Sale of Furnace and Directorate Change

19 December 2019

FALANX GROUP LIMITED

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

Sale of Furnace and Directorate Change

Falanx Group Limited (AIM: FLX), the global cyber security and intelligence services provider, has sold its serverless stream processing platform, Furnace ("Furnace"), to a team led by Falanx's Chief Strategy Officer and Founder, John Blamire. As part of the sale, John Blamire has resigned from the Board with immediate effect. Following the sale, Falanx will continue to benefit from Furnace technology through licensing and support agreements.

Background to the sale

Furnace allows users to span the rapidly growing array of Cloud technology, increasingly used by business. Over the last few years, Falanx has built a serverless platform to provide businesses of all sizes and their in-house developers with the tools to build high volume, data driven applications, such as required in Security Monitoring, IoT, Marketing and Finance. Furnace aims to assist enterprises in improving performance, visibility of risks and reducing costs regardless of the location or type of data.

Whilst the Board remains of the view that there is a strong potential market opportunity for Furnace, it has determined that Furnace, which is pre-revenue and loss making, is non-core to Falanx's cyber services market. Accordingly, the Board has resolved to sell Furnace to a team led by Falanx's Chief Strategy Officer and Founder, John Blamire and Falanx Technologies Chief Technology Officer and Furnace's lead architect, Daniel Waite.

In the interim accounts to 30 September 2019, Falanx has capitalised R&D costs of c.£1.2m relating to Furnace together with goodwill on the balance sheet of c.£400k. For the first eight months of the current financial year, Furnace made a loss of £193,000 and received capital investment of £218,000.

The sale of Furnace will reduce Falanx's cash expenditure requirements whilst providing mechanisms to protect not only its investment to date but to ensure that Falanx benefits materially from any increase in value. As part of the transaction, John Blamire and Daniel Waite as well as certain external contractors will be transferring with the business with immediate effect.

The transaction

Falanx is selling the business and assets of Furnace to Furnace Technologies Limited (a company controlled by John Blamire and Daniel Waite) for a sale price of £1.1m, to be funded by way of an unsecured loan note, plus the issue and allotment to Falanx of 20% of the shares in Furnace Technologies Limited. The loan note has a five year term and carries a 5% coupon. Furthermore, in the event that Furnace is sold during the five years following the initial sale by Falanx, Falanx would receive an additional 20% of the proceeds of a sale in the first 12 months, amortising down to zero over the remaining four years. Falanx also benefits from certain accelerated loan repayment arrangements in the event of a sale or change of control in Furnace. This will mean a reclassification of Falanx's current R&D and other intangibles to investments.

Related party transaction

The sale of Furnace to Furnace Technologies Limited, a company in which John Blamire is a substantial shareholder and director, is a related party transaction pursuant to rule 13 of the AIM Rules for Companies. Accordingly, the Directors of Falanx (excluding John Blamire) having consulted with the Company's nominated adviser, Stifel, consider that the terms of the transaction are fair and reasonable insofar as the Company's shareholders are concerned.

Mike Read, Chief Executive Officer of Falanx, commented:

"Whilst Furnace is an exciting platform with a potentially large market opportunity, it is non-core to the Group's cyber focus. The sale will reduce Falanx's cash expenditure whilst ensuring that Falanx benefits materially from any increase in value. We believe that through the management buy-out, John and his team will be able to better focus and exploit its potential in addition to freeing Falanx to progress its core Cyber services business. We wish John and the team, who are business associates and good personal friends, the best of luck with this project."

John Blamire, Chief Executive Officer of Furnace, commented:

"I am sad to be leaving Falanx which I brought to IPO in 2013 and would like to thank every member of the Falanx team for their support, loyalty and hard work over the years. I am also tremendously excited by the opportunity Furnace represents, not only in continuing to support the growth of Falanx and its technology requirements but also in its vast potential beyond the realms of Cyber Security."

ends

Enquiries:

About Falanx

Falanx Group Limited, is a global intelligence and cyber defence provider working with blue chip and government clients. For more information: http://www.falanx.com/