•

the sale of all of Marchex’s interest in the Marchex Carve Out assets, liabilities, and operations;

•

the proceeds received from the sale, including a 10% equity interest in the entity purchasing the Marchex Carve Out;

•

the effects of the anticipated Support Services Agreement between Marchex and the Purchaser of Marchex Carve Out at the level of services expected during the first year of the Support Services Agreement term.

•

the accompanying notes to the unaudited pro forma consolidated financial statements;

•

the audited consolidated financial statements and accompanying notes of Marchex, Inc., incorporated by reference herein;

•

the unaudited special purpose combined financial statements of the Marchex Carve Out contained elsewhere in this proxy statement.

Marchex, Inc.

Historical

Discontinued

Operations

Pro Forma

Adjustments

Marchex, Inc.

Pro Forma

Assets

Current assets:

Cash and cash equivalents

$

46,777

$

(666

)

$

2,250

(a)

$

48,361

Accounts receivable, net

16,148

(9,121

)

—

7,027

Prepaid expenses and other current assets

2,444

(92

)

—

2,352

Total current assets

65,369

(9,879

)

2,250

57,740

Property and equipment, net

3,206

(75

)

—

3,131

Right-of-use lease asset

6,221

—

—

6,221

Other assets, net

1,076

—

120

(b)

1,196

Equity Investment

—

—

281

(c)

281

Goodwill

19,132

(1,535

)

—

17,597

Intangible assets from acquisitions, net

10,614

—

—

10,614

Total assets

$

105,618

$

(11,489

)

$

2,651

$

96,780

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

8,321

$

(6,120

)

$

—

$

2,201

Accrued expenses and other current liabilities

9,700

(681

)

220

(d)

9,239

Current portion of acquisition related liabilities

277

—

—

277

Deferred revenue and deposits

1,911

(214

)

—

1,697

Lease liability, current

1,675

—

—

1,675

Loan obligation, current

5,292

(127

)

—

5,165

Total current liabilities

27,176

(7,142

)

220

20,254

Deferred tax liabilities

162

—

—

162

Lease liability, non-current

5,834

—

—

5,834

Total liabilities

33,172

(7,142

)

220

26,250

Commitments and contingencies

Stockholders' equity

72,446

(4,347

)

2,431

(e)

70,530

Total liabilities and stockholders' equity

$

105,618

$

(11,489

)

$

2,651

$

96,780

Marchex,

Inc.

Historical

Discontinued

Operations

Pro Forma

Adjustments

Marchex,

Inc.

Pro Forma

Revenue

$

50,632

$

(25,908

)

—

$

24,724

Expenses

Service costs (1)

29,702

(19,439

)

(100

)

(f)

10,163

Sales and marketing (1)

10,429

(1,777

)

(50

)

(f)

8,602

Product development (1)

11,929

(1,334

)

(50

)

(f)

10,545

General and administrative (1)

6,775

(277

)

(1,550

)

(f)

4,948

Amortization of intangible assets from acquisitions (2)

2,969

—

—

2,969

Acquisition related costs (benefit)

(996

)

—

—

(996

)

Total operating expenses

60,808

(22,827

)

(1,750

)

36,231

Impairment of goodwill

(14,213

)

1,141

—

(13,072

)

Impairment of intangible assets from acquisitions

(5,903

)

—

—

(5,903

)

Income (loss) from operations

(30,292

)

(1,940

)

1,750

(30,482

)

Other income (loss)

—

104

(g)

104

Interest income, net

142

—

—

142

Income (loss) before provision for income taxes

(30,150

)

(1,940

)

1,854

(30,236

)

Income tax (benefit) expense

(767

)

—

—

(h)

(767

)

Net loss applicable to common stockholders

$

(29,383

)

$

(1,940

)

$

1,854

$

(29,469

)

Earnings (Loss) Per Common Share (“EPS”):

Basic and diluted net loss per Class A share applicable to common stockholders

$

(0.62

)

$

(0.63

)

Basic and diluted net loss per Class B share applicable to common stockholders

$

(0.62

)

$

(0.63

)

Weighted average common shares outstanding for basic EPS:

Class A

4,661

4,661

Class B

42,382

42,382

Weighted average common shares outstanding for diluted EPS:

Class A

4,661

4,661

Class B

47,043

47,043

(1) Excludes amortization of intangibles from acquisitions

(2) Components of amortization of intangibles from acquisitions

Service costs

$

1,384

—

—

$

1,384

Sales and marketing

1,179

—

—

1,179

General and administrative

406

—

—

406

Total

$

2,969

$

—

$

—

$

2.969

Marchex,

Inc.

Historical

Discontinued

Operations

Pro Forma

Adjustments

Marchex,

Inc.

Pro Forma

Revenue

$

106,132

$

(51,643

)

$

54,489

Expenses

Service costs (1)

56,537

(37,560

)

(200

)

(f)

18,777

Sales and marketing (1)

16,651

(3,803

)

(100

)

(f)

12,748

Product development (1)

20,127

(2,675

)

(100

)

(f)

17,352

General and administrative (1)

13,516

(496

)

(3,100

)

(f)

9,920

Amortization of intangible assets from acquisitions (2)

6,263

—

—

6,263

Acquisition and disposition-related costs (benefit)

(447

)

—

—

(447

)

Total operating expenses

112,647

(44,534

)

(3,500

)

64,613

Impairment of goodwill

—

—

—

—

Impairment of intangible assets from acquisitions

—

—

—

—

Income (loss) from operations

(6,515

)

(7,109

)

3,500

(10,124

)

Other income (loss)

(27

)

—

282

(g)

255

Interest income

779

—

—

779

Income (loss) before provision for income taxes

(5,763

)

(7,109

)

3,782

(9,090

)

Income tax (benefit) expense

(1,721

)

—

—

(h)

(1,721

)

Net income (loss) applicable to common stockholders

$

(4,042

)

$

(7,109

)

$

3,782

$

(7,369

)

Earnings (Loss) Per Common Share (“EPS”):

Basic and diluted net loss per Class A share applicable to common stockholders

$

(0.09

)

$

(0.16

)

Basic and diluted net loss per Class B share applicable to common stockholders

$

(0.09

)

$

(0.16

)

Weighted average common shares outstanding for basic EPS:

Class A

4,793

4,793

Class B

40,667

40,667

Weighted average common shares outstanding for diluted EPS:

Class A

4,793

4,793

Class B

45,460

45,460

(1) Excludes amortization of intangibles from acquisitions

(2) Components of amortization of intangibles from acquisitions:

Service costs

$

2,331

—

—

$

2,331

Sales and marketing

2,497

—

—

2,497

General and administrative

1,435

—

—

1,435

Total

$

6,263

$

—

$

—

$

6,263

Marchex,

Inc.

Historical

Discontinued

Operations

Pro Forma

Adjustments

Marchex,

Inc.

Pro Forma

Revenue

$

85,251

$

(45,489

)

$

39,762

Expenses

Service costs ⁽¹⁾

47,804

(33,166

)

(200

)

(f)

14,438

Sales and marketing ⁽¹⁾

13,788

(3,642

)

(100

)

(f)

10,046

Product development ⁽¹⁾

15,423

(2,090

)

(100

)

(f)

13,233

General and administrative ⁽¹⁾

10,881

—

(3,100

)

(f)

7,781

Amortization of intangible assets from acquisitions ⁽²⁾

781

—

—

781

Acquisition and disposition-related costs (benefit)

462

—

—

462

Total operating expenses

89,139

(38,898

)

(3,500

)

46,741

Impairment of goodwill

—

—

—

—

Impairment of intangible assets from acquisitions

—

—

—

—

Income (loss) from operations

(3,888

)

(6,592

)

3,500

(6,980

)

Other income (loss)

(20

)

—

241

(g)

221

Interest income

1,074

—

—

1,074

Income (loss) before provision for income taxes

(2,834

)

(6,592

)

3,741

(5,685

)

Income tax (benefit) expense

(156

)

—

—

(h)

(156

)

Net income (loss) applicable to common stockholders

$

(2,678

)

$

(6,592

)

$

3,741

$

(5,529

)

Earnings (Loss) Per Common Share (“EPS”):

Basic and diluted net loss per Class A share applicable to common stockholders

$

(0.06

)

$

(0.13

)

Basic and diluted net loss per Class B share applicable to common stockholders

$

(0.06

)

$

(0.13

)

Weighted average common shares outstanding for basic EPS:

Class A

5,056

5,056

Class B

37,390

37,390

Weighted average common shares outstanding for diluted EPS:

Class A

5,056

5,056

Class B

42,446

42,446

(1) Excludes amortization of intangibles from acquisitions

(2) Components of amortization of intangibles from acquisitions

Service costs

$

302

—

—

$

302

Sales and marketing

295

—

—

295

General and administrative

184

—

—

184

Total

$

781

$

—

$

—

$

781

(a)

Reflects the cash consideration received as part of Transaction closing.

(b)

The Company’s preliminary evaluation of the Transaction identified certain contingent consideration that qualifies as a derivative and that is not subject to the derivative accounting scope exception under U.S. generally accepted accounting principles.  Accordingly, this derivative is reflected on the pro forma consolidated balance sheet at preliminary estimate of its fair value.

(c)

Reflects Marchex’s estimate of its equity interest in the Purchaser, received as part of the Transaction consideration. Final values may differ significantly in the event the Transaction closes and are expected to reflect changes that occur from now until the closing of the transaction.  

(d)

Reflects costs incurred by Marchex directly attributable to the Transaction that are not yet reflected on Marchex’s balance sheet as of June 30, 2020. Such amounts are not included in the pro forma consolidated statements of operations, as these costs are considered to be nonrecurring in nature.

(e)

Reflects the equity impact of assets and liabilities recorded as the result of the Transaction.

(f)

Reflects estimated expense recovery from performing services under the Support Services Agreement, to the extent not already reflected as part of discontinued operations adjustments.  Marchex estimated amounts it expects to receive for services provided to Purchaser for the first twelve months under the Support Services Agreement for purposes of the pro forma adjustment.  The following table reflects Marchex’s pro forma pre-tax income (loss) assuming it receives different amounts for services:

Marchex, Inc. Pre-Tax Income (Loss)

Year ended

December 31,

2018

Year ended

December 31,

2019

Six months

ended

June 30,

2020

Annual Support Service Agreement Proceeds*

$4,500

$

(4,763

)

$

(8,168

)

$

(29,776)

$3,500

(5,685

)

(9,090

)

(30,237)

$2,500

(6,607

)

(10,012

)

(30,698)

$1,500

(7,529

)

(10,934

)

(31,159)

$500

(8,529

)

(11,934

)

(31,659)

$0

(9,029

)

(12,434

)

(31,909)

*

For services not already reflected within discontinued operations.

(g)

Reflects Marchex’s equity interest in the net income of the Purchaser, which is part of the Transaction consideration to be received by Marchex at the closing of the Transaction.

(h)

No tax effects of pro forma adjustments have been recorded due to the extent of the Company’s tax loss carryforwards reduced by valuation allowances.