This announcement contains inside information for the purposes of Article 7 of the UK version of Regulation (EU) No 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended ("MAR"). Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

FALANX CYBER SECURITY LIMITED

("Falanx" or the "Company")

Proposed Disposal of Cyber Security Division

Proposed Change of Name

Proposed Amendment to the Memorandum and Articles of Association

and

Notice of General Meeting

Falanx Cyber Security Limited (AIM: FCS), announces that, further to its announcement on 20 September 2023, it has entered into a conditional agreement to dispose of its Cyber Security Division. This will be achieved by the sale of its wholly owned operating subsidiary, Falanx Cyber Defence Limited ("FCD") and its wholly owned subsidiary Falanx Cyber Technologies Limited ("FCT") (together the "Cyber Division" or the "Division"), to Thetis Bidco Limited for a total enterprise value of £4.2 million payable, subject to working capital, net debt and intercompany balance adjustments, in cash (the "Disposal"). Completion of the Disposal is expected to take place in early December 2023, subject to Shareholder approval.

Following completion, the net proceeds of the Disposal will be used to settle liabilities and effectively close the operational side of the remaining business (as shown in the table below, which apart from the Enterprise Valuation consideration are estimates).

Upon completion of the Disposal, the Company will be regarded as an AIM Rule 15 cash shell, having ceased to own, control or conduct all or substantially all, of its existing trading business, activities or assets. The Disposal is therefore conditional on the consent of Shareholders at the Extraordinary General Meeting. The Resolutions to be proposed at the General Meeting also include changing the Company's name to Cloudified Holdings Limited and an amendment to the memorandum and articles of association of the Company.

A copy of the Circular containing more information in relation to the Disposal, change of name, amendment to the memorandum and articles of association and Notice of General Meeting will be available to Shareholders on 9 November 2023 on the Company's website at https://falanxcyber.com/shareholder-documents/.

The General Meeting will be held at the offices of Blake Morgan LLP, Apex Plaza, Forbury Road, Reading RG1 1AX at 9.30 a.m. on 27 November 2023.

Enquiries:

About Falanx

Falanx Cyber Security Limited is a cyber security services provider, offering enterprise-class offensive and defensive security solutions to Small and Medium-sized Enterprises (SMEs). For further information visit: www.falanxcyber.com

Details of the proposed Disposal, change of name, amendment to the memorandum and articles of association and Notice of General Meeting

1.         Introduction

Further to its announcement of 20 September 2023, the Company has today announced that it has entered into a conditional agreement to dispose of its cyber security businesses. This will be achieved by the sale of its wholly owned operating subsidiary, Falanx Cyber Defence Limited ("FCD") and its wholly owned operating subsidiary Falanx Cyber Technologies Limited ("FCT") (together the "Cyber Division"), to Thetis Bidco Limited for an enterprise value of £4.2 million payable, subject to working capital, net debt and intercompany balance adjustments, in cash.

In view of the size and the fundamental nature of the Cyber Division (being the only trading subsidiaries of the Company), it is a requirement of the AIM Rules that the Disposal be approved by Shareholders at a general meeting of the Company. The Disposal is therefore conditional on the passing of Resolution 1 to be proposed at the General Meeting.

In light of the Disposal, the Directors are also proposing to change the name of the Company and to make various amendments to the Articles, details of which are set out in paragraphs 10 and 11, respectively.

The purpose of this announcement is to provide Shareholders with further details of the Disposal, the Change of Name and the proposed amendments to the Articles. Moreover, the document sets out the Directors reasons for considering that the proposals are in the best interests of Shareholders as a whole and recommend you vote in favour of the Resolutions, which are required to be passed in order for them to be implemented. The notice of the General Meeting is set out at the end of the Circular.

The Company has received irrevocable undertakings to vote, or procure a vote, in favour of the Resolutions from the Directors in respect of, in aggregate, 279,644 Ordinary Shares representing approximately 5.3 per cent. of the Company's existing issued ordinary share capital.

In addition, the Company has received letters of intent from certain institutional which together hold, or are able to control voting in respect of Ordinary Shares, to vote, or procure a vote, in favour of the Resolutions in respect of, in aggregate, 983,650 Ordinary Shares, representing approximately 18.7 per cent. of the Company's existing issued ordinary share capital.

2.         Information on Thetis Bidco

Thetis Bidco is a private company limited by shares, incorporated on 22 January 2021. It is a wholly-owned indirect subsidiary of Thetis Topco Limited, which itself is a subsidiary of Macquarie Capital Principal Finance, a division of Macquarie Group Limited. The other shareholders of Thetis Topco Limited include Wavenet management. Thetis Bidco is also a non-trading holding company of the Wavenet Group, including Wavenet Limited and Adept Technology Group Limited. The directors of Thetis Bidco are William (Bill) Dawson, Venetia Cooper, Philip Grannum, and Stewart Motler.

Formed in 2000 and acquired by Macquarie Capital Principal Finance, a division of Macquarie Group Limited in 2021, Wavenet is a multi-award-winning provider of telecoms and technology solutions to over 20,000 business and enterprise customers across the UK. Wavenet is a Microsoft Solutions Partner, HPE Gold Partner, Extreme Networks Diamond Partner and holds Platinum Partner status with Mitel and Avaya. Mitel have awarded the business the Mitel Public Sector 2022 Partner Award. Wavenet has multiple office locations across the United Kingdom and employs c.900 people.

3.         Information on the Company and the Cyber Division

The Company has been solely focused on cyber security service provision following the disposal of its Assynt Strategic Intelligence Division ("Assynt") in October 2021. The Cyber  Division offers a full-service cyber security portfolio covering both offensive and defensive services, providing security assessments, training, social engineering, penetration testing and managed detection and response services to a wide range of customers in the UK and overseas. The Cyber Division has a fully functional security operations centre ("SOC") in Reading, UK. The Company invested in the growth of the Cyber Division due to the attractive potential growth opportunities offered by in Cyber Security market.

The SOC service has a business model where revenues are generated by annual contracts with monthly payments for the monitoring of clients' security and this generates monthly recurring revenue ("MRR"). The SOC has a relatively high fixed costs, which include technology platform, people, infrastructure and premises, but given a sufficient critical mass it has high operational leverage with the vast majority of incremental MRR flowing to profit and cash flow. The development of MRR has been a key strategy to create value as it leads to higher quality revenues and consequent valuations. In order to grow this, the Cyber Division made significant investments in FY22 and FY23 in sales expansion and incremental services to deliver against this opportunity. The business had reworked its SOC offering away from legacy technology in 2021 to use the Elastic technology platform for the basis of its service delivery and it was believed this solution would help better fit clients' needs.

4.         Results of year ended 31 March 2023 and current trading 

On 29 June 2023, the Company provided an update for the year ended 31 March 2023 ("FY23"). It was announced that total revenues for FY23 are expected to be c.£3.8m (2022: c.£3.5m) representing organic growth of c.9 per cent. year on year. The Group also announced that it had experienced steady growth on penetration testing revenues of 5 per cent. and strong growth in SOC monitoring revenues which grew by c.21 per cent. compared to FY22. Total SOC order values (New Logo, Renewals, Uplifts & extensions) were up by 58 per cent. on FY22, reflecting the continual achievement of service excellence (with a strong Net Promoter Score of over 80 per cent.). This resulted in a growing volume of SOC clients through high annual renewal levels as well as growth in the estate coverage of individual clients.

Trading for the six months to 30 September 2023 is set out below. Revenues have grown by c.3 per cent. compared to the previous year although business won has increased by some 16%. MRR revenues have shown some growth, but this is at a much lower rate than the Divisions had targeted.  Adjusted EBITDA losses have been halved due to cost cutting and the receipt of a historic R&D tax credit of c.£0.3m.

As a result of focussing on the proposed Disposal, the Company has not yet completed the audit of, or therefore published, its results for the year ended 31 March 2023 ("FY23 Accounts"). Consequently, as a result of the Company having not yet published its FY23 Accounts by 30 September 2023 (as required by AIM Rule 19), its shares were suspended with effect from 7.30 a.m. on 2 October 2023. The Directors do not expect the FY23 Accounts to be published until and unless a reverse takeover transaction is undertaken. Trading in the Company's shares will remain suspended until the FY23 Accounts have been published.

5.         Background and reasons for recommending the Disposal

As set out in paragraph 4 above, the Group expects to report a loss for both the year ended 31 March 2023 ("FY23") and for the six months to 30 September 2023. During those periods, the Group has been cash consumptive. While the Group has grown revenue in FY23, and as outlined above, the rate of growth has not been as strong as the Directors had expected. As a result the Directors do not believe the Group can become profitable and cash generative without a significant further injection of capital in the form of equity and/or debt to enable the SOC business to grow and compete more effectively in its marketplace.

The Group's existing debt with Growth Lending 2021 Limited is fully secured on the Group's assets, and therefore the Directors do not believe there is a realistic prospect of securing additional debt on reasonable terms. In addition, given the current depressed state of the equity markets, particularly for micro-cap companies such as Falanx, the Directors believe, having consulted with its advisers and certain major shareholders, that securing the necessary equity funds would be very difficult and, if possible at all, would most likely only be achievable at a very significant discount to the Company's market price and would therefore be very dilutive for any shareholder who did not participate. Furthermore, an investment may only help extend the runway and the changes in the marketplace above may still mean that the Company does not grow enough on a stand-alone basis to achieve profitable growth or to become self-sustaining. Consequently, the Director's consider that the interests of Shareholders and other stakeholders will be best served by the Company proceeding with the Disposal.

The Directors believe that, given the financial position of the Company, and the wider continuing economic uncertainty, the interests of the Cyber Division and its stakeholders will be best served as part of a larger group outside the public arena and without the considerable cost, management time and the legal and regulatory burden associated with maintaining the Company's AIM quotation.

Having undertaken a comprehensive sales process led by external advisors, the Directors have agreed the terms of the sale of the Group's Cyber Division, to Thetis Bidco for an enterprise value of £4.2 million payable in cash upon Completion.

Following the Disposal, the Company will continue to be quoted on AIM as a Rule 15 cash shell (subject to the restrictions noted under paragraph 9 'Future Strategy') which may provide opportunities to create and deliver enhanced shareholder returns.

Shareholders should note that if the Disposal is not approved at the General Meeting, the future of the Company will become very uncertain and without an immediate injection of new equity or unsecured debt the Company may be unable to continue to trade.

6.         Principal terms of and conditions of the Disposal Agreement and the Transitional Services Agreement ("TSA")

Subject to the terms of the conditional Disposal Agreement, entered into by the Company (as seller) and Thetis Bidco (as buyer) on 8 November 2023, the Company is proposing to sell to Thetis Bidco the entire issued share capital of FCD and (indirectly) FCT for an enterprise value of £4.2m (subject to a working capital, net debt and intercompany balances adjustment, which will reduce the actual consideration received by the Company as demonstrated in paragraph 7 ('Use of consideration proceeds') below). 

The Disposal Agreement:

·      is conditional upon shareholder approval (by way of passing Resolution 1 to be proposed at the General Meeting) with completion expected to occur within approximately 14 days from the passing of Resolution 1.

·      contains the usual buyer protections for this type of transaction, such as warranties (including tax warranties and a tax covenant) with such warranties being insured by warranty and indemnity insurance with the Company's liability (subject to certain limitations) being capped at £1.

·      contains other customary and commercially negotiated terms agreed between the parties in relation to the Disposal.

Should Resolution 1 not be passed at the General Meeting, the Disposal Agreement will terminate and the Company will be liable to pay £250,000 to Thetis Bidco as liquidated damages to cover, inter alia, some of its deal costs.

The Company will also enter into a transitional services agreement ("TSA") with Thetis Bidco under which it shall provide limited back office services to Thetis Bidco for a period of up to 4 months from completion of the Disposal. The Company expects to receive aggregate fees of approximately £25,000 under the TSA.

The lease of the Company's premises (being situated at the Blade, Abbey Square, Reading, RG1 3BD) is, conditional on Completion of the Disposal, also to be assigned to Wavenet Limited (a member of Thetis Bidco's corporate group).

7.         Use of consideration proceeds

The Company will use the proceeds of the deal to settle liabilities and effectively close the operational side of the remaining business (as shown in the table below, which apart from the enterprise value are estimates).

8.         Board changes

On completion of the Disposal, Mike Read, Rick Flood, William Kilmer and Emma Shaw will all resign as Directors of the Company. Their employment contracts will be terminated with settlement agreements, and each of them will be paid out. The Continuing Directors will continue as directors to focus on the Company's future strategy on reduced remuneration.

9.         Future strategy

If the Disposal is approved by Shareholders and completes in accordance with its terms, the Company will move forward as a cash shell in accordance with Rule 15 of the AIM Rules and retain cash balances of approximately £0.35m as outlined above.

The Continuing Directors intend to seek to acquire another company or business in exchange for the issue of Ordinary Shares in a single transaction (a "reverse takeover" or "RTO"), which will only be able to go forward with Shareholder approval. In considering the Company's future strategy, the Continuing Directors will seek to identify opportunities offering the potential to deliver value creation and returns to Shareholders over the medium to long-term in the form of capital and/or dividends. The Company has identified possible opportunities in technology (financial technology) and other sectors. There is no certainty that these opportunities will lead to a transaction.

The Company will be required to make an acquisition, or acquisitions, which constitute a reverse takeover under AIM Rule 14 on or before the date falling six months from the completion of the Disposal or be re-admitted to trading on AIM as an investing company under AIM Rule 8. Failing that, the Company's Ordinary Shares will be suspended from trading on AIM pursuant to AIM Rule 40. If the Company's shares remain suspended for six months, admission of the Company's shares will be cancelled.

Pursuant to Rule 14 of the AIM Rules, a reverse takeover transaction would require the publication of an Admission Document in respect of the proposed enlarged entity and would be conditional upon the consent of Shareholders being given at a general meeting.

Market conditions may have a negative impact on the Company's ability to make an acquisition or acquisitions, which would constitute a reverse takeover under AIM Rule 14. There is no guarantee that the Company will be successful in meeting the AIM Rule 14 deadline as described above.

If no suitable acquisitions can be identified on a timely basis, the Continuing Directors will consider appointing a liquidator and entering a members' voluntary liquidation to return any remaining cash to Shareholders. The Directors are seeking Shareholders' approval to amend the Articles to allow such an appointment to be made by the Continuing Directors without recourse to further approval from Shareholders to ensure any such process could be implemented as cost effectively and quickly as possible.

10.        Change of Name

To reflect the new direction of the Company, the Board is proposing to change the name of the Company. Under the Company's Articles of Association, a change of name requires the passing of a resolution of Shareholders. Therefore, a resolution will be put to the General Meeting to approve the Company's change of name to: "Cloudified Holdings Limited".

If Resolution 2 is approved, the change of name will be effective once the BVI Registrar of Corporate Affairs has issued a certificate of change of name (the "Effective Date"). This is expected to occur  in early December 2023. It is further noted that, in accordance with section 23(2) of the BVI Business Companies Act (As Revised), the Articles are deemed to be amended to state the Change of Name with effect from the Effective Date. The tradeable instrument display mnemonic ("TIDM") of the Company is expected to change to "CHL" and is expected to become effective in early December 2023.

11.        Amendments to the Articles

To enable the Board to initiate winding up proceedings without requiring further Shareholder approval and to remove the requirement for the Company to have an annual general meeting, the Company proposes to amend the Articles.

If Resolution 3 is approved, the amendments to the Articles will be effective once they have been filed with the BVI Registrar of Corporate Affairs. This is expected to occur in early December 2023. The articles are being varied to remove the need for an AGM in the near term, but should the Company enter into an RTO then a general meeting will be called and audited accounts presented.

12.        General Meeting

A notice convening a General Meeting of the Company to be held at the offices of Blake Morgan LLP, Apex Plaza, Forbury Road, Reading RG1 1AX at 9.30 a.m. on 27 November 2023 is set out in the Circular. The Notice of General Meeting sets out the proposed Resolutions to approve the Disposal Agreement, the Change of Name and the amendments to the Articles upon which Shareholders will be asked to vote.

To become effective the Resolutions require passing by a simple majority at a meeting of such Shareholders.

13.        Action to be taken

Shareholders will find on the Company's website a Form of Proxy for use in connection with the General Meeting. To be valid, the Form of Proxy should be completed and returned in accordance with the instructions thereon so as to be received by Computershare Investor Services (BVI) Limited, The Pavilions, Bridgwater Road BS99 6ZY as soon as possible and in any event not later than 48 hours before the time of the General Meeting. Completion and return of the Form of Proxy will not prevent a Shareholder from attending and voting at the General Meeting should he/she/it so wish.

14.        Recommendation

The Directors unanimously recommend Shareholders to vote in favour of the Resolutions, as they irrevocably committed to do in respect of their shareholdings amounting in aggregate to 279,644 Ordinary Shares representing 5.3 per cent. of the Company's total voting rights.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

DEFINITIONS

The following definitions apply throughout this announcement unless the context requires otherwise: