Falanx Group Limited
Report and financial statements
year ended 31 March 2021
Company number 1730012 (British Virgin Islands)
Falanx Group Limited
Falanx Group Limited (“Falanx” or the “Company” or the “Group”), listed on the AIM Market of the London Stock Exchange, is
a cyber defence and intelligence services provider working with blue chip and government clients internationally and SMEs
across the globe to protect their assets from a range of threats.
The Group has two business divisions:
• Falanx Cyber: Comprehensive offensive and defensive cyber security services encompassing both Managed Services (e.g.
MDR, Managed EDR, Triarii) and Professional Services (e.g. Penetration Testing, Ransomware protection, Red Teaming)
operating as Falanx Cyber
• Falanx Intelligence: Political & Security Risk and Business Intelligence services operating as Falanx Assynt.
Falanx Cyber
Falanx Cyber provides a full range
of professional services and
managed monitoring services to
government and commercial
organisations worldwide.
Falanx Intelligence
Falanx Assynt provides Political &
Security Risk and Business
Intelligence services globally,
providing clients the information they
need to make key decisions.
1
Corporate statement
2
4
6
9
13
14
23
Business overview
Chairman’s statement
Chief Executive Officer’s statement
Chief Financial Officer’s report
Directors
Directors’ report
Remuneration & Nomination Committee Report
28 Statement of Directors’ responsibilities
29
34
38
39
40
44
42
43
Corporate Governance report
Independent auditors’ report
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the consolidated financial statements
Falanx Group Limited
Report and financial statements year ended 31 March 2021
1
Business Overview
Financial Highlights
Results for the year to 31 March 2021 as per trading update announced on 18 August 2021
• Revenues £5.24m (2020: £5.85m) a decrease of 10.4% (as previously reported), during the COVID-19 period in H1,
revenues showed a strong recovery in H2
• Group wide monthly recurring revenues broadly consistent with 2020
• Significant recovery in gross margin in the H2 driven by high utilisation of the professional services teams in the Cyber
Security division
• Operational and cash-based costs reduced by c25%
• Reduction in Adjusted EBITDA* loss to £1.26m (2020: £1.56m)
• Overall loss £3.55m (2020: £2.88m) with the increase caused by a £1.44m non-cash impairment of the Furnace
investment and receivable following its spin out in December 2019
£1.25m equity fundraise completed in September 2020
•
• Cash balances at 31 March 2021 £0.55m (2020: £0.07m), normal working capital position and HMRC in terms
•
• Shareholders’ funds £2.73m (2020: £4.97m)
Loss per share 0.77p (2020: 0.72p)
Post Period Financial Highlights
• Core Cyber Security division making major progress following revamping of service offerings in the last two years
o Now profitable and expected to remain the case moving forwards compared to losing £0.41m in 2021
o Refocused into a single cyber security monitoring service (Triarii) which has further improved its gross margin
o Order intake now ahead of pre COVID-19 pandemic levels
• Assynt trading strongly, with monthly recurring revenue contracts +20% by value since the start of the current financial
year
• Overall, a much-improved financial performance for the current year to date, and costs firmly under control
• Stronger cash position following initial £1m BOOST&Co investment in August 2021, expected to grow to £2.5m to
support investment and enhancing M&A activity
• Cash at 31 August 2021 £0.89m
Operational highlights
• Update to the Cyber Security Divisions Managed Detection and Response (“MDR”) service to support our Detection in
Depth approach with the launch of a wider range of services with enhanced capabilities. Extended capability means
we now offer Extended Detection and Response (XDR”) along with leading providers of security services
o Triarii XDR on the Elastic platform
o Triarii XDR on the Microsoft Azure Platform
o Managed Endpoint Detection and Response (M-EDR) based on Elastic as well as N-able platform
o Triarii lite on Elastic for an entry level product to the SME market
• Moved to full home working during C19, with two leases exited, saving approximately £0.15m per annum
• Achieved a £1.2m extension and expansion from an existing global technology client in January 2021 expected to
benefit the next 3 years
• Assynt expanded its country coverage to 40 separate countries and extending the Global Themes to include COVID-
19
Falanx Group Limited
Report and financial statements year ended 31 March 2021
2
Business Overview
Post Period Operational Highlights
Cyber Division
• Strong inflow of customer orders in the Cyber Division, high utilisation levels supporting break through into adjusted
EBITDA profitability
• Move to a single Triarii monitoring platform now complete, leading to lower support costs whilst increasing customer
functionality
• Biggest ever single divisional order received in April 2021 for £1m of penetration testing to be delivered over the next
three years from a global financial services company
• N-Able completed spinout from Solar Winds in July 21, opening up further routes to address this market of 25,000 MSP
users and 500,000 end user customers against a compelling cyber security requirement. Falanx expects this to start
benefitting the second half of the current year
The launch of the new f:CEL ( falanx: Cyber Exposure Level) to help customers understand their Cyber risk at an
affordable price point, supporting SMEs through to Enterprises
•
Assynt Division
• Opening of Irish subsidiary to support rollout of expanded contract to supply embedded analysts to a global technology
company, initial contract value expected to be £1m over three years with potential for further expansion
• Recognised by Chambers & Partners in their 2021 rankings, listed as one of five firms in their top tier of global
Geopolitical Risk providers
Mike Read, Chief Executive, said:
“Cyber Protection is no longer a ‘nice to have’, instead it is an essential part of any business risk discussion. Hackers and
criminals are attacking every sector and every size of organisation. With the need for home working, arising from COVID
19, hacking has been made easier and risks have increased, Organisations can no longer avoid investing in protecting
themselves. Clearly like other organisations we have experienced some delays in the progress of our business due to
COVID-19 but recent growth has been encouraging and it seems as though these are now behind us.”
“Our services portfolio is very well positioned to address this exciting opportunity, and this is now feeding through into
improving revenues and profits in the core Cyber Security division. Our pipeline of future business is strong both in terms
of quantum and quality of opportunities including those from our deepening relationship with N-Able Inc.”
“Our separate Assynt division has a solid and growing base of contracts as well as new prospects with some of the world’s
largest companies, and this is a valuable asset in its own right.”
“Given the progress and increasingly favourable cyber-security market trends I am increasingly confident that Falanx’s core
business is well positioned to deliver significant shareholder value.”
(*) Adjusted EBITDA is a non-IFRS headline measure used by management to measure the Group’s and individual divisions performance and is based on operating profit
before the impact of financing costs, IFRS16, share based payment charges, depreciation, amortisation, impairment charges and highlighted items. IFRS16 is excluded
so that the underlying rental costs of the premises are reflected in this metric.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
3
Chairman’s Statement
I am pleased to present your Company’s Annual Report & Accounts for the year ending 31st March 2021.
The financial highlights and performance will be addressed in some detail in the reports of both the Chief Executive and the Chief
Financial Officer, so I will confine my comments to the more strategic aspects of our operations.
Certainly, the past 12 months have seen the continued, insidious growth in cyber-related crime and, in particular, the very noticeable
emergence of ransomware as a key cyber risk. The complacency of many companies in the SME sector to recognise their
vulnerability to this criminal activity still surprises me and my colleagues; particularly as the past 24 months has seen a very significant
and permanent shift towards distributed working patterns which makes cyber-crime more, not less, likely. All companies, of whatever
size, fall prey to this type of crime and it is only through rigorous training of the workforce and the 24/7 monitoring of IT infrastructures
that businesses will be able to robustly protect themselves from its calamitous consequences. Directors of businesses, big and small,
public, and private, need to continually satisfy themselves that their IT assets are secure from being compromised.
In our core cyber services division, this was a year of two halves, with customer spending in the initial six-month period clearly
disrupted by the impact of COVID-19. The second half witnessed a gradual and sustained recovery in business activity such that the
core cyber division since the year end, moved into profitability at an adjusted EBITDA level. In part, this has been accomplished
through rigorous cost control as well as the introduction of Triarii, our new sophisticated and flexible cyber protection platform which
is delivering better customer results along with margin efficiencies. It also reflects the growing importance of our strategic channel
partners, N-able based in the USA and Trustmarque based in the UK. Both relationships allow us to reach into a sizeable community
of customers and managed service providers around the globe, many of whom do not have access to the advanced cyber protection
capabilities that are delivered by Triarii. We look forward to deepening these key relationships over the forthcoming months and
years.
Turning to our Business Intelligence division, Falanx Assynt, activity for the year was less volatile than Cyber, but still felt the impact
of COVID-19 in terms of business development and organic growth. Assynt is a business with substantial recurring revenues with
some of the world’s largest and globally active technology companies. These relationships are steady and deepening and, again,
we are seeing some encouraging signs of growth coming from them as business activity around the world begins to recover to pre-
pandemic levels. We were proud that in August 2021, the Company achieved the distinction of being rated by Chambers in the top
2021 global providers of strategic corporate intelligence. This is a distinction that reflects the quality of the team of analysts that has
been assembled in the Company and we look forward to continuing steady improvement in the business.
We announced in September that in August we received support from Boost & Co which has become our debt stakeholder, supporting
our organic growth with working capital and providing us with some acquisition funding should we identify any suitable opportunities.
We believe that the business world is steadily emerging from the bunker into which it retreated during the pandemic. This process is
not occurring in an even manner around the world and some geographies still remain stubbornly inward looking. However, and in
many ways lamentably, the cyber war between criminals and corporates continues to escalate and the stakes are getting higher. For
this reason, we believe that Falanx is well-positioned and has an important role to play in diminishing the ever-evolving threat of
cyber-crime.
As ever, we express our thanks to all our employees who have showed resilience, determination, and flexibility in helping your
company weather the COVID-19 storm and position us for what we expect to be a busy future.
Approved by the Board on 28 September 2021 and signed on its behalf by
A Hambro
Non-Executive Chairman
Falanx Group Limited
Report and financial statements year ended 31 March 2021
4
Chief Executive Officer’s Statement
Falanx is a provider of Cyber Security and Strategic Intelligence services to over 470 customers worldwide. Customers include
Managed Service Providers (“MSPs”), IT providers, governments, large multinationals and small to medium enterprises (SMEs). Our
services are sold via two independent business units supported by a common corporate services team
Falanx Cyber Defence (“FCD”)
Our Cyber division has two business lines: Offensive (Professional Services, including Penetration Testing) and Defensive (a range
of managed services) which are sold either through our partners or directly by our sales teams. These generate high quality repeat
and recurring revenues, and our strategy is to grow these by delivering services which are highly relevant to customer needs in the
post pandemic, digital world, and its dramatically increasing cyber security threats. These are already showing that they can generate
value for shareholders.
Financial Performance
The division recorded revenues of £3.12m (2020: £3.71m) for the year to 31 March 2021. As referenced in our interim results, the
reduced revenues were due to delays in sales and deliveries in the first few months of the financial year as COVID-19 impacted.
Sales orders during this period were circa £0.1m per month compared to c£0.2m per month before COVID-19. These recovered
strongly in the second half of the year when the division recorded much higher revenues. Revenues from our new cyber security
Extended Detection and Response (“XDR”) solution (“Triarii”) also commenced in the second half and these helped the recovery,
complementing our traditional ability to provide Managed Detection and Response (MDR) services through value-added capabilities.
Gross margins were 33% (2020: 38%) with the fall being due to a) low utilisation of professional services staff during the worst of
COVID-19 which reduced gross margin to 27% in the first six months; combined with b) temporary additional technology platform
costs in the second half of the year whilst migrating existing clients onto the new Triarii MDR platform. We chose to fully maintain
our highly skilled and cohesive workforce in anticipation of a rebound, so that the division could capitalise on renewed growth post
the immediate disruption of COVID-19. This proved to be an excellent decision. Gross margins improved to 37% in the second half
of the year as utilisation improved. The Triarii customer migration program has subsequently been completed and gross margins are
expected to further improve significantly in the year to 31 March 2022. Furthermore, in some cases the migration has led to existing
customers electing to expand their coverage beyond MDR to Triarii XDR with the extended protection afforded by our Detection in
Depth philosophy.
Underlying operational & cash-based costs (including premises, sales and marketing and administration) were under tight control
and were reduced by 20% to £1.46m (2020: £1.82m). This was achieved through closure of premises, lower travel, salary sacrifices,
lower discretionary spend and some limited support from the furlough scheme. Despite a lower cost base, we maintained our
exceptionally high level of customer service across all services.
Overall, the adjusted loss was £0.44m (2020: £0.41m) with there being a much-improved performance in the second half of the year,
and March 2021 being one of the strongest months in the division’s history.
Operational Review
The financial year commenced just after the start of the COVID-19 pandemic. Our investment in cloud-based infrastructure meant
that we were able to quickly and seamlessly move to a remote operating model and ensured continuity of operations. We rapidly
adjusted our model to ensure continuity of service for our customers and were also able to make significant savings in costs –
including savings on premises costs as well as a significantly reduced spend on travel and living. We focussed our efforts on looking
after our customers and staff during this difficult period and have no doubt that this contributed to the recovery in the second half of
the year. There were delays in sales cycles and the ability of customers to receive some of our services, but this improved
significantly in the second half of the year.
The move to a remote working world massively increased the risk of a cyber-attack for virtually every business, large or small. This
heightened risk greatly increased demand for cyber security services once the initial disruption of the crisis was stabilised. In the
period we have signed over 40 entirely new customers and this has helped both MDR and Professional services. Orders rebounded
swiftly in the second half leading to the much-improved financial performance described above, despite there being some ongoing
disruption from the lack of access to client premises for certain projects.
Total orders for the period were £3.5m (2020: £3.4m) and increased despite lower orders in the the first half of the year which was
impacted by COVID-19. They comprised circa £2.3m of Professional Services and £1.2m Managed Services.
MDR and Security Operations Centre (“SOC”) services
Our move away from legacy MDR platforms to current and leading technologies has resulted in a vastly improved range of capabilities.
This further supports our ‘mantra’ of being able to provide affordable cyber protection to businesses of all sizes, large and small. Our
Triarii philosophy of ‘Detection in Depth’ has been well received and we continue to expand the number of touchpoints we monitor in
an IT estate to ensure that, wherever an attack may initiate, we have the best chance possible of detecting it before it does harm to
a business. Our product set now includes:
1. Triarii XDR (based on the Elastic platform)
2. Triarii XDR (based on Microsoft Azure Sentinel)
Falanx Group Limited
Report and financial statements year ended 31 March 2021
5
Chief Executive Officer’s Statement
3. Triarii Lite (MDR for smaller businesses)
4. Managed Endpoint Detection and Response (M-EDR)
5. Managed EDR (N-Able EDR)
Consequently, we can deliver enterprise-grade protection to the masses at an affordable price-point, protecting people around the
clock, 24/7/365 via our SOC in Reading.
Our Triarii technologies have also expanded our market reach to include cloud, hybrid and on-premise infrastructures, distributed /
remote workforces and organisations heavily invested in Microsoft Azure.
Professional Services
Falanx Cyber now offers an extended portfolio of professional cyber security services. We offer a wide range of ethical offensive
services designed to simulate real-word cyber criminals and, in doing so, enable us to identify weaknesses in clients’ defences and
advise them as to how they can better protect themselves and their assets. These services range from specific penetration testing
services through to social engineering techniques (such as phishing and red teaming inter alia) which can then be integrated into
tailored security awareness
including
Government, Finance, Legal, Insurance, Retail, IT and Telecoms. This service line continues to benefit from a high level of repeat
business and expansions and extensions of customer commitments.
training. We continue
to serve customers
range of sectors
in a diverse
Routes to Market
To accelerate growth beyond the confines of traditional direct sales and cross-selling opportunities between service lines, Falanx
Cyber utilises a ‘Channel’ model, providing security services via its growing network of MSP partners. These IT outsourcing
organisations have a longstanding and trusted status with their customers for the provision of essential business IT functions and, as
such, they are natural partners for Falanx Cyber and a significant extension of our market reach.
The spinout of N-able (formerly SolarWinds MSP) into a separately traded public company, N-able, Inc ("N-able"), completed in July
2021. A key strategy of N-able is to empower and protect its 25,000 MSP customers (and over 500,000 end users) with cybersecurity
products and services, and the Company believes that it is very well positioned to address this market. Falanx has already been
working increasingly closely with N-able to develop this opportunity and broaden services and routes to market, and we expect to
feel the benefit of this in the second half of the current financial year.
Current Year Update
Falanx Cyber Defence has had a strong performance since the start of the new financial year. The division is profitable at an adjusted
EBITDA level, it has high levels of customer orders and is growing its Monthly Recurring Revenue (“MRR”) base with the SOC
services described above. The sales pipeline is strong across our channels including N-Able and TrustMarque as well as for the
direct sales team. This is being driven by even greater cyber security threats and organisations needing to address these with
urgency.
We have launched our new cyber evaluation model targeting all businesses, from the largest to the smallest. In summary, everyone
needs to understand how an attacker might view their business form the outside, thereby gaining an understanding of the likelihood
of being attacked. Our recently launched, affordable assessment service, Falanx Cyber Exposure Level (“f:CEL”), provides,
objectively, exactly that understanding.
The division won its largest ever contract in April 2021 worth £1.0m over a three-year period. This is from an existing global financial
services customer and is for the provision of Penetration Testing services. We continue to have positive discussions with the client
and believe there is the opportunity for further growth.
Overall sales orders for penetration testing were more than £0.25m (excluding the above £1m contract) per month for the first 7
months of this calendar year compared to £0.15m in the first 7 months of the last Financial Year. This has been converted into
revenue based on high levels of utilisation in our highly motivated and expert team.
The migration from legacy platforms to Triarii is now complete and this now delivers a much greater capability to our customers.
Furthermore, this reduces our external software licence costs. This is resulting in further improved gross margins and overall financial
performance.
We now have a strong cyber security business which is well positioned to address this exciting market opportunity and its powerful
drivers, in the move to a digital world. Our services are well aligned against the growing market opportunity. Furthermore, customer
demand has grown significantly compared with the pre pandemic environment. The combination of strong and growing demand
for the Falanx Cyber portfolio of services, the market pull of the MSP ‘Channel’ model, the accelerating opportunity offered by N-Able
and other strategic channel partners, combined with the Triarii XDR service, gives our core division strong growth potential which is
already generating returns.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
6
Chief Executive Officer’s Statement
Falanx Assynt
Our strategic Intelligence business unit, Falanx Assynt, provides market-leading geopolitical reporting and analysis focused on key
major emerging markets and overarching global themes. Its client base includes some of the largest and most recognised global
corporate names. Assynt’s two principal business lines are the provision of subscription-based Assynt Reports and the provision of
embedded analysts into clients. These are supplemented by an Intelligence Consulting practice which provides tailored reports to
address specific client requirements.
Financial Review
Annual revenues for the year were £2.12m (2020: £2.14m). Certain projects were put on hold during the COVID-19 pandemic, and
this held back planned revenue growth as corporates did less travel and held back on activities in emerging markets. Our highly
resilient revenue model which is circa 95% monthly recurring enabled us to mitigate any revenue retrenchment. We had invested
c£0.15m in further central analyst capacity to support planned sales of report subscriptions and business intelligence consulting
assignments but these were delayed due to COVID-19. Consequently, gross margin was reduced to 26% (2020: 38%). Operating
overheads were reduced by c40% to £0.47m by the closure of premises and reduced travel arising from COVID-19 as well as lower
marketing and hiring costs. Overall adjusted EBITDA increased to £0.1m (2020: break-even).
Operational Review
Our plans for further expansion for the year were put on hold as the critical focus became the need to match our client’s priorities and
in some cases the need to retrench. This has resulted in some customer churn in both the Assynt Report and embedded analyst
business lines. Notwithstanding that, revenues overall held up well and are now back on track. The pandemic most affected our
consulting revenues, due to a decrease in client interest in projects in emerging markets at a time of uncertainty.
For our Assynt Report subscriber base of global corporates (many of which are headquartered outside of the UK),
we have produced over 1,200 reports analysing key geopolitical events in 40 countries, including specialist analysis of international
jihadist trends. Over the course of the year, we have expanded our reporting to address significant global themes falling out from the
COVID-19 pandemic. These have been very well received by our clients.
The Assynt team has been very successfully working on a virtual basis since March 2020. The existing business model whereby two
thirds of our staff already worked in third party offices as embedded analysts, made the transition to remote working due to lockdown
easy to implement. The decision not to renew our London office lease on expiry in June 2020 was thus a clear-cut opportunity for
cost saving with no impact on efficiency.
The value of the embedded analyst service continues to be recognised by clients as a means to integrate Assynt's geopolitical
understanding and business-focused analytical expertise into our host client's operational capabilities without requiring headcount
signoff in the client. All our most critical clients have demonstrated the value we deliver by maintaining or increasing their spend with
Assynt despite COVID-19 pressures. In particular, a £1.2m three-year contract won in January 2021, with one of the world's largest
technology companies has been further expanded in the financial year to 31 March 2022, with a requirement for embedded analysts
in EU territories. This will be serviced from the Group's newly formed subsidiary in Ireland and is expected to generate revenues of
c£1.0m over the next three years. We believe that there is further significant potential for growth in this service.
Since the close of this period, Falanx Assynt has once again been recognised by Chambers & Partners, listed in their 2021 rankings
as one of only five firms in their band one, top tier of global Geopolitical Risk providers. Charles Hollis, the Managing Director of
Assynt, was also rated among the top five individual practitioners globally.
Future Prospects
The Assynt division has a strong pipeline of new business, and a growing contract base which will allow it to generate increasing
returns.
Our Teams
Across both Business Units the teams have adjusted to the new working from home environment and have continued to provide a
very high level of support to our customers and suppliers. – I and the Board want to thank them.
Approved by the Board on 28 September 2021 and signed on its behalf by
Falanx Group Limited
Report and financial statements year ended 31 March 2021
7
Chief Executive Officer’s Statement
M D Read
Chief Executive Officer
Falanx Group Limited
Report and financial statements year ended 31 March 2021
8
Chief Financial Officer’s Report
Revenue
Group revenues fell by 10 % to £5.24m (2020: £5.85m), mainly due to the COVID-19 period in the first six months, which largely
affected the Cyber division. Revenues in the second half of the year were approximately £2.8m and this represented growth of c25%
compared with the first six months and utilisation improved as clients resumed delayed projects. Sales order values for professional
services such as penetration testing significantly grew in the second half and on average were c£0.22m per month which was ahead
of the average level before the onset of the crisis.
The business has continued to benefit from a strong element generated from the recurring contracts in each division, and overall,
this was constant at 55% (2020: 56%). At the end of the period monthly recurring revenues across the Group stood at approximately
£0.25m per month (2020: £0.26m). Our future order book of work remained strong with an order book £2.7m (2020: £2.7m) as well
as deferred incomes (contract liabilities) of £1.1m (2020: £1.2m). This order book increased substantially post the year end with a
total of £2.0m of future revenues being won under multi-year framework agreements with large global customers in each division.
During the year we added over 40 new cyber accounts (including several larger accounts) as well as significantly expanding our
existing clients spend on cyber security services. Our churn in acquired customer bases has been low and as an example, the churn
for First Base (acquired March 2018) has been less than 1% although the overall business has grown by circa 15% per annum
(excluding the short-term impact of COVID-19). The Assynt division has a different customer profile to the Cyber division with
approximately 75% of its clients being international and approximately 90% of them paying in advance with an average advance
period of seven months.
Overall, our number of customers invoiced was 292 (2020: 284) and overall, the company dealt with circa 470 (2020: 440) customers.
Cost of sales
Cost of sales represents cost items which vary more closely as a function of sales demand and therefore revenues.
The Intelligence division’s cost base is largely employment costs for full time and external consultants who produce intelligence
reports for customers as well as certain database access licences. The Cyber division costs include the team who deliver the
monitoring and professional services, external licence fees for technology platform and its support (some of which are fixed and some
of which are variable) as well as certain consultants for delivery of specific client assignments.
Gross margin
The Group’s gross margin was 30% (2020: 38%). The reduction was mainly due to:
•
Low utilisation issues in the cyber division in the first half of the year as clients delayed projects due to COVID-19 which
affected the fully maintained workforce. This began to recover in the second half of the year. Overall group margins were
27% in the first half and 32% in the second half of the year.
• Additional external licence fees of c£0.14m were also incurred in the second half of the year by the monitoring business in
the Cyber division due to the planned migration to the Triarii platform away from legacy applications. This was equivalent to
circa 8% of the Cyber divisions revenues in that period. This was completed in June 2021 and gross margins have since
then significantly recovered with the use of a single technology platform.
£0.2m investment in the expansion of central analyst teams in the Assynt division in support of planned incremental sales
of report subscriptions and business intelligence consulting assignments, which were delayed due to COVID-19 impacts.
•
Operational and cash-based costs
Administrative expenses excluding depreciation, impairment and amortisation and highlighted costs decreased by 25% to £2.84m
from £3.78m due to the tight control of spend around marketing, travel, headcount, and premises reduction. Average headcount
(including cost of sales) in the year was 84 (2020: 81) with the increase arising from higher levels of professional services staff.
Highlighted costs
Highlighted costs were £0.11m (2020: £0.32m) mainly represented the expense of closing premises in London and Sussex during
summer 2020. Restructuring costs included certain corporate development professional fees around specific projects. Rental costs
are normalised to exclude the impact of IFRS 16 on the Reading lease (commenced July 19), reducing the overall adjustment by
£107,000 (2020: £76,000).
Share Option Charges
Share option charges were £0.18m (2020: £0.23m) and mainly arose from options granted in April 2020 as part of a voluntary salary
sacrifice scheme by the staff and directors.
EBITDA
Adjusted EBITDA loss for the year was £1.26m (2020: £1.56m) after adjusting for the items highlighted above. Overall reported
EBITDA loss (excluding share option charges) was £1.37m (2020: £1.89m).
Falanx Group Limited
Report and financial statements year ended 31 March 2021
9
Chief Financial Officer’s Report
Depreciation, amortisation, and impairment
The investment of £1.44m in Furnace Technologies Ltd (“Furnace”), which was spun out of the Group in December 2019, was fully
impaired due to inherent objective valuation uncertainties arising from to its early nature and lack of external financing to support the
carrying value. Furnace has made some initial sales and is currently seeking external investment and Falanx will review its carrying
value accordingly. Falanx’s forward business plans do not have any dependency of Furnace’s financial performance and Falanx has
no obligation to provide further financial support.
Depreciation of fixed assets was £76,000 (2020: £87,000), and a further IFRS 16 amortisation charge of £109,000 (2020: £77,000)
was recorded in respect of the right of use asset related to the Reading lease acquired in July 2019. A consistent £0.29m charge
arose from the amortisation of acquired customer base intangible assets from First Base (ten-year amortisation period, straight line
basis, acquired March 2018) and Securestorm Limited (three-year amortisation period, straight line basis, acquired July 2018).
Financing costs
Net financing costs were £33,000 (2020: £24,000) and mainly arose from IFRS 16 treatment of the Reading office lease which
commenced in July 2019.
Result for the year
Due to the non-cash impairment of Furnace the loss increased from £2.88m to £3.55m and loss per share increased to 0.77p from
0.72p.
Non-current assets
Goodwill arising on the acquisitions of Falanx Cyber Defence, First Base and Securestorm remained at £1.85m and no impairment
was deemed necessary. As referenced above the investment in Furnace was fully impaired during the year and was carried at £nil
(2020: £1.44m). Customer relationships from First Base and Securestorm were carried at a total of £1.68m (2020: £1.97m) with the
reduction arising from straight line amortisation referred to above. The Group’s non-current assets also include the future value of
the lease of the Reading premises of £0.36m (2020: £0.47m) which commenced in July 2019. A creditor of £0.35m (2020: £0.44m)
is carried to reflect future liabilities and £0.09m (2020: £0.09m) are included in current liabilities. Fixed assets which include furniture
plant and equipment were £0.16m (2020: £0.20m).
Working capital
Amounts due from customers (including contract assets), was £0.75m (2020: £1.5m) with the reduction due to certain larger customer
payments being made earlier than in the previous year. Collections since the year end have been normal and no incidence of bad
debt has been recorded since the previous annual report. Overall debtor days fell from 66 to 28 days due to higher cash collections
before the end of the year. Prepayments were again reduced due renegotiated supplier contracts being in place with lower levels of
advance payments. Other receivables included c£0.11m of R&D tax credits which were received in full after the year end. The Group
continued to have a very low incidence of delayed and/or non-payment of debts by customers and our average losses over the last
three years were only 0.06% of revenue. Taxes payable increased due to the payment plan negotiated with HMRC in July 2020 in
response to COVID-19. A deferred payment plan was agreed with HMRC to reschedule up to £0.64m of payroll taxes outstanding at
30 June 2020 over 2 years as well as taking advantage of published time to pay plans on VAT. The group is fully in compliance with
these plans.
Contract liabilities (deferred income) were £1.11m (2020: £1.23m) with the difference being due to the timing of certain advance
customer billings.
Capital structure
On 29 September 2020 Falanx announced the completion of a fundraising exercise for £1.25m by issuance of 125,000,000 new
ordinary shares of nil nominal value and at 31 March 2021 there were 525,401,185 (2020: 400,401,185) shares of nil par value in
issue.
In February 2021 the Company received shareholder permission to carry out a capital reconstruction exercise to support an
application for a UK government loan which required retained losses to be less than fifty percent of issued capital and as a result
£14.0m of the credit balance on share premium was used to reduce the accumulated losses and a further £1.0m was transferred to
a special non distributable reserve (the “2022 Liabilities Reserve”) in respect of certain longer term liabilities, and the balance on this
will transfer to accumulated losses on 31 December 2022
On 21 April 2020 approximately 33 million (6.3% of the issued capital) new share options and warrants were issued to staff and
directors in exchange for salary reductions for the six months to 30 September 2020. These options were priced at 1p each and have
a life of 10 years from the date of grant. Staff and directors waived approximately 25.7m options and a further 9m lapsed in June
2020.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
10
Chief Financial Officer’s Report
Overall, at 31 March 2021 the Company had approximately 73.3m employee options outstanding representing c14% of the issued
capital. The average option price was c2.7p (2020: 4.6p).
The Group continues to rationalise legal entity structure to best align it with the current opportunity as well as to reduce costs and
streamline tax management. The Groups incorporation status as a BVI entity is a legacy of its pre 2013 IPO business plan and the
Board will review moving it to a UK status at an appropriate time, taking into account the significant professional fees which would be
associated with such a change. The Group’s memorandum and articles of association were revised in March 2019 to align with UK
incorporated entities more closely. The Group is fully resident and registered in the UK from a tax perspective. The Group has
streamlined its subsidiary structure to reduce the number of active legal entities and to align structures more effectively within the
divisions.
At the year-end shareholders’ funds stood at £2.73m (2020: £4.97m).
Statement of Cash Flows
The Company consumed £0.40m (2020: £1.67m) of cash in operations in the year. The deferral of certain HMRC liabilities under
COVID 19 helped reduce outflow by circa £0.5m and a strong collections performance further helped cash working capital
performance resulting in an improvement of £0.69m cash inflow from debtors to £0.97m (2020: £0.27m). When adjusted for the net
impact of HMRC deferrals and payments under premises leases, operational cash out flow was circa 75% of EBITDA (2020: 80%)
which is similar to historic performance.
£1.25m of shares were issued in September 2020 as part of the Company’s response to COVID-19 and this resulted in net proceeds
of c£1.13m Closing cash balances at 31 March 2021 were £0.55m (2020: £0.08m). A governmental “Bounce Back Loan” of £50,000
was received by a subsidiary in May 2020.
Post Balance Sheet Events
Trading performance for the four months to 31 July is set out below (from unaudited management accounts)
4 months to 31 July 2021
4 months to 31 July 2020
Revenue £’m
Adj EBITDA £’m
Revenue £’m
Adj EBITDA £’m
1.20
0.65
0.03
(0.04)
(0.31)
(0.32)
0.95
0.72
(0.14)
(0.05)
(0.23)
(0.42)
Cyber
Assynt
Central Costs
Cyber Security Division:
• Strong utilisation and increasing profits as expected following the ongoing recovery from COVID-19 impacts.
•
The divisions Monthly Recurring Revenue (“MRR”) is now growing with new sales of Triarii offsetting some churn, caused
mainly by larger clients move to own SOCs.
The monthly run rate of orders was circa £0.34m per month in the six months to 30 June 2021 compared to an average of
£0.19m per month in the same period in 2020.
•
• Gross margins much stronger in the current financial year (circa 40%) with further improvements following the completion
of the move to a single monitoring platform (Triarii).
•
In April 2021 this division won its largest ever sales order, with a £1m multi-year contract for penetration testing which is
expected to be delivered over three years.
Assynt Strategic Intelligence Division
•
The division has expanded its overseas presence with the establishment of a wholly owned subsidiary in Ireland which can
service large global clients. It has already won its first contracts which are expected to have a sales value of c£1.0m over
the next three years. This has increased the contracted revenue base to circa £0.19m per month, an increase of c19% from
the start of the year. These are expected to benefit September 2021 onwards.
Central costs are higher than the previous year which reflected the COVID-19 salary sacrifice scheme.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
11
Chief Financial Officer’s Report
On 18 August 2021 the Group announced a five-year Growth Loan facility with BOOST&Co the key terms of which are
•
Initial £1m loan secured over the Group's assets, expected to increase to £2.5m to fund acquisitions & investment
programmes
• Annual interest of 11%, and straight-line amortisation of the loan commencing after 12 months
•
The loan carries a 3% early prepayment fee on the then amount outstanding
The proceeds of the Loan will enable the Group to make earnings enhancing acquisitions to strengthen its core Cyber division, as
well as supporting the Group's overall organic growth plans.
I R Selby
Chief Financial Officer
Falanx Group Limited
Report and financial statements year ended 31 March 2021
12
Directors
Alex Hambro
Alex Hambro (non-executive Chairman) has been active in the investment sector both in the UK and the USA for some 30 years,
during which time he has acted as a principal investor, manager and sponsor of private equity and venture capital management
teams. As well as his responsibilities at Falanx, Alex is a founder and Chairman of Judges Scientific plc, a scientific instrumentation
group. In addition to these two AIM company responsibilities, Alex is also Chairman of OTAQ plc and a Non-Executive Director of
Octopus Apollo VCT plc and Oberon Investments Group plc.
Mike Read
Mike Read (Chief Executive Officer) has over 30 years’ experience in the global Telecommunications, Media and Technology (TMT)
sector and has been a director of eight public companies. He has held numerous 'C' level roles in the UK and USA, including, CEO
of Pipex Communications, Executive Director at Daisy Group Plc, Non-Executive Director at Nasstar Plc, and Non-Executive
Chairman at IntY Limited. Mike has significant experience helping to build international technology companies, having been involved
on over 50 M&A transactions.
Ian Selby
Ian Selby (Chief Financial Officer and Company Secretary) is a Chartered Accountant with significant experience in the technology,
security and business services sectors. He was previously the CFO of AIM listed Westminster Group plc where he supported the
development of their successful managed services business and the raising of the associated financing. Prior to this, he was Group
Finance Director of Zenith Hygiene Group plc, where he was instrumental in executing a successful trade sale and prior to this was
the CFO of a listed software company focused on financial and public sectors. Ian has held international finance roles in listed
technology companies including Halliburton Inc, Sybase Inc and Micro Focus plc. He qualified as a Chartered Accountant with
Coopers & Lybrand Deloitte and holds a degree in Physics from the University of Birmingham. Ian is responsible for finance, premises,
HR and IT infrastructure.
Emma Shaw
Emma Shaw (independent non-executive Director) is the Managing Director of Esoteric Limited, an Electronic Sweeping, Counter-
Espionage and Intelligence gathering company. 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 is also the former 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 member of the Advisory Council for CSARN.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
13
Directors’ report
The Directors present their report and the audited financial statements for the year ended 31 March 2021.
Business Review
The Group's results for the year are set out in the consolidated statement of comprehensive income on page 38 of these financial
statements.
A review of the business, significant contracts, progress and the Group's future prospects can be found in the Chairman's Statement.
Key Performance Indicators
Performance
Indicator
Description
Why measured
2021
2020 Comment
Group
revenue - £’m
Changes in total revenue
compared to prior year
Gross margin Percentage of total revenue
retained by the Group after
direct costs deduction
EBITDA - £’m
Adjusted
EBITDA - £’m
A measure of profits excluding
non-cash items such as share
option charges, impairment,
depreciation, and amortisation
A management measure of
profits adjusted for non-
underlying items such as
restructuring, and acquisition
related and excluding the
impact of IFRS 16
Cash
conversion
Operational cash flow /
EBITDA
Recurring
revenue %
Recurring revenue lines / total
revenue
Monthly
recurring
revenue - £’m
Revenue from the provision of
services on a recurring basis
Number of
Invoiced
customers
Number of customers invoiced
over the preceding 12 months
Headcount
Average headcount during the
year
Contract
liabilities
(deferred
income) - £’m
Contracted and invoiced
revenue yet to be recognised
(deferred income)
Falanx Group Limited
Report and financial statements year ended 31 March 2021
Revenue growth gives
a quantified indication
of the rate at which the
business
Group’s
activity
is expanding
over time
Provides an indication
of sales profitability and
proportion of revenue
available to cover other
running costs
£5.2
£5.9
Impact of COVID-19 delays
mainly in the Cyber division in
the first half of the financial
the
year with recovery
second half
in
30%
38% Lower margin in the first half in
the cyber division due to low
in COVID19 and
utilisation
maintenance of full workforce.
Recovery in the second half
and into the current financial
year.
Offers
clearer
a
reflection of the ability
to generate cash
£(1.5)
£ (2.0) Decreased loss as a result of
tight cost control and lower
highlighted costs.
Underlying
performance
business operations
of
£(1.2)
£ (1.5)
Decreased loss as a result of
tight cost control
Measures the ability of
the business to convert
into cash and
profit
between
correlation
EBITDA
cash
performance
and
Shows
recurring
growth rate
visibility
of
revenue
Shows
predictable
monthly metrics to track
against
progress
objective of becoming
profitable
solely on
recurring revenue
Measure of customer
concentration (includes
acquired
customer
base)
Shows average number
of employees
the
year
in
into
Shows visibility
invoiced amounts to be
recognised
future
periods
in
29%
85% When adjusted for the impact
of COVID-19 HMRC deferrals
and premises rental c75%.
Average over 4 years circa
100%.
55%
56% Broadly in line with prior year
0.25
292
0.26 Some churn in Cyber due to
offsetting
legacy
platform
in
wins. Significant growth
Assynt since the year end,
August 2021 circa £0.28m
284 Move towards larger contracts
and invoices in each division.
Circa
440)
470
customers dealt with
(2020:
84
81
Increase
consultants.
in
billable
£1.1
£1.2 Broadly static, some timing
issues.
14
Directors’ report
Dividends
The consolidated statement of comprehensive income for the year is set out on page 38 and shows the loss for the year.
The Directors do not recommend the proposal of a final dividend in respect of the current year.
Events after reporting date
• On 29 April 2021, the Group announced changes to certain outstanding share options to reduce potential tax charges for
both the option holder and the Company. This involved the cancellation of 29,119,200 unapproved share options with
exercise prices between 1p and 1.92p, and their immediate reissue under identical terms under the Group’s EMI approved
scheme.
• On 18 August 2021, the Group announced a five-year Growth Loan facility with BOOST&Co of which he key terms are:
o
Initial £1m loan secured over the Group's assets, expected to increase to £2.5m to fund acquisitions & investment
programmes
o Annual interest of 11%, and straight-line amortisation of the loan commencing after 12 months
▪
The loan carries a 3% early prepayment fee on the then amount outstanding
o The proceeds of this will enable the Group to make earnings enhancing acquisitions to strengthen its core Cyber
division, as well as supporting the Group's overall organic growth plans.
• On 18 August 2021, the Group announced that options over a total of 7,000,000 Ordinary Shares of nil par value each were
granted to 7 employees.
Directors
The Directors who served the Company during the year and up to the date of this report were as follows:
Executive Directors
M D Read
I R Selby
Non-Executive Directors
E Shaw
A Hambro
Directors’ interests
The Directors’ interests in the share capital of the Company at the year-end were as stated below:
M D Read^
E Shaw
I R Selby
A Hambro
2021
Number of
shares
15,313,940
1,366,666
2,069,348
2,750,000
% Held
2.91%
0.26%
0.39%
0.52%
2020
Number of
shares
11,453,940
866,667
1,069,348
250,000
% Held
2.86%
0.22%
0.27%
0.31%
^ M D Read has 6,000,000 warrants, vesting and exercisable as detailed in note 12.
Group’s policy on payment of creditors
It is the Group's policy to pay suppliers in accordance with the terms and conditions agreed between the Group and its suppliers,
provided that the goods and services have been supplied in accordance with the agreed terms and conditions. At the end of the
financial year ended 31 March 2021, creditors’ days were 84 days (2020: 69 days). At present the vast majority of the Group’s
creditors, including taxation are within agreed terms.
Political and charitable donations
There were no political and charitable donations made by the Group during the year.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
15
Directors’ report
Financial Instruments
The Group's financial risk management objectives are to control debt levels and to ensure sufficient working capital for the Group's
overheads and capital expenditure commitments. Financial instruments are disclosed and discussed in note 29 to the financial
statements.
Falanx People
Falanx Group employs around 77 team members in the UK and 7 internationally (2020: 74 employees in the UK and 7 internationally).
Our employees are at the very heart of the organisation and are our most valuable asset. We recognise that, to ensure that we have
a competitive advantage, our employees should have the best opportunity to thrive and succeed. We therefore engage with our team
to support motivation, retention and performance.
As an organisation, we have used our technology infrastructure where we heavily invested in the last year, to enable successful and
secure remote working and effective collaboration across our international workforce, including UK, Dubai, Hong Kong, Italy and the
US. Many of our employees work remotely with the ability to be based in our new and vibrant office space in Reading, UK a hub for
technology. In Reading, we have created a modern and collaborative environment for our employees.
Our remote working model has enabled Falanx to secure the highest calibre of technology talent at more senior levels within the
organisation that require experience and technical skills.
We are proud to provide Internship opportunities into our Security Operations Centre in Reading. We work in partnership with leading
Universities in the UK and employ 3 university students each year on a year industrial placement. We have retained some of these
students following graduation who have progressed onto successful careers in Cyber Security.
Retaining our talent is key and we are keen to ensure that we have a competitive advantage as an employer of choice. We provide
our employees with a benefits package to include Private Medical Insurance, a health cash plan, life insurances, a pension scheme,
an employee benefits platform which includes a Bike to Work scheme.
In April 2020 we launched an employee share option where cash remuneration was reduced in exchange for share options which
aligned staff with shareholder interests during the peak of the COVID-19 crisis. We are pleased that there was a good level of uptake
around the organisation. We have our staff keep well, both physically and mentally during the COVID-19 pandemic and we continue
with a focus on wellbeing on an ongoing basis.
To ensure that the Company is positioned for projected growth plans; Falanx provides a Management Development Programme to
talented managers to enhance their skills to lead growing teams and take on increased accountability. We have been delighted with
our teams’ progress; it has helped them to make intelligent decisions with confidence, making better use of resources, managing
performance at a team level and working towards business goals through strategic translation. In addition, it has built trust and
stronger working relationships within our leadership team and helps support succession planning.
We encourage our people to continue to develop their skills and keep up to date with new technology, standards, processes and
regional risks and threats. Training needs are identified through the regular development meetings team members have with their
line managers. The Company are fully supportive of providing training that supports personal development plans, helps retention and
has clear business benefits.
Business Ethics and ways of working
Falanx is committed to ensuring that the business operates in a responsible and ethical manner and we ensure that our employees
are committed to the Falanx ways of working through our robust policies, processes and procedures. Falanx ensures the following
policies are followed and adhered to in respect of business ethics:
Anti-Bribery and Anti-Corruption Policy
Falanx Group is committed to conducting business in an ethical and honest manner and is committed to implementing and enforcing
systems that ensure bribery is prevented. Falanx has zero-tolerance for bribery and corrupt activities. We are committed to acting
professionally, fairly, and with integrity in all business dealings and relationships, wherever in the country we operate.
Falanx will constantly uphold all laws relating to anti-bribery and corruption in all the jurisdictions in which we operate. We are bound
by the laws of the UK Bribery Act 2010 and the FCPA 1977 (amended 1998), in regard to our conduct both at home and abroad.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
16
Directors’ report
Dignity at Work Policy
All employees of Falanx have an important part to play in the overall success of the business and everyone is respected and valued
for their contribution at every level. At Falanx, we foster and promote a healthy, collaborative and supportive environment and
encourage all our colleagues to work together in harmony in a way that encourages self-development, team success and knowledge
sharing.
Falanx is committed to protecting the dignity and wellbeing of everyone and encourages practices that take into account the rights of
all individuals and seeks to eliminate all forms of unacceptable behaviour. It is in our best interests to promote a safe, healthy and
fair environment where people are given every opportunity to excel and thrive in their workplace.
Equality and Diversity Policy
Falanx is committed to promoting a culture that actively values difference and recognises that people from different backgrounds and
experiences can bring valuable insights to the workplace and enhance the way we work.
Falanx aims to be an inclusive organisation, committed to providing equal opportunities throughout employment including in the
recruitment, training and development of employees, and to pro-actively tackling and eliminating discrimination.
Whistleblowing Policy
Falanx is committed to ensuring that practices and procedures in respect of all employees, partners and customers are of the highest
quality. All employees are expected to maintain the highest standards of integrity and good faith.
The Public Interest Disclosure Act 1998 protects workers who blow the whistle about wrongdoing. The Policy is intended to provide
guidance as to the circumstances under which such protection is available and the steps to be taken should an employee feel that a
matter of public interest is at stake.
Health and safety
Falanx ensures the Health and Safety of its employees by taking all necessary steps in providing a Healthy and safe working
environment. Relevant assessments are carried out and appropriate training is provided to all employees.
Environmental Policy
Falanx has a low environmental footprint. Its move to remote working has significantly reduced the need for commuting, and a much
lower level of business travel will also reduce its carbon footprint. The main energy consumption is driven by use of devices such as
laptops and mobile phones and the Company believes that there is little impact. Furthermore, the Company is operating in a
paperless environment wherever possible.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
17
Directors’ report
Section 172 Statement
Whilst as a BVI incorporated company Falanx Group Limited is outside the scope of s172 of the UK Companies Act 2006 the board
believes that it is highly relevant to Falanx and is therefore reporting under it.
Directors of a company must act in a way that they consider, in good faith, would most likely promote the success of the company for
the benefit of its members as a whole, taking into account the non-exhaustive list of factors set out in Section 172 of the Companies
Act 2006.
Section 172 also requires directors to take into consideration the interests of other stakeholders set out in Section 172(1) in their
decision making.
Engagement with our members and wider stakeholder groups plays an essential role throughout our business. We are cognisant of
fostering an effective and mutually beneficial relationship with each stakeholder group. Our understanding of stakeholder needs and
concerns is factored into boardroom discussions regarding the potential long-term impacts of our strategic decisions on each group.
Post the reporting year end, the Board have continued to have regard to the interests of the Companies stakeholders, including the
potential impact of its future activities on the community, the environment and the company’s reputation when making decisions. The
Board also continue to take all necessary measures to ensure the Company is acting in good faith and fairly between members and
is promoting the success of the company for its members in the long term.
The table below acts as our Section 172 statement by setting out the key stakeholder groups and how the board has engaged with
them over the reporting year.
Stakeholder
Why we engage
How we engage
Our investors
We maintain and value regular dialogue
with our investors and place great
importance on our relationship with
them. We know that our investors expect
a comprehensive insight into the
financial performance of the company,
and awareness of long-term strategy
and direction. As such, we aim to
provide high levels of transparency and
clarity about our results and long-term
strategy to build trust in our future plans.
Our employees
Our people are at the heart of our
business. Effective employee
engagement leads to a happier,
healthier workforce who are invested in
the success of the company and who
are all pulling in the same direction. Our
engagement seeks to address any
employee concerns regarding working
conditions, health and safety, training
and development, as well as workforce
diversity.
•
The board has stated that its core focus is the Cyber
Division due to its expected ability to generate
stronger returns for shareholders and that it will be
the focus for investment going forward.
• Regular reports and analysis on investors and
shareholders, opinion sought from corporate advisors
and direct engagement where possible.
• Annual Report and interim results
• Company website
• AGM held 17 December 2020 (virtually due to
COVID-19)
• Stock exchange announcements and press releases.
• Analyst research at the appropriate moment including
research for wider distribution
•
•
•
•
•
•
•
•
Open and regular informal dialogue
Formal annual reviews
Competitive employee benefit packages including
healthcare, discount vouchers and death in service
insurances
Opportunity to participate in share-based incentives
Encouraging ongoing employee training and
development
Employment of a professional HR manager to help
manage and development our human capital
Board level communication and interaction with
roadshows and ‘town hall meetings’ both physically
and virtually where appropriate
During COVID-19 regular reviews of staff welfare,
mental health, office safety, comprehensive Health
and Safety assessments using external advisors
ahead of office changes
• Weekly/daily contact with all team members to check
on welfare during lockdown
• Monitoring of local safety issues for certain
employees in overseas locations
Regulatory bodies
The Group’s operations are subject to a
wide range of laws, regulations, and
listing requirements including data
•
•
Company website
Stock exchange announcements
18
Falanx Group Limited
Report and financial statements year ended 31 March 2021
Directors’ report
protection, tax, employment,
environmental and health and safety
legislation, along with contractual terms.
Our customers
Our suppliers
We aim to listen to and engage with our
customers on a regular basis to ensure
that we understand their needs. We
ensure that information is easily
accessible and customer concerns are
dealt with in a timely and professional
manner.
We have a number of key partners and
suppliers with whom we have built
strong relationships with and strongly
value. We establish effective
engagement channels to ensure our
relationships remain collaborative and
forward focused, and to foster
relationships of mutual trust and loyalty.
The environment
We are a low carbon footprint business
and are predominantly office based
(either company, home or client).
Key Decision
Protection of
business and
stakeholders during
COVID-19
Premises
realignment
Actions Taken
• Move to remote deployment and
homeworking for staff in March
2020 to comply with government
advice. Since then the business
has largely moved to a remote
environment with the exception
of the cyber security SOC.
• Upgrading of infrastructure to
ensure continuity of operations
• Adoption of cost and cash
husbanding strategies to protect
business such as salary sacrifice,
spend reductions, furlough and
HMRC time to pay
Full maintenance of cyber
protection capabilities to support
customer and internal operations
•
• Exited from leases in London and
Sussex with a single lease in
Reading going forward. Use of
serviced offices where relevant is
a forward strategy.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Annual Report
Direct contact with regulators
Compliance updates at Board meetings
Risk reviews
Internal and external audits of key business
processes around cyber security
Use of external reputable advisors where appropriate
Ongoing review of customer feedback
Face-to-face meetings with customers to further
develop relationships
Ongoing promotional and advertising activity
Development of long-term recurring contracts and
deep customer relationships
Open two-way dialogue and regular face to face
meetings where possible.
Ongoing performance review and feedback
Formal checks for data security compliance
Due diligence where appropriate, is carried out before
a new supplier is engaged
Revised commercial terms were implemented during
COVID-19
Use of video conferencing where possible to mitigate
the need for travel.
2 offices were closed during the year (London and
Sussex) and this has reduced the carbon footprint by
reducing commuting travel significantly.
Business travel and consequent carbon emissions
have been greatly reduced with the move to online
meetings.
Stakeholder considerations
• Employee welfare by reducing the need to travel
to premises and exposure to increased COVID-19
risk. Regularly checking on them during remote
working. Company medical benefits include
access to counselling and support services
• COVID-19 testing before office attendance
• Customer interest by ensuring that their key cyber
protections were in place and fully operational at a
time of increased risk
Investor interest by optimising cash position whilst
ensuring that liabilities could be met in agreed
timescales. Salary sacrifice trading cash
remuneration for directors and staff for share
options to reduce short term cash outflow whilst
engaging staff further with the company through
equity participation
•
• Delays in certain onsite work during COVID-19 in
line with government guidance
• Reading lease has a 5-year term with a 3-year
break (in July 2022) which allows for continuity of
operations whilst retaining flexibility
• Offices in London and Sussex were closed during
the Summer of 2020 as leases had expired
therefore reducing ongoing cost and liabilities for
shareholders
19
Directors’ report
Realignment of
Cyber technology
infrastructure
Development of Triarii platform based on
3rd party components to deliver against
customer requirements
•
Lack of need to commute improving work life
balance and reducing commuting costs for staff
whilst still being able to deliver against customers
• Reduction in commuting reducing carbon impact
from either public of private transport and
therefore supporting the environment
•
•
Improvement of client delivery to help them protect
against cyber threats. This included engagement
with key partners and customers to best align with
the market opportunity, therefore growing long term
shareholder value with
revenue
opportunity
rapid uptake of new users,
Triarii gaining
supporting shareholder
interest by a more
streamlined customer offering using only a single
technology platform with significantly lower external
licencing costs and greater staff efficiency.
increasing
• Use 3rd party technology components to reduce
R&D spend requirement to allow focus on customer
service and not technology platform
The above statement should be read in conjunction with the Corporate Governance Statement on pages 29 to 33.
Principal Risks and Uncertainties
The following are the risk factors associated with the Group's business and industry:
Cyber Security
The Group is a high-profile provider of Cyber Security services to governmental and corporate customers. A breach of its own cyber
security could result in significant damage to reputation and could lead to a loss of existing customers and reduced ability to gain new
customers. This could by definition, create pressure on the Group’s cash flows.
The Group mitigates this by a combination of people, processes and technologies. A dedicated Data Protection Officer is in situ to
provide independent (of operations) oversight of data security and Falanx as a cyber security company embeds it into every aspect
of its operations and makes the relevant investment in infrastructure. Regular training is given to all staff including online courses run
by dedicated providers and this includes refresher training. The DPO is running seminars and briefings around the organisation to
advise on appropriate practices. The business continues to invest in its infrastructure and resources to ensure that its internal systems
are configured to ensure good security. A Chief Information Security Officer (“CISO”) security team of cyber security experts within
the Group continually monitor our security state and risk profile and advises the board on policy. The Group continually reviews its
technology infrastructure for delivery of customer services to align them with market requirements and this includes the use of
supported 3rd party and proprietary systems.
Reliance on Key Contracts and Business Relationships
The Group is reducing its customer concentration risk by acquisition of further customers through organic development as well as
M&A. The Group has realigned its Cyber sales strategy to concentrate on SMEs with lower spends but who are less likely to develop
their owns SOCs. The Cyber Division addresses its market through channel partners including N-Able Inc (formerly SolarWinds MSP)
and TrustMarque and the Company and its senior management, works closely with them to develop opportunity and monitor
performance. This means that customer concentration is lower than previous periods. In the 12 months to 31 March 2021, no
customer represented more than 10% of Group revenue. Many customers, particularly in the Cyber division’s consulting revenues
do not have long term agreements but have repeatedly transacted with the Group for many years. Where the Group uses external
licences for its operations it seeks protections such as multiple suppliers, industry standard and widely deployed technologies and
escrow arrangements for source code.
Pipeline opportunities
The Group has a significant number of small, medium and major contracts in contemplation in the form of a pipeline of opportunities.
However, there is no certainty these opportunities will be entered into or converted into concluded contracts or that the expected level
of work will in fact, if converted to contracts, be awarded to the Group. In addition, there can be no certainty that any contracts
resulting from conversion of the opportunity will be profitable or even not loss-making. Furthermore, whilst the Group operates in high
growth sectors with strong drivers, there is an always an inherent macroeconomic exposure which could impact its clients.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
20
Directors’ report
The Company may need additional access to capital in the future
The Group's capital requirements depend on numerous factors, including its ability to expand its business and its strategy of making
complementary acquisitions. If its capital requirements vary materially from its current plans, the Group may require further financing.
Any additional equity financing may be dilutive to shareholders, and debt financing, if available, may involve restrictions on financing
and operating activities and adversely affect the Group's dividend policy. In addition, there can be no assurance that the Group will
be able to raise additional funds when needed or that such funds will be available on terms favourable or acceptable to the Group. If
the Group is unable to obtain additional financing as needed, the Group may be required to reduce the scope of the Group's operations
or anticipated expansion, dispose of assets or to cease trading.
Management of future growth
The Group's plans for growth will challenge the Group's management team, customer support, marketing, administrative and
technological resources. If the Group is unable to manage its growth effectively its business, operations or financial condition may
deteriorate. The Group will consider future acquisition opportunities. If the Group is unable successfully to integrate an acquired
company or business, the acquisition could lead to disruptions to the business. If the operations or assimilation of an acquired
business does not accord with the Group's expectations, the Group may have to decrease the value afforded to the acquired business
or realign the Group's structure.
Going Concern
The Financial Statements have been prepared on a going concern basis which the Directors consider to be appropriate for the
following reasons.
1. The Group operates in the high growth Cyber Security and Strategic Intelligence markets. The COVID-19 situation has
driven the move to an online environment for many aspects of business and this is increasing demand for the Group’s
services, although clearly a company cannot be immune from any major macroeconomic issues.
2. The Group’s financial performance has significantly improved since 1 April 2021, and this continues from the post COVID-
19 recovery which commenced in the autumn of 2020.
3. The Cyber Security division is now profitable and expected to remain the case moving forwards at an adjusted EBITDA level
compared with losing c£0.45m at an adjusted EBITDA level in the year ended 31 March 2021. This division has a strong
backlog of work from orders (including the divisions largest ever order for £1m (over 3 years)) which was won in April 2021.
The recurring revenue Triarii cyber security monitoring service has a strong pipeline of business from channels and direct
sales, and this is expected to help further support revenue growth. This service has a high incremental margin and can
significantly increase divisional performance. Adjusted EBITDA has had a historically very close correlation with cash
performance.
4. The Assynt division has signed significant new contract expansions and extensions with a major existing client which should
increase its recurring revenues to circa £0.19m per month compared with £0.15m at the start of the year. This should enable
it to be profitable on a regular basis without any consulting assignments.
5. Overall, the Group has a high level of recurring revenues, currently more than £0.28m per month, and a high level of repeat
business of more than £2.0m per annum. This reduces its exposure to new sales situations. The Group’s creditors are
broadly in line and the group has a normal working capital position and an agreed payment plan is in place with HMRC and
is in terms. The Group has a historically very low incidence of bad debts.
6. Group central costs are lower than in previous years and there is no major requirement for capital expenditure following the
disposal of Furnace in the year ended 31 March 2020.
7. The above and the associated business plans and detailed forecasts, enable the directors to believe that the Group’s existing
cash resources (excluding the drawdown of the £1.5m from the second phase of the loan from BOOST&Co) are sufficient
for it to remain a going concern for at least 12 months from the date of these accounts. This analysis has included the
repayment of all amounts due under the loan and to HMRC under the COVID-19 deferral plan as well as it to have a normal
working capital profile.
8. A stringent stress test scenario as a downgrade to the above has also been prepared. This assumes that there are no further
sales of Triarii MRR and no further recurring revenues in the Assynt business beyond the existing contract bases.
Furthermore, in this scenario the Group does not adjust its cost based in this scenario. This shows that, with the drawdown
of the second tranche of £1.5m of the loan that the Group would still have significant cash balances at 12m from the date of
these accounts.
9. Should this stringent stress test scenario not be achieved, then further mitigating actions would be carried out to ensure
that the Group remains within its resources, and these would include a reduction of planned capital expenditure,
headcount reduction, reducing discretionary spend and sales investment, freezing or reducing pay and cancelling
recruitment, and all of these are within the director’s control. Further incremental measures could also involve the
potential disposal of non-core assets which the Group believes, could generate proceeds which are significant
compared to the recent market capitalisation of the Group. Further actions could include seeking further support from
existing and new shareholders and debt providers.
21
Falanx Group Limited
Report and financial statements year ended 31 March 2021
Directors’ report
Based on the above, the Group expects to have will have sufficient resources to meets its liabilities as they fall due for at least 12
months from the date of these accounts.
Further details of our COVID-19 response and impact are set out in the s172 report on pages 18 to 19.
Information to shareholders - Website
The Group has its own web site (www.falanx.com) for the purposes of improving information flow to its shareholders and potential
investors.
Substantial shareholdings
On 10 September 2021 the following were holders of 3% or more of the Group’s issued share capital:
Registered holder
Amati AIM VCT plc
Octopus Investments Nominees Limited
Unicorn VCT
Premier Miton Group PLC
Walker Crips Investment Management
Number of Ordinary Shares
Percentage of Issued
Capital
85,000,000
50,000,000
33,333,333
32,554,339
26,149,010
16.16%
9.51%
6.34%
6.19%
4.97%
Auditors
The auditors BDO LLP have indicated their willingness to continue in office and a resolution that they be re-appointed will be proposed
at the annual general meeting of the Company.
Disclosure of information to the auditors
So far as the Directors are aware, there is no relevant audit information of which the Group’s auditors are unaware and they have
taken all steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and
to establish that the Group’s auditors are aware of that information.
Statement of Directors’ Responsibilities
The Statement of Directors’ Responsibilities can be found on page 28 of these financial statements. The Statement of Directors’
Responsibilities forms part of the Directors’ report.
On behalf of the Board
I R Selby
Director
28 September 2021
Falanx Group Limited
Report and financial statements year ended 31 March 2021
22
Remuneration & Nomination Committee report
The Remuneration and Nomination Committee comprises Emma Shaw (Chairman), Alex Hambro and meets as and when necessary
but normally at least twice per year. It keeps under review the skill requirements of the Board and the skill, knowledge, experience,
length of service and performance of the Directors. It also reviews their external interests with a view to identifying any actual,
perceived or potential conflicts of interests, including the time available to commit to their duties to the Group. It sets and reviews the
scale and structure of the Executive Directors’ remuneration packages, including share options and the terms of the service contracts.
The remuneration and the terms and conditions of the Non-Executive Directors are determined by the Executive Directors in
conjunction with external advisors with due regard to the interests of the shareholders and the performance of the Group.
The Committee also makes recommendations to the Board concerning the allocation of share options to employees. The Committee
also monitors the independence of each Non-Executive Director and makes recommendations concerning such to the Board. The
results of these reviews are important when the Board considers succession planning and the re-election and reappointment of
Directors. Members of the Committee take no part in any discussions concerning their own circumstances. The Committee and in
conjunction with the CEO are also responsible for keeping under review the senior management team of the organisation to ensuring
the continued ability of the organisation to compete effectively in the marketplace.
The CEO may attend upon invitation, particularly around executive remuneration and the CFO may be asked to attend to discuss
technical matters. The Terms of Reference are disclosed on the Company’s website and are reviewed by the Board annually and
amended where appropriate.
As a Company whose shares are admitted to trading on AIM, the preparation of a Remuneration & Nomination Committee report is
not an obligation. The Group has, however, sought to provide information that is appropriate to its size and organisation and is will
put the approval of this report to shareholders for an advisory approval at the next AGM. This committee met twice during the year.
The committee, in conjunction with other executives where relevant considers nomination and succession matters.
Executive Directors’ Remuneration Policy
The Remuneration Committee is responsible for establishing a formal and transparent procedure for developing policy on executive
remuneration and to set the remuneration packages of individual Directors. This includes agreeing with the Board the framework for
remuneration of the Chief Executive, all other Executive Directors and such other members of the senior executive management of
the Company as it is designated to consider. It is furthermore responsible for determining the total individual remuneration packages
of each Director, including, where appropriate, bonuses, benefits, incentive payments and share options.
The Committee’s policy is to provide a remuneration package which will attract and retain Directors and management with the ability
and experience required to manage the Group and to provide superior long-term performance. It is the aim of the Committee to
reward Directors competitively and on the broad principle that their remuneration should be in line with the remuneration paid to
senior management of comparable companies. There are four main elements of the remuneration package for Executive Directors:
base salary, share options, benefits and annual bonus. Notice periods for Executive Directors are between 6 and 12 months.
Base salary is reviewed annually and in setting salary levels the Remuneration Committee considers the experience and
responsibilities of the Executive Directors and their personal performance during the previous period. The Committee also takes
account of external market data, as well as the rates of increases for other employees within the Group.
Share options are granted having regard to an individual’s seniority within the business and are designed to give Directors and staff
an interest in the increase in the value of the Group and to align them with all shareholders. It is the Group’s policy to use EMI
approved schemes wherever possible and should an individual not be eligible at a certain point where unapproved options are
granted, then if they subsequently become eligible for EMI criteria then their existing options will be cancelled and reissued on
identical terms under EMI, reducing potential tax charges on both the individual and Company. On 29 April 2021, certain unapproved
options granted in September 2019 to directors and senior managers were cancelled and immediately reissued on identical terms
under the EMI scheme.
Benefits primarily comprise the provision of, pension payments, group wide health insurance (or cash equivalent), any wider staff
benefits and participation in the Group life assurance scheme.
All Executive Directors and executive management participate in the Group’s annual bonus scheme, which is based upon the
assessment of individual performance, taking into account the overall groups performance and financial position.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
23
Remuneration & Nomination Committee report
Non-Executive Directors’ remuneration
Non-Executive Directors’ remuneration is determined by the Board as a whole and is in conjunction with external advisors, with each
refraining from determining their own remuneration. The fees paid to Non-Executive Directors are set at a level intended to attract
individuals with the necessary experience and ability to make a significant contribution to the Group.
It is anticipated that Non-Executive Directors will spend an average of 2 days a month undertaking their Role and Duties. This will
include attendance at board meetings, the AGM, and an annual planning day. They also attend periodic Remuneration, Risk and
Audit Committee meetings. They are required to spend time fully considering all relevant papers prior to each meeting. Non-executive
directors have 3-month notice periods in their letters of appointment. Non-executive directors are paid through company payroll
systems.
In addition to the above they may be required to devote additional time to the Company when it is undergoing a period of particularly
increased activity and may be required to support the Company by attending meetings with clients and advisors etc.
Directors’ remuneration
Executive Directors:
M D Read
J R Blamire*
I R Selby
Non-executive Directors:
E Shaw
A Hambro
Salary and fees
Benefits in
kind
Pension
contribution
£
£
5,491
—
135
—
—
47,001
—
111,133
19,250
19,000
196,384
2021
Total
£
2020
Total
£
52,492
108,667
—
85,042
£
—
—
1,751
113,019
127,636
—
—
19,250
19,000
23,500
25,288
5,626
1,751
203,761
370,133
Total board remuneration fell by 45% in the year to £0.20m (2020: £0.37m). All directors reduced their cash remuneration as part of
the salary sacrifice scheme announced in April 2020.
Mike Read did not take any additional remuneration above his Chairman fees of £25,000 per annum in the year ended 31 March
2018 despite taking over duties as full time Chief Executive Officer in November 2017 in order to support the Company’s financial
position and help it husband resources at that point. As stated in previous annual reports, this additional effort has been recognised
by a contingent £100,000 bonus scheme payable under certain circumstances (such as departure (good leaver), death, redundancy,
retirement, change of control) provided that the Company has achieved certain valuation metrics at that point. This by definition,
remains unpaid as at the date of this report.
* J R Blamire resigned 19 December 2019 as part of the Furnace MBO. He entered into a compromise agreement which allowed
him to retain his share options for a further six months but was not eligible to receive any further payment, save for usual
reimbursement of accrued expenses incurred under the Group’s policy.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
24
Remuneration & Nomination Committee report
Directors Interests in Share Options
The interests of Directors in options over the share capital of the Company at year end were as stated below:
1.925 pence options
M D Read
I R Selby
2021
Number
5,000,000
5,000,000
2020
Number
5,000,000
5,000,000
These Share Options were granted at a price 1.925p. All options are exercisable between 1 April 2020 and 31 March 2030. They vest
in three tranches: the first tranche immediately exercisable, the second tranche when the share price reaches 2.89p (50% above
exercise price for 1 month) and the third tranche when the share price reaches 3.85p (100% above exercise price for 1 month), save
for the event of a change of control in the Company, in which case they will vest in full. They were granted under the rules of the EMI
scheme, and where an individual grant does not fall within HMRC EMI rules they are granted as an unapproved option which will
typically be subject to PAYE and NI. As referenced in the previous annual report, they were cancelled and reissued as EMI options
in April 2021, with there being no other changes to key terms.
3.50 pence options
M D Read **
I R Selby **
E Shaw **
** options surrendered 21 April 2020
2021
Number
—
—
—
2020
Number
1,500,000
1,500,000
250,000
These Share Options were granted at a price 19% over the then current share price. They vest in three tranches: the first tranche
when the share price reaches 6.5p (25%), the second tranche when the share price reaches 9p (25%) and the third tranche when
the share price reaches 12p (50%). The Share Options only vest if the average share price has reached the relevant threshold level
for a period of three months, save for the event of a change of control in the Company, in which case they will vest in full. Based on
the mid-market closing price on 20 December 2018 of 2.95p there is no gain at all unless the share price increases by 120% and full
gains are not achieved until a gain of 307% has been achieved. They were granted under the rules of the EMI scheme, and where
an individual grant does not fall within HMRC EMI rules they are granted as an unapproved option which will typically be subject to
PAYE and NI.
5.00 pence options
M D Read **
I R Selby **
E Shaw **
** options surrendered 21 April 2020
2021
Number
—
—
—
2020
Number
5,000,000
5,000,000
500,000
These options were granted on 14 March 2018 at a 10% premium to the prevailing share price, and vest in three tranches: the first
tranche when the share price reaches 7.5p (25%), the second tranche when the share price reaches 10p (25%) and the third tranche
when the share price reaches 12.5p (50%). The Share Options only vest if the average share price has reached the relevant threshold
level for a period of three months, save for the event of a change of control in the Company, in which case they will vest in full. Based
on the mid-market closing price of 4.5p on the date of issue, there is no gain at all unless the share price increases by 66% and full
gains are not achieved until a gain of 178% has been achieved. They were granted under the rules of the EMI scheme, and where
an individual grant does not fall within HMRC EMI rules they are granted as an unapproved option which will typically be subject to
PAYE and NI.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
25
Remuneration & Nomination Committee report
5.875 pence options
E Shaw **
** options surrendered 21 April 2020
These options were granted on 24th January 2017 and vest as below.
Date from which Options are exercisable
2021
Number
—
2020
Number
750,000
% which can be
exercised
Earlier of 12 months from the Date of Grant and date at which the share price of the Company
has consistently been at 6p or above for 6 months
Earlier of 24 months from the Date of Grant and date at which the Share Price of the Company has
consistently been at 12p or above for 6 months
Earlier of 36 months from the Date of Grant and date at which the Share Price of the Company
has consistently been at 20p or above for 6 months
33.3%
33.3%
33.4%
Salary Sacrifice Scheme
In April 2020 in response to the COVID-19 situation the company implemented a voluntary salary sacrifice scheme whereby cash
remuneration was swapped for share options for staff and executives and warrants for non-executives. Emma Shaw, Mike Read and
Ian Selby (as well as other executives and staff) waived certain of their previously granted options (& warrants) as detailed above to
allow for headroom for the new issue. The issuance of new options was not conditional on the sacrifice of existing options. These all
have an exercise price of 1p each and a duration of 10 years. Warrants have similar economic characteristics to the options. The
closing price on the night before this scheme was first announced on 31 March 2020 was c0.55p and the exercise price represented
an uplift of 75%. Both the options and warrants have customary good leaver and bad leaver provisions and acceleration of vesting
criteria in certain specified circumstances.
Director
M D Read
I R Selby
Number of options granted
6,600,000
2,520,000
These options which were unapproved from a taxation perspective, were surrendered in April 2021 and were immediately reissued
under identical terms under the Group’s EMI scheme.
The table below sets out details on the issue of the warrants in respect of non-executive directors
Non-Executive Director
A Hambro
E Shaw
Number of warrants granted
1,200,000
399,600
In total 31,400,000 options and 1,599,600 warrants were issued to directors, senior managers and staff. In order to reduce the overall
number of options outstanding to mitigate against future dilution approximately 25.7m options were waived and these include the
items marked ** above and on previous pages in this report. The overall scheme saved approximately £0.2m of cash remuneration
costs during the period it operated between 1 April 2020 and 30 September 2020.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
26
Remuneration & Nomination Committee report
Directors' interests in transactions
No director had, during or at the end of the year, a material interest in any contract which was significant in relation to the Group's
business, except in respect of service agreements. In the year ended 31 March 2020, there was a single transaction the details of
which are set out below.
In December 2019 the Group disposed of part of its interest in the Furnace IP development to Furnace Technologies Limited, a
company founded by John Blamire, a former director of the Group. Mr Blamire stepped down from the board at that point.
The Board viewed that whilst there was a strong potential market opportunity for Furnace, but determined that Furnace, which was
and still is pre-revenue and loss making, is non-core to Falanx's cyber services market. Furnace had consumed approximately £0.4m
of cash resources in the financial year up to its disposal in December 2019.
Falanx sold the business and assets of Furnace 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 will
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 resulted in a reclassification of Falanx's current R&D and other intangibles to investments.
Mr Blamire did not participate in board meetings concerning this and was kept offside. The sale of Furnace to Furnace Technologies
Limited, a company in which John Blamire is a substantial shareholder and director, was 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, and considered that the terms of the transaction are fair and reasonable insofar as the
Company's shareholders are concerned. Mr Blamire waived his contract of employment at that point and entered into a compromise
agreement under which further no monies were payable (save for accrued routine expenses) and he and the other purchaser were
allowed to keep their share options until 19 June 2020.
The investment in Furnace was fully impaired in the year ended 31 March 2021 as referenced in note 17 to these accounts
E Shaw
Chairman
28 September 2021
Falanx Group Limited
Report and financial statements year ended 31 March 2021
27
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Directors’ Report, Strategic Report and the financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected
to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European
Union. Under company law directors must not approve the financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the financial performance and cash flows of the Group for that year. In preparing these
financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
In preparing these financial statements, the Directors are required to:
•
• make judgements and accounting estimates that are reasonable and prudent;
•
•
state whether the financial statements have been prepared in accordance with International Accounting Standards;
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that
the financial statements comply with all applicable legislation and as regard to the Group financial statements, Article 4 fo the IAS
Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s
website
Falanx Group Limited
Report and financial statements year ended 31 March 2021
28
Corporate Governance Report
Statement by the Chairman on Corporate Governance
As the Company’s shares are traded on the AIM market of the London Stock Exchange Falanx Group Limited (Falanx) has chosen
to comply with the Quoted Companies Alliance Corporate Governance Code “the Code”.
This report describes how the Group has complied with the Code and explains any departures from the ten principles within the Code.
A description of the Board and its committees, together with the Group’s systems of internal financial control is set out below.
1. Generation of Long-Term Growth and Shareholder Value
The Company is addressing markets which it believes have long term growth potential with industry growth rates of greater than
GDP. The Security sector has traditionally grown ahead of GDP against a backdrop of political, economic, social and technological
drivers. The Company provides highly relevant services to its clients to help them protect their organisations and consistently invests
in innovation. The Company’s strategy is to generate sustainable cash flows and profits from predictable and growing recurring
revenues.
2. The Board
The Board comprises a non-executive Chairman, the Chief Executive Officer, the Chief Financial Officer, and one independent non-
executive director. It is intended that Board will evolve as the Group grows to include at least one more independent non-executive
director including a qualified accountant or similar as audit committee chair with a planned start in 2022.
The Board meets at least 11 times a year. The Chief Executive and the Chief Financial Officer are engaged full-time and the Chairman
and independent non-executive Director are required to spend two days per month considering Company matters and attending the
monthly Board meeting. Executive directors along with senior management meet on at least monthly basis and they are in regular
close communication as a matter of routine. Executives formally speak once per week and the board had biweekly update calls during
the worst periods of the COVID-19 crisis. Senior management regularly attend board meetings and have full right of access to speak
with non-executive directors.
In the year ended 31 March 2021 there were 11 board meetings which were attended by all directors. The audit committee and the
remuneration committee each met twice during the year and were attended by Alex Hambro and Emma Shaw.
The Group believes that in its Board it has at its disposal an appropriate range of skills, training and experience to ensure the interests
of all stakeholders in the Group are fully accommodated at this stage in its evolution.
Directors biographies are on https://falanx.com/meet-the-board/.
3. Board matters
The Board has a schedule of matters specifically reserved for its decision. It is responsible for formulating the Group’s corporate
strategy, monitoring financial performance, acquisitions, approval of major capital expenditure, treasury and risk management
policies.
Board papers are sent out to all directors in advance of each Board meeting including management accounts and accompanying
reports from the executive directors. Annual budgets are approved by the Board. Operational control is delegated by the Board to the
executive directors.
The Company Secretary acts as the conduit for all governance related matters and shareholder enquiries and passes them on the
Chairman to respond. The board maintains full and open communications and all members of staff have access to board members
including the Chairman and CEO.
4. Corporate culture
The Board is responsible for ensuring a high standard of corporate conduct. The Board achieves this by ensuring that appropriate
policies on behaviour and ethics are in place and signed up to by all employees. Performance is appraised taking into account not
just the achievement of objectives, but the behaviour’s demonstrated to do so. All managers and the Board lead by example in their
behaviour and ethical values demonstrated. The relevant senior management present to the Board at least quarterly (and mostly
monthly) on their area’s performance The Company has a dedicated and professionally qualified HR manager who works to support
the high standards expected and further details of our people policies are referred to on pages 16 and 17. The Company has a
dedicated Data Protection Officer who manages the specific risks around the Group’s operations and who works very closely with
the cyber security team. The Group continually invests in its IT and cyber security infrastructure. The Company seeks to minimise its
environmental impact where possible, an example being the use of video conferencing to reduce travel costs and this is increased
since the onset of COVID-19 in March 2020 and continues to the date of this report. The group makes use of electronic as opposed
to physical media in its communications and in 2016 changed its articles as allowed under BVI law, to allow the use of solely electronic
media for distribution of annual reports, notices of meetings and other shareholder communications.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
29
Corporate Governance Report
5. Board Performance and Delivering Growth
The performance of the Board is primarily measured by the achievement of certain KPI’s in the business which are aligned with the
growth strategy. These include measures against budgeted gross margins, EBITDA, recurring revenues, forward contract book,
customer satisfaction, debtor performance, cash usage and generation, project deliveries, successful corporate transactions, and
return on invested capital. The Directors consider that the Company and Board are not yet of a sufficient size for a full Board evaluation
to make commercial and practical sense. All executive directors have annual performance reviews. In the frequent Board
meetings/calls, the Directors can discuss any areas where they feel a change would benefit the Company and the directors can
consult with the Company’s advisors. As the Company grows, it expects to expand the Board and with the Board expansion, to re-
consider the need for Board evaluation.
6. Succession Planning
The board continually reviews its composition to maximise its effectiveness. This includes determining and reviewing the skills against
current and expected business requirements of executive and non-executive directors as well as those of key senior management.
7. Company Secretary
All directors have access to the advice of the company secretary and the independent director and can take external independent
company secretarial and legal advice on certain matters, if necessary, at the Company’s expense.
The CFO currently acts as the Group’s company secretary as it is appropriate for this stage in Falanx’s evolution. The board does
not see any conflict at this stage but may in the future engage additional resources if appropriate.
8. Board Committees
The Board has a remuneration committee and an audit committee.
The audit committee comprises Alex Hambro (chairman) and Emma Shaw. The committee meets as necessary (but at least twice
per year) to monitor the Group’s internal control systems and major accounting and audit related issues. There are plans to evolve
the Company’s governance structure in 2022 so that the audit committee has an independent chair who is a professionally qualified
accountant or equivalent. Alex Hambro is an experienced corporate financier and director of public companies.
The remuneration and nomination committee is chaired by Emma Shaw and consists of her and Alex Hambro. It is responsible for
determining the contract terms, remuneration and other benefits for executive directors, including performance-related bonus and
share option schemes. The remuneration of non-executive directors is agreed by the board as a whole and is done in conjunction
with external advisors. It also considers matters of nomination and succession. The Company continues to review the need for further
committees.
9. Engagement with Shareholders
On 27 March 2019 the company announced a variation of its memorandum and articles of association to reduce directors’ powers
to issue shares and to bring it more into line with typical UK structures. These changes were voluntarily done by the company and
were not required under BVI law.
The Board values the views of its shareholders. The company will hold Annual General Meetings which are used to communicate
with all investors (where possible under prevailing COVID-19 guidance), and they are encouraged to participate. The December 2020
AGM was held as a closed meeting due to the then current COVID-19 situation. The directors are available to answer questions.
Separate resolutions are proposed on each issue so that they can be given proper consideration and there is a formal resolution to
approve the Annual Report. Shareholders can also contact the Company Secretary or the Chairman via the Company’s website. The
December 2020 AGM approved resolutions whereby all shareholder communications such as meeting notices and the annual report
could be provided solely in electronic format. This would speed up communication, lower printing costs and reduce the environmental
impact of producing paper copies.
On 26 February 2021 the Company held a General Meeting to approve a capital reconstruction as detailed in the statement of
changes equity to these accounts. This was held virtually due to the COVID-19 rules at that point.
The Board takes full cognisance of the results of any poll or feedback from shareholders and the Chairman will respond as appropriate
whether by email of by offering a chance to meet with the shareholder to explain the Board’s position.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
30
Corporate Governance Report
10. Internal control
Internal control systems are designed to meet the needs of the Group and the risks to which it is exposed, and by their nature can
provide reasonable but not absolute assurance against material misstatement or loss. The key procedures which the directors have
established with a view to providing effective internal financial control are as follows: –
• Management structure
The Board has overall responsibility for the Group and there is a schedule of matters specifically reserved for decisions by the Board.
• Quality and integrity of personnel
The integrity and competence of personnel are ensured through high recruitment standards including vetting of staff under relevant
security standards, and subsequent training courses. High quality personnel are an essential part of the control environment.
Identification of business risks
•
The Board is responsible for identifying the major business risks faced by the Group and for determining the appropriate courses of
action to manage those risks. The boards of our Group businesses also actively identify risks and are reviewed at most board
meetings and are formally reviewed in greater depth on a quarterly basis and ensure mitigating controls and appropriate insurances
are in place. These are done at both a top level and are cascaded down through the organisation.
• Budgetary process
Each year the Board approves the annual budget. Key risk areas are identified. Performance is monitored, and relevant action taken
throughout the year through the monthly reporting to the Board of variances from the budget and preparation of updated forecasts
on at least a quarterly basis for the year (and together with information on the key risk areas).
• Authorisation procedures
Capital and revenue expenditure are regulated by a budgetary process and authority limits for approval of expenditure are in place.
For expenditure beyond specified levels, detailed written proposals are submitted to and approved by the Board. Once authorised,
such expenditure is reviewed and monitored by the Board. Where the capital expenditure is against the development of software
products or services it is reviewed against expected returns from future sales and delivery against agreed milestones.
Reviews of specific industry and regulatory risk areas (for example maintenance of cyber security accreditations) are carried out on
a periodic basis by staff separate from the operation of those areas.
11. Advisors
The Board selects advisory relationships based on their relevance of expertise, track record of success, ability to add value to the
development of shareholder value and to support the Company in discharging its duties as a listed company.
Statement of Compliance
Save for the Companies Act, there is no mandatory corporate governance regime in the British Virgin Islands with which the Group
must comply. However, the Directors recognise the importance of sound corporate governance and in accordance with AIM Rule 50
complies with the QCA Guidelines for AIM Companies.
Board of Directors
The Board’s principal responsibilities include assisting in the formulation of corporate strategy, reviewing and approving all significant
corporate transactions, monitoring operational and financial performance, reviewing and approving annual budgets and generally
assisting management to enhance the overall performance of the Group in order to deliver maximum value to its shareholders. The
Group holds Board meetings at least eight times each financial year and at other times as and when required. The Group will be
adding additional relevant non-executive Directors in the year to further balance the Board.
Committees
The Group has in operation the following committees: An Audit Committee and a Remuneration & Nomination Committee.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
31
Corporate Governance Report
Audit Committee
The Audit Committee comprises Alex Hambro (Chairman) of Emma Shaw (non-executive) and meets at least twice a year. Other
Executive Directors are permitted to attend meetings at the discretion of the Chairman of the Committee. There is an opportunity for
any meeting to be in private between the Non-Executive Director and the Company’s auditor to consider any matter they wish to bring
to the attention of the Committee. The terms of reference and areas of delegated responsibility of the Audit Committee are in the
consideration and approval of the following matters:
• monitoring the quality and effectiveness of the internal control environment, including the risk management procedures
followed by the Group;
•
•
•
•
•
•
•
•
•
reviewing the Group’s accounting policies and ensuring compliance with relevant accounting standards;
reviewing the Group’s reporting and accounting procedures;
ensuring that the financial performance of the business is properly measured, controlled and reported on;
reviewing the scope and effectiveness of the external audit and compliance by the Group with statutory and regulatory
requirements;
approving the external auditors’ terms of engagement, their audit plan, their remuneration and any non-audit work;
considering reports from the auditor on the outcome of the audit process and ensuring that any recommendations arising
are communicated to the Board and implemented on a timely basis;
reviewing the Board’s statement on internal control in the Annual Report;
ensuring compliance with the relevant requirements of the AIM Rules; and
It is the intention of the board to recruit a further non-executive director at an appropriate moment and they will become the
audit committee chair
Remuneration and Nomination Committee
The Remuneration and Nomination Committee comprises Emma Shaw (Chairman) and Alex Hambro and meets as and when
necessary. Other directors may attend its meetings by invitation from time to time. It keeps under review the skill requirements of the
Board and the skill, knowledge, experience, length of service and performance of the Directors. It also reviews their external interests
with a view to identifying any actual, perceived or potential conflicts of interests, including the time available to commit to their duties
to the Group. It sets and reviews the scale and structure of the Executive Directors’ remuneration packages, including share options
and the terms of the service contracts. The remuneration and the terms and conditions of the Non-Executive Directors are determined
by the Executive Directors with due regard to the interests of the shareholders and the performance of the Group. The Committee
also makes recommendations to the Board concerning the allocation of share options to employees.
The Committee also monitors the independence of each Non-Executive Director and makes recommendations concerning such to
the Board. The results of these reviews are important when the Board considers succession planning and the re-election and
reappointment of Directors. Members of the Committee take no part in any discussions concerning their own circumstances.
The Committee is also responsible for keeping under review the senior management team of the organisation to ensuring the
continued ability of the organisation to compete effectively in the marketplace.
Internal Control
The Board has overall responsibility for ensuring that the Group maintains a system of internal control to provide it with reasonable
assurance regarding the reliability of financial information used within the business and for publication. The Board is also responsible
for ensuring that assets are safeguarded, and risk is identified as early as practicably possible. As noted, the Audit Committee has a
significant role in this area. The internal control systems established are designed to manage rather than completely eliminate risk
and can only provide reasonable but not absolute assurance against misstatement or loss. The Group does not currently have an
internal audit function, and this will be kept under review as the Group progresses. The Board reviews the effectiveness of the systems
of internal control and its reporting procedures and augments and develops these procedures as required to ensure that an
appropriate control framework is maintained at all times. The principal control mechanisms deployed by the Group are:
detailed scrutiny of the monthly management accounts with all material variances investigated;
executive review and monitoring of key decision-making processes at subsidiary Board level;
• Board approval for all strategic and commercially significant transactions;
•
•
• Board reports on business performance and commercial developments;
•
•
•
standard accounting controls and reporting procedures; and
regularly liaising with the Group’s auditor and other professionals as required.
periodic risk assessments at each business involving senior executive management;
Falanx Group Limited
Report and financial statements year ended 31 March 2021
32
Corporate Governance Report
Shareholder Communication
The Group’s website (www.falanx.com) is the primary source of information on the Group. This includes an overview of the activities
of the Group, information on the Group’s subsidiaries and details of all recent Group announcements. All announcements are
reviewed by the Board and its NOMAD ahead of announcement and the Board continually keeps the need for any regulatory
announcement under review. All shareholder communication is in electronic form and the Company does not produce hard copy
documentation.
Corporate Responsibility
Falanx Group Limited operates responsibly with regards to its shareholders, employees, other stakeholders, the environment and the
wider community. The Group is committed to the well-being of all employees and ensures that their health, safety and general welfare
is paramount at all times. We also maintain open and fair relationships with all clients and suppliers while ensuring that all transactions
are operated on an arm's length, commercial basis.
The Directors are responsible for preparing the financial statements in accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each financial period. The Directors have elected to prepare these financial
statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and applicable
by law.
Approved by the Board on 28 September 2021 and signed on its behalf by
I R Selby
Director
Falanx Group Limited
Report and financial statements year ended 31 March 2021
33
Independent auditors’ report
to the members of Falanx Group Limited
Opinion on the financial statements
In our opinion:
•
•
the financial statements give a true and fair view of the state of the Group’s affairs as at 31 March 2021 and of the Group’s
loss for the year then ended; and
the Group financial statements have been properly prepared in accordance with international Financial Reporting Standards
as adopted by the European Union
We have audited the financial statements of Falanx Group Limited (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the
year ended 31 March 2021 which comprise the consolidated Income Statement, the Consolidated Statement of Comprehensive
Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Cash
Flow Statement and the related notes, including a summary of significant accounting policies. The financial reporting framework that
has been applied in their preparation is applicable law and international Financial Reporting Standards as adopted by the European
Union
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities under those standards are further described in the
Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remain independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and the Parent
Company’s ability to continue to adopt the going concern basis of accounting included:
We obtained management’s forecast performing analytical review on future performance to consider results in comparison to those
experienced in the most recent years. The key assumption used in the forecasts is the growth rate for each brand. These were
considered in light of recent results, marketing activity and future expectations.
We also obtained and analysed a ‘reverse stress test’ calculating the decrease in revenue (i.e. the reduction in growth rates)
necessary such that the going concern assumption would no longer be appropriate. The likelihood of this decrease was considered
remote by the Directors. Finally, we also reviewed minutes of board meetings occurring post year end for any unusual events that
could have an impact on the Group of the Parent Company’s ability to continue as a going concern.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group’s and Parent Company’s ability to continue as a going concern
for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of
this report.
Overview
Coverage1
100% (2020: 100%) of Group loss before tax
93% (2020: 94%) of Group revenue
99% (2020: 100%) of Group total assets
Key audit matters
Carrying value of
Intangibles
2021
Yes
2020
Yes
1 These are areas which have been subject to a full scope audit by the group engagement team
34
Falanx Group Limited
Report and financial statements year ended 31 March 2021
Independent auditors’ report
to the members of Falanx Group Limited
Materiality
Group financial statements as a whole
£116,000 (2020: £144,000) based on 5% of loss before tax adjusted
for write off of investment as detailed below (2020: 5% of loss before
tax)
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal
control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management
override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a
risk of material misstatement.
We considered the risk of the financial statements being misstated or not prepared in accordance with the underlying legislation or
standards. We then directed our work toward areas of the financial statements, which we assessed as having the highest risk of
containing material misstatements. We tailored the scope of our audit to ensure that we performed enough work to be able to give
an opinion on the financial statements as a whole, taking into account the structure of the Group and the Parent Company, the
accounting processes and controls and the industry in which they operate.
There are 8 significant components in the Group, which are all registered and operate in the UK, each of which is subject to a full
scope audit by BDO LLP. The audit was carried out for all significant components by the Group audit team. The remaining subsidiaries
are all considered non-significant components (Falanx Cyber Defence Spain S.L., Falanx Group US LLC, F G Consulting Services
DMCC and Sterling Risk (Asia)), or are dormant (Falanx Protection Limited). The non-significant components were subject to an
analytical review by the audit team to provide assurance to the Group audit opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the
audit, and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
Carrying value
of intangibles –
customer
relationships.
The
accounting
are
policies
disclosed
in
Notes 2 and 3
and details of
the intangibles
including
inputs
to
valuation
model
disclosed
Note 14
are
in
the
Intangible
specifically
assets,
customer relationships, represent a
significant part of the assets of the
Group and there are significant
judgements and estimates
that
need to be made in carrying out the
valuation of these assets which is
therefore considered
to be a
significant risk. These judgements
are made
the
underlying assumptions which
rates,
revenue growth
include
revenue multiples, attrition rate,
return on workforce, useful life and
the discount
to
factor applied
present value of the balances.
respect of
in
required
Management
to
is
consider whether there are any
indications of impairment but in this
case determined to conduct an
impairment review
to
assess carrying values at the end
of the 12-month re-measurement
period.
in order
How the scope of our audit addressed the key
audit matter
In this area our audit work included the following:
The inputs and assumptions used in the
valuation model were checked
to
supporting documentation and industry
benchmarks.
•
the
• We
considered
significant
judgements and estimates used in the
model and these were assessed in
relation to the historical results actually
achieved including results to date.
• We held a discussion with management
to challenge the key assumptions and
gain a better understanding of their
approach to valuation.
Key observation:
Based on the outcome of the above procedures,
we consider that the judgements and estimates
made in considering the carrying value of
customer relationships were appropriate.
The valuation was carried out using
a value in use model prepared by
management.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
35
Independent auditors’ report
to the members of Falanx Group Limited
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We
consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of
reasonable users that are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality
level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not
necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality
as follows:
for
Materiality
Basis
determining
materiality
Rationale
benchmark applied
for
the
Group financial statements
2021
£
116,000
5% loss before tax adjusted for write
off of investment in year.
2020
£
144,000
5% loss before tax
Loss before tax identified as a key
indicator as
to
management on a monthly basis and
one of the board’s key measures of
performance of the Group
reported
is
it
Loss before tax identified as a key
indicator as it is reported to management
on a monthly basis and one of the
board’s key measures of performance of
the Group
Performance
materiality
Basis
determining
performance
materiality
81,200
100,100
for
70% of materiality – based on our assessment of the relevant risk factors within
the entity, e.g. previous experience of misstatements, management’s attitude
towards proposed adjustments, the level of estimation inherent within the financial
statements, number of locations and testing approach.
Component materiality
Whilst materiality for the financial statements as a whole was £116,000, each component of the Group was audited to a lower level
of materiality. Significant component materiality ranged from £21,000 to £104,000 (2020: £800 to £134,000).
Reporting threshold
We reported to the Audit Committee all potential adjustments in excess of £5,000 (2020: £6,900). We also agreed to report differences
below these thresholds that, in our view, warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information included in the financial
statements other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be
materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic
alternative but to do so.
36
Falanx Group Limited
Report and financial statements year ended 31 March 2021
Independent auditors’ report
to the members of Falanx Group Limited
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below:
We obtained an understanding of the legal and regulatory framework applicable to the Group and the sector in which it operates and
considered the significant laws and regulations related to HMRC and taxes imposed. We considered the extent to which non-
compliance might have a material effect on the Group financial statements or their continued operation.
We assessed the susceptibility of the financial statement to material misstatement including fraud and evaluated management’s
incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and
determined that the principal risks were related to revenue recognition, posting inappropriate journal entries to manipulate financial
results and management bias in accounting estimates.
Our audit procedures in response to the above included:
- Challenging assumptions made by management in their significant accounting estimates in particular in relation to the value
-
in use of intangible assets (refer to Key Audit Matter above);
Identifying and testing journal entries, as selected by risk factors including size, description and posted outside of normal
working times;
- We assessed the susceptibility of the Group’s financial statements to material misstatement, including understanding where
and how fraud might occur. This included reviewing a sample of revenue entries to agreed arrangements with customers to
check delivery has been recorded in line with contracts and that the Group’s accounting policy has been correctly applied
and that the amounts have been correctly presented in the profit and loss account;
- Review of legal and regulatory costs incurred;
- Discussion with management with regards to potential breaches of laws and regulations or contingent liabilities;
- Discussion with the team regarding potential non-compliance with laws and regulations and fraud risks; and
- Reading minutes of meetings of those charged with governance.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk
of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may
involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in
the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and
transactions reflected in the financial statements, the less likely we are to become aware of it.
further description of our
A
responsibilities
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
is available on
the Financial Reporting Council’s website at:
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are
required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Parent Company and the Parent Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
PAUL FENNER, FCA
Senior Statutory Auditor
BDO LLP, Chartered Accountants
London, UK
28 September 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)
37
Falanx Group Limited
Report and financial statements year ended 31 March 2021
Consolidated income statement
for the year ended 31 March 2021
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating loss
Analysis of operating loss
Operating loss
Share option expense
Depreciation and amortisation
Impairment of Furnace equity investment
Impairment of Furnace loan receivable
Highlighted costs
Adjusted EBITDA loss
Finance income
Finance expense
Finance expense – net
Loss before income tax
Income tax expense
Loss for the year
Loss per share
Basic loss per share
Diluted loss per share
Note
4
2021
£
2020
£
5,244,161
5,851,175
(3,668,176)
(3,638,105)
1,575,985
2,213,070
(5,095,355)
(5,068,146)
6
(3,519,370)
(2,855,076)
(3,519,370)
(2,855,076)
175,949
533,482
340,000
1,100,000
110,354
228,366
482,675
260,000
—
320,173
(1,259,585)
(1,563,862)
4
(32,574)
(32,570)
2,100
(26,029)
(23,929)
(3,551,940)
(2,879,005)
-
(2,323)
(3,551,940)
(2,881,328)
(0.77) p
(0.77) p
(0.72) p
(0.72) p
17
18
5.1
5.2
9
9
10
11
11
Falanx Group Limited
Report and financial statements year ended 31 March 2021
38
Consolidated income statement
for the year ended 31 March 2021
Loss for the year
Other comprehensive income:
Re-translation of foreign subsidiaries
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Attributable to:
Owners of the parent
Total comprehensive income for the year
2021
£
2020
£
(3,551,940)
(2,881,328)
5,403
5,403
(4,600)
(4,600)
(3,546,537)
(2,885,928)
(3,546,537)
(2,885,928)
(3,546,537)
(2,885,928)
Items in the statement above are disclosed net of tax. The income tax relating to each component of other comprehensive income is
disclosed in note 10.
The notes on pages 43 to 72 are an integral part of these consolidated financial statements.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
39
Consolidated statement of financial position
as at 31 March 2021
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Right of use asset
Investments with fair value through Profit and Loss (Furnace)
Furnace Loan Receivable
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity
Capital and reserves attributable to equity holders of the Company
Share capital
Translation reserve
Shares based payment reserve
2022 liabilities reserve
Accumulated losses
Total equity
Liabilities
Non-current liabilities
Deferred tax liability
Lease liability
Borrowings
Other payables
Current liabilities
Trade and other payables
Contract liabilities
Lease liability
Borrowings
Total liabilities
Total equity and liabilities
Note
2021
£
2020
£
13
14
15
17
18
19
20
155,831
195,423
3,702,840
3,893,809
363,271
—
—
4,221,942
472,253
340,000
1,100,000
6,001,485
1,076,216
2,169,635
545,321
1,621,537
5,843,479
79,282
2,248,917
8,250,402
21 / 22
4,033,161
17,903,427
12
23
24
26
27
25
4
26
27
(107,777)
747,243
1,000,000
(113,180)
587,325
—
(2,943,989)
(13,408,080)
2,728,638
4,969,492
9,529
252,874
42,129
5,409
309,941
1,592,715
1,108,317
95,997
7,871
9,529
348,872
—
—
358,401
1,595,850
1,237,347
89,312
—
2,804,900
2,922,509
3,114,841
5,843,479
3,280,910
8,250,402
The notes on pages 43 to 72 are an integral part of these consolidated financial statements.
The financial statements were authorised for issue by the Board of Directors on 28 September 2021 and were signed on its behalf
by:
M D Read
Director
Company number: 1730012 (British Virgin Islands)
Falanx Group Limited
Report and financial statements year ended 31 March 2021
I R Selby
Director
40
Consolidated statement of changes in equity
for the year ended 31 March 2021
Share Accumulated Translation Share based
2022
Note
capital
losses
Reserve
payment
reserve
Liabilities
reserve
Balance at 1 April 2019
Loss for the year
Re-translation of foreign
subsidiaries
Transactions with owners:
Share based payment charge
12
£
£
£
£
17,903,427
(10,526,752)
(108,580)
358,959
—
—
—
(2,881,328)
—
—
(4,600)
—
—
—
—
228,366
Balance at 31 March 2020
17,903,427
(13,408,080)
(113,180)
587,325
Loss for the year
Re-translation of foreign
subsidiaries
Transactions with owners:
Capital reconstruction
Issue of share capital
Costs of issue of share capital
Share based payment charge
12
Forfeited share options reversed
through reserves
—
—
(3,551,940)
—
—
5,403
(15,000,000)
14,000,000
1,247,600
(117,866)
—
—
—
—
—
16,031
—
—
—
—
—
—
—
—
—
—
175,949
(16,031)
Total
£
7,627,054
(2,881,328)
(4,600)
228,366
4,969,492
(3,551,940)
5,403
—
—
—
—
—
—
—
1,000,000
—
—
—
—
—
1,247,600
(117,866)
175,949
—
Balance as at 31 March 2021
4,033,161
(2,943,989)
(107,777)
747,243
1,000,000
2,728,638
The share capital account represents the amount subscribed for share capital, net of share issue expenses. Share issue expenses
comprise the costs in respect of the issue by the Company of new shares.
Accumulated losses represents the cumulative losses of the Group attributable to the owners of the parent.
The translation reserve represents the cumulative movement in the translation of foreign subsidiaries into the presentation currency.
The share based payment reserve represents the cumulative share option and warrant charges.
The 2022 Liabilities reserve is a special non distributable reserve in respect of certain longer term liabilities including HMRC COVID
-19 deferral and rental liabilities on the Reading office. The balance on this account will transfer to accumulated losses on 31
December 2022. This reserve was created as part of the capital variation in completed in February 2021.
The notes on pages 43 to 72 are an integral part of these consolidated financial statements.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
41
Consolidated cash flow statement
for the year ended 31 March 2021
Cash flows from operating activities
Loss before tax
Adjustments for:
Depreciation
Amortisation and impairment of intangibles
Amortisation of right of use assets
Impairment of investment in Furnace
Impairment of loan receivable
Share based payment
Profit on disposal of Furnace IP
Net finance expense recognised in profit or loss
Changes in working capital:
Decrease in inventories
Decrease / (Increase) in trade and other receivables
(Decrease) / Increase in trade, contract liabilities and other payables
Cash used in operations
Interest paid
Tax paid
Net cash used in continued operating activities
Cash flows from investing activities
Interest received
Acquisition of property, plant and equipment
Expenditure on development cost
Acquisition of investment
Net cash used in investing activities
Cash flows from financing activities
Repayment of lease liabilities
Interest on lease interest
Proceeds from bank borrowing
Proceeds from issue of shares
Costs of share issuance
Net cash generated from financing activities
Net increase/(decrease) in cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange gains/(losses) on cash and cash equivalents
Cash and cash equivalents at end of year
Note
2021
£
2020
£
(3,551,940)
(2,879,005)
75,753
348,748
108,981
340,000
1,100,000
175,949
—
32,569
15
17
18
12
16
9
87,300
318,180
77,195
260,000
—
228,366
(58,666)
23,929
(1,369,940)
(1,942,701)
—
1,093,419
(126,756)
3,828
(57,539)
332,023
(403,277)
(1,664,389)
(3,774)
—
(1,754)
(387)
(407,051)
(1,666,530)
4
(36,161)
(157,779)
—
(193,936)
(89,313)
(28,799)
50,000
1,247,600
(117,866)
1,061,623
2,100
(255,070)
(378,484)
(61,820)
(693,274)
—
—
—
—
—
—
460,636
(2,359,804)
79,282
5,403
545,321
2,443,686
(4,600)
79,282
The notes on pages 43 to 72 are an integral part of these consolidated financial statements.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
42
Notes to the consolidated financial statements
for the year ended 31 March 2021
1. General information
Falanx Group Limited (the “Company” or “Falanx”) and its subsidiaries (together the “Group”) operate in the cyber security 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. The UK registered office The Blade, Abbey Square, Reading, RG1 3BE.
2. Summary of significant accounting policies
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. The functional and presentational currency for the financial statements is Sterling. The financial
statements have been prepared under the historical cost convention, as modified by 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 Financial Statements have been prepared on a going concern basis which notwithstanding the loss for the year ended 31
March 21. This basis assumes that the Group will have access to sufficient funding through the realization of assets in the
ordinary course of business to enable it to continue to operate for the foreseeable future. the Directors consider the application
of going concern to be appropriate for the following reasons.
1. The Group operates in the high growth Cyber Security and Strategic Intelligence markets. The COVID-19 situation has
driven the move to an online environment for many aspects of business and this is increasing demand for the Group’s
services, although clearly a company cannot be immune from any major macroeconomic issues.
2. The Group’s financial performance has significantly improved since 1 April 2021, and this continues from the post COVID-
19 recovery which commenced in the autumn of 2020.
3. The Cyber Security division is now profitable at an adjusted EBITDA level compared with losing c£0.45m at an adjusted
EBITDA level in the year ended 31 March 2021. This division has a strong backlog of work from orders (including the
divisions largest ever order for £1m (over 3 years)) which was won in April 2021. The recurring revenue Triarii cyber security
monitoring service has a strong pipeline of business from channels and direct sales, and this is expected to help further
support revenue growth. This service has a high incremental margin and can significantly increase divisional performance.
Adjusted EBITDA has had a historically very close correlation with cash performance.
4. The Assynt division has signed significant new contract expansions and extensions with a major existing client which should
increase its recurring revenues to circa £0.19m per month compared with £0.15m at the start of the year. This should enable
it to be profitable on a regular basis without any consulting assignments.
5. Overall, the Group has a high level of recurring revenues, currently more than £0.28m per month, and a high level of repeat
business of more than £2.0m per annum. This reduces its exposure to new sales situations. The Group’s creditors are
broadly in line and the group has a normal working capital position and an agreed payment plan is in place with HMRC and
is in terms. The Group has a historically very low incidence of bad debts.
6. Group central costs are lower than in previous years and there is no major requirement for capital expenditure following the
disposal of Furnace in the year ended 31 March 2020.
7. The above and the associated business plans and detailed forecasts, enable the directors to believe that the Group’s existing
cash resources (excluding the drawdown of the £1.5m from the second phase of the loan from BOOST&Co) are sufficient
for it to remain a going concern for at least 12 months from the date of these accounts. This analysis has included the
repayment of all amounts due under the loan and to HMRC under the COVID-19 deferral plan as well as it to have a normal
working capital profile.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
43
Notes to the consolidated financial statements
for the year ended 31 March 2021
8. A stringent stress test scenario as a downgrade to the above has also been prepared. This assumes that there are no further
sales of Triarii MRR and no further recurring revenues in the Assynt business beyond the existing contract bases.
Furthermore, in this scenario the Group does not adjust its cost based in this scenario. This shows that, with the drawdown
of the second tranche of £1.5m of the loan that the Group would still have significant cash balances at 12m from the date of
these accounts.
9. Should this stringent stress test scenario not be achieved, then further mitigating actions would be carried out to ensure
that the Group remains within its resources, and these would include a reduction of planned capital expenditure,
headcount reduction, reducing discretionary spend and sales investment, freezing or reducing pay and cancelling
recruitment, and all of these are within the director’s control. Further incremental measures could also involve the
potential disposal of non-core assets which the Group believes, could generate proceeds which are significant
compared to the recent market capitalisation of the Group. Further actions could include seeking further support from
existing and new shareholders and debt providers.
Based on the above, the Group expects to have will have sufficient resources to meets its liabilities as they fall due for at least
12 months from the date of these accounts.
2.1.2 New and Revised Standards
Standards in effect in 2021
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are
effective in future accounting periods that the group has decided not to adopt early.
The following amendments are effective for the period beginning 1 January 2022:
- Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37);
-
-
- References to Conceptual Framework (Amendments to IFRS 3).
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and
In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified
as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a
right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The
amendments also clarify that ‘settlement’ includes the transfer of cash, goods, services, or equity instruments unless the obligation
to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability
component of a compound financial instrument. The amendments were originally effective for annual reporting periods beginning on
or after 1 January 2022. However, in May 2020, the effective date was deferred to annual reporting periods beginning on or after 1
January 2023.
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the Group in future periods.
A number of IFRS and IFRIC interpretations are also currently in issue which are not relevant for the Group's activities and which
have not therefore been adopted in preparing these financial statements.
2.1.3 Alternative performance measures (APM)
In the reporting of financial information, the Directors have adopted the APM “Adjusted EBITDA” (APMs were previously termed ‘Non-
GAAP measures’), which is not defined or specified under International Financial Reporting Standards (IFRS). This is a key metric
which the Board uses to assess the performance of the Group and its divisions as it reflects the costs. Rental costs are charged
against this measure as they are largely under the control of the division and correlate closely with cash performance.
This measure is not defined by IFRS and therefore may not be directly comparable with other companies’ APMS, including those in
the Group’s industry.
APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measurements.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
44
Notes to the consolidated financial statements
for the year ended 31 March 2021
Purpose
The Directors believe that this APM assists in providing additional useful information on the underlying trends, performance and
position of the Group. This APM is also used to enhance the comparability of information between reporting periods and business
units, by adjusting for non-recurring or uncontrollable factors which affect IFRS measures, to aid the user in understanding the Group’s
performance. Furthermore, the use of EBITDA means a closer correlation with the cash performance of the business. Consequently,
APMs are used by the Directors and management for performance analysis, planning, reporting and incentive setting purposes and
this remains consistent with the prior year.
The key APM that the Group has focused on is as follows:
Adjusted EBITDA: This is the headline measure used by management to measure the Group’s performance and is based on operating
profit before the impact of financing costs, IFRS16, share based payment charges, depreciation, amortisation, impairment charges
and other highlighted items. Highlighted items (note 5.1) relate to certain costs that derive from events or transactions that fall within
the normal activities of the Group but which, individually or, if of a similar type, in aggregate, are excluded by virtue of their size and
nature in order to reflect management’s view of the performance of the Group.
2.2 Consolidation
Subsidiaries
Subsidiary undertakings are entities that are controlled by the Company. The definition of control involves three elements: power
over the investee; exposure or rights to variable returns and the ability to use the power over the investee to affect the amount of the
investor’s returns. The Group generally obtains power through voting rights. Subsidiaries are consolidated from the date at which the
Group obtains the relevant level of control and are de-consolidated from the date at which control ceases.
The acquisition method of accounting is used for all business combinations. On acquisition, the cost is measured at the aggregate of
their fair values at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group
in exchange for control of the acquire. Any costs directly attributable to the business combination are expensed as incurred. The
acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (Revised),
“Business Combinations” are recognised at fair values at the acquisition date.
Goodwill represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the
acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable
net assets acquired is recorded as goodwill. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s
identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the difference is recognised
directly in profit or loss. Any subsequent adjustment to reflect changes in consideration arising from contingent consideration
amendments are recognised in profit or loss.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised
losses are also eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the
policies adopted by the Group. All subsidiaries are wholly owned by the Group.
2.3 Segmental reporting
In accordance with IFRS 8, segmental information is presented based on the way in which financial information is reported internally
to the chief operating decision maker. The Group’s internal financial reporting is organised along product and service lines and
therefore segmental information has been presented about business segments. A business segment is a group of assets and
operations engaged in providing products and services that are subject to risks and returns which are different from those of other
business segments.
2.4 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course
of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within
the Group.
The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits
will flow to the entity and when specific criteria have been met for each of the Group’s activities.
Revenue is recognised on the following bases:
Class of revenue
Subscription fees
Managed services
Consultancy
Vulnerability assessment
Recognition criteria
straight line basis over the life of the contract
straight line basis over the life of the contract
on delivery of service to customers
on delivery of service to customers
Revenue is recognised as the client receives the benefit of the services provided under a commercial contract, in an amount that
reflects the consideration to which the provider expects to be entitled for the transfer of the goods or services.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
45
Notes to the consolidated financial statements
for the year ended 31 March 2021
Performance obligations and timing of revenue recognition
Revenue from the provision of professional services such as penetration testing, consultancy and strategic intelligence assignments
are recognised as services are rendered, based on the contracted daily billing rate and the number of days delivered during the
period. Revenue from pre-paid contracts are deferred in the balance sheet and recognised on utilisation of service by the client.
Revenue from cyber monitoring contracts (including installation), intelligence embedded analyst and report subscriptions includes
advance payments made by the customer is deferred (as a contract liability) and is then subsequently recognised on a straight-line
basis over the term of the contract. Where they are billed periodically in a monthly in arrears basis, revenues are recognised at that
point.
Contracts values are typically fixed price and the pricing level is based on management experience of pricing adequate mark up of
prime cost. Where additional services need to be delivered outside of the contract a time and materials basis based on day rates is
used.
Determining the transaction price
The Group’s revenue is derived from fixed price contracts and therefore the amount of revenues to be earned from each contract is
determined by reference to those fixed prices. Costs of obtaining long-term contracts and costs of associated sales commissions are
prepaid and amortised over the terms of the contract on a straight-line basis. Commissions paid to sale staff for work in obtaining the
Prepaid Consultancy are recognised in the month of invoice. The timing and any conditionality for the payment of commissions is
governed under the then applicable sales incentive plan.
Revenues are exclusive of applicable sales taxes and are net of any trade discounts. There are no financing components in any of
our revenue streams.
Contract Assets (accrued incomes) balance were £63,692 (2020: £27,747) and is included in prepayments and accrued income (note
19) and the change compared to the previous year was due to short term timing differences. Contract Liabilities (deferred incomes)
balance of £1,108,317 (2020: £1,237,347). Included in the Contract Liabilities at the 31 March 2021 were approximately £121,327
(2020: £40,926) residual balance from prior year. All Contract Assets at the 2021-year end arose towards the end of the period. All
contract assets have short cash conversion periods and all assets at the year-end have since been monetised.
The Board considers that the information in note 4 adequately depicts how the nature, amount, timing and uncertainty of revenue
and cash flow are affected by economic factors.
2.5 Taxation
The tax expense for the year represents the total of current taxation and deferred taxation. The charge in respect of current taxation
is based on the estimated taxable profit for the year. Taxable profit for the year is based on the profit as shown in the income
statement, as adjusted for items of income or expenditure which are not deductible or chargeable for tax purposes. The current tax
liability for the year is calculated using tax rates which have either been enacted or substantively enacted at the reporting date.
Deferred tax is provided in full, using the liability method on temporary differences arising between the tax base of assets and liabilities
and their carrying values in the financial statements. Deferred tax is not accounted for if it arises from initial recognition of an asset
or liability in a transaction other than a business combination that, at the time of the transaction, affects neither accounting nor taxable
profit or loss. Deferred tax is determined using tax rates which have been enacted or substantively enacted at the reporting date and
are expected to apply when the related deferred tax asset is realised, or the deferred income tax liability is settled.
Deferred tax assets are recognised for all deductible temporary differences, carry forward of tax assets and unutilised tax losses, to
the extent that it is probable that taxable profits will be available against which the deductible temporary differences, and the
carrying forward of tax assets and unutilised tax losses can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and adjusted to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the deferred tax assets to be utilised. Conversely, previously
unrecognised deferred tax assets are recognised to the extent that it is probable that sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or
the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the statement of financial
position date.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
46
Notes to the consolidated financial statements
for the year ended 31 March 2021
2.6 Foreign Currency
The Company has determined Sterling as its functional currency, as this is the currency of the economic environment in which the
Company predominantly operates.
Transactions in currencies other than Sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At
each reporting date, the monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates
prevailing on the reporting date. Non-monetary assets and liabilities are carried at fair value that are denominated in foreign currencies
are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising on exchange are
included in profit or loss.
Foreign currency differences arising on retranslation are recognised in profit or loss.
In the case of foreign entities, the financial statements of the Group’s overseas operations are translated as follows on consolidation:
assets and liabilities, at exchange rates ruling on reporting date, income and expense items at the average rate of exchange for the
period and equity at exchange rates ruling on the dates of the transactions. Exchange differences arising are classified as equity and
transferred to a separate translation reserve. Such translation differences are recognised in profit or loss in the period in which the
operation is disposed of. Foreign exchange gains and losses arising from monetary item receivable from or payable to a foreign
operation, the settlement of which is neither planned nor likely within the foreseeable future, are considered to form part of net
investment in a foreign operation and are recognised directly in equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate.
Foreign currency gains and losses are reported on a net basis.
2.7 Property, plant and equipment
All property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
All assets are depreciated in order to write off the costs, less anticipated residual values of the assets over their useful economic lives
on a straight-line basis as follows:
• Fixtures and fittings: 5 years
• Computer equipment: 3 years
2.8 Intangible assets
Acquired intangible assets are shown at historical cost. Acquired intangible assets have a finite useful life and are carried at cost,
less accumulated amortisation over the finite useful life. All charges in the year are shown in the income statement in administrative
expenses.
Goodwill
Goodwill arising on acquisition is stated at cost. Goodwill is not amortised, but subject to an annual test for impairment. Impairment
testing is performed by the Directors. Where impairment is identified, it is charged to the income statement in that period.
Software and brand licences
Acquired software and brand licences are shown at historical cost. Software and brand licences have a finite useful life and are
carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of software
and brand licences over the period of the licence. The brand and software licences have been fully amortised in previous accounting
periods.
Research and development
Research expenditure is charged to the income statement in the year incurred.
Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by
the Group are recognised as intangible assets when the following criteria are met:
•
• management intends to complete the software product and use or sell it;
•
• adequate technical, financial and other resources to complete the development and to use or sell the software product are
it can be demonstrated how the software product will generate probable future economic benefits;
it is technically feasible to complete the software so that it will be available for use;
available; and
the expenditure attributable to the software product during its development can be reliably measured.
•
Falanx Group Limited
Report and financial statements year ended 31 March 2021
47
Notes to the consolidated financial statements
for the year ended 31 March 2021
Other development expenditures that do not meet these criteria are charged to the income statement in the year incurred.
Development costs recognised as assets are amortised over their estimated useful life, which does not exceed 5 years.
Government tax credits available on eligible Research and Development expenditure (‘R&D Tax Credits’) and not reclaimable through
other means are recognised in income and treated as a government grant.
Customer relationships
Customer relationships are amortised over the period expected to benefit as follows:
• First Base: 10 years
• Securestorm: 3 years
2.9 Impairment of non-financial assets
Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. A review for indicators of impairment is performed annually. An impairment
loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is
the higher of an asset’s fair value less costs to sell and value in use. Any impairment charge is recognised in the income statement
in the year in which it occurs. When an impairment loss, other than an impairment loss on goodwill, subsequently reverses due to a
change in the original estimate, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, up
to the carrying amount that would have resulted, net of depreciation, had no impairment loss been recognised for the asset in prior
years.
2.10 Financial instruments
The Group applies a simplified method of the expected credit loss model when calculating impairment losses on its financial assets
which are measured at amortised cost such as trade receivables, other debtors and prepayments. This resulted in greater judgement
due to the need to factor in forward-looking information when estimating the appropriate amount to provisions
(a) Financial Assets
The Group’s Financial Assets include Cash and Cash Equivalents, Trade Receivables and Other Receivables.
•
Initial Recognition and Measurement: Financial Assets are classified as amortised cost and initially measured at fair
value.
• Subsequent Measurement: Financial assets are subsequently measured at amortised cost, using the effective interest
method, less impairment. Interest is recognised by applying the effective interest method, except for short-term receivables
when the recognition of interest would be immaterial. The company only offers short periods of credit to its customers and
recorded average debtor days of 37 at 31 March 2021 (2020: 66)
• Derecognition of Financial Assets: The Company derecognises a Financial Asset only when the contractual rights to the
cash flows from the asset expire, or it transfers the Financial Asset and substantially all the risks and rewards of ownership
of the asset to another entity.
(b) Financial Liabilities and Equity Instruments
The Group’s Financial Liabilities include Trade Payables, Accruals and Other Payables. Financial Liabilities are classified at amortised
cost.
(c) Investments
Investments not in subsidiary undertakings are carried at fair value through profit and loss.
Classification as Debt or Equity. Financial Liabilities and Equity Instruments issued by the Company are classified according to the
substance of the contractual arrangements entered into and the definitions of a Financial Liability and an Equity Instrument.
2.11 Share capital
Ordinary shares (of nil par value) in the Company are classified as equity. By definition all amounts arising from the issue of these
shares are attributable to Share Capital as are any directly attributable (including any warrants issued as commissions) to issue of
new shares are shown in equity as a deduction to the share capital account. The Company does not maintain a separate share
premium account.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
48
Notes to the consolidated financial statements
for the year ended 31 March 2021
2.12 Reserves
The consolidated financial statements include the following reserves: translation reserve, share option reserve, 2022 Liabilities
reserve and accumulated losses. Premiums paid on the issue of share capital, less any costs relating to these, are posted to the
share capital account as referenced above.
2.13 Trade payables
Trade payables are obligations to pay for goods and services that have been acquired in the ordinary course of business from
suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as
non-current liabilities.
Trade payables are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest
method. As the payment period of trade payables is short, future cash payments are not discounted as the effect is not material.
2.14 Leases
When entering into a contract the Group assesses whether or not a lease exists. A lease exists if a contract conveys a right to control
the use of an identified asset under a period of time in exchange for consideration. Leases of low value items and short-term leases
(leases of less than 12 months at the commencement date) are charged to the profit or loss on a straight-line basis over the lease
term in administrative expenses.
The Group recognises right-of-use assets at cost and lease liabilities on the statement of financial position at the lease
commencement date based on the present value of future lease payments. The right-of-use assets are amortised on a straight-line
basis over the length of the lease term. The lease liabilities are recognised at amortised cost using the effective interest rate method.
Discount rates used reflect the incremental borrowing rate specific to the lease.
2.15 Pensions
The Company operates a defined contribution pension scheme under which fixed contributions are payable. Pension costs charged
to the income statement represent amounts payable to the scheme during the year.
2.16 Share-based payments
The cost of share-based payment arrangements, which occur when employees receive shares or share options, is recognised in the
income statement over the period over which the shares or share options vest.
The expense is calculated based on the value of the awards made, as required by IFRS 2, ‘Share-based payment’. The fair value of
the awards is calculated by using the Black-Scholes and Monte Carlo option pricing models taking into account the expected life of
the awards, the expected volatility of the return on the underlying share price, vesting criteria, the market value of the shares, the
strike price of the awards and the risk-free rate of return. The charge to the income statement is adjusted for the effect of service
conditions and non-market performance conditions such that it is based on the number of awards expected to vest. Where vesting is
dependent on market-based performance conditions, the likelihood of the conditions being achieved is adjusted for in the initial
valuation and the charge to the income statement is not, therefore, adjusted so long as all other conditions are met.
Where an award is granted with no vesting conditions, the full value of the award is recognised immediately in the income statement.
2.17 Provisions
Provisions are recognised in the statement of financial position where there is a legal or constructive obligation to transfer economic
benefits as a result of a past event. Provisions are discounted using a rate which reflects the effect of the time value of money and
the risks specific to the obligation, where the effect of discounting is material.
Provisions are measured at the present value of expenditures expected to be required to settle the obligation using a pre-tax rate
that reflects current market assessments of the time, value of money and the risks specific to the obligation. The increase in provision
due to the passage of time is recognised as interest expense.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
49
Notes to the consolidated financial statements
for the year ended 31 March 2021
3. Critical accounting estimates and judgements
The preparation of the Group financial statements in conformity with IFRSs as applied in accordance with the provisions of the
Companies Act 2006 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. Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future events that are believed to be reasonable under the present
circumstances. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are
significant to the Group financial statements are disclosed below.
Judgements:
Investment in Furnace Technologies Limited
The investment agreement in Furnace Technologies Limited has allocated Falanx Group Limited 20% of its equity. It is considered a
financial as opposed to an operational investment as Falanx does not have the right to appoint a board member and plays no part in
its operations or policymaking. There is no ongoing obligation to provide further investment to Furnace and Furnace has no part in
the business plans of Falanx. There is no interchange of management personnel and any transactions between the companies are
small and are on an arm’s length basis. Consequently, it has not been treated as an associated company. The investment balance
has been impaired in full as at 31 March 2021 on the following basis;
Furnace had not yet generated material revenues
Furnace had not received external funding at the date of this report which would allow an objective measure of the equity
value which would validate the capital structure and its carrying value.
•
•
Estimates:
Management do not consider there to be significant accounting estimates in respect of the year ended 31 March 2021.
Impairment of intangible assets
Management have assessed indicators of impairment and conducted an impairment review of intangible assets. They have made
judgements as to the likelihood of them generating future cash flows, the period over which those cash flows will be received and the
costs which are attributable against them. The recoverable amount is determined using the value in use calculation. The use of this
method requires the estimation of future cash flows and the selection of a suitable discount rate in order to calculate the present
value of these cash flows (refer to note 14.2).
In support of the assumptions, management use a variety of sources. In addition, management have undertaken scenario analyses,
including a reduction in sales forecasts, which would not result in the value in use being less than the carrying value of the cash-
generating unit. However, if the business model is not successful, the carrying value of the intangible assets may be impaired and
may require writing down.
4. 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 is analysed per division to be consistent with the views of the chief operating decision maker, as highlighted in the
Chief Executive Officer’s report. The segmental analysis of the Group’s business is 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 consists of the parent company’s administrative operation.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
50
Notes to the consolidated financial statements
for the year ended 31 March 2021
4. Segmental reporting continued
Reportable segments
The reportable segment results for the year ended 31 March 2021 are as follows:
Assynt report & embedded analysts
Professional services
Monitoring managed services
Revenues from external customers
Gross Margin
Segment Reported EBITDA
Highlighted costs (Note 5)
Segment Adjusted EBITDA
Finance expense-net
Depreciation and amortisation
Impairment of Furnace equity investment (Note 17)
Impairment of Furnace loan investment (Note 18)
Share option expense
Segment loss before tax for the year
Intelligence
Cyber
£
2,016,062
£
—
108,375
2,272,951
—
846,773
2,124,437
3,119,724
559,048
1,016,937
Corporate
segment
£
—
—
—
—
—
Total
£
2,016,062
2,381,326
876,773
5,244,161
1,575,985
(32,312)
123,247
90,935
(419,020)
(27,369)
(446,389)
(918,607)
(1,369,939)
14,476
110,354
(904,131)
(1,259,585)
—
(1,346)
(31,224)
(32,570)
(29,587)
(308,590)
(195,305)
(533,482)
—
—
(2,313)
(64,212)
—
—
(340,000)
(340,000)
(1,100,000)
(1,100,000)
(8,112)
(165,524)
(175,949)
(737,068)
(2,750,660)
3,551,940
The reportable segment results for the year ended 31 March 2020 are as follows:
Assynt report & embedded analysts
Professional services
Monitoring managed services
Revenues from external customers
Gross Margin
Segment Reported EBITDA
Highlighted costs (Note 5)
Segment Adjusted EBITDA
Finance expense-net
Depreciation and amortisation
Impairment of Furnace investment
Share option expense
Segment loss before tax for the year
Intelligence
Cyber
£
2,006,220
136,247
—
2,142,467
£
—
2,647,814
1,060,894
3,708,708
804,842
1,408,228
Corporate
segment
£
—
—
—
—
—
Total
£
2,006,220
2,784,061
1,060,894
5,851,175
2,213,070
3,310
7,397
(379,985)
(1,507,360)
(1,884,035)
(34,235)
347,011
320,173
10,707
(414,220)
(1,160,349)
(1,563,862)
377
(764)
(23,542)
(23,929)
(30,723)
(299,623)
(152,329)
(482,675)
—
(38,671)
(65,707)
—
(260,000)
(260,000)
(45,272)
(144,423)
(228,366)
(725,644)
(2,087,654)
(2,879,005)
Falanx Group Limited
Report and financial statements year ended 31 March 2021
51
Notes to the consolidated financial statements
for the year ended 31 March 2021
4. Segmental reporting continued
Segment assets consist primarily of property, plant and equipment, intangible assets, trade and other receivables and cash and cash
equivalents. Unallocated assets comprise deferred tax assets, financial assets held at fair value through profit or loss and derivatives.
Segment liabilities comprise operating liabilities; liabilities such as deferred taxation, borrowings and derivatives are not allocated to
individual business segments.
Segment assets and liabilities as at 31 March 2021 and capital expenditure for the year then ended are as follows:
Contract assets
Other assets
Contract liabilities (deferred income)
Other liabilities
Capital expenditure – Tangible
Capital expenditure – Intangible
Intelligence
£
1,551
374,615
643,317
389,175
—
—
Cyber
£
62,141
Corporate
segment
£
—
Total
£
63,692
3,741,016
1,526,695
5,642,326
465,000
588,087
31,007
157,780
—
1,108,317
1,029,262
2,006,524
5,154
—
36,161
—
Segment assets and liabilities as at 31 March 2020 and capital expenditure for the year then ended are as follows:
Contract assets
Other assets
Contract liabilities (deferred income)
Other liabilities
Capital expenditure – Tangible
Capital expenditure – Intangible
Intelligence
£
14,047
Cyber
£
13,700
Corporate
segment
£
—
Total
£
27,747
1,022,230
4,316,992
2,883,433
8,222,655
807,860
335,031
1,262
—
429,487
492,944
32,224
378,484
—
1,237,347
1,215,588
2,043,563
221,584
—
255,070
378,484
Geographical information
The Group’s business segments operate in six geographical areas, although all are managed on a worldwide basis from the Group’s
head office in the United Kingdom. All non-current assets are in the United Kingdom.
A geographical analysis of revenue and non-current assets is given below. Revenue is allocated based on location of customer; non-
current assets are allocated based on the physical location of the asset.
Revenue by geographical location
United Kingdom
Europe
The Americas
Australasia
Middle East and Africa
Non-current assets
United Kingdom
2021
£
2020
£
3,917,656
4,650,608
527,903
455,411
185,900
157,291
508,170
329,390
191,249
171,758
5,244,161
5,851,175
2021
£
2020
£
4,084,481
6,001,485
4,084,481
6,001,485
Major customers
No customer contributed 10% or more to the Group’s revenue in 2021 (2020: nil). The highest individual customer contributed c6%
of revenues.
52
Falanx Group Limited
Report and financial statements year ended 31 March 2021
Notes to the consolidated financial statements
for the year ended 31 March 2021
4. Segmental reporting continued
Contract Assets (accrued incomes) balances were £63,992 (2020: £27,747). Included in the Contract Liabilities (deferred incomes)
at the 31 March 2021 were approximately £80,602 (2020: £40,926) residual balance from prior year. All Contract Assets at the 2021-
year end arose towards the end of the period and were billed and collected in the normal course of business in the next financial
year.
At 1 April
Contract
Contract
Contract
Contract
Assets
2021
£
Assets
Liabilities
Liabilities
2020
£
2021
£
2020
£
27,747
197,230
(1,237,347)
(1,109,831)
Transfers in the year from contract assets to trade receivables
(27,747)
(197,230)
—
—
Transfers from contract liabilities to revenue in the year
—
—
1,116,019
1,022,437
Amount recognised as revenue in the year not yet invoiced
63,992
27,747
—
—
Amount invoiced in advance not recognised as revenue in the year
—
—
(986,989)
(1,149,953)
At 31 March
63,992
27,747
(1,108,317)
(1,237,347)
5. Highlighted costs and Adjusted EBITDA
Operating loss includes the following items which the Directors consider to be one-off in nature, non-cash expenses or necessary
elements of expenditure to derive future benefits for the Group which have not been capitalised on the consolidated statement of
financial position.
5.1 Highlighted costs
Restructuring costs
Infrastructure upgrade
Rent
Gain on furnace operations
Closed premises
Other
a)
b)
c)
d)
e)
f)
2021
£
(24,668)
66,887
(107,285)
—
141,521
33,899
110,354
2020
£
227,535
235,705
(75,993)
(67,074)
—
—
320,173
a) Restructuring costs
Cost of corporate development and professional services associated with the restructuring. Prior year cost related to cost of
restructuring the key management including severance payment and transition costs for integration of acquired subsidiary (First
Base). This did not include any impact of COVID-19.
b) Infrastructure upgrade
Cost of technology, infrastructure, and upgrade of applications for internal use and customer delivery.
c) Rent
Re-instatement of accounting charge in respect of rental payments on the Reading lease not reflected under IFRS 16. The group
uses Adjusted EBITDA as a metric for business unit assessment and this reflects the underlying cost of the rental.
d) Gain on furnace operations
Gain on the spin out of furnace IP disposed of in the prior year, as this was spun out in the prior year, the gain on furnace operations
is £Nil in the year ended 31 March 2021 and the overall investment in Furnace was fully impaired in the year as per notes 17 & 18 to
these accounts
e) Closed premises
Costs including unused rental periods and lease dilapidations related to London and Sussex premises closed during summer 2020.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
53
Notes to the consolidated financial statements
for the year ended 31 March 2021
5. Highlighted costs and Adjusted EBITDA continued
5.2 Adjusted EBITDA
Operating loss
Depreciation and amortisation
Impairment of Furnace equity investment (Note 17)
Impairment of loan receivable from Furnace (Note 18)
EBITDA
Share option expense
Highlighted costs (note 5.1)
Adjusted EBITDA
6. Operating loss
Operating loss for the year is stated after charging the following:
Depreciation of owned property, plant and equipment
Amortisation of right of use asset
Amortisation and impairment of intangible fixed assets
Impairment of investment in Furnace (Note 17)
Impairment of Furnace loan receivable (Note 18)
Operating lease rentals – Land & Buildings
Share based payment expense
Foreign exchange loss
R&D tax credit
7. Auditors’ remuneration
During the year the Group obtained the following services from the Company’s auditors:
Remuneration receivable by the Company’s auditors for the audit of consolidated and
Company financial statements
Remuneration receivable by the Company’s auditors and its associates for the supply of other
services to the Company and its associates, including remuneration for the audit of the
financial statements of the Company’s subsidiaries:
– the audit of the Company’s subsidiaries pursuant to legislation
– tax services
8. Employee benefit expense
Wages and salaries, including termination benefits
Social security costs
Other pension costs
Share options granted to employees
Falanx Group Limited
Report and financial statements year ended 31 March 2021
2021
£
2020
£
(3,519,370)
(2,855,076)
533,482
340,000
1,100,000
482,675
260,000
—
(1,545,888)
(2,112,401)
175,949
110,354
228,366
320,173
(1,259,585)
(1,563,862)
2021
£
75,753
108,981
378,484
340,000
1,100,000
49,036
175,949
17,850
(19,894)
2020
£
83,654
77,195
318,181
260,000
—
124,461
228,366
14,118
(74,516)
2021
£
2020
£
18,000
17,500
42,000
6,500
66,500
38,500
6,000
62,000
2021
£
2020
£
4,034,312
4,047,628
430,530
96,966
175,949
425,516
95,612
231,325
4,737,757
4,800,081
54
Notes to the consolidated financial statements
for the year ended 31 March 2021
8. Employee benefit expense continued
The average monthly number of employees, including Directors, employed by the Group during the year was:
2021
2020
Operations
Development team
Sales and marketing
Administration and management
Directors’ emoluments
Emoluments, including benefits in kind
Pension costs
The emoluments of the highest paid Director were as follows:
Emoluments, including benefits in kind
Pension costs
9. Finance income and expense
Interest receivable
Interest payable – IFRS 16
Interest payable – other
Net finance expense recognised in loss for the year
10. Income tax expense
Current tax
Current tax on loss for the year
Over provision in prior year
Total current tax
Deferred tax
Deferred tax (credit)/expense for the year
Total deferred tax
Income tax expense
Falanx Group Limited
Report and financial statements year ended 31 March 2021
55
—
11
18
84
2021
£
202,010
1,751
203,761
2021
£
111,268
1,751
113,019
2021
£
4
(28,799)
(3,774)
(32,569)
2021
£
—
—
—
—
—
—
50
2
12
17
81
2020
£
367,209
2,924
370,133
2020
£
125,882
1,754
127,636
2020
£
2,100
(24,275)
(1,754)
(23,929)
2020
£
—
2,323
2,323
—
—
2,323
55
Notes to the consolidated financial statements
for the year ended 31 March 2021
10. Income expense continued
The parent Company is resident in the UK for tax purposes together with certain subsidiaries. Other subsidiaries are resident in
foreign tax jurisdictions; however, no group company currently has taxable profits.
Potential deferred tax asset
The extent to which deferred tax assets can be recognised is based on an assessment of the probability of the Group’s future taxable
income against which the deferred tax assets can be utilised. This is based on projected forecasts and budgets which are reviewed
by the Directors and judgement is made as to whether the deferred tax asset can be recognised. At 31 March 2021, a deferred tax
asset has not been recognised (2020: £nil). Accumulated tax losses (subject to HMRC) agreement stood at approximately £13.9m
(2020: £12.9m). No asset in respect of these losses has been recognised.
The tax charge for the year is different from the standard rate of corporation tax in the United Kingdom of 19% (2020: 19%). The
difference can be reconciled as follows:
Loss before tax
2021
£
2020
£
(3,551,940)
(2,879,005)
Tax calculated at the applicable rate based on the loss for the year 19% (2020: 19%)
(674,869)
(547,011)
Tax effects of:
Creation of tax losses
Expenses not deductible for tax purposes
Non taxable income
Deferred tax not recognised
Current tax on loss for the year
11. Basic and diluted earnings per share
288,251
307,030
(11,043)
90,631
—
414,304
102,584
(21,975)
52,098
—
Basic loss per share is calculated by dividing the 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.
2021
2020
Loss from continuing operations attributable to equity holders of the Company
(3,551,940)
(2,881,328)
Total basic and diluted loss per share (pence per share)
(0.77)
(0.72)
Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in the calculating
basic earnings per share
2021
2020
462,675,158
400,401,185
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 and share
options. 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 31 March 2021, 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.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
56
Notes to the consolidated financial statements
for the year ended 31 March 2021
12. Share based payment
The Company operates share-based payment arrangements to remunerate Directors and key employees in the form of a share
option scheme. Vesting of the options is conditional on the completion of three years service from the date of grant of the options
(the vesting period) as well as share price performance. Most options vest on change of control such as an acquisition of the
Company. The exercise price of the option is normally equal to the market price of an ordinary share in the Company at the date of
grant. The options may be exercised over periods ranging from one to ten years from the date of grant and lapse if not exercised by
that date
At 1 April
Granted
Granted
Waived
Waived
Waived
Waived
Waived
Waived
Waived
Waived
Expired
Expired
Expired
Expired
At 31 March
2021
Average exercise
price (pence)
4.55
1.00
1.15
44.5
14.5
6.50
6.13
5.875
5.00
4.00
3.50
7.125
5.875
5.00
3.50
2.68
2020
Average exercise
price (pence)
6.13
1.925
—
7.38
5.00
3.50
—
—
—
—
—
—
—
—
—
Options
48,954,766
30,000,000
—
(50,000)
(2,918,367)
(2,500,000)
—
—
—
—
—
—
—
—
—
4.55
73,486,399
Options
73,486,399
33,259,596
1,250,000
(112,360)
(100,000)
(500,000)
(1,000,000)
(850,000)
(16,200,000)
(50,000)
(6,850,000)
(2,000,000)
(500,000)
(4,500,000)
(2,000,000)
73,333,635
Share options outstanding at the end of the year have the following expiry date and exercise prices:
Expiry date
28 July 2024
2 June 2025
16 May 2026
30 September 2026
7 October 2026
24 January 2027
3 July 2027
17 July 2027
22 August 2027
19 September 2027
20 November 2027
14 March 2028
17 July 2028
7 January 2029
24 September 2029
1 November 2029
20 April 2030
20 April 2030
Falanx Group Limited
Report and financial statements year ended 31 March 2021
Exercise price (pence)
2021
2020
Shares
44.5
14.5
4.13
4.00
5.00
5.875
7.125
6.50
6.13
7.38
5.13
5.00
5.00
3.50
1.925
1.925
1.00
1.15
1,587,080
1,699,440
—
605,326
216,667
1,000,000
583,334
—
—
—
150,000
200,000
950,000
1,331,632
2,200,000
28,500,000
1,500,000
33,259,596
1,250,000
100,000
605,326
266,667
1,000,000
1,933,334
2,000,000
500,000
1,000,000
150,000
200,000
21,650,000
1,331,632
11,050,000
28,500,000
1,500,000
—
—
73,333,635
73,486,399
57
Notes to the consolidated financial statements
for the year ended 31 March 2021
12. Share based payment continued
At the balance sheet date, the average life outstanding on options was 8.5 years (2020: 7.57 years). All options had a 10-year life
from date of grant. All options outstanding at the relevant period ends had price-based vesting criteria which had not been achieved
and were therefore unvested.
During the year 34,509,596 share options were granted. They were mainly granted under the rules of the EMI scheme, and where
an individual grant does not fall within HMRC EMI rules they are granted as an unapproved option which will typically be subject to
PAYE and NI.
33,259,596 share options and warrants were granted at 1p and 1,250,000 options were granted at 1.15p. All are exercisable between
1 October 2020 and 20 April 2030. These options and warrants were granted on 21 April 2020 as part of the COVID-19 salary sacrifice
programme with a price of 1p were exercisable from 1 October 2020 and have a life of 10 years. Alongside this approximately 25.7m
options were voluntarily waived by staff and directors. The options with a price of 1.15p have vest in three tranches: the first tranche
exercisable when the share price exceeds 1.92p, the second tranche when the share price exceeds 2.89p 1 month and the third
tranche when the share price exceeds 3.85p for 1 month, save for the event of a change of control in the Company, in which case
they will vest in full.
The weighted average fair value of the 34,509,596 (2020: 30,000,000) options granted during the year was determined using the
Black Scholes option pricing model, given there were no performance conditions attached. This resulted in a cost of c0.7 pence per
option. The significant inputs to the model were exercise price as shown above, an expected option of 10 years, expected volatility
of 70% and a risk-free rate of return of 0.4%. The volatility is based on analysis of the volatility of the company’s historical share price.
At the balance sheet date all apart from 1.25m of these options were exercisable. The prior year options were determined using
Monte Carlo option pricing model, as there were performance conditions attached, with a cost of 1.75 pence per option and £1.70
pence per options for the options granted in September 2019 and November 2019 respectively. The significant inputs to the model
were exercise price as shown above, an expected option life between 2.25 years and 3.08 years, expected volatility of 63% and a
risk-free rate of return estimated between 0.68 % and 0.86%. The volatility is based on analysis of the volatility of the company’s
historical share price. At 31 March 2020 10,000,000 of the 1.925p options were vested but not were exercisable.
The total share-based payment expense recognised in the income statement in respect of employee share options granted to
Directors and employees is £175,949 (2020: £228,366).
Falanx Group Limited
Report and financial statements year ended 31 March 2021
58
Notes to the consolidated financial statements
for the year ended 31 March 2021
13. Property, plant and equipment
Cost
At 1 April 2020
Additions
At 31 March 2021
Depreciation
At 1 April 2020
Charge for the year
At 31 March 2021
Net book value
At 31 March 2021
Cost
At 1 April 2019
Additions
Disposals
At 31 March 2020
Depreciation
At 1 April 2019
Charge for the year
Released on disposal
At 31 March 2020
Net book value
At 31 March 2020
Leasehold
Improvements
£
Fixtures
and fittings
£
Computer
equipment
£
143,823
—
143,823
16,779
28,765
45,544
32,115
—
32,115
14,211
6,056
20,267
121,244
36,161
157,405
70,769
40,932
111,701
Total
£
297,182
36,161
333,343
101,759
75,753
177,512
98,279
11,848
45,704
155,831
—
143,823
—
143,823
—
16,779
—
16,779
66,401
9,631
(43,917)
32,115
45,199
12,929
(43,917)
14,211
257,158
25,683
323,559
179,137
(161,597)
(205,514)
121,244
297,182
166,508
57,592
211,707
87,300
(153,331)
(197,248)
70,769
101,759
127,044
17,904
50,475
195,423
Falanx Group Limited
Report and financial statements year ended 31 March 2021
59
Notes to the consolidated financial statements
for the year ended 31 March 2021
14. Intangible assets
Cost
At 1 April 2020
Additions
Goodwill
Software and Website
Development
Customer
Total
brand licences
costs
costs
relationships
£
£
£
£
£
£
1,904,172
916,301
112,935
—
2,613,308
5,546,716
—
—
—
157,779
—
157,779
At 31 March 2021
1,904,172
916,301
112,935
157,779
2,613,308
5,704,495
Amortisation and impairment
At 1 April 2020
53,438
916,301
Amortisation charge for year
—
—
53,438
916,301
36,773
37,641
74,414
—
20,318
20,318
646,395
290,789
1,652,907
348,748
937,184
2,001,655
At 31 March 2021
Net book value
At 31 March 2021
At 1 April 2019
Additions
Disposals
At 31 March 2020
Amortisation and impairment
1,850,734
—
38,521
137,461
1,676,124
3,702,840
2,078,538
916,301
1,029,554
2,613,308
6,721,300
—
(174,366)
1,904,172
—
—
349,148
—
(1,378,702)
—
—
378,484
(1,553,068)
916,301
112,935
—
2,613,308
5,546,716
83,599
29,336
At 1 April 2019
53,438
916,301
Amortisation charge for year
—
—
At 31 March 2020
53,438
916,301
Net book value at 31 March 2020
1,850,734
—
9,382
27,391
36,773
76,162
—
—
—
—
355,606
290,789
1,334,727
318,180
646,395
1,652,907
1,966,913
3,893,809
14.1 Goodwill
As detailed in note 2.8 to the consolidated financial statements, the Directors test goodwill annually for impairment by calculating the
value in use of each cash generating unit using discounted cash flow techniques and comparing it to the carrying amount of goodwill.
The Directors have undertaken an impairment review of the goodwill at the reporting date relating to the acquisition of Falanx Cyber
Defence Limited, the trade and assets of First Base Technologies LLP and Securestorm Limited, all of which were amalgamated into
Falanx Cyber Defence Limited in the prior year in order to streamline operations.
Analysis of goodwill allocated to the Cyber segment:
Goodwill arising from acquisition of cyber security organisations
Total
2021
£
2020
£
1,850,734
1,850,734
1,850,734
1,850,734
The recoverable amount of the CGU is based on fair value less costs of disposal estimated using discontinued cash flows. The
measurement was categorised as Level 3 on the inputs used in the valuation technique.
The cash generating unit’s value in use has been assessed using the following assumptions:
Discount rate
Average forecast EBITDA growth next 5 years
Growth rate 5-10 years
Perpetuity thereafter
Falanx Group Limited
Report and financial statements year ended 31 March 2021
15%
7%
10%
10%
15%
7%
10%
10%
60
Notes to the consolidated financial statements
for the year ended 31 March 2021
14. Intangible assets continued
In determining value in use, the Directors have prepared financial and business forecasts. These forecasts indicate growth rates that
increase by various rates throughout the 10-year forecast period (excluding any periods beyond this). The discount rate applied is an
estimate based on industry weighted average cost of capital.
Goodwill of First Base has been evaluated by reviewing similar inputs save for growth scenario reflecting current growth rates of 10%
over the 10-year horizon to reflect overall growth in the asset from new customers, and then comparing the excess of the NPV of
future cash flows to the overall intangible including the customer relationships asset. This testing indicates that NPV will be less than
carrying value if a discount rate in excess of 24% is used.
The estimated recoverable amount of the CGU exceeded its carrying amount (including developments costs and customer
relationship intangibles) by £7.5m (2020: £2.4m)
Following the impairment review the Directors do not consider that the carrying value of goodwill detailed above is impaired at the
reporting date.
14.2 Customer relationships
The customer relationships intangible assets arise on the acquisition of subsidiaries when accounted for as a business combination
and relate to the expected value to be derived from contracted and non-contractual relationships. These customer assets are valued
on a value in use basis. The value placed on the contractual customer relationships, as per the third-party valuation carried out, is
based on the expected cash revenue inflows over the estimated remaining life of each existing contract. The value placed on the
non-contractual customer relationships is based on past revenue performance by virtue of the customer relationships; but using the
0.82% average annual attrition rate since acquisition in March 2018. Associated cash outflows have been based on historically
achieved margins. The net cash flows are discounted at a rate of 15% which the Directors consider is commensurate with the risks
associated with capturing returns from customer relationships and reflects the group’s WACC including the impact of the loan drawn
down in August 2021. This is further described in note 3 to these accounts.
The Directors consider that the period expected to benefit in respect of the customer relationships acquired with the trade and assets
of First Base Technologies LLP is ten years. The Directors consider that the period expected to benefit in respect of the customer
relationships acquired with Securestorm Limited is three years as it is a smaller and newer business than First Base and has a
significant level of customer concentration.
Whilst certain sales orders received by the business fell in the first few months of the financial year ended 31 March 2021 this is due
to the ongoing COVID-19 situation. Orders fell between March 2020 and July 2020 but have since recovered strongly (with orders
from new and existing customers) and are now ahead of the levels pre COVID-19. This growth has been reflected in the overall
assessment of the intangibles (both goodwill and customer list) and more than supports their carrying values against a range of
sensitivity tests carried out around expected growth rates and discount rates. The following other sensitivities have been applied to
the determination of the value of the customer base. This was carried out by a multi period excess earnings model and was based
on a 10-year horizon. This assumes that post the COVID-19 scenario Cyber revenues return to their previous growth rate of c15%.
Growth rate (long term economic average) 1.5% (achieved growth rate c15%)
EBITDA Margin
Return on Workforce
Tax Rate
24.0 - 35.0%
1.81%
17-19%
A similar analysis has been carried out on the intangibles arising from the purchase of Securestorm Limited in July 2018. This has
generated a customer intangible of £0.16m and a goodwill balance of £0.1m. The customer base will be amortised on a straight-line
basis over a period of 3 years due to high customer concentration (although the main customer is under a multi-year contract which
has recently renewed in July 2021) and relatively short existence (founded 2014).
Similar tests to those performed on the First Base intangibles have been applied to the intangibles arising from this transaction and
no impairment of goodwill has been identified. An analysis has been conducted which shows that the NPV of the customer bases
commences to fall below the carrying value when a discount rate of 24% is used.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
61
Notes to the consolidated financial statements
for the year ended 31 March 2021
15. Right of use assets
Cost
At 1 April
Additions
At 31 March
Amortisation and impairment
At 1 April
Amortisation charge for year
At 31 March
Net book value
At 31 March
This asset relates to the Reading office lease, refer to note 26.
16. Disposal of IP
Consideration received or receivable
Loan Receivable
20% Share Capital in Furnace Technologies Limited
Note
17
18
Total disposal consideration
Carrying amount of net assets sold
Gain on sale before income tax
Income tax expense on gain
Gain on sale after income tax
17. Investments with fair value through profit and loss
At 1 April
Additions
Impairment
At 31 March
2021
£
2020
£
549,448
—
549,448
77,195
108,981
186,176
—
549,448
549,448
—
77,195
77,195
363,272
472,253
2021
£
—
—
—
—
—
—
—
2020
£
1,100,000
600,000
1,700,000
(1,641,334)
58,666
-
58,666
2021
£
340,000
2020
£
—
—
600,000
(340,000)
(260,000)
—
340,000
On 19 December 2019, the Group disposed of the business and assets of Furnace. The total consideration received was £1,700,000,
which included the issue and allotment of 20% of the share capital in Furnace Technologies, the buyer’s company. The equity value
at completion was £600,000. In April 2020 Furnace Technologies received an external equity investment of £30,000 at the same
valuation.
The Group are satisfied that it does not have a significant influence over Furnace Technologies and have recognised the shareholding
as a financial asset. At the reporting date, the Group continued to hold 20% in Furnace Technologies. Due to the early-stage nature
and lack of external investment to Furnace it has not been possible to form an objective view as to the carrying value of this investment
due to uncertainty as to its ability to make repayment without external investment and revenue growth having been achieved. The
equity which was previously recorded at £0.34m has therefore been fully provided for in the year ended 31 March 2021. The Company
will continue to review this assets performance and may increase its carrying value at a point when Furnace has either commenced
significant revenue generation or has received external investment.
62
Falanx Group Limited
Report and financial statements year ended 31 March 2021
Notes to the consolidated financial statements
for the year ended 31 March 2021
18. Loan Receivable
Loan receivable from Furnace Technologies Ltd
2021
£
—
—
2020
£
1,100,000
1,100,000
On 19 December 2019, the Board disposed of the business and assets of Furnace. The total consideration received was £1,700,000,
partly funded by the way of an unsecured loan note for £1,100,000 to Furnace Technologies Ltd, the buyer. As referenced in note 17
above, it has not been possible to form an objective view as to the carrying value of this asset due to uncertainty as to its ability to
make repayment without external investment and revenue growth having been achieved. The loan note has therefore been fully
provided for. The Company will continue to review this assets performance and may increase its carrying value at a point when
Furnace has either commenced significant revenue generation or has received external investment.
19. Trade and other receivables
Trade receivables - gross
Allowance for credit losses
Trade receivables
Contract assets
Other receivables
Prepayments
Trade and other receivables are stated at amortised cost.
20. Cash and cash equivalents
Cash and cash equivalents in statement of cash flows
2021
£
2020
£
682,000
1,536,775
—
(2,800)
682,000
63,692
111,280
219,244
1,533,975
27,747
331,897
276,016
1,076,216
2,169,635
2021
£
545,321
2020
£
79,282
Falanx Group Limited
Report and financial statements year ended 31 March 2021
63
Notes to the consolidated financial statements
for the year ended 31 March 2021
21. Share capital
Allotted, called up and fully paid at 1 April
New shares issued
Allotted, called up and fully paid at 31 March
2021
2020
Number of
shares
400,401,185
125,000,000
525,401,185
Nil par value
—
—
—
Number of
shares
400,401,185
—
400,401,185
Nil par value
—
—
—
On 29 September 2020, the Company announced the successful placing and subscription of 125,000,000 new ordinary shares of nil
par value at a price of 1 pence each raising gross proceeds of £1.25m.
At 31 March 2021 a total of 10,583,334 (2020: 14,780,001) warrants issued to various shareholders remained outstanding. No
residual value has been allocated to the warrants as the issue price of the subscribed shares equated to their fair values. Of the total
amount, 4,583,334 warrants had a 5-year time to expiry condition at the time of issue and the remaining 6,000,000 had an exercise
period ending 36 months after each vesting period at the time of issue.
Expiry
15 January 2021
15 January 2021
15 January 2021
6 March 2021
23 March 2021
5 May 2021
M D Read*
Exercise price (pence)
2021
Warrants
10.0
15.0
20.0
4.50
4.50
6.0
—
—
—
—
—
4,583,334
4,583,334
6,000,000
2020
250,000
250,000
250,000
2,646,667
800,000
4,583,334
8,780,001
6,000,000
10,583,334
14,780,001
* The 6,000,000 warrants have an exercise period ending 36 months after each vesting period. Vesting is conditional on the share
price being equal to or greater than the relevant minimum share price during each corresponding vesting period. The warrants shall
vest in 4 tranches as set out below:
Vesting period
Proportion of warrant shares
Minimum
share
price
The first period of 6 months commencing on 22 August 2016 (“First Vesting
Period”)
A second period of 6 months immediately following the expiry of the First
Vesting Period (“Second Vesting Period”)
A third period of 6 months immediately following the expiry of the Second
Vesting Period (“Third Vesting Period”)
A fourth period of 6 months immediately following the expiry of the Third
Vesting Period (“Fourth Vesting Period”)
25% (equivalent to 1,500,000
4 pence
warrant shares)
25% (equivalent to 1,500,000
10 pence
warrant shares)
25% (equivalent to 1,500,000
15 pence
warrant shares)
25% (equivalent to 1,500,000
20 pence
warrant shares)
Falanx Group Limited
Report and financial statements year ended 31 March 2021
64
Notes to the consolidated financial statements
for the year ended 31 March 2021
22. Reconciliation of share capital
At 1 April
Premium on issue of nil par value ordinary shares
Costs of share issues
Capital reconstruction
At 31 March
23. Accumulated losses
At 1 April
Loss for the year
Capital reconstruction
Forfeited share options reversed through reserves
At 31 March
24. Deferred taxation
Group
Balance at 1 April
(Expense)/Credit to income statement
Balance at 31 March
The deferred tax liability represents:
Accelerated capital allowances
2021
£
2020
£
17,903,427
17,903,427
1,247,600
(117,866)
(15,000,000)
—
—
—
4,033,161
17,903,427
2021
£
2020
£
(13,408,080)
(10,526,752)
(3,551,940)
(2,881,328)
14,000,000
16,031
—
—
(2,943,989)
(13,408,080)
2021
£
(9,529)
—
(9,529)
2020
£
(7,593)
(1,936)
(9,529)
2021
£
2020
£
(9,529)
(9,529)
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or
the liability is settled, based on the tax rates (and tax law) that have been enacted or substantively enacted by the reporting date.
The above deferred tax liability was calculated based on the expected UK corporation tax rate of 19% (2020: 19%), being the rate,
which is expected to apply in the future when the liability is settled. The Group has losses of c£13.9m (subject to HMRC agreement),
available to offset against future taxable profits. A deferred tax asset has not been recognised on these losses due to the uncertainty
of sufficient future taxable profits against which the losses can be utilised. The March 2021 Budget announced a further increase to
the main rate of corporation tax to 25% from 1 April 2023. This rate has not been substantively enacted at the balance sheet date,
as a result the deferred tax liability as at 31 March 2021 continues to be measured at 19%. If all of the deferred tax liability was to
reverse at the amended rate the impact to the closing deferred tax position would be to increase the deferred tax asset by £3,009.
25. Trade and other payables
Trade payables
Other payables within one year
Other payables after more than one year
Taxation and social security
Accruals
Falanx Group Limited
Report and financial statements year ended 31 March 2021
2021
£
539,068
38,383
5,409
838,636
176,628
2020
£
781,168
53,500
—
499,246
261,936
1,598,124
1,595,850
65
Notes to the consolidated financial statements
for the year ended 31 March 2021
26. Lease liability
Nature of leasing activities
The Group at the date of this report only has one property lease and this is for the Reading office which is now the Group’s registered
office.
Lease terms are negotiated on an individual basis and contains separate terms and conditions.
Number of active leases
Lease liability at year end
Non-current
Lease liability
Current
Lease liability
Total Lease liability
Analysis of lease liability
At 1 April
Additions
Interest expense
Lease payments
At 31 March
Analysis of gross value of lease liabilities
Maturity of the lease liabilities is analysed as
follows:
Within 1 year
Later than 1 year and less than 5 years
At 31 March
2021
1
2020
1
2021
£
2020
£
252,874
252,874
348,872
348,872
95,997
89,312
95,997
89,312
378,871
438,184
438,184
—
—
438,516
28,799
(118,112)
348,871
24,275
(24,607)
438,184
2021
2020
95,997
252,874
348,871
89,937
348,872
438,809
Falanx Group Limited
Report and financial statements year ended 31 March 2021
66
Notes to the consolidated financial statements
for the year ended 31 March 2021
27. Borrowings
Falanx Cyber Defence Ltd, a wholly owned subsidiary took out a £50,000 Coronavirus Business Interruption Loan (CBIL) with HSBC.
The loan is repayable in 5 years from June 2021. The loans attract an interest rate of 2.5%. No arrangement fees were applied by
the lender.
2021
£
2020
£
Non-current
Bank loan
Current
Bank loan
Total Loan liability
Analysis of loan liability
At 1 April
Additions
At 31 March
Analysis of gross value of bank loan
Maturity of the bank loan is analysed as follows:
Within 1 year
Later than 1 year and less than 5 years
At 31 March
Falanx Group Limited
Report and financial statements year ended 31 March 2021
42,129
42,129
7,871
7,871
50,000
—
50,000
50,000
2021
7,871
42,129
50,000
—
—
—
—
—
—
—
—
2020
—
—
—
67
Notes to the consolidated financial statements
for the year ended 31 March 2021
28. Subsidiaries
The Company holds more than 50% of the share capital of the following companies:
Country of
Name
incorporation
Nature of business
Falanx Cyber Defence Limited
England and Wales
Cyber defence solution
Falanx Cyber Holdings Limited
England and Wales
defence
Cyber
solution,
becoming dormant with all assets
liabilities
being
transferred
to Falanx Cyber
Defence Limited
trade
and
First Base Technologies (London) Limited England and Wales
defence
Cyber
solution,
becoming dormant with all assets
and liabilities and trade being
transferred
to Falanx Cyber
Defence Limited
Securestorm Limited
England and Wales
security
consultancy,
Cyber
becoming dormant with all assets
liabilities
being
transferred
to Falanx Cyber
Defence Limited
trade
and
Falanx Cyber Technologies Limited
England and Wales
Research and development
Cloudified Limited
England and Wales
Falanx Assynt Limited
England and Wales
Software development in
telecommunications, security and
data analytics, becoming
dormant
Business intelligence
consultancy
Falanx Group US LLC
United States
America
of
Business intelligence
consultancy
FG Consulting Services DMCC
United Arab Emirates Management consultancy
Stirling Risk (Asia) Limited
Falanx Assynt Ireland Limited
Falanx Protection Limited
Penetration Testing Ltd
Hong Kong
Ireland
Business intelligence consultancy
Business intelligence consultancy
British Virgin Islands Dormant
England and Wales
Dormant
Proportion of shares
Shares held by parent
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Falanx Group Limited
Report and financial statements year ended 31 March 2021
68
Notes to the consolidated financial statements
for the year ended 31 March 2021
29. Financial instruments
The Group is exposed through its operations to one or more of the following financial risks that arise from its use of financial
instruments. A risk management programme has been established to protect the Group against the potential adverse effects of these
financial risks.
Market risk
The main risks arising from the Group’s financial instruments are liquidity risk, credit risk and foreign currency risk. The Directors
regularly review and agree policies for managing each of these risks and are set out in the subsections below. The totals for each
category of financial instruments and the carrying amounts, measured in accordance with IFRS 9 as detailed in the policies, are as
follows:
Financial assets
Loan Receivable
Trade and other receivables
Cash and cash equivalents
Financial liabilities
Trade and other payables
Lease liability
Borrowings
Accruals
2021
£
—
793,280
545,321
2020
£
1,100,000
1,865,872
79,282
1,338,601
3,045,154
2021
£
582,860
348,872
50,000
176,627
2020
£
834,668
438,184
—
261,936
1,158,359
1,534,788
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting these obligations associated with financial liabilities.
The responsibility for liquidity risks management rests with the Board of Directors, which has established an appropriate liquidity risk
management framework for the management of the Group’s short term and long-term funding and liquidity requirements.
The Group manages liquidity risks by maintaining adequate reserves by continuously monitoring monthly expected forecasts and
actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
The trade and other payables, and lease liability maturity profile, based on contractual undiscounted cash flows, of the Group is as
follows:
Trade and other payables due in:
Less than one month
One month to six months
Six months to one year
Greater than one year
Total
2021
£
2020
£
507,988
92,714
80,618
300,412
612,305
101,577
210,098
348,872
981,732
1,272,852
Falanx Group Limited
Report and financial statements year ended 31 March 2021
69
Notes to the consolidated financial statements
for the year ended 31 March 2021
29. Financial instruments continued
The borrowings maturity profile, based on contractual undiscounted cash flows, of the Group is as follows:
Trade and other payables due in:
Less than one month
One month to six months
Six months to one year
Greater than one year
Total
2021
£
—
3,148
4,723
42,129
50,000
2020
£
—
—
—
—
—
The Company has sufficient working capital to meet these liabilities as they fall due.
Credit risk
Credit risk is the risk that a counterparty will cause a financial loss to the Group by failing to discharge its obligation to the Group.
The Group manages its exposure to this risk by applying Board approved limits to the amount of credit exposure to anyone
counterparty and employs strict minimum credit worthiness criteria as to the choice of counter-party thereby ensuring that there are
no significant concentrations of credit risk. The average credit period is 30 days from date of invoice, but non-standard terms may be
agreed with certain larger or strategic customers. The bulk of the Group’s cash assets were held with HSBC and the Board has
considered the associated risk as minimal. On average 50% of the Cyber business is billed in advance of the service and circa 70%
of the Assynt business is billed in advance. This significantly reduces our credit risk.
The carrying amount of financial assets represents the maximum credit exposure; therefore, the maximum exposure to credit risk at
the statement of financial position date was £1,338,601 (2020: £3,045,154). The amount represents the total of the carrying amount
of current assets.
The maximum amount exposure to credit risk for trade receivables at the statement of financial position date was £682,000 (2020:
£1,536,775). All amounts at the balance sheet date have since been collected. As at the date of signing these financial statements,
the Group does not expect to incur material credit losses of its financial assets or other financial instruments and therefore credit
exposure is considered minimal.
As at 31 March 2021, trade receivables past due for the Group totalled £145,810 (2020: £345,800) of which £nil (2020: £2,800) have
been impaired. As at 31 March 2021, trade receivables past due but not impaired are as follows:
Up to 3 months
3 months to 6 months
6 months to 12 months
Over 12 months
Expected credit loss provision at 31 March
All of these amounts have been collected in full since 1 April 2021.
2021
£
132,795
11,799
—
1,216
2020
£
330,300
12,700
—
—
145,810
343,000
Credit quality of financial assets
The Group’s credit risk is mainly attributable to trade receivables. The Group’s customers are spread across a wide range of industries
and service sectors and consequently the Group is not exposed to material concentrations of credit risk on trade receivables with
there being a preponderance of blue-chip companies.
The credit quality of financial assets is assessed by reference to external credit ratings (if available) or to historical information about
counterparty default rates:
The Group applies IFRS 9 simplified approach to measure expected losses using a lifetime expected credit loss provision for trade
receivables and contract assets. The expected loss rates are based on a view of forward-looking information as well as the Group’s
historical credit losses experienced in a two-year period.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
70
Notes to the consolidated financial statements
for the year ended 31 March 2021
29. Financial instruments continued
The Furnace loan of £1.1m was fully provided for in the year ended 31 March 2021.
A reconciliation of the movement in the impairment allowance for trade receivables is a shown below:
Provision for bad and doubtful debts at 1 April
Amount released
Amount provided
Expected credit loss provision at 31 March
2021
£
2,800
(2,800)
—
—
2020
£
2,800
—
—
2,800
Foreign currency risk
The Group has limited exposure to foreign currency risk. More than 92% of revenue and associated activity is generated and settled
in the functional (and presentational) currency of the respective group entities. More than 80% of Group revenue is earned from the
UK market in sterling with the balance earned in USD, Euro, Hong Kong dollars and Emirati Dirham. The Group’s investment in
foreign operations exposes it to foreign currency risk on the net assets of subsidiaries denominated in these currencies. However,
the risk is currently low because the underlying net assets held in the non-UK parts of the Group are low. Natural hedging is used
wherever possible.
A ten percent weakening of sterling against the relevant currencies for example, would decrease the loss by £7,037 (2020: £2,215)
in the coming year and would decrease equity by £6,627 (2020: £15,902).
The Group currently does not utilise swaps or forward contracts to manage its currency exposures, although such facilities are
considered and may be used where appropriate in the future.
30. Capital risk management
Total capital managed in the Group is the shareholders’ funds as shown in the statement of financial position.
The Group aims to manage its overall capital to ensure that it continues to operate as a going concern, whilst providing an adequate
return to its shareholders.
The Group set the amount of capital in proportion to its overall financing structure, i.e., equity and financial liabilities. The Group
manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics
of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets to reduce debts.
The Group is not subject to any externally imposed capital requirements.
Other risks management
The Group operations expose it to a variety of financial risks that include the effects of changes in interest rates, liquidity risk and
credit risk. Given the size of the Group, the Directors have not delegated the responsibility of monitoring financial risk management
to a sub-committee of the Board. The policies set by the Board of Directors are implemented by the Group’s finance department.
31. Pension
The Group operates a defined contribution pension scheme in accordance with the Government Directive on Work Place Pensions.
The total contributions for the year were £97,383 (2020: £95,612).
32. Capital and Financial commitment
The Group had no capital or financial commitments in any of the periods presented.
33. Control
No ultimate party controls Falanx Group Limited.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
71
Notes to the consolidated financial statements
for the year ended 31 March 2021
34. Related party transactions
Falanx Group Limited provided head office and management services to subsidiary companies and supported them with working
capital during the year ended 31 March 2021 and in total advanced £Nil (2020: £0.6m) to its subsidiaries, all of which are wholly
owned.
On 30 October 2020, following the release of the annual report for 31 March 2020, and as part of the placing announced on 29
September 2020 certain members of the Board of Directors and senior management subscribed for a total of £75,000 resulting in the
issue of 7,500,000 new ordinary shares in the Company. This intention was announced on 29 September 2020, and they all
participated on the same terms as other shareholders who invested at this point.
Director subscriptions
The following members of the Board of Directors and senior management subscribed for shares in the Company in the amounts set
out in the table below:
Director
Current Holding
% of Existing
Ordinary Shares
Number of
Subscription
Shares
Holding post
Fundraise
% of Enlarged
Share Capital
11,813,940
2.28%
3,500,000
15,313,940
2.91%
1,250,000
0.24%
1,500,000
2,750,000
0.52%
1,069,348
0.21%
1,000,000
2,069,348
0.39%
866,666
0.17%
500,000
1,366,666
0.26%
Michael David Read
(CEO)
Alex Hambro (Non-
Executive Chairman)
Ian Selby
(CFO)
Emma Shaw (NED)
Rick Flood
(MD of Cyber, PDMR)
499,702
0.10%
1,000,000
1,499,702
Total
15,499,656
2.99%
7,500,000
22,999,656
0.29%
4.38%
The participation by Michael Read, Alex Hambro, Ian Selby, Emma Shaw and Rick Flood in the Fundraising constituted a related
party transaction for the purposes of the AIM Rules. In the absence of any independent director, the Company's nominated adviser,
Stifel, considered that the terms of the related party transaction were fair and reasonable insofar as shareholders are concerned.
35. Events after the reporting period
• On 29 April 2021, the Group announced changes to certain outstanding share options to reduce potential tax charges for
both the option holder and the Company. This involved the cancellation of 29,119,200 unapproved share options with
exercise prices between 1p and 1.92p, and their immediate reissue under identical terms under the Group’s EMI approved
scheme.
• On 18 August 2021, the Group announced a five-year Growth Loan facility with BOOST&Co of which the key terms are:
o
Initial £1m loan secured over the Group's assets, expected to increase to £2.5m to fund acquisitions & investment
programmes
o Annual interest of 11%, and straight-line amortisation of the loan commencing after 12 months
The loan carries a 3% early prepayment fee on the then amount outstanding
The proceeds of this will enable the Group to make earnings enhancing acquisitions to strengthen its core Cyber division,
as well as supporting the Group's overall organic growth plans.
• On 18 August 2021, the Group announced that options over a total of 7,000,000 Ordinary Shares of nil par value each were
granted to 7 employees.
Falanx Group Limited
Report and financial statements year ended 31 March 2021
72
Advisers
Company number
1730012 (British Virgin Islands)
Registered office
PO Box 173
Kingston Chambers, Road Town
Tortola, British Virgin Islands
Registered Agents
Maples Corporate Services (BVI) Limited
PO Box 173
Kingston Chambers, Road Town
Tortola, British Virgin Islands
Auditors
BDO LLP
55 Baker Street
London W1U 7EU
Nominated adviser and Sole Broker
Stifel Nicolaus Europe Limited
150 Cheapside
London EC2V 6ET
Bankers
HSBC Bank PLC
8 Canada Square
London E14 5HQ
Solicitors
DWF LLP
20 Fenchurch Street
London EC3M 3AG
Blake Morgan LLP
6 New St Square
Holborn
London EC4A 3DJ
Registrars
Computershare Investor Services (BVI) Limited
Woodbourne Hall
PO Box 3162
Road Town, Tortola
British Virgin Islands
Falanx Group Limited
Report and financial statements year ended 31 March 2021
73
Falanx Group Limited
The Blade
Abbey Square
Reading
RG1 3BE
Telephone: 0207 856 9457
Email: info@falanx.com
Falanx Group Limited
Report and financial statements year ended 31 March 2021
74