Cloudcoco Regulatory News (CLCO)

21 February 2011

Pinnacle Telecom Group plc

("Pinnacle" or the "Company")

PRELIMINARY RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2010

Pinnacle Telecom Group plc, (AIM: PINN) the AIM listed provider of integrated telecommunications solutions to the business market, today announces its preliminary results for the year ended 30 September 2010.

HIGHLIGHTS

Financial benchmarks

·; Turnover more than doubled, up 107% to £6,608,533, ahead of expectations, compared to £3,192,222 last year.

·; Gross profit more than doubled, up 111% to £2,089,457, compared to £991,169 last year.

·; Positive EBITDA(1) of £149,378 for the year compared to an EBITDA loss of £499,429 last year.

·; Maiden operating profit (2) for the full year of £78,647 compared to a loss of £582,816 last year.

·; The loss retained for the full year (3) after all costs, reduced by £626,324, down 70% to £270,379 compared to £897,063 in the previous year.

Acquisitions

·; All share acquisition of Solwise Telephony Limited and its wholly owned subsidiary Sipswitch Limited completed on 13 January 2010 for an initial consideration of £180,957 in shares plus the assumption of debt of £23,958 also satisfied in shares.

Balance sheet highlights

·; Cash at the year end amounted to £697,189 compared to the previous year of £586,222, a 19% increase

·; A placing on 22 September 2010 by way of an issue of 128,571,429 new Ordinary Shares at 0.35p per share, raised £450,000. The placing was at a premium of approximately 18.64% over the closing mid-market price of 0.295p on 21 September 2010.

·; Group net assets increased to £1,319,743 (2009: £921,645)

Reduction in group subsidiary operating companies

·; During the year, the group completed a reduction in the number of operating group subsidiary entities, which had expanded following a series of acquisitions over the years, and there are now only three main operating units. We expect to see some modest reductions in administration costs in the future as a result of the consolidation.

BBC high-profile contracts

·; Delivering certain high-profile voice and data requirements of the BBC has been a significant success this year. We expect to be able to service high-profile contracts of this nature again in 2011.

Alan J Bonner, the Group CEO commented:

"We have made excellent progress this year, diligently managing our cash resources, strengthening our balance sheet and remaining free of bank debt. We assiduously centralised our operations into Northampton and successfully delivered voice and data networks for some of the UK's largest high-profile events, including the UK General Election for the BBC. We have delivered triple-digit growth in turnover and gross margin, produced our maiden operating profit, and delivered positive EBITDA. Notwithstanding the difficulties of the economic climate, we aim to search out earning-enhancing bolt-on acquisitions, with a focus on delivering cloud based IP solutions, and we look forward to moving the business forward during 2011."

Notes:

1. EBITDA is defined as Earnings before interest, taxation, depreciation, amortisation of intangibles, exceptional acquisition costs, share of results of associates and the embedded fair value adjustment in the convertible loan.

2. Operating profit is measured before amortisation of intangibles, exceptional acquisition costs, share of results of associates and the embedded fair value adjustment in the convertible loan.

3. Loss for the year is measured after all costs, including the costs of discontinued operations relating to previous years.

CHAIRMAN'S STATEMENT

This has been my first year as your Chairman. It has been a tough year for the UK economy, but it has been a rewarding and successful year for Pinnacle. Over the year your company has continued to improve its financial and operational performance from organic growth and a successful acquisition strategy.

The acquisition of Solwise Telephony Limited and its subsidiary Sipswitch Limited, in January 2010, have been successfully integrated. Back office systems and processes have been simplified, with billing rationalised into a single platform. The legal organisational structures from the various entities acquired or merged into Pinnacle over the years have also been rationalised, simplifying accounting and administration. For a small company, these were two major accomplishments this year that absorbed a considerable amount of management time and focus. Nevertheless, they provide a more robust and efficient operating platform for future growth and expansion.

In addition to the above, Pinnacle has continued to win new contracts and seek new areas for organic growth. Your company's success in providing bespoke solutions to its customers is an area we seek to leverage this year. The short-term contracts with the BBC mentioned at the half-year resulted in further business including supporting the telecommunications for Pope Benedict XVI's visit to the U.K. These were high profile events that demonstrated confidence in Pinnacle's systems and people.

The successful share placing in September 2010 has improved your company's financial standing and working capital needs for organic growth. As a Board we are also conscious that value enhancing opportunities for growth by acquisition involve considerable resource and time commitments. However, we will continue to be prudent as we seek new growth to enhance your company's capability as a provider of IP and bespoke services and solutions into the UK SME market.

Finally, my thanks to Alan Bonner and all his staff for their enthusiasm and hard work this year. Further detail and comment on the results for the full year are contained in the Chief Executive's Review. I look forward to the year ahead.

Bill Allan

CHAIRMAN

21 February 2011

CHIEF EXECUTIVE'S REVIEW

Introduction2010 has been a very successful year, as we have returned a maiden operating profit of £78,647 compared to a 2009 operating loss of £582,816. This result is measured beforeamortisation of intangibles, exceptional acquisition costs, share of results of associates and the embedded fair value adjustment in the convertible loan. After these adjustments, which are mainly non-cash based and a requirement of International Financial Reporting Standards (IFRS), the Group returned an operating loss of £246,072 (2009: loss £890,856). We continue to view IFRS adjustments as technical, and they have little bearing on cash. Accordingly, we believe that the best measure of operating profit or loss should be before striking these costs.

EBITDA (Earnings before interest, taxation, depreciation, amortisation of intangibles, exceptional acquisition costs, share of results of associates and the embedded fair value adjustment in the convertible loan)is an important performance measurement, and we regard EBITDA as a key performance indicator in terms of our operating result. Although there is no requirement to disclose EBITDA, we believe that, because of its importance, it should be part of our disclosure.

IFRS accounting requires us to carefully consider the carrying value of our intangible assets and forces amortisation of these assets. Acquisitions also require us to consider whether the goodwill that we have acquired (basically the difference between the net assets of the business acquired and the price paid) should be recognised and allocated in our financial statements as other intangible assets, such as a customer base, billing system and so on which would not necessarily be recognised in the financial statements of the acquired business. For the first time, we are required to expense the costs of acquisitions, and £18,216 has been expensed in the year and shown as an exceptional item in the income statement. Overall, the loss carried forward for the year was £270,739 compared to a loss of £897,063 in 2009.

These are record results for the Group which has included a year of triple-digit growth in both turnover and gross profit. 2010 has also been a year of consolidation. For the second year running, turnover more than doubled, up 107% to £6,608,533. We have managed and enhanced our cash resources whilst remaining free of bank debt. With a view to streamlining our operations, we have taken time to considerably reduce the number of operating subsidiaries and have successfully closed some of our office locations, which has enabled us to centralise a number of our core functions into new larger offices on the outskirts of Northampton.

As we continue to move our business away from traditional telephony onto next generation IP telephony, the acquisition of Solwise Telephony Limited and its subsidiary Sipswitch Limited in January 2010 was of major importance to the group. Sipswitch has developed its own proprietary next generation VoIP system, which we have continued to develop in-house. Our balance sheet shows that the carrying value of our investment in this technology to 30 September 2010 amounted to £195,834. The Sipswitch acquisition was timely as it was fundamental to Pinnacle being awarded, and successfully delivering, voice and data services to a significant number of the UK's biggest high-profile events, which included voice and data networks for the BBC's coverage of the UK General Election and the BBC's coverage of the Pope's first ever State visit. We expect to be able to win high-profile events of this nature again in 2011. As we focus our sales efforts on the roll out of cloud based IP solutions, we also look forward in 2011 to further deployments by leveraging the intellectual property that is embedded in our award winning VoIP platform.

On 22 September 2010, I was pleased to welcome Dr Tom Black as a shareholder; as a result of an issue of new ordinary shares. The Company raised £450,000 through the issue of 128,571,429 new Ordinary Shares at 0.35p per share. Tom, the former CEO of Detica PLC, a major provider of security, intelligence and analysis solutions and current Executive Chairman of AIM listed Digital Barriers plc, subscribed personally for 57,142,857 shares in the placing, representing 3.06% of the enlarged share capital of the Company. The Board and the senior management team also subscribed for new shares in the placing. The placing price represented a premium of approximately 18.64% over the mid-market closing price of 0.295p on 21 September 2010.

The consolidation within our market is moving at a rapid pace and we aim to search out earning-enhancing bolt-on acquisitions, with a focus on delivering cloud based IP solutions. I believe our actions this year will provide us with a solid foundation on which we can build.

Results

Compared against our 2009 results, our 2010 performance shows a significant turnaround.

·; Turnover

For the second year running, turnover more than doubled over the year, an increase of 107% from £3,192,222 in 2009 to £6,608,533 in 2010. Approximately 81% (2009: 88%) of turnover is recurring income.

·; EBITDA (Earnings before interest, taxation, depreciation, amortisation of intangibles, exceptional acquisition costs, share of results of associates and the embedded fair value adjustment in the convertible loan)

We regard EBITDA, as defined, as a key performance indicator and a figure that the Board considers on a regular basis. For 2010, we achieved positive annual EBITDA for the first time of £149,378 which compares very favourably with the 2009 figure which stood at negative £499,429. Importantly, EBITDA has remained positive throughout the year, representing a significant turnaround and a milestone in the history of the group.

·; Gross Profit

The overall gross profit for the full year was £2,089,457 (2009: £991,169) representing a gross profit to sales percentage of 31.6% (2009: 31.0%), a pleasing increase. Delivering a complex IP based solution, where we can add significant value to the customer, can deliver gross margins in excess of 50%. This complex area is now the focus of our business, as we see significant expansion opportunities, not just in the SME market but also in multi-sited smaller corporates, where significant cost savings are achievable compared to traditional telecom deployments.

·; Operating Profit (before amortisation of intangibles, exceptional acquisition costs, share of results of associates and the embedded fair value adjustment in the convertible loan)

We have achieved a maiden operating profit, as defined, of £78,647 in the full year compared to an operating loss of £582,816 in 2009. This has been achieved through the results from acquisitions and from organic growth coupled with tight control of the operating costs of the business.

·; Loss for the year

The overall loss for the year, after all costs, reduced by £626,364, down 70% to £270,739 compared to £897,063 in the previous year, a significant reduction.

·; Debt

The group has no debt other than a loan note which is carried at fair value on the balance sheet of £133,467.

·; Cash

At the year end the group had £697,189 (2009: £586,222) of cash available to fund working capital as the business continues to grow. The year-end figure has been helped by the share issue noted above and the micro management of cash during the year, and particularly at the year end. The cash balances remain a key performance indicator of the Board.

·; Administration Expenses

Our administration expenses remain carefully controlled. Acquisitions, however, tend to mask the trend. For 2010 the administration expenses were £2,010,810 (2009: £1,573,985).

·; Balance Sheet

At 30 September 2010, the group had net assets of £1,319,743 (2009: £921,645). Included in this figure are intangible assets, being the written down value of customer bases and maintenance contracts acquired, of £859,217 (2009: £864,123). Also included, as a result of the acquisition of Sipswitch Limited, are capitalised development costs of £195,834, being the costs less depreciation to 30 September 2010 of developing the VoIP platform now at the heart of the group's strategy. This is being depreciated over a period of 5 years.

The group keeps tight control over receivables and at the year end they represented 25 days of turnover (2009: 56 days). Considering the current economic climate, we are very satisfied with this result. 65% of our customers pay by direct debit which helps the profile.

The Group has continued its successful strategy to seek out well-priced and timely acquisitions, deliver organic growth and develop a wide range of next generation communications services, where the emphasis is on IP based cloud technologies. We will deliver to our customers, solutions that improve productivity, lower costs and save money, particularly for businesses that have more than one location.

We are undertaking a number of initiatives in 2011:

·; We continue the migration of all group customers onto a single billing system, which we expect to complete before the end of the first half of 2011.

·; We plan to build an online customer-ordering portal that will allow customers to order and provision new services over the Internet.

·; We aim to roll out a remote on-line backup service for businesses, which will provide customers with an online system for backing up, storing and restoring computer files.

·; We expect to complete a major overhaul of our websites by the end of the 2011 half-year.

On 13 January 2010, the Company acquired the entire issued share capital of Solwise Telephony Limited, and its wholly owned subsidiary Sipswitch Limited. The initial consideration was £204,915, satisfied by the issue of 35,950,000 ordinary shares in Pinnacle Telecom Group plc at a price of 0.57 pence per share.

The total consideration was apportioned to initial consideration, loan shares and contingent consideration as follows:

·; 31,746,843 of ordinary shares were issued as initial consideration.

·; A further 4,203,157 ordinary shares were issued in connection with loans owed by Solwise to certain vendors, amounting to £23,958 in aggregate. The loans were assigned from Solwise to the Company and were capitalised through the issue to the lenders of ordinary shares in the capital of the Company.

The acquisition agreement allows for contingent consideration with earn out provisions to be awarded, based on earnings before interest and taxation ("EBIT") for the years ending 30 September 2010 and 30 September 2011. For the year ending 2010, additional consideration of £15,000 will be payable in ordinary shares for every £10,000 of EBIT above £40,000. For the year ending 2011, additional consideration of £15,000 will be payable in ordinary shares for every £10,000 of EBIT above £60,000. In accordance with IFRS3, we have accrued additional consideration of £80,000 in the financial statements, when calculating the intangible asset on acquisition. The total contingent consideration cannot exceed £295,085 in total over the two year end periods.

At 30 September 2010, the EBIT for Solwise was £65,282 which means that £30,000 of new ordinary shares will be issued to the vendors represented by a price per share equal to the middle market closing price for an ordinary share in the Company on the day of the announcement of the preliminary results for the year ended 30 September 2010.

Once again, we have successfully delivered organic growth during the year; one notable contract was 30 million voice call minutes per annum for Grass Roots plc, a marketing, research and HR services business, operating in 16 countries and employing over 1,000 people. Won against much larger competitors, this deal demonstrates our capability to handle larger and more complex contracts.

Contract Wins

We were delighted to win contracts to deliver voice and data connectivity for many of the UK's largest high-profile, short term events, which further demonstrates the group's ability in this specialist area, and shows good continuation of Pinnacle's skill to offer bespoke capability and build new sources of revenue growth. Some of the successfully completed high-profile events are listed below:

During the year, the group completed a reduction in the number of operating companies, which had expanded following a series of acquisitions over the years. There are now three main operating units. We expect to see some modest reductions in administration costs in the future as a result of the group structure consolidation.

We also managed to successfully close our office locations in Edinburgh, Hinckley, and central Northampton, which has allowed us to centralise a number of our core functions into new larger offices on the outskirts of Northampton.

We have successfully migrated customers' analogue fixed-lines and ISDN channels onto a new BT WLR3 service. Our systems connect to the BT WLR3 gateway, which gives us access to a wide range of products from BT Openreach, including resilience solutions and temporary lines.

As a result of the acquisition of Solwise, we acquired a data centre in Brighton, which has allowed us to better utilise our connectivity between our data centre in Glasgow and our network located in Telehouse North in London. Our network now has resilience in Glasgow, London and Brighton.

Summary

We have made excellent progress this year, diligently managing our cash resources, strengthening our balance sheet and remaining free of bank debt. We assiduously centralised our operations into Northampton and successfully delivered voice and data networks for some of the UK's largest high-profile events, including the UK General Election for the BBC. We have delivered triple-digit growth in turnover and gross margin, produced our maiden operating profit, and delivered positive EBITDA. Notwithstanding the difficulties of the economic climate, we aim to search out earning-enhancing bolt-on acquisitions, with a focus on delivering cloud based IP solutions, and we look forward to moving the business forward during 2011.

Alan J BonnerCHIEF EXECUTIVE OFFICER21 February 2011

CONSOLIDATED INCOME STATEMENTfor the year ended 30 September 2010

CONSOLIDATED INCOME STATEMENT (continued)for the year ended 30 September 2010

CONSOLIDATED BALANCE SHEET

as at 30 September 2010

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 30 September 2010

Note* Relates to VAT recovered on expenses on prior year disposal group

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 30 September 2010

NOTES TO THE PRELIMINARY FINANCIAL STATEMENTS

1. General information

Pinnacle Telecom Group plc ("the Company") and its subsidiaries (together "the Group") provide telecommunications and IT solutions to businesses within the United Kingdom. The Company is a public limited company which is listed on the AIM market of the London Stock Exchange and is incorporated in the United Kingdom under the Companies Act 2006. The address of its registered office is 5 Fleet Place, London, EC4M 7RD.

The financial information presented in this preliminary announcement is extracted from, and is consistent with, the Group's audited financial statements for the year ended 30 September 2010. The financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates.

The financial information set out above does not constitute the Company's statutory financial statements for the period ended 30 September 2010 or 30 September 2009 but is derived from those financial statements. Statutory financial statements for 2010 will be delivered following the Company's annual general meeting. The auditors have reported on those financial statements; their report was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

The Group's results have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC interpretations endorsed by the European Union (EU) and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The preliminary announcement has been agreed with the company's auditors for release.

2. Acquisitions

2.1. Acquisition of Solwise Telephony Limited

On 13 January 2010, the Company acquired the entire issued share capital of Solwise Telephony Limited, and its wholly owned subsidiary Sipswitch Limited. The total consideration was £204,915, satisfied by the issue of 35,950,000 ordinary shares in Pinnacle Telecom Group plc at a price of 0.57 pence per share. The total consideration was apportioned as 31,746,843 of ordinary shares, issued as initial consideration, amounting to £180,957 plus a further 4,203,157 ordinary shares ("loan shares") issued in connection with loans owed by Solwise to certain vendors, amounting to £23,958 in aggregate.

The acquisition agreement allows for additional contingent consideration to be awarded, with earn out provisions based on earnings before interest and taxation ("EBIT") for the years ending 30 September 2010 and 30 September 2011. For the year ending 2010, additional consideration of £15,000 will be payable in ordinary shares for every £10,000 of EBIT above £40,000. For the year ending 2011, additional consideration of £15,000 will be payable in ordinary shares for every £10,000 of EBIT above £60,000. The total contingent consideration cannot exceed £295,085 in total over the two year end periods. For the purpose of calculating the intangible asset under IFRS3, contingent consideration of £80,000 has been assumed over the two year end periods.

Prior to the acquisition, Solwise Telephony Limited was an existing customer of Pinnacle Telecom plc for the supply of wholesale telecommunications services. For the period 1 October 2009 to 12 January 2010, Solwise Telephony Limited purchased services to the value of £33,930 on normal commercial terms and on an arms length basis. On the date of acquisition, Solwise Telephony Limited owed Pinnacle Telecom plc £61,563 in unpaid invoices. All transactions were carried out under normal market conditions and subsequently paid after 13 January 2010.

The loan shares above, amounting to £23,958, were issued in full settlement of a number of commercial loans made to Solwise Telephony Limited by certain minority shareholders prior to acquisition. The commercial loans were issued for cash and under normal commercial terms. The loans were settled at par value and included any interest accrued at the acquisition date.

With the exception of intangible assets no adjustments have been made to the book values of the assets and liabilities at acquisition. The book value of intangible assets in Solwise Telephony Limited and Sipswitch Limited at acquisition was nil. The consolidated accounts of both companies can be analysed as follows:

Turnover and operating profit of the company acquired for the post acquisition period was £1,008,372 and £60,754, respectively. Pre-acquisition turnover and operating losses for the period 1 October 2009 to 12 January 2011 were £170,214 and £53,807 respectively and are not included in the Group consolidated financial statements.Exceptional costs incurred in relation to the acquisition were £18,216 and in accordance with IFRS3 have been expensed in the income statement for the Group.

3. Segment Reporting

The chief operating decision-maker has been identified as the Chief Executive Officer ("CEO") of the Company. The CEO reviews the Group's internal reporting in order to assess performance and to allocate resources. The Company has determined its operating segments based on these reports.

The Group currently has three reportable segments:

·; Mobile services - this segment provides a range of mobile services and solutions to micro and SME companies.

·; IT - this segment provides a wide range of IT focused solutions to both SME and middle market companies, including Voice over IP ('VoIP') implementations.

·; Other - this sector covers a range of telecommunications services including calls and line rental.

Information regarding the operation of the reportable segments is included below. The CEO assesses the performance of the operating segments based on revenue and a measure of Earnings before Interest, Depreciation and Amortisation (EBITDA) before any allocation of Group overheads or charges for share based payments. Segment EBITDA is used to measure performance as the CEO believes that such information is the most relevant in evaluating the results of the segment.

The Group's EBITDA for the year has been calculated after deducting Group overheads from the EBITDA of the three segments as reported internally. The Group overheads include the cost of the Board, the costs of maintaining a listing on AIM, legal and professional fees, and the costs of shareholder communications including the costs of retaining a Nominated Advisor and a Broker.

The segment information is prepared using accounting policies consistent with those of the Group as a whole.

The assets and liabilities of the Group are also reviewed by the chief operating decision-maker on a segment basis and have been disclosed.

All segments are continuing operations. No customer accounts for more than 10% of external revenues. Inter-segment transactions are accounted for using an arms-length commercial basis.

3.2 Analysis of net loss after tax

3.3 Analysis of assets and liabilities

Both the basic and diluted earnings per share have been calculated using the net loss after taxation attributable to the shareholders of Pinnacle Telecom Group plc as the numerator.

The weighted average number of outstanding shares used for basic earnings per share amounted to 1,732,688,226 shares (2009: 1,363,702,413) following the issue of 35,950,000 shares as part of the acquisition of Solwise Telephony Limited on 13 January 2010 and the issue of 128,571,429 shares as part of the private placing on 22 September 2010. Due to the losses incurred by the Group the share options are anti-dilutive.

6. Dividends

The Directors do not propose a dividend for the year ended 30 September 2010 (2009: £Nil)

7. Annual report and accounts

A copy of the Annual Report and Accounts for the year ended 30 September 2010 will be sent to shareholders at the beginning of March 2011 and copies will be available from the Company's registered office at 5 Fleet Place, London, EC4M 7RD or by visiting our website at www.pinnacletelecomgroup.co.uk

The annual general meeting of the Company will be held at the offices of Wright, Johnston & Mackenzie LLP, 18 Charlotte Square, Edinburgh, EH2 4DF on Monday 28 March 2011 at 10.30 a.m.