Falanx Group Limited Acquisition of Advanced Security Consulting Limited

Falanx Group announces that on 5 May 2016, the Company agreed to acquire the entire issued share capital of Advanced Security Consulting Limited for a total consideration of approximately £435,000 . Falanx also announces a placing of new ordinary shares of no par value in the capital of the Company ("Ordinary Shares") and the issue of senior unsecured zero coupon convertible loan notes ("Loan Notes") raising total gross proceeds of approximately £1.55 million.

 Acquisition

 ASC is a market leading cyber security services organisation offering consulting, managed services, penetration testing and training. The organisation utilises senior trusted advisors and true industry experts with over 18 years of experience covering multiple sectors including financial services, pharmaceuticals and healthcare. ASC recorded unaudited revenue and pre-tax profits of £348,000 and £222,000 in the year ended 30th September 2015. The net assets of ASC at 30th September 2015 were £46,000. ASC has continued to trade well since its last financial year and the Acquisition will be immediately earnings-enhancing.

 ASC was founded in 2012 by Jay Abbott, its Managing Director and sole shareholder. Mr Abbott previously ledthe UK National Threat & Vulnerability Management Practice of PriceWaterhouseCoopers. 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. He will now become Managing Director of the Falanx Cyber Division, driving commercial market penetration, technology roadmap and innovation.

To satisfy the consideration for the Acquisition, Falanx will issue 7,125,536 new Ordinary Shares and pay £150,000 in cash to Mr Abbott, valuing the entire issued share capital of ASC at approximately £435,000[1]. The Ordinary Shares to be issued to Mr Abbott, which represent approximately 10% of Falanx's existing issued share capital, are subject to lock-ins expiring on 4 May 2018 with a subsequent 12 month agreement of orderly market provisions via Falanx.

Placing and Loan Notes

On 5 May 2016, Falanx also placed 25,106,250 new Ordinary Shares with certain existing shareholders and new investors at a price of 4 pence per Ordinary Share to raise gross proceeds of approximately £1,000,000. The PrimaryBid.com platform was used to raise £415,000 of the total gross proceeds. The Ordinary Shares to be issued pursuant to the Placing represent approximately 35.2% of the Company's existing issued share capital and, together with the Ordinary Shares to be issued pursuant to the Acquisition will represent, in aggregate, approximately 31.1% of the Company's then enlarged issued share capital.

The Company will also issue participants in the Placing with warrants exercisable over a further 25,106,250 Ordinary Shares ("Warrants"). The Warrants are exercisable at 6 pence per Ordinary Share between 11 May 2016 and 10 May 2019.

On 5 May 2016, the Company issued the Loan Notes to Darwin Capital Limited ("Loan Note Holder" and also a participant in the Placing), raising net proceeds of £495,000 for the Company. The Loan Notes, which carry a fixed and floating senior charge over the assets of the Company, fall due for redemption on 5 November 2016 ("Redemption Date") in the sum of £550,000 ("Principal Amount").

Falanx will use the proceeds from the Placing and issue of the Loan Notes to partially fund the Acquisition and provide further capital for the Company as enlarged by the Acquisition to execute its growth strategy.

Loan Notes - further terms

The Loan Note Holder can, at its choosing, convert any or all of the Loan Notes in the Principal Amount on or prior to the Redemption Date into Ordinary Shares at the rate of 10 pence per share. On conversion of the Loan Notes into Ordinary Shares, the Company will also issue the Loan Note Holder with one Warrant for each newly issued Ordinary Share, exercisable on the same terms as for Warrrants issued to participants in the Placing except that the expiry date for exercise shall be 10 May 2021.

The Company can redeem the Loan Notes for cash at any time prior to the Redemption Date for 105% of the Principal Amount, in which case the Company may elect to cancel or enforce exercise of half of the Warrants issued to the Loan Note Holder (in the case of the latter, subject to the arithmetic average of the daily volume weighted average price for the preceding 20 consecutive trading days being equal to or greater than 8 pence per Ordinary Share). The terms of the Loan Notes contain anti-dilutive, cross default, change of control, negative pledge and other provisions in favour of the Loan Note Holder that Falanx's directors consider standard for an instrument of this nature.

Should the Loan Note Holder convert its Loan Notes in full and exercise all of its Warrants, its interest would be in 13,500,000 Ordinary Shares, representing approximately 11.7% of the Company's then enlarged issued share capital (as also enlarged by the issue of the Ordinary Shares pursuant to the Placing and Acquisition and assuming no other changes).

Related Party Transaction

Ruffer LLP ("Ruffer") is a related party under the AIM Rules for Companies ("AIM Rules") by virtue of being a substantial shareholder in the Company as defined in the AIM Rules. The issue of 3,225,000 Ordinary Shares and 3,225,000 Warrants to Ruffer pursuant to the Placing constitutes a related party transaction as defined in the AIM Rules. AIM Rule 16 also requires all transactions between the Company and Ruffer completed during the twelve months prior to the latest transaction to be aggregated. Accordingly, Ruffer's participation in the Placing and the issue of Warrants to Ruffer constitute a related party transaction for the purposes of Rules 13 and 16 of the AIM Rules.

Accordingly, as required by the AIM Rules, the directors of the Company consider, having consulted with the Company's nominated adviser, Panmure Gordon (UK) Limited, that the terms of Ruffer's participation in the Placing and the issue of Warrants to Ruffer are fair and reasonable insofar as the Company's shareholders are concerned.

Admission of the new Ordinary Shares to trading on AIM

Application will be made for admission of the 32,231,786 new Ordinary Shares to be issued pursuant to the Placing and Acquisition to trading on the AIM Market of the London Stock Exchange, which is expected to take place on or around 8.00 a.m. on 11 May 2016 ("Admission"). Completion of the Acquisition and the Placing is conditional on Admission becoming effective. The new Ordinary Shares will, when issued, be credited as fully paid and will rank equally in all respects with the existing Ordinary Shares, including the right to receive any dividend or other distribution declared, made or paid after Admission.

Following Admission, the Company's enlarged issued share capital will comprise 103,487,154 Ordinary Shares carrying one vote per share. The Company does not hold any Ordinary Shares in treasury.

Chairman of Falanx, Mike Read said:

"I am delighted to announce the acquisition of ASC. We are very excited to be working with Jay Abbott, who is a very highly regarded authority in cyber security. The acquisition will help us to offer new services to our existing blue-chip Falanx Intelligence clients and to a wider range of organisations."

Falanx's CEO, John Blamire, said:

"Falanx recently restructured to enhance its cyber security services and we now have the foundations in place to offer cost effective solutions to a full range of clients. We are working at Government level, advising five current UK Government Departments and Agencies, as well providing solutions to blue chip organisations and SMEs. ASC's capabilities are entirely complementary to our own and will allow us to offer a compelling and integrated cyber security solution to organisations of all types, delivered by highly qualified experts."