in total.

In total the order value across all of these contracts is in excess of £700,000, of which approximately £400,000 will benefit the 2021 calendar year.  The order pipeline remains strong with similar prospective sales for both penetration testing and security monitoring.

Assynt Strategic Intelligence Division

The division has continued with its solid profitable performance which remains in line with management expectations. It has recently received a renewal for the provision of analysts from an existing client, one of the world’s largest technology companies, for £1.2m spread over the next three financial years. Further significant cyclical contract renewals from major corporations are expected to be received in the next few months, and it has a robust pipeline of opportunities from new and existing customers.

Potential Coronavirus Business Interruption Loan (“CBIL”) and Capital Reconstruction.

Falanx announces that it is in discussions with a specialist lender for the provision of a UK Government backed CBIL loan. This loan would enable the Group to make earnings enhancing acquisitions to enhance its core Cyber division, as well as supporting organic growth. To qualify for the CBIL the Company will be carrying out a capital reconstruction by reducing the share premium account, to decrease the deficit on retained earnings. The reduction of the deficit on retained earnings will, amongst other things, facilitate Falanx in making distributions to its shareholders at some point in the future. Under BVI law the reconstruction will require a change to the memorandum and articles of association and a general meeting will shortly be called in respect of this proposal.

Mike Read, Falanx Group Chief Executive, commented: “I am pleased with the continued contract momentum in both of our divisions.  Triarii is gaining further traction and recent sales of, and interest in, our Microsoft Sentinel service offering, which was only launched last month, validates our chosen strategy of channel partners and using third party leading technologies to deliver our services.  Customers in both divisions are increasing their commitments to us in terms of both quantum and duration and again, this underlies the value of our services to them.  We will look to progress the CBIL opportunity and will update the market at the appropriate time as we see this as a strategy which can further support equity growth by enabling earnings enhancing acqusitions.”

Falanx Group Limited (LON:FLX), the AIM listed provider of cyber security and strategic intelligence services, has announced a significant expansion of its cyber security service offerings.

In August 2020,  Falanx announced the launch of Triarii, its new Managed Detection and Response (“MDR”) service. Triarii uses a combination of both best-of-breed and enterprise-class external components whilst remaining technology-agnostic. This gives the Group the advantage of leveraging the most appropriate technologies to deliver the client solution whilst not being restricted to any one vendor. The initial launch of Triarii has been well received and interest continues to grow at pace. Consequently, our sales pipeline of opportunities continues to strengthen both in quantum and quality.

In line with this technology-agnostic approach, the Board is now pleased to announce that it has successfully piloted its Triarii service on Microsoft’s Azure Sentinel platform. ‘Triarii for Sentinel’ has been developed in collaboration with a strategic Microsoft partner in the UK public sector – where we have already established interest from within their client base. This service allows Falanx to target a major global market segment – those Managed Service Providers (“MSPs”) and their customers that are heavily invested in the Microsoft Azure platform.

Rick Flood, MD Falanx Cyber, said “We are delighted with the way our Triarii platform has developed which has created significant interest and opportunities. Through the addition of Triarii for Sentinel we open up an entirely incremental market opportunity.

We are witnessing demand for Triarii services in diverse infrastructures, but it is becoming increasingly clear that, for organisations which have opted for the simplicity of consolidating onto Microsoft or have a broad uptake of Microsoft security tools, Triarii for Sentinel is the right service.”

Falanx Cyber already has several partners who have indicated that both they and their end user customers have a significant focus and investment in Microsoft Azure. The addition of Triarii for Sentinel enables those partners and their customers to fully exploit and benefit from the Microsoft Azure Sentinel capabilities already inbuilt within their infrastructure by adding a proven and trusted Security Operations Centre (SOC) service to manage the output from these tools.

Mike Read, Falanx Group CEO, commented, “The addition of Triarii for Sentinel opens up further opportunity for our Cyber division to service the needs of our customers and partners, and works in conjunction with our current services that include our existing Triarii service,which is already being deployed for the benefit of our SolarWinds customers.”

Falanx Group Ltd (LON:FLX), the AIM listed provider of cyber security and strategic intelligence services provides its investors with some clarity over the recent news of the supply chain attack on the SolarWinds^® Orion^®  Platform software, 2019.4 HF 5, 2020.2 with no hotfix installed, and 2020.2 HF1.

On Monday, December 14, SolarWinds MSP issued this notice offering more clarity to their MSP customers:

“We have just been made aware our systems experienced a highly sophisticated, manual supply chain attack on SolarWinds® Orion® Platform software builds for versions 2019.4 through 2020.2.1. We have been advised this attack was likely conducted by an outside nation state and intended to be a narrow, extremely targeted, and manually executed incident, as opposed to a broad, system-wide attack.

At this time, we are not aware of an impact to our SolarWinds® MSP products including RMM and N-central.

Security and trust in our software are the foundation of our commitment to our customers. Thank you for your continued patience and partnership as we continue to work through this issue.”

Falanx Cyber does not use the Orion® Platform product as part of its technology stack, Triarii.

The MSP community we work with mainly uses SolarWinds MSP products, namely RMM and N-central.  Based upon SolarWinds’ current investigation, they have found no evidence that the SolarWinds MSP products were vulnerable to the supply chain attack.  

While it is possible that our MSP customers or their end-customers may have procured the Orion® Platform product, we are working closely with our MSP partners to ensure that they have not been impacted by this event. We are performing the appropriate diligence in any estate where our monitoring service has been deployed.

Rick Flood, MD Falanx Cyber said,  “It doesn’t matter how big or small you are as an organisation, it is imperative that you deploy a 24/7/365 monitored service from a Security Operations Centre (SOC) such as ours, giving yourself the best level of detection and protection that you can.

“We continue to offer our clients a complete range of Offensive and Defensive services, the former including Penetration Testing, Red Teaming, Social Engineering and Training, all of which leverage our ability to emulate attackers. The latter including our range of managed services from Managed EDR through Incident Response to full Detection In Depth with Triarii, all aimed at identifying and mitigating threats around the clock.”

Falanx Group Limited (LON:FLX), the global cyber security and intelligence services provider, has announced its interim results for the six months ended 30th September 2020.  

Financial Highlights for six months to 30th September 2020

•	Interim results are in line with the statement made in the preliminary results for the year ended 31 March 2020. These were announced on 30 October 2020
•	Revenue £2.46m (2019: £2.64m). COVID-19 weakness in the Cyber division at the start of the period, but financial performance strongly recovered in September 2020 onwards
•	Recurring revenues were £1.59m (2019: £1.50m) representing 65% of revenues (2019: 57%)
•	August and September cyber penetration testing sales orders showed a very strong recovery, now ahead of pre COVID-19 levels of circa £200,000 per month
•	Gross margins were 28% (2019: 32%) following impact of COVID-19 on professional services staff utilisation in the first few months of the period
•	Total spend** in the six months to 30 September 2020 circa 30% lower than the same period in 2019, two offices closed with physical presence now at the Reading Security Operations Centre (“SOC”)
•	32% reduction in adjusted EBITDA* loss of £0.63m (2019: £0.93m)
•	Loss per share reduced by 12% to 0.34p (2019: 0.39p)
•	Cash of £1.33m on 1 October 2020, following receipt of initial tranche of net proceeds from fundraising, sufficient cash for organic operations, normal working capital profile (2019: £0.7m on 30 September)

Operational Highlights six months to 30 September 2020

•	Assynt the strategic intelligence division traded profitably solely on recurring revenues, with a strong pipeline of business from new and existing customers including global names
•	Sales pipeline strengthened and opportunities are starting to progress including uptake of new cyber service offerings
•	The accelerating move to remote working has increased cyber risk and hence a resultant increase in the demand for our protective cyber security services
•	New Cyber Security monitoring service (“Triarii”) launched August 2020 with a major new reseller to address the UK Government sector appointed, contracts won and generating revenue
•	Security monitoring service expanded to include endpoint detection, creating a strong margin and volume growth opportunity into smaller SMEs

Post Period Highlights

•	Completion of the September £1.25m fundraising including new and existing institutional investors and director/PDMR participation
•	In the Cyber Division the penetration testing orders have continued to show growth along with further sales of new monitoring recurring revenue service (Triarii).
•	Joined SolarWinds TAP programme, Falanx now well positioned with Triarii to address their global base of over 22,000 MSPs
•	Much improved financial performance across the Group since period end, with increasing margins and revenues.

* Adjusted EBITDA is a non-IFRS headline measure used by management to measure the Group’s performance and is based on operating profit before the impact of financing costs, IFRS16, share based payment charges, depreciation, amortisation, impairment charges and highlighted items

** Total spend is the total operating costs, cost of sales, capital expenditure and any highlighted costs

Mike Read, Chief Executive Officer of Falanx Group, commented:

“The Group has recovered strongly from the worst of the COVID-19 impacts and we are now beginning to see a much improving financial performance, and this, combined with the £1.25m fundraising at the end of September, puts us in a much stronger financial position.  We are pleased with the progress made on developing our channels to market, particularly with the commencement of the TAP programme in October 2020 with SolarWinds MSP, which we expect to benefit our new Triarii Cyber monitoring service.  We are addressing a high growth cyber security market, and this combined with a solid and improving performance by our Assynt division means that we are optimistic about the future”

Chairman’s Statement

This period has clearly been impacted by the COVID19 pandemic and disrupted our previous growth trajectory, particularly in Cyber services.  We responded early, protected our team and customers and improved financial position, not least through the September fundraise. Our order book for cyber services began to recover significantly in July, and order levels are now ahead of pre pandemic levels. Consequently, we have seen a much-improved financial performance from September onwards.  Our relationship with Solar Winds and successful customer adoption of Triarii, our new cyber monitoring service positions us well for future growth as we address the increasing cyber and political risks faced by organisations on a global basis.

Business Review

Cyber Division

In the six months to 30 September 2020 the cyber division recorded revenues of circa £1.4m (2019: £1.7m). Orders for penetration testing, which had been most affected by COVID-19 related delays, recovered strongly from the start of August 2020 onwards as clients recommenced projects and expanded their programmes around the move to an online economy. Since then, orders from penetration testing have been running at approximately £0.2m per month, which was the average run rate before the onset of the pandemic, compared to the lower level between April and July 2020. This uplift in orders resulted in a much-improved financial performance of the division in September. This trend has continued into the second half of the year and order levels in November 2020 for penetration testing services have shown further growth.

Lower utilisation levels, as a result of maintaining the fully assembled and skilled delivery teams during the period of the order slippage, reduced gross margins to 27% (2019: 36%). The Cyber division is currently migrating its customer base to Triarii and this has resulted in some additional third party licence fees incurred during the period, but overall, this move is expected to significantly benefit our gross margin going forward.

Costs were kept under tight control and benefitted from a reduction in travel, salary sacrifice, limited use of furlough and rationalisation of premises costs. This allowed the adjusted EBITDA loss to be reduced by 40% to £0.32m (2019: £0.54m).

Focus has been on keeping staff safe, and the division has made very limited use of furlough programmes, with all staff back in work. Management chose to keep the skilled workforce in place in anticipation of recovery, and whilst this affected the short-term financial performance in this period, the validity of this strategy was demonstrated by being able to service customer projects following the major upturn in sales from July onwards.

The division has also been able to return limited numbers of staff to the Reading SOC office, which is now the only operating premises lease in the Group, offering staff a choice between home working and an office environment.

The division has invested in a new cyber monitoring service (“Triarii”) using best-in-class third party technologies. Triarii offers class-leading performance and is well aligned to customer and market needs.  In August 2020 we announced a significant sale of Triarii to UK public sector clients achieved through a partner who is a major supplier to the UK Government, and we are expanding this partnership to include adjacent services as well as further customer reach to deliver against a much larger revenue opportunity. The migration of pre-existing customers onto Triarii is underway and we expect to migrate the entire user base over the next few months, thereby reducing our software licence cost of sale significantly which will improve our gross margin.

The move to remote working opens up inevitable cyber security risks for organisations and we have positioned our offerings to address this growing market opportunity. Whilst orders and revenues were lower at the start of the year than those pre COVID-19 as clients were in disaster recovery mode, orders have since recovered strongly from July onwards and this began to flow through to revenues and margins in September. 

Our Solar Winds program gained momentum in the period under review and Falanx won its first cyber sale for our Triarii monitoring service in the US working in close conjunction with them following a rapid sales cycle.  Recent high profile cyber-attacks in the US underline the need for monitoring and defensive measures against an increasing cyber threat. With Triarii monitoring service, our professional services capabilities and with our partnerships we are well positioned to help our customers address this threat.  

Assynt Division

Divisional revenues grew by 14% to £1.06m (2019: £0.93m) due to larger recurring revenue contracts for embedded analysts with global corporations. This helped gross margins increase to 28% (2019: 19%). Approximately 96% of revenues were recurring.  Costs were kept firmly under control with reductions in premises and certain marketing spends. The division recorded an adjusted EBITDA profit of £0.06m (2019: loss £0.01m) and became profitable solely on recurring revenues.  

The division has a strong pipeline of recurring revenue opportunities as well as an increasing demand for consulting projects.  We are deepening our relationships with existing customers who see its services increasingly as an essential part of their risk management strategies. Whilst inevitable budgetary constraints can affect some of our client interactions, Assynt is encountering an increasing recognition that growing level of global geopolitical instability on multiple fronts – from the fall-out from COVID-19 to US-China relations – has underscored the need for forward looking companies to understand the underlying risk drivers to their international operations.  The client base is strong and includes some of the world’s largest technology, consulting and communications companies. Our reputation with these clients is growing and management is looking for further penetration into existing customers and major renewals, as well as winning new names, frequently on the back of referrals from existing clients.  Focus is on driving further sales of both embedded analysts as well as online subscriptions to our Assynt report.

In response to this, the provision of considered and predictive analysis in our Assynt Report subscription service has been expanded beyond covering just the 40 leading emerging market economies to now include wider thematic issues in our new “Global Themes” series. This covers subjects such as the global trade and economy, environmental issues, Islamist extremism, state cyber threats and great power politics. These and the series of reports on the political and economic ramifications of COVID-19, has been well received by clients. The value of the embedded analyst service is also being increasingly recognised as a means to integrate Assynt’s geopolitical understanding and business-focused analytical expertise into our host client’s operational capabilities without requiring headcount signoff in the client.

The Assynt team has been very successfully working on a virtual basis since March 2020. The existing business model whereby two thirds of our staff already worked in third party offices as embedded analysts, made the transition to remote working due to lockdown easy to implement. The decision not to renew our London office lease on expiry in June 2020 was thus a clear-cut opportunity for cost saving with no loss of efficiency in the short term. Starting FY 2022, with the predicted reduction in COVID-19 related restrictions, we will look again at a London presence.

Financial review 

Consolidated Statement of Comprehensive Income

Group revenues fell by 7% to £2.46m (2018: £2.64m). As referenced above this was due to the pandemics impact on the cyber division’s penetration testing business causing a fall of 18% in its revenues, whilst the smaller Assynt division grew by 14%. Overall recurring revenues comprised 65% (2019: 57%) of total revenue, with the percentage increase being driven by both the growth in Assynt recurring revenues and the impact of COVID-19 on repeat penetration testing revenues. Overall gross margins fell to 27% (2019 30%) as a result of services utilisation during COVID-19 in Cyber and also additional short term licence fees around the migration of cyber monitoring customers onto the new Triarri platform.

Underlying operating costs were reduced by 25% to £1.30m (2019: £1.72m). This was achieved through measures introduced in the second half of the previous financial year as well as responses to the COVID-19 pandemic. These responses included closure of premises and exit from leases, reduced professional fees, limited use of the government furlough scheme, the salary sacrifice for options scheme which reduced cash payroll costs by c£30,000 per month between April and September as well as lower spend on travel as a result of the move to home-based working. 

Overall, we expect our current operating cost base and infrastructure to support our revenue growth expectations in the near term.

As a result of these measures on spend reduction, and despite the fall in revenues related to the pandemic, we were able to reduce our adjusted EBITDA loss by 40% to £0.62m (2019: £0.93m). 

Adjusting items comprised certain investment in the new cyber platform Triarii and infrastructure, premises, addition of IFRS 16 costs, closure & realignment. Overall, these fell from to £0.21m (2019: £0.35m). 

Depreciation and amortisation charges were £0.26m (2019: £0.23m) with the increase mainly being due to full period charges for infrastructure investment carried out in the first quarter of the previous financial year.

Share option charges increased to £0.24m (2019: £0.05m) due to the salary sacrifice options issued in April 2020 which were recognised over the vesting period of 6 months. This voluntary scheme was widely adopted by staff, particularly in the Cyber division, which has demonstrated the belief of the wider team in the Falanx’s strategy to address the market opportunity.

Overall, the loss for the period fell to £1.35m (2019: £1.55m) and the loss per share was 0.34p (2019: 0.39p)

Consolidated Statements of Financial Position & Cash Flow

In December 2019 the Group disposed of its investment in the Furnace technology platform and development costs were reclassified (net of a small impairment) to financial investments in it.  Certain fixed asset spends on premises improvements in the 30 September 201 balance sheet were separately analysed as lease assets in the 31 March 2020 balance sheet.

Cash receipts were strong in the period with receipt of large cyclical renewals and R&D tax credits in the first quarter and this reduced the trade debtor balance. Average debtor days were 48 (2019: 47) and no incidence of bad debt has been recorded. This has continued into the second half of the year. The pandemic had, as referenced above, impacted the group’s balance sheet and working capital position by approximately £0.5m. Mitigation measures were put in place with government schemes, the main one being the deferral of approximately £0.72m of HMRC payments under an agreed payment scheme. Approximately £0.19m of these liabilities are due to be paid more than one year from the date of these interims, but will be fully paid by July 2022, and are treated as such, along with the £0.3m payable under premises leases (where a fixed asset of £0.4m has also been recorded as above) as required by IFRS16. The group fully expects to service all these liabilities as they fall due and has been paying current taxation in the usual periodic way. Deferred incomes reduced due to certain timing issues and deliveries of significant orders invoiced at the end of the previous financial year. Our overall capital expenditure was greatly reduced to £0.03m (2019; £0.46m) following the completion of the SOC investment in the previous year and the disposal of Furnace in December 2019.

Cash balances were £0.23m (2019: £0.71m) but this excludes the impact of the fundraising completed on 29 September 2020 and immediately on settlement of this transaction cash balances on 1 October 2020 were £1.33m

On 15 April 2020 the group issued circa 33m options and warrants to staff and directors in response to a voluntary program where they could waive some of their cash remuneration in the six months to 30 September 2020 for share options with an exercise price of 1p each. The Group has a total of circa 38m other incentive options under EMI and unapproved schemes outstanding on 30 September 2020 and these have an average exercise price of c4.2p each.

Overall shareholders’ funds at 30 September 2020 stood at £3.85m (2019: £6.12m)

On 29 September 2020 the group announced the issue of 125,000,000 ordinary shares for gross proceeds of £1.25m. The vast majority was settled on 1 October 2020 with a small balance received in November from certain Directors/PDMRs who were unable to take part in the September placing given MAR close periods. Taking this into account the Group now has approximately 525 million (2019: 400 million) shares in issue. A significant proportion of this fundraising was through long-term EIS & VCT investment and it included new and existing institutional investors. 

Falanx Group Limited (LON:FLX), the global cyber security and intelligence services provider, is pleased to announce its unaudited preliminary results for the year ended 31 March 2020.              

Financial highlights

Results for the year to 31 March 2020 as per trading update 28 September 2020

·      Revenues increased 12% to £5.85m (2019: £5.21m)

·      Contribution from monthly recurring revenues consistent with 2019 at 56% of total revenues, with an overall increase of circa £0.3m in recognitions, attributable to strong growth and long-term recurring contracts

·      The monthly recurring revenue run rate at 31 March 2020 was £0.26m (2019: £0.24m)

·      Large scale rollout of Assynt recurring revenue contracts fuelled its revenue growth of 30% to 2.14m (2019: £1.64m)

·      H2 gross margins increased to 43% from 32% following operational restructuring in the Cyber division. Overall gross margins were 38% (2019: 44%)

·      New operational structure in the second half of the year greatly benefited the Cyber division improving divisional gross margins from 30% to 45%

·      Majority of infrastructure investment programme completed in the first half of the year resulting greatly reduced spend in the second half

·      Adjusted EBITDA* loss £1.56m (2019: £1.25m) following investment in sales and marketing program in the first 6 months

·      Overall loss £2.88m (2019: £1.83m)

·      Loss per share 0.72p (2019: 0.58p)

·      Shareholders’ funds £4.97m (2019: £7.63m)

Operational highlights

·      Furnace platform spun out December 2019 reducing cash spend by c£40,000 per month

·      In March 2020 the Company moved to a ‘virtual structure’ fully able to support clients in a COVID-19 environment. All staff safe and protected

Post period highlights

·      Monthly Cyber services customer orders now back to pre COVID-19 levels

·      Sales pipeline is now stronger and opportunities starting to progress including uptake of new cyber service offerings

·      The move to an online world with remote working post COVID-19 will increase cyber risk and a resultant increase in the demand for protective cyber security services.

·      New Cyber Security monitoring service (Triarii) launched August 2020, major new reseller into UK government sector appointed, contracts won and generating revenue

·      Cyber Security monitoring service expanded to include endpoint detection, creating a strong margin and volume growth opportunity into smaller SMEs

·      Joined SolarWinds TAP programme, Falanx now well positioned with Triarii to address their global base of over 22,000 MSPs

·      Assynt division profitable with strong pipeline of new recurring revenue opportunities with some of the world’s largest companies

·      Total spend** in the six months to 30 September 2020 circa 30% lower than the same period in 2019, two offices closed with physical presence now at the Reading Security Operations Centre (“SOC”)

·      Balance sheet strengthened following £1.25m equity fundraising completed 29 September 2020 and remains debt free

·      Stifel appointed sole broker

·      Cash of £1.33m at 1 October 2020, following receipt of initial tranche of net proceeds from fundraising, sufficient cash for organic operations, normal working capital profile

* Adjusted EBITDA is a non-IFRS headline measure used by management to measure the Group’s performance and is based on operating profit before the impact of financing costs, IFRS16, share based payment charges, depreciation, amortisation, impairment charges and highlighted items.

** Total spend is the total operating costs, cost of sales, capital expenditure and any highlighted costs.

Mike Read, Falanx Group Chief Executive, said: 

“In the second half of the year under review the streamlined business was growing well, and we were on target to achieve profitability. Clearly the impact of COVID-19 has created some delays, but we have seen a strong resurgence in orders in the Cyber division since August as organisations need to deal with an increasing cyber security risk, and orders are now very close to pre pandemic levels. Our new cyber security monitoring service Triarii is getting positive customer uptake in the UK and US, and it is now part of the SolarWinds global TAP program with its access to over 22,000 Managed Service Providers (“MSPs”) globally. The Assynt division is profitable and has a solid basis of contracts as well as new prospects with the world’s largest companies. We continue to tightly control our costs as we push to profitability and we are optimistic about the future”

Chairman’s Statement

During the period under review and, indeed, subsequent to the financial year end in March 2020, your company has had to develop and adapt to the unprecedented times we are living in today. The past 12 months have seen the Cyber Security and Intelligence market evolve rapidly with the need for our cyber audit and monitoring services being paramount in the protection of data and potential security breaches. Ironically, the more distributed working environment engendered by COVID-19 working practices has increased the threat of cyber vulnerability at a time when many companies have forced to cut back their operating expense budgets in order to ensure they are well resourced to ride out the uncertain business environment. We have been working hard to educate the SME business community that the need for cyber testing and protection is increasing rather than diminishing and I believe that message is beginning to gain traction.

The almost daily announcements by companies, both big and small, that they have fallen victim to some form of cyber-crime, whether by data theft or system ransom, bears testimony to the gulf in understanding between those whose fiduciary duty it is to protect their corporate assets and those who are out to steal them. At the moment, we believe the threat actors have the upper hand due, in part, to the embedded complacency of directors about the extent of the cyber risk and vulnerability that exists within their organisations.

We are pleased to report that in the past financial year overall revenues have organically increased by 12% to £5.85m (2019: £5.12m), this was largely attributable to the increased performance shown in H2. Both divisions were making steady progress before the Coronavirus outbreak, demonstrating the Company was heading in the right direction and reconfirming the strategy adopted by the Board. 

The structure of Falanx has been adjusted to streamline the operations of the Company. As announced in December 2019, the sale of the technology platform known as Furnace was completed. This reduced our cash expenditure requirements freeing us to progress our core Cyber Services and Business Intelligence businesses and provide a solid foundation for the Group to progress. Falanx Assynt, the Group’s strategic intelligence division, has seen consistent progression due to its strong recurring revenue contracts with global companies. This has allowed the division to develop rapidly and move towards an even greater more recurring revenue model.

Group Strategy

After a positive end to the financial year, we were faced with the potential consequences of COVID-19. With the escalation of the pandemic, the Board responded quickly by implementing certain measures allowing operations to continue servicing our clients.

One measure introduced was all employees being encouraged to work remotely. This was possible due to the technical infrastructure and our processes and protocols which have resulted in negligible interruption to service provision. As announced on 31 March 2020, the Group had also implemented certain measures designed to strengthen the Company’s balance sheet and expected cash performance. One of these measures included voluntary salary sacrifices by the directors, certain senior managers and staff.

Last month we announced that we secured an important contract for the provision of cyber security services to one of the major suppliers of services to the UK public sector. Whilst client confidentiality restricts the naming of this customer, we are delighted that such a significant customer has chosen to adopt our services and we hope to conclude similar sized deals in the future. The contract to supply our new integrated cyber technology platform, Triarii, to several UK public sector organisations has been progressing well and is gaining traction within that market.

We are pleased that the SolarWinds partnership announced in September 2018 has rapidly regained momentum in recent months.  They have actively supported sales of our new cyber monitoring platform Triarii into the US and we have just been appointed to their TAP program which gives us access to their 22,000 MSP clients globally.  

Corporate Governance

The Board sets out to deliver the highest standards of corporate governance and has remained abreast of developing governance standards. We have continued to prioritise a safe working environment for our staff across all locations and have improved the quality of safety across the business. During COVID-19 we have been focussing on our employees mental as well as physical health.

Outlook

This past year has witnessed the significant commercial impact of a global pandemic which has affected all businesses worldwide. Falanx has not been immune from this. However, whilst order levels for certain of our professional services were much reduced in the first few months of the pandemic, they have now recovered and are running at approximately double their levels in the first quarter. The need for organisations to spend on Cyber protection is rising in line with the apparent uncertainty in the world and the ever-increasing technical capabilities and resources of the cyber threat agents. At the same time the need for timely information on geopolitical risk has increased the need for Falanx’s business intelligence products which allow organisations operating in overseas markets to be kept up-to-date and informed. The increase in the spread of the COVID-19, will continue to push the working environment away form centralised offices and out into the home environment thereby putting businesses at higher risk from cyber-attacks providing a consequent requirement for enhanced and vigilant protection. Our new platform Triarii and our continuing strategic relationship with SolarWinds significantly underpins our capability in this growing market.

Falanx’s size and capabilities mean we are well positioned to adapt to changes in the industry and is highlighted by our healthy and debt-free balance sheet following the raising of £1.25m in September 2020. This should allow us to weather any ongoing macroeconomic disruption as a result of COVID-19. Our order book is strengthening, cyber order levels are close to pre COVID-19 levels and our sale pipelines are building in terms of quantum and quality. The Company will continue to work towards improving efficiencies and maintaining tight cash control as well as strengthening our client relationships in order to deliver a successful end to the current financial year.

Finally, I would like to take this opportunity to thank our shareholders and everyone at Falanx for their contribution during a volatile year and for their continued hard work in the face of the uncertain business environment.

Approved by the Board on 29 October 2020 and signed on its behalf by

A Hambro

Chairman

Chief Executive Officer’s Report

Falanx Group Limited is a provider of Cyber Security and Strategic Intelligence services to over 440 customers. Customer range from governments and some of the world’s largest companies to SME. These operate as separate divisions and are supported by common corporate services.

Falanx Cyber 

Financial Performance

Our core division recorded increased revenues year on year despite the impact of COVID-19 disruption from mid-February 2020. Revenues for the year were £3.71m (2019: £3.57m) representing growth of 4%. Revenues in the second half grew by 17% to £2.0m and this was driven by increased contract momentum from a realigned sales force and also by much improved professional services utilisation from September 2019 onwards as revised operational management structures were put in place. Average monthly divisional revenues were £0.33m in the second half of the year. We were pleased to see the commencement of cross selling of our MDR services into the customer bases acquired with First Base LLP (March 2018) and Secure Storm (July 2018).

Following operational management changes in August 2019 professional services utilsiation increased significantly and consequently gross margins improved to 45% in the second half of the year from 30% in the first half. Overall gross margins were 38% (2019: 49%) with the change being due to service mix, and the weak utilisation in the first half of the year referenced above.

Investment was made in expanding sales and marketing capacity in the year as well as upgrading infrastructure in anticipation of the large-scale rollout of the SolarWinds opportunity which had been expected in the year under review. Consequently, the division generated an adjusted EBITDA loss of £0.41m (2019: profit £0.05m). Improving revenues, a lower operating cost base, and improved gross margins enabled the division to become profitable on a more consistent basis in the second half of the year prior to the onset of COVID in February.

Upgraded Manage Detect Respond (“MDR”) Offering

The division has evolved it’s MDR offering into a new service offering, Triarii which is built upon world-class leading technology solutions. This combined with our highly skilled Security Operations Centre (“SOC”) monitoring team, creates a market-leading offering to compete with all-comers whilst leveraging the development resources of key technology providers. Triarii has also been accepted by SolarWinds as an alternate offering to its own Threat Monitor platform. We have successfully joined the SolarWinds Technology Alliance Partner (“TAP”) Program and can sell Triarii to their entire MSP channel of over 22,000 MSPs globally – as well as a new Managed Service offering supporting those MSPs with deployments of SentinelOne through the SolarWinds channel. We anticipate this now being a low touch and high-volume channel and hope to see the benefit of that over the coming months

As part of the release of Triarii MDR we have also now introduced our own new service for monitoring endpoints such as laptops and desktops. This capability, known as Managed Endpoint Detection and Response (“M-EDR”) can be sold separately, opening up an entire new market for Falanx Cyber, or as an integral part of our Triarii MDR service. Our own M-EDR service is a leading market contender in its own right and further illustrates the strength of our full MDR service.

During the year the division relocated its SOC from Birmingham to Reading to support the expected rollout of SolarWinds opportunities and the expected increase in volumes as the Cyber security market accelerates. This move has enabled a wider talent pool of skilled staff to be reached.

Professional Services

Falanx Cyber now offers an extended portfolio of professional cyber security services, along with our upgraded Triarii MDR (Managed Detection and Response) service. We offer a wide range of ethical offensive services designed to simulate real-word cyber criminals and, in doing so, enable us to identify weaknesses in clients’ defences and advise them as to how they can better protect themselves and their assets. These services range from specific penetration testing services through to social engineering techniques (such as phishing and red teaming inter alia) which can then be integrated into tailored security awareness training. We continue to serve customers in a diverse range of sectors including Government, Finance, Legal, Insurance, Retail, IT and Telecoms.  

Route to Market

To accelerate growth beyond the confines of traditional direct sales and cross-selling opportunities between service lines, Falanx Cyber exploits a ‘Channel’ model, providing security services via its growing network of MSP partners. These IT outsourcing organisations have a longstanding and trusted status with their customers for the provision of essential business IT functions, as such they are natural partners for Falanx Cyber and a significant extension of our market reach. The SolarWinds channel remains a significant opportunity along with some recent additional new partners.

The combination of strong and growing demand for the Falanx Cyber portfolio of services, market pull of the MSP ‘Channel’ model, the opportunity still offered by SolarWinds and the transformed service offerings for MDR and M-EDR indicate strong growth potential. In anticipation to that we have launched a completely refreshed website and integrated digital marketing model to better inform visitors of all backgrounds about what we do and how we can help them. Overall the cyber sector is experiencing strong macroeconomic drivers and is forecast to grow significantly over the next few years. To keep pace with this continuing high growth, the division has further invested in people, processes, services and infrastructure to expand capacity and maximise the revenue growth opportunities of the current year and beyond. 

COVID-19 impact

Clearly the current financial year has been impacted by the COVID-19 crisis. As referenced previously this began to affect customer buying and project cycles from February 2020 onwards as they moved into precautionary modes. The Cyber division moved to a fully remote model in March 2020 and we have been able to provide the bulk of our services without interruption, although where client site visits are needed these have been disrupted and delayed. All of our staff are safe, we have some very limited use of furlough programmes and we have kept a skilled workforce in place ahead of recovery. We have also been able to return limited numbers of staff to the Reading office in a COVID-safe manner, offering staff a choice between home working and an office environment. We have maintained investment in sales and marketing and of course service innovation in support of Triarii and its new service offerings, and we are pleased that this is now gaining customer and partner adoption. We reviewed our physical infrastructure and have closed a leasehold premise (at very small cost) in Sussex so we can maintain flexibility as the wider office environment remains fluid and now only have the Reading SOC premises on an operating lease.

Cyber trading performance for the six months to 30 September 2020

The move to remote working opens up inevitable cyber security risks for organisations and we have positioned our offerings to address this growing market opportunity, and whilst orders and revenues were lower at the start of the year than those pre COVID-19 as clients were in disaster recovery mode, orders have since recovered strongly from July onwards and this  began to flow through to revenues and margins shortly in September. The Cyber security market is expected to grow strongly with the shift to a more digital economy and we expect this to benefit Falanx.

We have just joined the SolarWinds TAP program and this will help us address their 22,000 MSPs globally. This partnership has already delivered revenues and in September, and we have won our first US cyber deal through them. We expect value from this partnership to grow significantly and are actively working on multiple prospects through this relationship for both the provision of Triarii monitoring services (including endpoint detection) as well as for professional services such as penetration testing.

In August we announced a significant sale of Triarii to UK public sector clients achieved through a partner who is a major supplier to the UK government. This partnership is active and is expected to deliver further sales of existing services as well as working with us to address a much larger market opportunity.

We will migrate some of our existing user base onto Triarii over the coming months. This will not only improve our client delivery but to also make our delivery more cost effective with significantly lower overall external licencing fees which will enhance our margins.

In the six months to 30 September 2020 the division recorded revenues of circa £1.4m (2019: £1.7m).   Orders for penetration testing which had been most affected by COVID-19 delays recovered strongly from the start of August onwards and since then have been running at approximately £0.2m per month compared to c£0.1m per month at the start of the current financial year. The initial uplift in order volumes has already resulted in a much improved financial performance of the division in September and this trend is expected to continue. This is broadly similar to order levels pre-COVID. Despite reduced revenues arising from COVID-19 delays effective cost management has reduced the adjusted EBITDA loss to c£0.3m (2019: £0.4m).

Falanx Assynt

Our strategic Intelligence business unit, Falanx Assynt, provides market-leading geopolitical reporting and analysis focused on key major emerging markets and overarching global themes. Its client base includes some of the largest and most recognised global corporate names. Assynt’s two principal business lines are the subscription-based Assynt Report service and the Embedded Analyst business. These are supplemented by an Intelligence Consulting practice which provides tailored reports to address specific client requirements.

Annual revenue of £2.14m (2019: £1.64m) was generated, an uplift of 30% on the back of larger recurring revenue contracts rolled out in the second half of the year. Approximately 94% (2019: 85%) of total revenues were from monthly recurring contracts for Assynt report subscriptions and embedded analyst services. The balance of revenues was comprised of specific business intelligence reports. Gross margins consequently improved to 38% (2019: 33%).

Investments in sales and marketing were made in the first half of the year, and this resulted in a positive trading result in the second half of the year. Overall the division reported an EBITDA profit of £0.01m (2019: loss £0.05m), the second half was profitable, and this trend has carried on into the current financial year as set out below.

Over the year we continued to consolidate and build on the significant investment we had put into upgrading our flagship product, the Assynt Report, the previous year, including introducing an App based distribution system. Feedback from customers remains overwhelmingly positive. 

For our Assynt Report subscriber base of global corporates (many of which are headquartered outside of the UK), we have produced over 1,300 reports analysing key geopolitical events in 40 countries, including specialist analysis of international jihadist trends.  Over the course of the year we have expanded our country coverage to include further counties in sub-Saharan Africa as well as regular reports addressing significant global themes such as the geopolitics of environmental issues, global trade and great power politics. We continue to look for new reporting areas of significant client interest, including Covid related analysis, which we introduced just before the end of the financial year. 

The reputation of and demand for the Embedded Analyst service, aimed firmly at the FTSE-100 and NASDAQ-100 market, continued to grow strongly, with two existing clients seeking additional capacity in addition to positions with new clients. As a result, the total number of embedded analysts increased by 25% over the course of the financial year. 

In addition to our increased focus on high quality recurring revenue via the Assynt Report and Embedded Analysts, we are continuing to undertake Intelligence Consulting projects which are more clearly aligned with our core geopolitical analysis and emerging market expertise as well as on legal support projects. This has enabled us to pitch at a higher price point and increased share of the ‘value-add’ components of projects with in-house resources, further improving traditionally high levels of customer retention and account expansion.

COVID-19 Impact

So far, the Assynt business has successfully weathered the COVID-19 pandemic. To ensure the safety of our staff we have closed the London office and exited the lease in the new financial year. We have instituted home working with no impact on productivity or output. We have encountered very little customer churn, and all of our major clients have maintained or increased their spend. We have also rigorously controlled costs to ensure profitability and cashflow, and to ensure we have headroom should the economic impact of the pandemic be more sustained or severe than envisaged. Providing clients with analysis of the geopolitical effects of COVID-19 has been a potential opportunity for the Assynt business, and we have capitalised on this with a series of new reports focusing on the impact of the pandemic on key emerging markets and the global political economy.

Assynt trading performance for the six months to 30 September 2020.

Revenues for the six months to 30 September 2020 were circa £1.1m (2019: £0.9m) and the division recorded adjusted EBITDA of circa £0.1m (2019: break even). Recurring revenues were circa 96% of total revenues. 

Future Prospects

The Assynt business has a robust platform for growth over the next three years. The significant revenue growth on the previous year resulting from, the increased marketing spends, and the continuing product refinement all provide a strong underpinning for developing the business further as a stand-alone division of Falanx Group.

Approved by the Board on 29 October 2020 and signed on its behalf by

M D Read                                                                                                                                                             

Chief Executive Officer   

Chief Financial Officer’s Report

Revenue 

Group revenues grew by 12% to £5.85m (2019: £5.21m). Revenues in the second half of the year were approximately £3.2m and this represented growth of 22% compared to the first six months. This was as a result of increased contract momentum in each division as well as much stronger professional services delivery and better utilisation of professional services resources in the Cyber division combined with the rollout of large recurring revenue client contracts in Assynt. The business was regularly experiencing monthly revenues in excess of £0.5m in the months before the onset of COVID which impacted from late February onwards due to customer delays caused by crisis management.

The business has continued to benefit from a strong element generated from the recurring contracts in each division, and overall this was constant at 56%. At the end of the period monthly recurring revenues across the Group stood at approximately £0.26m per month (2019: £0.24m). Our future order book of work remained strong with an order book of c£2.7m (2019: £3.2m) as well as deferred incomes (contract liabilities) of £1.2m (2019: £1.1m). Orders had been growing well in the second half of the year, but there were inevitable delays as the COVID-19 pandemic commenced, but since August 2020 order momentum has been regained. 

During the year we added over 40 new cyber accounts including several larger accounts as well as significantly expanding existing client spend on professional services. Our churn in acquired customer bases has been low and as an example, the churn for First Base (acquired March 2018) has been less than 1% although the overall business has grown by circa 15% per annum. The Assynt division has a different customer profile to the Cyber division with approximately 75% of its clients being international and approximately 90% of them paying in advance with an average advance period of seven months. 

Overall our number of customers invoiced was 284 (2019: 340) with the reduction arising from a move to larger deals from some customers. Overall the company dealt with over 440 (2019: 400) customers.

Cost of sales 

Cost of sales represents cost items which vary more closely as a function of sales demand and therefore revenues. The Intelligence division’s cost base is largely employment costs for full time and external consultants who produce intelligence reports for customers as well as certain database access licences. The Cyber division costs include the team who deliver the monitoring and professional services, external licence fees for technology platform and its support (some of which are fixed and some of which are variable) as well as certain consultants for delivery of specific client assignments.   

Gross margin 

The Group’s gross margin was 38% (2019: 44%). The reduction was mainly due to utilisation issues at the start of the year in the Cyber division, which were resolved in September 2019 by the streamlining of the operational management of that division.  Overall gross margins in the second half were 44% compared with 32% in the first six months, with the Cyber division’s gross margin improving from 30 to 45% in the second half.

Operational and cash-based costs 

Administrative expenses excluding depreciation and amortisation and highlighted costs increased to £3.8m from £3.5m with most of the increase arising from expansion of sales and marketing costs in the Cyber division. Average headcount in the year was 81 (2019: 72) with a significant proportion of the increase being from additional analysts to support Assynt customer contracts.

Highlighted costs

Highlighted costs were £0.32m (2019: £0.18m) mainly represented certain restructuring and investment in infrastructure which was not capitalised fees. £0.24m related to investment in the cyber security platform Triarii and general corporate infrastructure around IT. Restructuring costs included post acquisition integration costs, legal entity restructure and rationalisation, management changes as well as certain corporate development professional fees around specific projects. Rental costs were normalised to exclude the impact of IFRS16, reducing the overall adjustment by £76,000 and a further credit adjustment of £67,000 was made in respect of the disposal of Furnace.

Share Option Charges

Share option charges increased to £0.23m (2019: £0.06m) with the increase due to the option grant in September 2019. The options were valued on a Monte Carlo basis.

EBITDA

Adjusted EBITDA loss for the year was £1.56m (2019: £1.25m) after adjusting for the items highlighted above. Headline reported EBITDA loss was £1.88m (2019: £1.48m).  

Depreciation and amortisation 

Depreciation of fixed assets was broadly flat with 2019 at £87,000, and a further IFRS 16 amortisation charge of £77,000 was recorded in respect of the right of use asset related to the Reading lease acquired in July 2019. The remainder of the amortisation charge arose from the amortisation of acquired customer base intangible assets from First Base (ten-year amortisation period, straight line basis, acquired March 2018) and Secure Storm Limited (three-year amortisation period, straight line basis, acquired July 2018). £0.26m of investment in Furnace was impaired (2019: nil). 

Financing costs 

Net financing costs were £24,000 (2019: £4,000) and mainly arose from the implementation of IFRS 16 and arrangement fees for the invoice discounting facility which were unused in the year and remain unused as at the date of this report.

Result for the year 

Due to the investment made in the year, higher noncash charges such as amortisation, impairment and share option charges the loss increased from £1.83m to £2.88m and loss per share increased to 0.72p from 0.58p.

Non-current assets 

Investment in Furnace

In December 2019 the group spun out its investment in the Furnace technology platform into a separate entity under the control of John Blamire who left the board at the same time. Falanx has 20% of the equity carried at £0.6m and a loan note of £1.1m for an aggregate investment of £1.7m (compared to an original cost of £1.63m). Consequently, previous development costs were no longer carried. Furnace has won its first sales and is now is actively seeking external investment and is in dialogue with a number of parties and its directors have prepared a three-year business plan. Falanx’s forward business plans do not have any dependency of Furnace’s financial performance and Falanx has no obligation to provide further financial support. A small impairment charge of £0.26m was recorded against this asset.

Goodwill and Customer Intangibles

Goodwill was £1.85m and arose from the acquisitions of First Base in March 2018 and Secure Storm in July 2018. The reduction compared to the previous year arose from £175,000 of goodwill arising from previous acquisitions to Furnace in December 2019 and is now included as part of the investment in Furnace referenced above. Customer relationships from First Base and Secure Storm were carried at a total of £1.97m (2019: £2.26m) with the reduction arising from straight line amortisation referred to above.

The Group’s noncurrent assets include the future value of the lease of the Reading premises of £0.47m (2019: nil) which commenced in July 2019. A creditor of £0.44m is carried to reflect future liabilities (£89,000 of which are current liabilities).

Working capital  

Amounts due from customers (including contract assets), net of bad debt provision increased to £1.6m (2019: £1.4m) due to greater business volumes and the timing of certain billings. Collections since the year end have been normal and no incidence of bad debt has been recorded since the previous annual report. Overall debtor days increased from 47 to 66, mainly attributable to large contract billing in March 2020 thereby increasing the debtor position at year end. Prepayments have decreased due to revised billing arrangements for certain expenses. Accrued incomes fell during the year with certain items being billed earlier and are therefore included in the increased amounts due from customers. The Group continued to have a very low incidence of delayed and/or non-payment of debts by customers and our average losses over the last three years were only 0.06% of revenue and no bad debts were experienced in the year under review.  

Contract liabilities (deferred income) increased to £1.2m (2019: £1.1m) on greater volume of advanced billings. Trade creditors increased due to the timing of certain supplier invoices. Taxes payable increased due to initial measures to manage cash at the outset of COVID19 in March 2020. Since the year end creditors including HMRC are within agreed terms and this is detailed in below.

Capital structure 

The Company did not issue any shares in the year (2019: 138,500,000 ordinary shares) with there being 400,401,185 shares at the start and end of the year. 26,281,250 warrants lapsed during the year which had an average price of 6p. 30 million options over ordinary shares were issued under the EMI (and unapproved but similar to EMI schemes) in September 2019 with a price of 1.92p per share. 5,468,367 options were forfeited during the year primarily as a result of staff changes.

The Group has been rationalising its legal entity structure to best align it with the current opportunity as well as to reduce costs and streamline tax management. The Groups incorporation status as a BVI entity is a legacy of its pre 2013 IPO business plan and the Board will review moving it to a UK status at an appropriate moment, clearly taking into account the significant professional fees which would be associated with such a change. The Group’s memorandum and articles of association were revised in March 2019 to more closely align with UK incorporated entities. The Group is fully resident and registered in the UK from a tax perspective.

At the year-end shareholders’ funds stood at £5.0m (2019: £7.6m). 

Statement of Cash Flows 

The Company did not issue any shares in the year and consumed £1.6m of cash in operations (2019: £1.9m). This was supported by a net working capital inflow arising from short term timing differences of £0.3m (2019: outflow £0.4m). Operational cash flow remained closely aligned with EBITDA performance with operating cash outflow being 80% of EBITDA loss (2019: 123%). Over on average over the last four years there is a near 100% correlation between these metrics. The business invested £0.44m in its technology platform (Furnace, which was spun out December 2019) and a further £0.26m in upgrading its infrastructure and the new SOC in Reading.

No shares were issued in the year (2019: £4.15m). Closing cash balances at 31 March 2020 were £0.08m (2019: £2.44m).

Post balance sheet events 

As part of its COVID-19 response plans the company undertook the following actions;

·      On 21 April 2020 approximately 31 million new share options and warrants were issued to staff and directors in exchange for salary reductions for the six months to 30 September 2020. These options were priced at 1p each and have a life of 10 years from the date of grant. Staff and directors waived approximately 25.7m options and a further 9m lapsed in June 2020. Where options were not at the point of grant qualifying for EMI benefits, they may be cancelled and reissued in the future under similar terms to optimise the overall tax position.

·      In July 2020 the premises in Sussex and London were closed following the non-renewal of expired leases. The business moved to remote and home working in March 2020 and the expense of keeping such leases as well as the ongoing office costs were not justified in the new remote working model.

·      A deferred payment plan was agreed with HMRC to reschedule up to £0.64m of payroll taxes outstanding at 30 June 2020 over 2 years as well as taking advantage of published time to pay plans on VAT. The group is fully in compliance with these plans.

·      On 29 September 2020 Falanx announced the completion of a fundraising exercise for £1.25m by issuance of 125,000,000 new ordinary shares of nil nominal value. Of these £1,125,000 (gross) has been received by the date of the accounts with the remaining £75,000 (7,500,000 shares) intended to be subscribed by the directors and senior managers post the release of these results and them being allowed to participate under the MAR framework. A significant proportion of this fundraising is through long-term EIS & VCT investment and overall it included new and existing institutional investors.

Post Balance Sheet Trading

In the six months ended 30 September 2020 the Group recorded revenues of approximately £2.5m (2019: £2.6m) and a much-reduced adjusted EBITDA loss of £0.6m (2019: £0.9m). Revenues in the cyber division were impacted by reduced professional services demand in the Cyber division in the first few months with the onset of COVID-19, but since the start of August monthly orders for these have increased significantly and are now running at circa £0.2m per month compared to £0.1m per month in the first quarter during the peak of COVID-19. The sales pipeline has strengthened with the launch in August 2020 of the cyber security monitoring platform Triarii and it is winning important sales orders. The current order run rate of orders for these services is very similar to that in the second half of the previous financial year to 31 March 2020 and they are broadly back to the pre COVID-19 run rate. September’s revenues were much stronger following acceleration of client deliveries and the order momentum has continued into October. These levels are ahead of where the Group had conducted its stress testing. Closing cash at 30 September 2020 was £0.2m (2019: £0.7m) but this excluded the proceeds of the fundraising announced on 25 September 2020 which were received alongside the admission of the new shares on 1 October 2020. On that day cash balances stood at circa £1.33m. The Group’s customers are paying normally, and no bad debt has been experienced, furthermore creditors including HMRC are in agreed terms.

I R Selby

Chief Financial Officer

Falanx Group Limited (LON:FLX), the AIM listed provider of cyber security and strategic intelligence services, has announced that its cyber security division, Falanx Cyber Defence Ltd has joined the SolarWinds Technology Alliance Program, a growing group of trusted vendors that offer a variety of integrations and services to help MSP partners better serve their customers. Through TAP, Falanx will make its market leading cybersecurity monitoring services and managed endpoint detection and response offerings available directly to SolarWinds MSP partners, as an integrated part of their monitoring and management platforms.

You might like to listen to our interview with Rick Flood on this news.

Falanx is continuing to gain traction with its Triarii MDR (Managed Detection and Response) platform, which provides MSPs with the ability to extend their threat detection and response offerings more efficiently. In addition, Falanx offers flexible Security Operations Centre services tied directly to SentinelOne Endpoint Detection and Response software. This combination delivers a truly flexible EDR offering to MSPs globally combined with the ability of Triarii to adapt to multiple user needs.

Tyler McDonald, Director of Business Development, SolarWinds MSP, commented: “With cyber security becoming an ever-increasing focus, it is crucial that our MSPs have managed security options like Falanx that they can count on. The SolarWinds TAP program is an extension of our ongoing mission of MSP success, where we look to empower the MSP by providing flexibility and choice in their technology decisions and this is a great example of that. We’re excited to have Falanx as a member of TAP as they continue to help our MSPs build a stronger cyber security defensive posture.”

Mike Read, CEO of Falanx Group, stated: “We are excited to be joining such a premier group of MSP market leaders as a SolarWinds MSP TAP partner. As we continue to seek ways to help MSPs more flexibly deliver cybersecurity services without the need to stand up their own SOC or grapple with complex security offerings, becoming a part of TAP is a key move for us with this objective. We’re here as a partner to act as an extension of their team, so they can focus on delivering peace of mind for their own customers.”

Rick Flood, Managing Director of Falanx Cyber, said: “We have previously announced the scale of the SolarWinds MSP opportunity and this step enables us to have direct access to that community. Our range of offensive and defensive cyber security offerings can now be accessed by all 22,000 MSPs in the network through the TAP program.”

Falanx Group plc (LON:FLX) has announced that the Fundraise, further details of which are contained in the Company’s announcement on 28th September 2020, has now closed. The Company has raised gross proceeds of £1.25 million¹ through the successful placing and subscription of 125,000,000 Ordinary Shares¹ with certain existing and new institutional and other investors at a price of 1 penny per New Ordinary Share. A significant proportion of this is through long-term EIS & VCT investment.

As announced in the Fundraise Launch Announcement, the Company is currently in a close period under MAR pending announcement of its annual results to 31 March 2020. In consequence of that, whilst certain members of the Board and of senior management are keen to participate in the Fundraise, they are not currently permitted to under the MAR framework. However, the Falanx Group Board recognise the importance of Director participation for Shareholders and, as such, certain members of the Board and of senior management intend to subscribe for the Subscription Shares at the first available opportunity following the publication of the annual results to 31 March 2020. This subscription is expected to total £75,000 in respect of 7,500,000 New Ordinary Shares and will be carried out at the Issue Price on identical terms as those of the Placing.

 Expected timetable

Admission of the New Ordinary Shares to trading on AIM

by 8:00 am on 1 October 2020

Shareholder interests

Amati AIM VCT hold, as at the date of this announcement, directly or indirectly, 10 per cent. or more of the Existing Ordinary Shares is participating in the Fundraising at the Issue Price as follows:

	Before Admission		After Admission
	Number of Existing Ordinary Shares	Percentage of existing issued share capital	Number of Ordinary Shares*	Percentage of Enlarged Share Capital*
Amati	45,000,000	11.24%	85,000,000	16.18%

^* Assuming completion of the director subscription referred to above and that no further shares are issued between this announcement and Admission

The participation by Amati in the Fundraising constitutes a related party transaction for the purposes of the AIM Rules. The Directors, having consulted with the Company’s nominated adviser, Stifel, consider that the terms of the related party transaction are fair and reasonable insofar as Shareholders are concerned.

Total voting rights

Following admission of the Placing Shares the number of Ordinary Shares in issue and number of voting rights will be 517,901,185. The above figure may be used by shareholders as the denominator for the calculations by which they will determine whether they are required to notify their interest in, or a change to their interest in, the Company under the Financial Conduct Authority’s Disclosure and Transparency Rules.

Unless otherwise defined, definitions contained in this announcement have the same meaning as set out in the Fundraise Launch Announcement.

¹ Assumes the completion of the subscription by the Directors as referred to above