SoundCloud Ltd.

SoundCloud Ltd.

Berlin

Directors' report and financial statements 31 December 2011

SoundCloud Limited (GB)

Contents

Company information

Directors' report

Statement of directors' responsibilities

Report of the independent auditors to the members of SoundCloud Limited

Profit and loss account

Balance sheet

Notes

Company information

Directors' report

The directors present their report and financial statements for the year ended 31 December 2011.

Principal activities

The principal activity of the company is the provision of an online platform for music professionals to receive, send and distribute their music in Germany and the rest of Europe.

The company trades from Germany.

There has not been any significant change in this activity during the year.

Donations

Political and charitable donations did not exceed £2,000 in the year.

Directors

The directors who served during the year were as follows:

A Ljung

CF Maire

S Tirtey

F Wilson

Disclosure of information to auditors

The directors who held office at the date of approval of this directors' report confirm that, so far as they are each aware, there is no relevant audit information of which the company's auditors are unaware; and each director has taken all the steps that they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the company's auditors are aware of that information.

Auditors

During the year, Moore Stephens resigned as auditors of the company and KPMG LLP were appointed to fill the vacancy. Pursuant to Section 487 of the Companies Act 2006, the auditors will be deemed to be reappointed and KPMG LLP will therefore continue in office.

By order of the board

Statement of directors' responsibilities

The directors are responsible for preparing the Directors' 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 they have elected to prepare the financial statements in accordance with the Financial Reporting Standard for Smaller Entities (Effective April 2008) and applicable law (UK Generally Accepted Accounting Practice applicable to Smaller Entities).

Under company law the 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 company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities.

Report of the independent auditors to the members of SoundCloud Limited

We have audited the financial statements of SoundCloud Limited for the year ended 31 December 2011 set out on pages 5 to 12. The financial reporting framework that has been applied in their preparation is applicable law and the Financial Reporting Standard for Smaller Entities (Effective April 2008) (UK Generally Accepted Accounting Practice applicable to Smaller Entities).

This report is made solely to the 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 company's members those matters we are required to state to them in an auditors' 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 company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors' Responsibilities Statement set out on page 3, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's web-site at www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion the financial statements:

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

Profit and loss account for the year ended 31 December 2011

In both the current and preceding year, the company made no material acquisitions and had no discontinued operations.

There is no material difference between the result reported in the profit and loss account and the result on an unmodified historical cost basis.

There were no other recognised gains or losses in addition to those presented above in either period.

Balance sheet as at 31 December 2011

The financial statements were approved by the board of directors on 27 June 2012 and were signed on their behalf by:

Notes (forming part of the financial statements)

1 Accounting policies

The accounts have been prepared under the historical cost convention and in accordance with the Financial Reporting Standard for Smaller Entities (effective April 2008).

The financial statements have been prepared in Euro. The European Central Bank year and exchange rate was GBP 0.8353 to the Euro. In the preceding year the financial statements were presented in GBP converted at the year end rate.

Going concern

The company has considerable financial resources with a growing subscriber base across different geographic areas. As a consequence, the directors believe the company is well placed to manage its business risks successfully despite the current uncertain economic climate.

The directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing annual financial statements.

Turnover

Turnover represents income receivable for subscription services provided in the period, exclusive of Value Added Tax and trade discounts. Subscription revenue is recognised evenly over the subscription period and where a subscription covers more than one financial period, an element of revenue arising from that subscription is deferred into subsequent periods.

Depreciation of tangible fixed assets

Depreciation has been computed to write off the cost of fixed assets over their expected useful lives of between 3 and 7 years.

Amortisation of intangible assets

Intangible assets are being written off over their estimated economic life of 15 years.

Debtors

Debtors are shown after providing for any amounts which in the opinion of the directors may not be collected in full.

Deferred taxation

Deferred tax assets and liabilities have arisen from timing differences between the recognition of gains and losses in the financial statements and their recognition in a tax computation. Full provision is made for all liabilities, and provision is made for assets to the extent that they are considered more likely than not to be recoverable in the foreseeable future. Provision is made using tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based upon rates enacted at the balance sheet date.

Research and development

Expenditure on research and development is written off in the year in which it is incurred.

Foreign exchange

Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate ruling on the date of the transaction. Exchange differences are taken into account in arriving at the operating profit.

Leases

Assets acquired under finance leases are capitalised and the outstanding future lease obligations are shown in creditors. Operating lease rentals are charged to the profit and loss account on a straight line basis over the period of the lease.

2 Operating

3 Directors remuneration

4 Subsidiaries

5 Intangible fixed assets

6 Tangible fixed assets

Included in computer and office equipment are assets owned by the company, which are subject to a finance lease arrangement. The net book value of these assets at the year end was €418,139 (2010: fnil) and they have been depreciated by €132,732 (2010: Enil) during the year.

7 Debtors

8 Creditors: amounts falling due within one year

9 Creditors: amounts falling due after more than one year

The maturity of obligations under finance leases and hire purchase contracts is as follows:

10 Share capital

During the year 6,665 B preferred shares of €0.01 were issued for a consideration of €10.25 each and 341,846 C preferred shares of €0.01 were issued for a consideration of €70.83 each.

11 Reserves

12 Reconciliation of movement in shareholders' funds

13 Leasing commitment

14 Employee share schemes

The Company operates an equity-settled share-based payment scheme for employees. In the current year, a total of 136,800 options were granted to 71 employees, at a weighted average exercise price of E2.94. During prior years, a total of 106,300 options were granted to 9 employees, at a weighted average exercise price of €0.97. These share option grants vest typically over a four year period and are exercisable upon a liquidity event.

15 Ultimate controlling party

There is no ultimate controlling party.

16 Post balance sheet event

Following the year end the company acquired the entire share capital of Instinctiv Bulgaria EOOD, a company incorporated in Bulgaria, and the trade and assets of Instictiv Technologies Inc, a company incorporated in the United States of America. Consideration included the allotment of 42,764 Series C shares which were issued on the date of acquisition.