FLX.L Regulatory News (FLX)

18th July 2016

FALANX GROUP LIMITED

("Falanx", "the Group" or "the Company")

Preliminary Results for the Year-Ended 31 March 2016

Financial Year 2015/16 Completion of First Phase Restructuring

Confident Financial Year 2016/17 outlook with significant growth

London, 18th July 2016. Falanx Group Limited (LSE: FLX), a Cyber Defence and Intelligence services provider working with blue chip and government clients worldwide, today issues its results for the year-ended 31 March 2016.

Period Highlights:

· Falanx Group traded in-line with the Board's expectations as the foundations of the Cyber Defence business were developed. Turnover for the year ended 31 March 2016 was £1.81 million (2015: £1.92 million) and Falanx Group's loss before taxation for the year was £2.65 million (2015: £2.20 million).

· The Group's commercial strategy was re-focussed to the provision of a comprehensive suite of cyber security services. This resulted in Falanx Resilience, the physical security and training projects division being closed, as its operations had become peripheral to this strategy and a significant reduction of costs across the Group.

· The Group retained Falanx Intelligence and continued to develop Falanx Cyber Defence;

o Falanx Intelligence: reporting £1.58 million of revenue, £0.19 million of EBITDA

o Falanx Cyber Defence: holds 5 Government organisations on long-term managed service contracts, 2 of those gained in Q4. Revenues achieved £0.23 million, pre-tax loss of £1.55 million

· The appointment of Mike Read as Non-Executive Chairman in February 2016 is a cornerstone appointment for the Company's growth ambitions. Mike has over 30 years' experience in the global Telecommunications, Media and Technology (TMT) sector and involvement in on over 50 M&A transactions and numerous relationships with the senior management teams of blue chip organisations.

· John Blamire, founder of Falanx Group, returned to full executive control of the Group in order to implement the first phase of the reorganisation.

Post Period Highlights:

· Placing of £1m of equity and £0.55m convertible loan in May 2016 to enable the acquisition of Advanced Security Consulting Ltd and provide additional working capital to the Group's Cyber division activities

· Successful integration of Advanced Security Consulting Ltd, a market leading cyber security services organisation offering consulting, managed services, penetration testing and training. Completing the Group's consultancy engagement model and broaden the portfolio of services.

· Appointment of Jay Abbott as Managing Director of Falanx Cyber Defence. Jay previously led the UK National Threat & Vulnerability Management Practice at PriceWaterhouseCoopers and founded Advanced Security Consulting Ltd. Jay is also the chair of the Competitions Board for the UK Cyber Security Challenge and a member of the Defence and Security Board of TechUK.

· The restructure of the Cyber Defence business model to provide a broader, synchronised service offering.

· The rebranding of Falanx Group and subsidiaries in-line with enhanced corporate strategy. Falanx Cyber Defence created through the amalgamation of Falanx Assuria and ASC.

· Falanx Cyber Defence revenues increased to circa £80k per month and growing, supported by a qualified pipeline value of circa £1.5m 

Outlook

The performance of the business, most specifically in Falanx Cyber Defence is extremely encouraging:

· For the first half of the Financial Year 2016/17, the Board expects to report growing revenue of over £1m.

· A decreasing monthly cash burn reducing to £50k per month across the Group, growing recurring revenue in Falanx Cyber Defence and Falanx Intelligence and a healthy cash at bank position of £1.28m as at the 30th June 2016 all contribute to a healthy financial outlook.

John Blamire, Chief Executive Officer, commented:

"We recognised the need to dramatically increase client awareness of the value of managed Cyber Defence services, we also recognised the signs of a relatively young Cyber Security market where education and client-side advice were more effective than traditional sales strategies. The acquisition of Advanced Security Consulting as the trusted advisor to clients, providing practical, timely and cost effective solutions and guiding organisations to our managed service platform solved both of these issues. The result of this decision has been extremely pleasing. With a reorganised Group, increased revenue and reduced costs, the Board is very encouraged by the Group's prospects for the coming year and expects to report very significant growth in Cyber Defence revenue for the first half of Financial Year 2016/17"

Falanx Group Limited, is a global intelligence, security and cyber defence provider working with blue chip and government clients.

The Group listed on AIM in June 2013 under ticker FLX

For more information: http://www.falanxgroup.com/

Forward-looking Statements

Certain statements in this announcement constitute "forward-looking statements". These forward looking statements involve risks, uncertainties and other factors that may cause the Group's actual results, performance or achievements, or industry results, to be materially different from those projected in the forward-looking statements. These factors include: general economic and business conditions; changes in technology; timing or delay in signing, commencement, implementation and performance or programmes, or the delivery of products or services under them; structural change in the security industry; relationships with customers; competition; and ability to attract personnel. You are cautioned not to rely on these forward-looking statements, which speak only as of the date of this announcement. The Group undertakes no obligation to update or revise any forward-looking statement to reflect any change in expectations or any change in events, conditions or circumstances.

Enquiries:

Chairman's Statement

In March 2015, Falanx informed shareholders of its intention to shift strategic focus to enlarge and develop its cyber security capacity. This decision was taken in response to the increasing importance Governments and blue chip organisations are placing on this issue. The financial cost that can result from data theft and the damage to reputations caused by losing customer information can have a catastrophic impact. A number of high profile cyber-attacks toward the end of 2015 brought the need for rigorous security and risk management into sharp focus. As a result, many organisations have placed cyber security at the top of their priority list for 2016. This has in turn helped cement the market opportunity for Falanx, with Corporates and Government bodies assessing the precise nature of the threats they face and identify their vulnerabilities.

Falanx has completed the first phase of the reorganisation required to take advantage of this market opportunity. This reorganisation started with the launch of our Cyber Security Operations Centre (C-SOC) in Reading in March 2015, designed specifically to secure computer networks at the boundary and across the devices within. The C-SOC allows Falanx to manage and analyse data, whilst also providing helpdesk services to continuously protect both legacy and cloud computing systems from hostile attacks, unauthorised data access and theft. The Company achieved ISO 9001, /IEC 20000-1 and ISO/IEC 27001 accreditation, enabling Falanx to pursue major contracts with UK Government agencies, regulated industries and multi-nationals.

It is against this market landscape that Falanx's vision of a 'total managed service' driven by being the clients 'trusted advisor' is now proving to be highly effective.

Falanx Cyber

Falanx Cyber, historically operated under the Falanx Assuria brand, will now formally re-launch under its new 'Falanx Cyber Defence' brand, reflecting the combination of our monitoring services and the wider consulting services of Advanced Security Consulting Limited, acquired in May 2016.

Managed monitoring services provided the core mainstay of the business throughout FY2015/16. During a challenging period of change, the business continued to develop it's credentials in the Government market place, going on to establish a client base of 6 government organisations.

Although the growth of revenues in monitoring have been slow over the first year of the fully established service, we are now seeing a 'Return on Investment' due to the application of our new engagement model and the expansion of services around the core monitoring capability.

Re-structured engagement model:

· Consult: Become the trusted advisor. Working in partnership with our clients to help define and deliver the strategies and programs that will deliver the right results.

· Assess: Help the client understand the issues. A series of services and products focused on the identification of weaknesses and vulnerabilities within our clients. Backed by industry recognised accreditations to support the credibility of our staff and operations within the market. Penetration Testing, Vulnerability Assessment, Business and Cyber Intelligence.

· Monitor: Protect the client. Our C-SOC delivers world class monitoring at levels up to and including UK Government mandated GPG13 as a managed service. The platform is extending to access mass market, SME's and Enterprise clients.

· Respond: Be there when needed most: Leveraging the expertise of the assessment team and the C-SOC operatives to deliver an incident response service that gets the client back to "business as usual" in the fastest, safest and least public way possible.

As we continue to offer a truly 100% British developed, UK Government compliant, managed monitoring service, Government remains a significant revenue generator with our place in the G-Cloud framework firmly established. However, business focus has intensified on commercial organisations where we are seeing significantly larger and speedier growth.

Falanx Intelligence

Falanx Intelligence, operating under the Stirling Assynt brand, has been trading successfully for over eight years and has established itself as a credible and reliable provider of political and security risk assessments and business intelligence. Its international client base includes governments, international organisations, oil and gas companies, financial services, insurance, utilities, defence, airlines, FMCG and technology companies. Many of these are long-term clients who have remained loyal to the business over five years or more.

In a challenging year, the division has generated a robust profit margin and is now returning to growth.

Services include:

· The Assynt Report - a highly-regarded, fortnightly predictive political and security risk service covering 33 countries that goes out to an extensive client base of major companies, international organisations and governments around the world.

· Embedded & Dedicated Analysts - we offer various embedded and dedicated analyst arrangements providing a wide range of in-house intelligence functions, which together form a set of long-standing, strategic relationships. Such analysts enjoy full access to our central expertise and wider capabilities, offering a highly cost-effective service.

· Strategic Intelligence - by drawing on the combined capabilities of our experienced in-house analysts and trusted local associates we can provide bespoke political, security and business risk assessments across a wide range of jurisdictions, often in a pre-market entry context.

· Business Intelligence - Business intelligence reports provide due diligence for clients on suppliers, acquisition targets and partners internationally. This is a project-based business in which tasks often arise at short notice requiring rapid response. The business offers a highly competitive and well-regarded service and has a number of long-term clients.

Falanx Resilience

Falanx Resilience was historically a project-based consultancy business operating largely in the Middle East, offering training and physical security services. This line of business has been discontinued.

Financial summary

Falanx Group's turnover for the year ended 31 March 2016 was £1.81m (2015: £1.92m), with Falanx Intelligence and Falanx Cyber's turnover being £1.58m (2015: £1.76m) and £0.23m (2015: £nil) respectively. Falanx Group's loss before taxation for the year was £2.65m. Falanx Intelligence made a pre-tax profit of £0.18m in the reporting year. Falanx Cyber in its continued build-up phase made a loss of £1.87m in the reporting year. Following the £1m equity placing and issuance of a £0.55m convertible loan note in May 2016 the Company had cash balances of £1.28m at 30 June 2016.

In addition to organic development, Falanx is continuing to take advantage of focused, disciplined M&A activity (with the recent acquisition of ASC) to enhance and deepen our existing offerings, or to enter new markets that we feel fit well with our mission, our strategy, and our product portfolio.

Directors

In the last 6 months we have seen the retirement from the Board of Karl Barclay (Chairman) and Desmond Carr (NED). I would like to thank them both for their contribution, support and guidance.

Outlook

This has been a year of significant change in the Group's capabilities. All members of the Group have stood up extremely well to successfully manage the re-orientation of the business.

We have moved away from the traditional attributes of physical security consultancy, to a business model that deals with the growing demands of the 21st Century. Organisations want to be enabled and secured by technology and information, adapting to and developing to this opportunity is core to our ethos.

Falanx is committed to the organic development and acquisition of complementary technologies and businesses that build on our security and intelligence managed services.

Approved by the Board on 15 July 2016 and signed on its behalf by

M D Read

Non-Executive Chairman

Consolidated income statement

for the year ended 31 March 2016

Consolidated statement of comprehensive income

for the year ended 31 March 2016

Consolidated statement of financial position

as at 31 March 2016

Consolidated statement of changes in equity

for the year ended 31 March 2016

Consolidated cash flow statement

for the year ended 31 March 2016

1. General information

Falanx (the "Company") and its subsidiaries (together the "Group") operate in the security (including cyber) and intelligence markets.

The Company is a public limited company which is listed on the AIM Market of the London Stock Exchange and is incorporated and domiciled in the British Virgin Islands. The address of its registered office is PO Box 173, Kingston Chambers, Road Town, Tortola, British Virgin Islands.

2. Group Annual Report and statutory accounts

The financial information set out in this preliminary announcement does not constitute statutory accounts. The Consolidated Income Statement, Consolidated Statement of Financial Position, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows, together with associated notes, have been extracted from the Group's 2016 statutory financial statements upon which the auditors opinion is unqualified. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been applied consistently to all the years presented unless otherwise stated.

2.1 Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and International Financial Reporting Interpretations Committee ("IFRIC") interpretations. The functional and presentational currency for the financial statements is GBP Sterling. The financial statements have been prepared under the historical cost convention, as modified by the revaluation of available for sale financial assets, financial assets and financial liabilities at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.

2.1.1 Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Company's Annual Report to be published in due course, which also details the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The Directors regularly review the funding position of the Group and its cash flow forecasts.

On 5 May 2016 the Group announced that it had raised net proceeds of approximately £0.96m after deducting commission and transaction related expenses through the issue of the Placing and Subscription Shares at the placing price of 4 pence per ordinary share. The Company announced the issuance of loan notes to Darwin Capital raising net proceeds of £0.495m. The loan notes have a six month term with a redemption value of £0.55m. The loan notes carry a senior fixed and floating charge over the assets of the Company.

The Directors have reviewed forecasts and budgets based on current, expected and future operating costs of the Group and are focussed on seeing the Group to cash flow break-even in the next twelve months. Key to achieving this will be the growth of the Cyber division which up to recently has been in its development phase and required significant cash resources. Revenues in the Cyber division have started to increase and the forecasts anticipate that with continued growth this division will achieve break-even within twelve months. Achieving cash flow break-even at a Group level will also be supported by enhancing the existing profitability of the Intelligence division and careful control over Group overheads. The Directors have therefore concluded that the Group has sufficient funds available to meet its commitments for at least the next twelve months from the date of the approval of these financial statements. Thus the Directors continue to adopt the going concern basis of accounting in preparing the annual financial statements.

3. Segmental reporting

As described in note 2, the Directors consider that the Group's internal financial reporting is organised along product and service lines and, therefore, segmental information has been presented about business segments. The categorisation of business activities into segments has changed from analysing per company to analysing per division to be in line with the views of the chief operating decision maker as highlighted in the Chairman's statement. The segmental analysis of the Group's business was derived from its principal activities as set out below. The information below also comprises the disclosures required by IFRS 8 in respect of products and services as the Directors consider that the products and services sold by the disclosed segments are essentially similar and, therefore, no additional disclosure in respect of products and services is required. The other segment below and overleaf consists of the parent company's administrative operation.

Reportable segments

The reportable segment results for the year ended 31 March 2016 are as follows:

4. Operating loss

Operating loss for the year is stated after charging the following:

5. Basic and diluted earnings per share

Basic earnings per share is calculated by dividing the profit/(loss) attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year. There are no dilutive share options at present as these would currently increase the loss per share.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume the conversion of all dilutive potential ordinary shares. The Company's dilutive potential ordinary shares arise from warrants. In respect of the warrants, a calculation is performed to determine the number of shares that could have been acquired at fair value, based upon the monetary value of the subscription rights attached to the outstanding warrants. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the warrants.

At the year ended 31 March 2016, the potentially dilutive ordinary shares were anti-dilutive because the Group was loss-making. The basic and diluted earnings per share as presented on the face of the income statement are therefore identical. All earnings per share figures presented above arise from continuing and total operations and, therefore, no earnings per share for discontinued operations is presented.

6. A copy of this preliminary statement will be available to download on the Group's website falanxgroup.com. Copies of the Annual Report and Accounts will be posted to shareholders in due course at which time the Annual Report and Accounts will be made available to download on the Group's website www.falanxgroup.com in accordance with AIM Rule 26, and will be delivered to the Registrar of Companies in due course.