FLX.L Regulatory News (FLX)

FALANX GROUP LIMITED

("Falanx" or the 'Company')

20 June 2013

First day of dealings

Falanx Group Limited, a security and risk management consultancy working with blue chip and government clients worldwide, is pleased to announce that it has been admitted to the Alternative Investment Market (AIM). Dealings in Falanx's shares begin today under the TIDM FLX.

Falanx owns two companies: Stirling Assynt (Acquisition) Limited ("SAAL"), and Falanx Protection Limited ("Falanx Protection").

SAAL is principally involved in business intelligence, security intelligence, political risk consultancy and crisis resolution, whilst Falanx Protection provides security consultancy, physical security and a range of blast protection products. The Group plans to cross-sell a broad range of security and intelligence products.

Highlights

·; Number of Placing Shares 4,958,333

·; Number of Ordinary Shares in issue following Admission 37,458,333

·; Placing Shares as a percentage of the Enlarged Share Capital 13.24%

·; Placing Price £0.12

·; Market capitalisation of the Company at the Placing Price on Admission £4,495,000

·; Major new contract signed with QinetiQ - May 1st

·; Experienced Management Team with high level corporate and government contacts in the Middle East, Africa and Asia.

John Blamire, CEO of Falanx, commented:

"Admission to AIM will give the Company additional gravitas in our target markets and this should allow us to expand rapidly, in particular in the Middle East. We have a number of contracts under negotiation and we are optimistic that the majority can be signed in the current year. Similarly, we have identified a number of acquisition targets that will expand the Group's range of services, particularly by the addition of patented technology. The formation of Falanx has allowed us to maximise the potential of both subsidiaries, and we are already seeing the benefit throughout the business and equally importantly, to the bottom line." 

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INFORMATION ON THE GROUP

Falanx Group Limited (the "Company") is the holding company of the Falanx Group (the "Falanx Group"). It is the sole owner of two companies (SAAL and Falanx Protection). It was founded by John Blamire, a former British Army officer, to respond to a heightened need for security consultancy and asset protection by large corporates and some governments operating in sensitive regions such as those affected by the Arab Spring and increased risk from violent extremism, terrorism and ethnic tensions.

Following the acquisition of the entire business, assets and undertaking of SAIG its founder Karl Barclay, a former senior Foreign and Commonwealth Office official and former Head of Global Security and Fraud Risk for HSBC Holdings Plc, and who, like John Blamire, is a former British Army officer, has been appointed Executive Chairman of Falanx Group.

Members of staff include former members of the security and intelligence communities and British Army and the non-executive directors have senior management level experience in large companies in the natural resources sector and security sectors. Collectively they have Government and corporate contacts in the Middle East, Africa and Asia.

The Company also owns Falanx Protection, which has identified a pipeline of potential opportunities in the Middle East for physical security, including a bid to act as the key sub-contractor to the prime contractor to provide blast protection for a prime government building.

Prior to Admission, SAAL acquired the business of SAIG, which was founded by Karl Barclay in 2008. SAIG (www.stirlingassynt.com) provides business intelligence including enhanced due diligence, crisis resolution and advice on new market entry from offices in London and Hong Kong, and also provides political and security risk consultancy to a blue chip client base of companies worldwide.

Falanx Protection has acquired the exclusive rights for contracts originating in the Middle East, North Africa and Singapore and the non-exclusive rights for contracts originating in China and Hong Kong for an established range of blast protection products which are patented or subject to patent application, and has also been granted a licence from AIM quoted Environmental Recycling Technologies Plc for the use of its patented Powder Impression Moulding (PIM) technology in the manufacture of blast and ballistic protective blinds and other products.

Falanx Group will offer the following services:

Security consultancy

Physical security

Business intelligence

Political and security risk analysis

Counter espionage

Crisis management

The Directors have identified a number of complementary potential acquisitions in the above areas and intend to adopt a roll-up strategy. Any of these acquisitions will be the subject of due diligence enquiries and agreement of price/valuation and there can be no certainty that they will be completed.

The Company, Falanx Protection and SAAL are domiciled in the British Virgin Islands. Falanx Protection and SAAL are 100 per cent. owned by the Company. Stirling Assynt (Europe) Limited is a UK-registered company. Stirling Risk (Asia) Limited is registered in Hong Kong. Both are 100 per cent. owned by SAAL.

Information on Falanx Protection

The Company has both Governmental and commercial contacts in the Middle East and North Africa ("MENA"). The Directors believe that the events of the Arab Spring, and heightened perceived threat of terrorism, have resulted in a programme to harden Government buildings in the region and embassies worldwide against blast and ballistic damage. A key opportunity is the on-going commitment of a major MENA state to invest in upgrading the security and protective measures of strategic ministerial buildings and assets.

Falanx Protection has the benefit of a bid for the installation of certain blast protective equipment including the benefit of blast protective window blinds, film and anchoring. Details of this are necessarily confidential both from a commercial and intelligence perspective but the headline value of the Falanx Protection sub-contract is expected to be very profitable and is expected to be completed in three phases over a period of two years. The working capital requirement for Falanx is expected to be minimal as the contract provides for a substantial payment in advance and Falanx will itself sub-contract actual manufacture and installation while using its own staff and direct contractors to supervise and manage the project. Blast assessment and mitigation is led by Dr John Wyatt, an expert in blast and terrorist explosive devices. A Master Services Agreement is in place between Falanx and J Wyatt Associates.

Falanx Protection has been granted an exclusive licence in the Middle East, North Africa and Singapore and a non-exclusive licence in China and Hong Kong of intellectual property which is currently patented or the subject of a patent application relating to security blind technology developed by Brian Wilkins and of his associated know-how (in each case on a non-exclusive basis) to manufacture, sell, lease, supply or otherwise use products within the scope of the claims of the patents and know-how. The ultimate patent owner is Mr Brian Wilkins. The product is primarily a blast protective window blind which can either be fitted at the time of building or retro-fitted, and closes to form a protective shield in less than 25 milliseconds, when triggered by the blast wave from an explosion. Blinds of this type have been specified by the prime contractor for a current bid opportunity.

The security blinds agreement is based on a combined licence fee and royalty basis and is for an initial period of three years from 9 November 2012 and perpetual thereafter until the intellectual property in the products is no longer protected or valid and the know-how has become public knowledge as result of Falanx Protection's actions. Falanx Protection does not intend to manufacture the blinds and intends to sub-contract this to Security Blinds International Limited (a company of which Brian Wilkins is the controlling shareholder) or another manufacturer.

Falanx Protection has also been granted an exclusive licence by Environmental Recycling Technologies Plc (AIM: ENRT) ("ENRT") to use the intellectual property and know-how in its Powder Impression Moulding ("PIM") plastics technology in the manufacture of anti-blast and anti-ballistic protective blinds and similar applications within this field of use in certain territories within MENA. An initial licence fee is payable to ENRT in 4 instalments of $25,000 each payable during 2013 but this licence is otherwise on a royalty basis with a minimum royalty being payable from 2014 onwards. Subject to earlier termination, this licence is for a period of twenty years or, if after until the expiration of the relevant patents on a country by country basis.

The Directors believe that doing business in the Middle East and North Africa, and in particular in the Kingdom of Saudi Arabia, is highly dependent on relationships which have to be built up over long periods. Falanx Protection's Directors have relationships which they believe will deliver a significant commercial advantage over other potential suppliers.

Information on SAAL

SAAL was incorporated in the BVI on 7 February 2013 for the purpose of making the acquisition of the entire business, assets and undertaking of SAIG.

SAIG was incorporated in the BVI in early 2008, and began operations in London on 7 April 2008. The

concept for the company had been formulated by Karl Barclay while he was Head of Global Security and Fraud Risk for HSBC Holdings Plc. Amongst other issues in that job he dealt with country risk reporting (political and security risk) and reputational risk (particularly due diligence for the bank). SAIG acquired Assynt Associates a partnership founded and run by Hugh McLeod, former Head of Security Intelligence in HSBC, providing high-quality country risk and terrorism reporting that Karl had used when in HSBC. The partnership brought with it seven staff, mainly researchers and analysts. The business now has 17 full time members of staff with a number of consultants retained for specific roles. Several Stirling Assynt analysts operate on secondment to client companies.

The company has two principal business lines: the Assynt Political and Security Risk Briefing Service (the "Assynt Service") and the Business Intelligence Service. The SAIG team comprises a number of highly qualified researchers and analysts with a range of relevant languages and regional experience. This is drawn upon as necessary for business intelligence tasks.

The Assynt Service provides clients with an analytical political and security risk reporting service with updates on a range of countries issued every two weeks, and bespoke reporting as required on a broad range of issues and countries. The service offers fortnightly coverage of 33 countries and any others on an as required basis as well as bespoke analysis of regional or sector specific issues. It also offers a monthly assessment of global terrorist activities.

As a provider of political and security risk intelligence, SAIG executives give interviews to the media, both newspaper and television. Stirling's assessments are sought by such organizations as the UN, IMF and certain governments. The Directors consider that this enhances the Company's credibility and assists the process of marketing its services.

The Assynt Service is based in London. Researchers review a large amount of background information from a range of sources on a daily basis and pass that to the team of analysts. They write reports based on this information and their own knowledge, contacts and experience. The reports then go through a rigorous editing process.

The Assynt Service provides a stable annual revenue stream covering all Assynt costs and a proportion of the Company's overall overheads. As the Assynt Service's reports are generic, every subscription sold beyond that required to cover costs has a 100 per cent profit margin.

Business Intelligence covers a broad range of tasks: non-financial due diligence; new market entry consultancy; fraud and corruption investigations and problem solving, as well as other requirements for intelligence gathering. Work comes through existing and new relationships, attendance at conferences, speaking engagements and referrals, as well as through follow up to the regular BI Newsletter that goes out to over 1,000 readers.

The Business Intelligence service seeks to differentiate itself from the competition through having strong quality control and providing clients with opinion and recommendations. A senior executive oversees all work and provides close scrutiny of reports before they are issued to ensure their accuracy and relevance.

In addition, SAIG offers a broad service including where appropriate, strategic consultancy, and identifying partners, stakeholders and government links.

The Hong Kong office was opened to focus on the Asia market. The Directors believe that Falanx Group will be able to respond to the growing security requirements Chinese corporations will have particularly in the Middle East, Africa and South Asia.

The revenue base for the Assynt Service comes from over 60 annual corporate and government subscribers for its Political and Security Risk products, and from one-off Business Intelligence contracts and projects. SAIG has a number of retained relationships with large corporates and the company's strategy is to expand the number of these, and to cross-sell a broad range of security products to those operating in sensitive and high risk areas.

Stirling Assynt reported sales of £1,650,210 in the financial year to 31 March 2012. With the exception of three major clients (the largest of which is the Hong Kong office of a major international investment bank who have provided approximately 10 per cent. of revenues in the last year) the average is approximately £13,700 per client per year with around 107 clients.

Some examples of recent work include:

• Investigations into the sale of counterfeit goods in Europe;

• Provision of regular intelligence on the threat from terrorists to the 2012 London Olympic Games through a joint web portal with a partner company to international clients.

On 1 May 2013, SAEL signed a 12 month contract with QinetiQ appointing SAEL to act as its principal sub-contractor for a second phase of a project to support the restructuring and training of a government agency in a Middle Eastern country. The project involves implementation of the Company's recommendations from a scoping phase. Before commencing work, and subject to QinetiQ having received a corresponding payment from the customer, QinetiQ shall make an advanced payment of £216,500 to SAEL in relation to anticipated consultancy fees to be incurred by SAEL during the first month of the engagement.

Market Opportunity and Strategy

The events of the Arab Spring, the continued threat of international terrorism, the resurgence of piracy, and increased ethnic tensions in many areas of the world where companies most notably in the natural resources industry operate have resulted in increased demand from both corporate and government clients for comprehensive services to address their security concerns.

Through the acquisition of the entire business, assets and undertakings of SAIG by SAAL, Falanx Group has an existing network of blue-chip clients worldwide which take its Political & Security Risk and Business Intelligence services.

Falanx Group will offer its clients a comprehensive service which will range from political & security risk and business intelligence to physical asset protection and crisis management.

The Company will adopt a roll-up strategy as it has identified a number of small specialist security contractors that would welcome access to development capital and whose owners the Directors consider likely to sell, taking shares in Falanx Group as part of the consideration.

The Company intends to establish a representative office in Dubai to support the Company's activities in the Middle East and to extend SAIG's operations in the region and expansion in China.

Competition

Although there is competition globally against each of Falanx Group's products and services, the Directors believe that truly integrated security and intelligence capabilities will enable the Company to capture early market share and grow quickly with the industry. The Company's management plans to focus initially on overseas markets, in particular the Middle East and Asia, where they see the best opportunities.

It is expected that the large security and intelligence providers have significant government and corporate access in many of the regions in which the Company intends to focus its sales strategy. However, it is the opinion of the Directors that the large scale of these companies' activities may prevent them from providing the degree of tailored support and expertise that Falanx Group will offer. In addition it is the Directors' opinion that the security industry depends upon establishing key relationships with companies and governments, which the Directors believe they and the principal staff of Falanx Group already possess in areas in which they intend to specialise.

Several of the smaller businesses, which have attractive specialist skills but in many cases may not have the access or funding to enable them to develop their businesses beyond their geographical base, and which the Directors believe would benefit from Falanx support and international reach, have been identified as potential acquisition targets by the Company.

Current Trading

Stirling Assynt continues to trade in line with Directors' expectations.

Falanx Group is a newly incorporated company and so has no recent trading history. However, it hopes to generate a very strong pipeline of new business in its Falanx Protection subsidiary. There can be no certainty that these discussions will result in firm orders but the Directors are confident that significant business will be generated in the current financial year.

Directors

Karl Phillip Allardyce Barclay FSyI (Executive Chairman, Falanx Group) aged 65

Karl spent six years as Head of Global Security and Fraud Risk for HSBC Holdings Plc, where he headed a team of 3,000 staff responsible for combating international organised crime and terrorism. He is the founder and Chairman of SAIG, a Fellow of the Security Institute, and a visiting lecturer at Cranfield University in Security and Risk Management. Previously, Karl spent 16 years in the Foreign and Commonwealth Office and before that spent 20 years in the army serving in a variety of management roles in Berlin, West Germany, Northern Ireland (where he was twice Mentioned in Dispatches), Gibraltar and Hong Kong.

John Robert Blamire (Chief Executive, Falanx Group) aged 38

John is a former officer in the British Army, having served in Northern Ireland, Iraq, Cyprus, Canada, USA and the Falkland Islands, gaining a wealth of operational experience. In 2001 he created a strategic-level intelligence unit within a high-risk area of Iraq, leading over 60 highly-qualified intelligence personnel. After leaving the Army he co-founded Praetorian Protection Ltd, a company providing specialist security services to clients in Africa. He holds a degree in Law and Business.

Desmond Patrick Carr BSc. MSc. DIC (Non-Executive Director, Falanx Group) aged 65

Desmond Carr recently retired as Chairman and CEO of ExxonMobil Saudi Arabia Inc after eleven years in the Kingdom. Mr. Carr has forty years of international commercial experience overseeing large capital projects requiring alignment of the interests of investors, governments, international finance agencies and NGOs. In 1981 he joined the heritage Exxon organization in London and subsequently held positions of increasing responsibility in the UK, United States, and the Netherlands which included Department Head, Upstream and Development Planning for Esso Exploration & Production UK in London, and then Managing Director, Esso Exploration & Production Nigeria in Lagos. Prior to joining Exxon, Mr. Carr worked for the World Bank as a Ministerial Advisor in Cairo, Egypt and was also a partner in a Rome-based specialist water resources engineering firm with Middle East project responsibilities as well as in Africa, South America and the Far East. Mr. Carr holds a First Class Bachelor of Science degree in Civil Engineering from the University of Surrey, UK, and a Master of Science degree from Imperial College, London, in Hydrology and Water Resources Engineering.

Emma Jane Shaw (née Faulding) (also known as Emma Jane Harrison) MBA CSyP FSyl FCMI

(Non-Executive Director, Falanx Group) aged 45

Emma is the Managing Director of Esoteric Ltd, an Electronic Sweeping, Counter-Espionage and Intelligence gathering company based in Woking, Surrey. The company is accredited by the National Security Inspectorate and provides a solution-based approach to countering espionage activity and electronic countermeasures to both commercial and non-commercial organisations internationally. An MBA graduate, and a Chartered Security Professional (CSyP) Emma's early career was spent with the Royal Military Police, followed by a career in the Ministry of Defence. Emma founded Esoteric Ltd in 1998. Emma is also the Chairman and Fellow of the Security Institute; a Board member of the Defence Industry Security Association (DISA); a Fellow of the Chartered Management Institute and a member of the Advisory Council for CSARN. Emma is also the 2012 recipient of the "Security Consultant of the Year Award" awarded by the Security Excellence Awards in October 2012.

Iain Manley BSc ACA (Non-Executive Director, Falanx Group) aged 44

Iain is an experienced corporate financier and chartered accountant, with a successful 15 year career in capital raising in public and private markets. Iain has previously worked at Coopers & Lybrand, Arthur Andersen Corporate Finance (specialising in public company M&A), Cobalt Corporate Finance, a TMT advisory firm, as well as acting as CFO for a number of private and public companies. Iain is currently a consultant for Chrystal Capital an FSA regulated corporate finance firm which specialises in providing alternative sources of funding for private and public companies.

Reasons for Admission, Placing and Use of Proceeds

The Directors believe that the Admission will raise the corporate profile of the Company and enhance its ability to secure new business, and will enable it to accelerate its acquisition strategy by the use of quoted shares.

The Company has raised £595,000 (before expenses) through a placing by ZAICF and Peterhouse and a subscription of shares by the Company of 4,958,333 Ordinary Shares at a Placing Price of £0.12 per Ordinary Share.

The Placing Shares represent approximately 13.24 per cent. of the Enlarged Share Capital.

The proceeds of the Placing will be used for:

- initial working capital for its blast protection projects in the Middle East and North Africa;

- the expansion of Falanx Group including the opening of a representative office in the Middle East and Asia;

- due diligence enquiries into, and the acquisition costs of, complementary businesses in the business intelligence, security and protection industry; and

- the costs of Admission.

Cash pending investment or distribution will be placed in bank accounts, bonds or government-issued treasury securities in order to protect the capital value of the Company's cash assets.

Dividend Policy

It is the intention of the Directors to pay dividends when appropriate taking into account the profitability and cash flow of the Company. However, it is likely that initially the cash resources of the Company will be retained to fund its expansion in the medium term.

General

The provisions of DTR 5 shall be deemed to apply to the Company

As a company incorporated in the British Virgin Islands, the Company will not be subject to the Takeover Code. As a result certain protections that are afforded to shareholders under the Takeover Code, for example in relation to a takeover of a company or certain stake-holding activities by shareholders, do not apply to the Company.

END