Form 6-K MER TELEMANAGEMENT SOLUT For: Jun 16

June 16, 2021 9:45 AM EDT

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
          


F O R M  6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934

For the month of June 2021

MER TELEMANAGEMENT SOLUTIONS LTD.
(Name of Registrant)

14 Hatidhar Street, P.O. Box 2112
Ra’anana 4366516, Israel
(Address of Principal Executive Office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes ☐ No ☒

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- __________



MER Telemanagement Solutions Ltd.

EXPLANATORY NOTE

The following exhibits are attached:

99.1
Press Release: MTS Announces 2021 Extraordinary General Meeting of Shareholders to Approve Merger with SharpLink, Inc. and Related Proposals, dated June 16, 2021.

99.2
Notice of and Proxy Statement for MER Telemanagement Solutions Ltd. Extraordinary General Meeting of Shareholders to be held on July 21, 2021.

99.3
Form of MER Telemanagement Solutions Ltd. Proxy Card.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
MER TELEMANAGEMENT SOLUTIONS LTD.
 
   
(Registrant)
 
Date:  June 16, 2021
     
  By:
/s/ Ofira Bar
 
   
Ofira Bar
 
   
Chief Financial Officer
 


EXHIBIT INDEX

EXHIBIT NO.
DESCRIPTION
   
   
   



Exhibit 99.1

MTS Announces 2021 Extraordinary General Meeting of Shareholders to Approve
Merger with SharpLink, Inc. and Related Proposals

Ra’anana, Israel / Powder Springs, Georgia, USA – June 16, 2021 - Mer Telemanagement Solutions Ltd. (MTS) (Nasdaq Capital Market: MTSL), a global provider of telecommunications expense management (TEM), call accounting and contact center software, today announced that it will hold an extraordinary general meeting of shareholders (the “Meeting”) on Wednesday, July 21, 2021 at 4:30 p.m. (Israel time) at the offices of Ephraim Abramson & Co., Law Offices, 52 Menahem Begin Rd., Sonol Tower, 12th Floor, Tel Aviv, 6713701, Israel. The primary purpose of the meeting will be to approve the merger and related transactions (collectively, the “Transaction”) with SharpLink, Inc. (“SharpLink”), a leading online technology company that works with sports leagues, fantasy sports sites and sports media companies to connect fans to relevant and timely betting content sourced from its sportsbook partners. 
 
The agenda of the Meeting is as follows:
 
1.
Resolutions in connection with the approval of the Transaction:
 

a.
To approve the consummation of the Transaction and the other transactions contemplated by the Merger Agreement, including the issuance of Ordinary Shares, Preferred Shares and options and warrants to purchase Ordinary Shares at the effective time of the Transaction to the securityholders of SharpLink, including the issuance to SharpLink’s largest shareholder, SportsHub Games Network, Inc., of Ordinary Shares constituting in excess of 45% of the voting rights in the combined company pursuant to the terms of Section 328(b)(1) of the Israeli Companies Law, 1999 (the “Companies Law”);
 

b.
To approve and adopt the Company’s second amended and restated articles of association (the “Revised Articles”), which among other things will (i) increase the registered share capital of MTS from NIS 600,000, divided into 17,000,000 Ordinary Shares and 3,000,000 Preferred Shares, nominal value NIS 0.03 each, to NIS 6,000,000, divided into 185,800,000 Ordinary Shares, 1,600,000 Preferred A Shares, 5,200,000 Preferred A-1 Shares and 7,400,000 Preferred B Shares, nominal value NIS 0.03 each, (ii) designate the currently outstanding Preferred Shares as Preferred A Shares, (iii) effect a reverse split, at a ratio in the range of between 1-for-2 to 1-for-5, inclusive, with such ratio to be determined in the discretion of the MTS Board, (iv) change MTS’s name from “Mer Telemanagement Solutions Ltd.” to “SharpLink Ltd.” or such other name as may be approved by SharpLink and the Israeli Registrar of Companies and (v) make such other changes as are set forth in the Revised Articles, and to approve corresponding amendments to the Company’s Memorandum of Association;
 

c.
To elect Rob Phythian, Chris Nicholas, Joseph Housman, Paul Abdo and Thomas Doering, each candidates designated by SharpLink for nomination as members of the Company’s board of directors, for a term expiring at the Company’s 2021 Annual General Meeting of Shareholders and until their successors are elected and qualified and to approve their terms of service;
 


d.
To elect Scott Pollei, a candidate designated by SharpLink for nomination as an outside director (as such term is defined in the Companies Law) for an initial three-year term commencing on the effective time of the Transaction and to approve his terms of service;
 

e.
To elect Adrienne Anderson, a candidate designated by SharpLink for nomination as an outside director (as such term is defined in the Companies Law) for an initial three-year term commencing on the effective time of the Transaction and to approve her terms of service;
 

f.
To approve an updated Compensation Policy that will be applicable to the combined company following the Transaction;
 

g.
To approve the compensation terms of Mr. Rob Phythian, who is expected to be the Chief Executive Officer of the combined company;
 

h.
To approve the compensation terms of Mr. Chris Nicholas, who is expected to be the Chief Operating Officer of the combined company;
 

i.
To approve the adoption of the new SharpLink, Ltd. 2021 Equity Incentive Plan and the reservation of 4,673,264 Ordinary Shares for issuance thereunder; and
 

j.
To approve the purchase by the Company of a “run-off” directors’ and officers’ liability insurance policy for a period of seven years following the effective time of the Transaction.
 
2.
To approve equity-based compensation to Mr. Roy Hess, the Company’s current Chief Executive Officer;
 
3.
To approve equity-based compensation to Ms. Ofira Bar, the Company’s current Chief Financial Officer; and
 
4.
To transact any other business that may be properly brought before the Meeting or any continuation, adjournment or postponement thereof.
 
Shareholders of record at the close of business on Monday, June 21, 2021 are entitled to notice of and to vote at the Meeting or any adjournments or postponements thereof. The Company plans to mail the proxy statement and a proxy card on or about Wednesday, June 23, 2021.
 
The approval of the proposals set forth above (other than proposal 1(b)) requires the affirmative vote of holders of at least a majority of the Company’s ordinary shares voted in person or by proxy at the Meeting on the matter presented for passage. The approval of proposal 1(b) requires the affirmative vote of holders of at least 75% of the Company’s ordinary shares voted in person or by proxy at the Meeting on the matter presented for passage. In addition, the approval of proposals 1(d)-1(g), 1(j), 2 and 3 requires a special majority as described in the proxy statement.


Shareholders wishing to express their position on an agenda item may do so by submitting a written statement to the Company’s offices at the above address no later than Sunday, July 11, 2021.  Any position statement received will be furnished to the SEC on Form 6-K, which will be available to the public on the SEC’s website at http://www.sec.gov. Eligible shareholders may present proper proposals for inclusion in the Meeting by submitting their proposals to the Company no later than June 23, 2021.

Shareholders may vote their ordinary shares by means of a proxy card, which is required to be received by the Company, along with the documentation set forth in the proxy statement, at least four (4) hours prior to the appointed time of the Meeting, to be counted for the Meeting.

About SharpLink

Founded in 2019, SharpLink is a leading online technology company that connects sports fans, leagues, and sports websites to relevant and timely sports betting content. SharpLink uses proprietary, intelligent, online conversion technology to convert sports fans into sports bettors for licensed, online sportsbook operators. SharpLink's intelligent sports betting conversion and engagement technology delivers and determines the best sportsbook betting offers and experience for each identified user. Using sophisticated behavioral modeling and tracking technologies, and by analyzing users' past and present behaviors, we shape the experience and bring users to the right outcome, faster. Additionally, SharpLink specializes in helping sports media companies develop strategies, products and innovative solutions to drive deep customer engagement with highly interactive sports games and mobile applications. SharpLink is based in Minneapolis, MN, and is run by industry veterans with several successful exits in the sports gaming sector. For more information please visit the SharpLink website at www.sharplink.com.
 
About MTS

Mer Telemanagement Solutions Ltd. (MTS) is focused on innovative products and services for enterprises in the area of telecom expense management (TEM), call accounting and contact center software. Headquartered in Israel, MTS markets its solutions through wholly-owned subsidiaries in Israel, the U.S. and Hong Kong, as well as through distribution channels. For more information please visit the MTS web site: www.mtsint.com


Forward Looking Statements
Certain matters discussed in this news release are forward-looking statements that involve a number of risks and uncertainties including, but not limited to, the approval of the Transaction and related proposals by the Company’s shareholders, the fulfillment of other conditions to the consummation of the Transaction, the Company’s ability to achieve  profitable operations, its ability  to continue to operate as a going concern, its ability to continue to meet NASDAQ continued listing requirements, customer acceptance of new products, the effects of the spread of Coronavirus (COVID-19) and future measures taken by authorities in the countries in which we operate on our operations, the demand for our products and our customers’ economic condition, the impact of competitive products and pricing, market acceptance, the lengthy sales cycle, proprietary rights of the Company and its competitors, risk of operations in Israel,  general economic conditions and other risk factors detailed in the Company’s annual report and other filings with the United States Securities and Exchange Commission.

MTS Contact:
 
Ofira Bar
CFO
Tel: +972-9-7777-540

Investors Contact:

Okapi Partners LLC.
Chuck Garske
Christian Jacques
212-297-0720



Exhibit 99.2

MER TELEMANAGEMENT SOLUTIONS LTD.
_____________________

NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS

Dear Shareholders:
 
We are pleased to invite you to attend the Extraordinary General Meeting of Shareholders, or the Meeting, of Mer Telemanagement Solutions Ltd., which we refer to as “we,” “MTS,” or the “Company,”, to be held on Wednesday, July 21, 2021 at 4:30 p.m. (Israel time) at the offices of Ephraim Abramson & Co., Law Offices, 52 Menahem Begin Rd., Sonol Tower, 12th Floor, Tel Aviv 6713701, Israel, and thereafter as it may be adjourned or postponed from time to time.
 
At the Meeting, shareholders will be asked to adopt the following resolutions:
 
1.
Resolutions in connection with the approval of the Transaction and related transactions:
 

a.
To approve the consummation of the Transaction (as such term is used and defined in the accompanying proxy statement) and the other transactions contemplated by the Merger Agreement, attached as Annex A to the proxy statement, including the issuance of Ordinary Shares, Preferred Shares and options and warrants to purchase Ordinary Shares at the effective time of the Transaction to the securityholders of SharpLink, Inc., including the issuance to SportsHub Games Network, Inc. of Ordinary Shares constituting in excess of 45% of the voting rights in the combined company pursuant to the terms of Section 328(b)(1) of the Israeli Companies Law, 1999, or the Companies Law;
 

b.
To approve and adopt the Company’s second amended and restated articles of association, attached as Annex B to the proxy statement, or the Revised Articles, which among other things will (i) increase the registered share capital of MTS from NIS 600,000, divided into 17,000,000 Ordinary Shares and 3,000,000 Preferred Shares, nominal value NIS 0.03 each, to NIS 6,000,000, divided into 185,800,000 Ordinary Shares, 1,600,000 Preferred A Shares, 5,200,000 Preferred A-1 Shares and 7,400,000 Preferred B Shares, nominal value NIS 0.03 each, (ii) designate the currently outstanding Preferred Shares as Preferred A Shares, (iii) effect the Reverse Split, at a ratio in the range of between 1-for-2 to 1-for-5, inclusive, with such ratio to be determined in the discretion of the MTS Board, (iv) change MTS’s name from “Mer Telemanagement Solutions Ltd.” to “SharpLink Ltd.” or such other name as may be approved by SharpLink and the Israeli Registrar of Companies and (v) make such other changes as are set forth in the Revised Articles, and to approve corresponding amendments to the Company’s Memorandum of Association;
 

c.
To elect Rob Phythian, Chris Nicholas, Joseph Housman, Paul Abdo and Thomas Doering as members of the Company’s board of directors for a term expiring at the Company’s 2021 Annual General Meeting of Shareholders and until their successors are elected and qualified and to approve their terms of service;
 

d.
To elect Scott Pollei as an outside director (as such term is defined in the Companies Law) for an initial three-year term commencing on the effective time of the Transaction and to approve his terms of service;
 

e.
To elect Adrienne Anderson as an outside director (as such term is defined in the Companies Law) for an initial three-year term commencing on the effective time of the Transaction and to approve her terms of service;
 

f.
To approve an updated Compensation Policy for the Company, attached as Annex C to the proxy statement;
 

g.
To approve the compensation terms of Mr. Rob Phythian, the Chief Executive Officer of the combined company;
 


h.
To approve the compensation terms of Mr. Chris Nicholas, the Chief Operating Officer of the combined company;
 

i.
To approve the adoption of the new SharpLink, Ltd. 2021 Equity Incentive Plan, attached as Annex D to the proxy statement and the reservation of 4,673,264 ordinary shares for issuance thereunder; and
 

j.
To approve the purchase by the Company of a “run-off” directors’ and officers’ liability insurance policy for a period of seven years following the effective time of the Transaction;
  
2.
To approve equity-based compensation to Mr. Roy Hess, our Chief Executive Officer;
 
3.
To approve equity-based compensation to Ms. Ofira Bar, our Chief Financial Officer; and
 
4.
To transact any other business that may be properly brought before the Meeting or any continuation, adjournment or postponement thereof.
 
Our Board of Directors unanimously recommends that you vote FOR the foregoing proposals, each of which is more fully described in the accompanying proxy statement.
 
Shareholders of record at the close of business on Monday, June 21, 2021 are entitled to notice of and to vote at the Meeting or any adjournments or postponements thereof.

We expect that the proxy statement and the accompanying proxy card will be mailed to shareholders of record (as set forth above) on or about Wednesday, June 23, 2021.

The approval of the proposals set forth above (other than Proposal 1(b)) requires the affirmative vote of holders of at least a majority of our company’s ordinary shares voted in person or by proxy at the Meeting on the matter presented for passage. The approval of Proposal 1(b) requires the affirmative vote of holders of at least 75% of our company’s ordinary shares voted in person or by proxy at the Meeting on the matter presented for passage. In addition, the approval of Proposals 1(d)-1(g), 1(j), 2 and 3 requires a special majority as described in the proxy statement.
 
We know of no other matters to be submitted at the Meeting other than as specified in this Notice of Extraordinary General Meeting of Shareholders.  If any other business is properly brought before the Meeting, the persons named as proxies will vote in respect thereof in accordance with the recommendation of our Board of Directors.
 
Eligible shareholders may present proper proposals for inclusion in the Meeting by submitting their proposals to the Company no later than June 23, 2021. Should changes be made to any proposal or to the agenda of the Meeting after the mailing of this proxy statement, we will communicate the changes to our shareholders through the publication of a press release, a copy of which will be furnished to the SEC on Form 6-K and available to the public on the website of the U.S. Securities and Exchange Commission, or the SEC, at http://www.sec.gov.
 
You can vote either by mailing in your proxy or in person by attending the Meeting.  If voting by mail, the proxy must be received by our transfer agent at least 48 hours prior to the appointed time of the Meeting or at our registered office in Israel at least four hours prior to the appointed time of the Meeting to be validly included in the tally of ordinary shares voted at the Meeting.  If you attend the Meeting, you may vote in person and your proxy will not be used.  Detailed proxy voting instructions are provided both in the proxy statement and on the enclosed proxy card.  Shareholders wishing to express their position on an agenda item may do so by submitting a written statement to our address set forth in the proxy statement by Sunday, July 11, 2021.  Any position statement received will be furnished to the SEC on Form 6-K, which will be available to the public at the abovementioned website.
 
Joint holders of ordinary shares should note that, pursuant to Article 28.6 of our company’s Articles of Association, the right to vote at the Meeting will be conferred exclusively upon the senior owner among the joint owners attending the Meeting, in person or by proxy, and for this purpose, seniority will be determined by the order in which the names appear in our register of shareholders.

- ii -

With the unpredictability of the spread of the coronavirus disease 2019 (COVID-19), the Company reserves the option to convert the Meeting from a physical meeting to a virtual meeting. In the event the Company so elects, the Company will issue a press release or furnish a Form 6-K to the SEC prior to the date of the Meeting outlining the manner in which shareholders may attend the virtual meeting.

YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE DATE AND SIGN THE PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE FOR WHICH NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. YOU CAN LATER REVOKE YOUR PROXY, ATTEND THE MEETING AND VOTE YOUR SHARES IN PERSON. ALL PROXY INSTRUMENTS AND POWERS OF ATTORNEY MUST BE DELIVERED TO THE COMPANY NO LATER THAN 4 HOURS PRIOR TO THE MEETING.

 
Sincerely,

/s/ Haim Mer
Haim Mer
Chairman of the Board of Directors

June 16, 2021

- iii -

 
MER TELEMANAGEMENT SOLUTIONS LTD.
_____________________

PROXY STATEMENT

EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS

This proxy statement is being furnished in connection with the solicitation of proxies on behalf of the Board of Directors of Mer Telemanagement Solutions Ltd., to be voted at the Extraordinary General Meeting of Shareholders, or the Meeting, and at any adjournment or postponement thereof, pursuant to the accompanying Notice of Extraordinary General Meeting of Shareholders of Mer Telemanagement Solutions Ltd., which we refer to as “we,” “MTS,” or the “Company.”  The Meeting will be held at 4:30 p.m. (Israel time) on Wednesday, July 21, 2021 at the offices of Ephraim Abramson & Co., Law Offices, 52 Menahem Begin Rd., Sonol Tower, 12th Floor, Tel Aviv 6713701, Israel, and thereafter as it may be adjourned or postponed from time to time. With the unpredictability of the spread of the coronavirus disease 2019 (COVID-19), the Company reserves the option to convert the Meeting from a physical meeting to a virtual meeting. In the event the Company so elects, the Company will issue a press release and furnish a Form 6-K to the SEC prior to the date of the Meeting outlining the manner in which shareholders may attend the virtual meeting.
 
The agenda of the Meeting is as follows:
 

1.
Resolutions in connection with the approval of the Transaction and related transactions:
 

a.
To approve the consummation of the Transaction and the other transactions contemplated by the Merger Agreement, attached as Annex A to this proxy statement, including the issuance of Ordinary Shares, Preferred Shares and options and warrants to purchase Ordinary Shares at the effective time of the Transaction to the securityholders of SharpLink, Inc., or SharpLink, including the issuance to SportsHub Games Network, Inc. of Ordinary Shares constituting in excess of 45% of the voting rights in the combined company pursuant to the terms of Section 328(b)(1) of the Israeli Companies Law, 1999, or the Companies Law;
 

b.
To approve and adopt the Company’s second amended and restated articles of association, attached as Annex B to this proxy statement, or the Revised Articles, which among other things will (i) increase the registered share capital of MTS from NIS 600,000, divided into 17,000,000 Ordinary Shares and 3,000,000 Preferred Shares, nominal value NIS 0.03 each, to NIS 6,000,000, divided into 185,800,000 Ordinary Shares, 1,600,000 Preferred A Shares, 5,200,000 Preferred A-1 Shares and 7,400,000 Preferred B Shares, nominal value NIS 0.03 each, (ii) designate the currently outstanding Preferred Shares as Preferred A Shares, (iii) effect the Reverse Split, at a ratio in the range of between 1-for-2 to 1-for-5, inclusive, with such ratio to be determined in the discretion of the MTS Board, (iv) change MTS’s name from “Mer Telemanagement Solutions Ltd.” to “SharpLink Ltd.” or such other name as may be approved by SharpLink and the Israeli Registrar of Companies and (v) make such other changes as are set forth in the Revised Articles, and to approve corresponding amendments to the Company’s Memorandum of Association;
  

c.
To elect Rob Phythian, Chris Nicholas, Joseph Housman, Paul Abdo and Thomas Doering as members of the Company’s board of directors for a term expiring at the Company’s 2021 Annual General Meeting of Shareholders and until their successors are elected and qualified and to approve their terms of service;
 

d.
To elect Scott Pollei as an outside director (as such term is defined in the Companies Law) for an initial three-year term commencing on the effective time of the Transaction and to approve his terms of service;
 


e.
To elect Adrienne Anderson as an outside director (as such term is defined in the Companies Law) for an initial three-year term commencing on the effective time of the Transaction and to approve her terms of service;
 

f.
To approve an updated Compensation Policy for the Company, attached as Annex C to this proxy statement;
  

g.
To approve the compensation terms of Mr. Rob Phythian, the Chief Executive Officer of the combined company;
 

h.
To approve the compensation terms of Mr. Chris Nicholas, the Chief Operating Officer of the combined company;
 

i.
To approve the adoption of the new SharpLink, Ltd. 2021 Equity Incentive Plan, attached as Annex D to this proxy statement, which we refer to herein as the New Equity Plan, and the reservation of 4,673,264 Ordinary Shares for issuance thereunder; and
 

j.
To approve the purchase by the Company of a “run-off” directors’ and officers’ liability insurance policy for a period of seven years following the effective time of the Transaction.
 
To consummate the Transaction, Proposals 1(a) and 1(b) must be approved at the Meeting, or at any permitted adjournment thereof. In addition to the requirement of obtaining such shareholder approvals, each of the other closing conditions set forth in the Merger Agreement, which also includes the approval of Proposals 1(c) – 1(j), must be satisfied or waived. All of the foregoing proposals will become effective upon consummation of the Transaction, except that the MTS Board may elect to implement the reverse split prior to consummation of the Transaction.


2.
To approve equity-based compensation to Mr. Roy Hess, our Chief Executive Officer;
 

3.
To approve equity-based compensation to Ms. Ofira Bar, our Chief Financial Officer; and
 

4.
To transact any other business that may be properly brought before the Meeting or any continuation, adjournment or postponement thereof.
 
Our Board of Directors unanimously recommends that you vote FOR the foregoing proposals, each of which is more fully described below.

We are not aware of any other matters that will come before the Meeting.  If any other matters properly come before the Meeting, the persons designated as proxies intend to vote on such matters in accordance with the judgment of the Board of Directors.
 
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE DATE AND SIGN THE PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE FOR WHICH NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. YOU CAN LATER REVOKE YOUR PROXY, ATTEND THE MEETING AND VOTE YOUR SHARES IN PERSON. ALL PROXY INSTRUMENTS AND POWERS OF ATTORNEY MUST BE DELIVERED TO THE COMPANY NO LATER THAN 4 HOURS PRIOR TO THE MEETING.
 
2

Proxy Procedure
 
Only holders of record of our ordinary shares, par value NIS 0.03 per share, or the Ordinary Shares, as of the close of business on Monday, June 21, 2021, are entitled to notice of, and to vote in person or by proxy, at the Meeting or any adjournments or postponements thereof.  As of June 15, 2021, there are 4,734,323 outstanding Ordinary Shares. Pursuant to the terms of Article 7.2.4 of our Articles, holders of our preferred shares are also entitled to vote on all matters submitted to a vote of our Ordinary Shares (on an as-converted basis, but only up to the number of votes equal to the number of Ordinary Shares into which the preferred shares would be convertible pursuant to the Beneficial Ownership Limitation, which is defined in our Articles as 9.99% of the number of our Ordinary Shares outstanding immediately after giving effect to the issuance of Ordinary Shares issuable upon conversion of preferred shares held by the applicable shareholder). For more information, see “Security Ownership of Certain Beneficial Owners” below.
 

Voting in Person.  If your shares are registered directly in your name with our transfer agent (i.e., you are a “registered shareholder”), you may attend and vote in person at the Meeting.  If you are a beneficial owner of shares registered in the name of your broker, bank, trustee or nominee (i.e., your shares are held in “street name”), you are also invited to attend the Meeting; however, to vote in person at the Meeting as a beneficial owner, you must first obtain a “legal proxy” from your broker, bank, trustee or nominee authorizing you to do so.
 

Voting by Mail.  You may submit your proxy by mail by completing, signing and mailing the enclosed proxy card in the enclosed, postage-paid envelope, or, for shares held in street name, by following the voting instructions provided by your broker, bank trustee or nominee.
 
If voting by virtue of a “legal proxy” or by mail, the proxy must be received by our transfer agent at least 48 hours prior to the appointed time of the Meeting or at our registered office in Israel at least four (4) hours prior to the appointed time of the Meeting to be validly included in the tally of Ordinary Shares voted at the Meeting.
 
Change or Revocation of Proxy
 
If you are a registered shareholder, your proxy may be revoked at any time prior to its exercise by notice in writing of the shareholder to us, delivered at our address above up to one hour prior to the Meeting and indicating that its/his/her proxy is revoked, or by timely submitting another proxy with a later date.  Attendance at the Meeting will not cause your previously granted proxy to be revoked unless you specifically so request.
 
If your shares are held in street name, you may change your vote by timely submitting new voting instructions to your broker, bank, trustee or nominee or, if you have obtained a legal proxy from your broker, bank, trustee or nominee giving you the right to vote your shares, by attending the Meeting and voting in person.
 
Quorum
 
A quorum of shareholders is necessary to transact business at the Meeting. The presence of two or more shareholders holding in the aggregate more than 25% of the total voting power attached to our Ordinary Shares (on an as-converted basis, subject to the Beneficial Ownership Limitation applicable to holders of our preferred shares), represented in person or by proxy at the Meeting, will constitute a quorum.  A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as the directors designate in a notice to the shareholders.  If a quorum is not present at the reconvened meeting within half an hour from the time appointed for holding the meeting, any two shareholders present in person or by proxy shall be a quorum.
 
Abstentions and broker non-votes will be counted towards the quorum.  Generally, broker non-votes occur when brokers that hold their customers’ shares in street name sign and submit proxies for such shares but such shares are not voted with respect to a particular proposal(s) because (i) the broker has not received voting instructions from the beneficial owner and (ii) the broker lacks discretionary voting power to vote such shares.   Abstentions and broker non-vote will not otherwise be counted in the voting process. Thus, abstentions and broker non-votes will not affect the outcome of any of the matters being voted on at the Meeting.
 
Unsigned or unreturned proxies, including those not returned by banks, brokers, or other record holders, will not be counted for quorum purposes.
 
3

Majority Vote Standard
 
For more information concerning the majority vote required in connection with each of the proposals, see “Questions and Answers about the Transaction – How many votes are needed to approve each proposal?
 
In tabulating the voting result for any particular proposal, shares that constitute broker non-votes and abstentions are not considered votes cast on that proposal.  Unsigned or unreturned proxies, including those not returned by banks, brokers, or other record holders, will not be counted for voting purposes.
 
Cost of Soliciting Votes for the Extraordinary General Meeting
 
We will bear the cost of soliciting proxies from our shareholders.  Proxies will be solicited by mail and may also be solicited in person, by telephone or electronic communication, by our directors, officers and employees or by the proxy solicitor retained by the Company.  We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their expenses in accordance with the regulations of the Securities and Exchange Commission, or the SEC, concerning the sending of proxies and proxy materials to the beneficial owners of our Ordinary Shares.
 
Adjournment and Postponement

Although we do not expect this to occur, our shareholders may also be asked to vote to adjourn or postpone the Meeting for the purpose of soliciting additional proxies in favor of any proposals on the agenda of the Meeting.

Our shareholders may communicate with the members of our Board of Directors by writing directly to the Board of Directors or specified individual directors to:
 
Corporate Secretary
Mer Telemanagement Solutions Ltd.
14 Ha’tidhar Street, P.O. Box 2112
Ra’anana 4366516, Israel

Our Corporate Secretary will deliver any shareholder communications to the specified individual director, if so addressed, or to one of our directors who can address the matter.

Security Ownership of Certain Beneficial Owners
 
The following table sets forth certain information as of June 15, 2021, regarding the beneficial ownership by all shareholders known to us to own beneficially more than 5% of our Ordinary Shares (on an as-converted basis, subject to the Beneficial Ownership Limitation):
 
Name
 
Number of
Ordinary Shares
Beneficially Owned(1)
   
Percentage of
Outstanding
Ordinary Shares(2)
 
Haim Mer and Dora Mer(3)          
   
540,641
     
11.35
%
Harmony Base L.P.(4)          
   
480,000
     
10.1
%
Alpha Capital(5)          
   
475,663
     
9.99
%
Roger Challen(6)          
   
462,054
     
9.70
%
L.I.A. Pure Capital Ltd.(7)          
   
253,236
     
5.32
%
_______________________

(1)
Beneficial ownership is determined in accordance with the rules of the SEC and generally means having  voting or investment power with respect to securities.  Ordinary shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person.  Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.
 
4


(2)
The percentages shown are based on 4,734,323 Ordinary Shares (excluding 1,800 Ordinary Shares held as treasury shares) and 1,591,579 preferred shares (on an as-converted basis, subject to the Beneficial Ownership Limitation), outstanding on June 15, 2021.
 

(3)
Based upon a Schedule 13D/A filed with the SEC on August 24, 2017 and other information available to us.  Mr. Haim Mer and his wife, Mrs. Dora Mer, are the record holders of 247,960 Ordinary Shares and the beneficial owners of 290,742 Ordinary Shares through their controlling interest in Mer Ofekim Ltd., 1,923 Ordinary Shares through their controlling interest in Mer Services Ltd. and 16 Ordinary Shares through their controlling interest in Mer & Co. (1982) Ltd.
 

(4)
Based on a Schedule 13G/A filed with the SEC on June 2, 2021. Harmony Base L.P., an Israeli limited partnership is the sole holder of the securities. Value Base Hedge Fund Ltd., an Israeli company, is the general partner of Harmony Base L.P. and Value Base Ltd., an Israeli company, is the full and direct owner of Value Base Hedge Fund Ltd. Value Base Ltd. is controlled by Messrs. Victor Shamrich and Ido Nouberger.
 

(5)
Based upon a Schedule 13G/A filed with the SEC on November 21, 2019 and other information known to us, Alpha Capital holds 448,600 Ordinary Shares and 1,591,579 preferred shares, which are currently subject to the Beneficial Ownership Limitation.
 

(6)
Based upon a Schedule 13D/A filed with the SEC on August 24, 2017, and other information available to us, Mr. Challen is the beneficial owner of 462,054 Ordinary Shares through his controlling interest in the Info Group, Inc., a Massachusetts corporation.
 

(7)
Based upon a Schedule 13G filed with the SEC on January 12, 2021. Mr. Kfir Silberman is the beneficial owner of 253,236 Ordinary Shares through his controlling interest and his officer, sole director and chairman of the board position in L.I.A. Pure Capital Ltd., an Israeli company.
 
5

TABLE OF CONTENTS
 
7
8
19
41
42
52
75
84
91
96
99
107
108
138
138
 
 
 
 
 
 

6

INTRODUCTION
 
As further discussed below, following the unanimous approval of the MTS Audit Committee, or the Audit Committee and MTS Board of Directors, or the MTS Board, MTS, New SL Acquisition Corp., or Merger Sub, and SharpLink entered into an Agreement and Plan of Merger dated as of April 15, 2021, which we refer to herein as the Merger Agreement.  Pursuant to the Merger Agreement, MTS will issue a majority interest in its share capital (on a post-Transaction basis) to the equity-holders of SharpLink in consideration for 100% of the equity securities of SharpLink, which will become a wholly-owned subsidiary of MTS following the merger of Merger Sub with and into SharpLink, or the Transaction. If the Transaction is completed, SharpLink’s securityholders would own in the aggregate 86% of the combined company’s share capital (on a fully-diluted basis), including the Ordinary Shares reserved under the SharpLink Ltd. 2021 Equity Incentive Plan, or the New Equity Plan, which is presented for approval at the Meeting, and MTS’s securityholders (including MTS officers that will hold securities convertible into MTS Ordinary Shares as proposed to be approved under Proposals 2 and 3 included in this proxy statement) would own the remaining 14% of the combined company’s outstanding share capital (on a fully-diluted basis). Taking into account the Beneficial Ownership Limitation applicable to the Preferred Shares as more fully described herein and in the Revised Articles, upon completion of the Transaction, the Ordinary Shares and Preferred Shares to be issued to SharpLink securityholders in the Transaction would represent approximately 82.3% of our total outstanding voting shares.
 
In order to complete the Transaction, MTS’s shareholders are being asked to approve the consummation of the Transaction and certain additional resolutions, including, among others, (i) the issuance of more than 45% of the outstanding voting rights in MTS to SportsHub Games Network, Inc., or SportsHub, the controlling shareholder of SharpLink, (ii) a reverse share split of MTS’s share capital, (iii) an increase of MTS’s authorized share capital, (iv) a change of MTS’s name, and (v) the purchase by MTS of a “tail” or run-off directors’ and officers’ liability insurance policy.
 
To consummate the Transaction, Proposals 1(a) and 1(b) must be approved at the Meeting, or at any permitted adjournment thereof. In addition to the requirement of obtaining such shareholder approvals, each of the other closing conditions set forth in the Merger Agreement, which also includes the approval of Proposals 1(c) – 1(j), must be satisfied or waived. Proposals 1(a)-1(j) will become effective upon consummation of the Transaction, except that the MTS Board may elect to implement the reverse split prior to consummation of the Transaction. If approved, Proposals 2 and 3 will become effective upon the date of the Meeting.
 
You are cautioned not to rely on any information other than the information contained in this proxy statement. No one has been authorized to provide you with information that is different from that contained in this proxy statement. This proxy statement is dated June 16, 2021. You should not assume that the information contained in this proxy statement is accurate as of any other date. The mailing of this proxy statement to our shareholders will not create any implication to the contrary.
 
Except where specifically noted, the following information and all other information contained in this proxy statement does not give effect to a Reverse Split described in Proposal 1(b) included in this proxy statement and assumes a Closing Financing by Alpha Capital in the amount of $6 million as more fully described herein.
 
This proxy statement does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.
 
7

QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
 
The following section provides answers to frequently asked questions about the Transaction and other matters relating to the Meeting. This section, however, provides only summary information. Please refer to the more detailed information contained elsewhere in this proxy statement and the documents referred to or incorporated by reference in this proxy statement. MTS urges its shareholders to read this document in its entirety prior to making any decision.
 
What is the Transaction?
 
MTS, Merger Sub and SharpLink entered into the Merger Agreement on April 15, 2021. The Merger Agreement contains the terms and conditions of the proposed business combination of MTS and SharpLink. Pursuant to the Merger Agreement, Merger Sub will merge with and into SharpLink, with SharpLink surviving as a wholly-owned subsidiary of MTS. Thereafter, MTS will change its corporate name to “SharpLink, Ltd.” or such other name as may be approved by SharpLink and the Israeli Registrar of Companies.
 
At the effective time of the Transaction, based on information provided from SharpLink we currently anticipate that: (i) each share of SharpLink common stock outstanding immediately prior to the effective time of the Transaction will be converted into the right to receive approximately 2.7 MTS Ordinary Shares, (ii) each share of SharpLink Series A Preferred Stock outstanding immediately prior to the effective time of the Transaction will be converted into the right to receive approximately 1,230 MTS Preferred A-1 Shares, (iii) each share of SharpLink Series A-1 Preferred Stock outstanding immediately prior to the effective time of the Transaction will be converted into the right to receive approximately 2.7 MTS Preferred A-1 Shares and (iv) each share of SharpLink Series B Preferred Stock outstanding immediately prior to the effective time of the Transaction will be converted into the right to receive approximately 2.7 MTS Preferred B Shares, all subject to adjustments as may be required to account for the reverse split of the MTS share capital at a ratio of between 1-for-2 and 1-for-5, inclusive, to be determined by the MTS Board. All SharpLink options and warrants outstanding immediately prior to the effective time of the Transaction will be assumed by MTS at the effective time of the Transaction and converted into options and warrants to purchase MTS Ordinary Shares. Our estimate of the rate at which SharpLink shares will be exchanged for MTS shares is based on the current number of outstanding shares of the respective companies, the additional shares expected to be issued by each company prior to the effective time of the Transaction, including shares issued in consideration for an investment of $6 million in SharpLink in connection with the Closing Financing.
 
As a result, immediately following the completion of the Transaction, SharpLink’s securityholders would own in the aggregate 86% of the combined company’s share capital (on a fully-diluted basis), including the Ordinary Shares to be reserved under the New Equity Plan, which is presented for approval at the Meeting, and MTS’s securityholders (including MTS officers that will hold securities convertible into MTS Ordinary Shares as proposed under Proposals 2 and 3 included in this proxy statement) would own in the aggregate the remaining 14% of the combined company’s outstanding share capital (on a fully-diluted basis).
 
Although MTS is incorporated in Israel, it is intended that as a result of the Transaction it will be treated as a U.S. domestic corporation (and, therefore, subject to U.S. income tax) for U.S. federal income tax purposes pursuant to Section 7874(b) of the U.S. Internal Revenue Code of 1986, as amended, or the Code. This is the case because under Section 7874(b) of the Code, a corporation organized or incorporated outside the U.S. will be treated as a U.S. domestic corporation for U.S. federal income tax purposes when (i) the foreign corporation directly or indirectly acquires substantially all of the assets held directly or indirectly by a U.S. corporation, (ii) the stockholders of the acquired U.S. corporation hold at least 80% of the vote or value of the shares of the foreign acquiring corporation by reason of holding stock in the U.S. acquired corporation and (iii) the foreign corporation’s “expanded affiliated group” does not have substantial business activities in the foreign corporation’s country of incorporation relative to its expanded affiliated group’s worldwide activities.
 
8

MTS currently qualifies as a foreign private issuer, as defined under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act.  As a foreign private issuer, MTS is permitted by the SEC to file an annual report on Form 20-F and copies of certain home country materials on Form 6-K in lieu of filing annual, quarterly and current reports on Forms 10-K, 10-Q and 8-K; MTS is exempt from SEC proxy statement requirements and certain SEC tender offer requirements; MTS is permitted to sell securities outside the United States without resale restrictions under the U.S. Securities Act of 1933, as amended, or the Securities Act; U.S. holders of MTS restricted securities may resell such securities to persons outside the United States who receive such securities without resale restrictions under the Securities Act and MTS’s affiliates are exempt from Section 16 of the Exchange Act. Assuming the Transaction is completed in the third quarter of 2021, we expect that due to the change in the management, ownership and asset structure and location as a result of the transaction, the combined company will cease to qualify as a foreign private issuer under the Exchange Act.  As a result, the combined company will cease to be eligible for the foregoing exemptions and privileges effective January 1, 2023 (assuming the closing of the Transaction is during the third quarter of 2021).  In addition, officers, directors and 10% shareholders would become subject to the beneficial ownership reporting, short-swing trading and other requirements of Section 16 of the Exchange Act.  We do not expect the loss of foreign private issuer status to have a negative impact on our shareholders, but we will likely incur significantly greater expenses in order to comply with the additional disclosure and other compliance regulations under the Exchange Act.
 
For a more complete description of the Transaction, please see the section titled “The Merger Agreement” in this proxy statement.
 
What will happen to MTS if, for any reason, the Transaction does not close?
 
If, for any reason, the Transaction does not close, the MTS Board may elect to, among other things: (i) attempt to complete another strategic transaction similar to the Transaction described in this proxy statement; (ii) attempt to sell or otherwise dispose of the various assets of MTS, which may include sales performed through liquidation and dissolution; or (iii) continue to operate the business of MTS. If MTS decides to dissolve and liquidate its assets, MTS would be required to pay all of its debts and contractual obligations and to set aside certain reserves for potential future claims, and there can be no assurance as to the amount or timing of available cash left to distribute to shareholders after paying the debts and other obligations of MTS and setting aside funds for reserves in the event of such a liquidation.
 
As disclosed by MTS in a Form 6-K report submitted to the SEC on May 24, 2021, following the filing of its annual report on Form 20-F for the year ended December 31, 2020, which indicated that the MTS shareholders equity as of December 31, 2020 was approximately $2.0 million, MTS received a letter from the Listing Qualifications Department of the Nasdaq Stock Market, or Nasdaq, informing MTS that it no longer complies with the minimum $2,500,000 stockholders’ equity requirement for continued listing as set forth in Nasdaq Listing Rule 5550(b)(1). MTS has until July 8, 2021, to submit to Nasdaq a written plan to regain compliance with the stockholders’ equity requirement. MTS intends to submit such a plan by the July 8, 2021 deadline. In the event the Transaction does not close, MTS will be required to submit a different plan to regain compliance and there is no assurance as to whether or not such revised plan will be approved by Nasdaq and under which conditions or, if approved, that MTS will be able to identify, negotiate, enter into an alternative agreement and consummate it in the timeline provided by Nasdaq.
 
In addition, the MTS independent public accounting firm included a “going concern” explanatory paragraph in its report on MTS’s financial statements for the year ended December 31, 2020, indicating that MTS has suffered recurring losses from operations and has a working capital deficiency, which raises substantial doubt about MTS’s ability to continue as a going concern. As of December 31, 2020, MTS had cash and cash equivalents of $1.5 million and a working capital of $685,000 and as of June 13, 2021, MTS had cash and cash equivalents of approximately $1.29 million. If, for any reason, the Transaction does not close, MTS will need to raise funds in order to continue its operations, which funds may not be available on terms acceptable to MTS, or at all.
 
In addition to the above, under certain circumstances, MTS maybe required to pay SharpLink a termination fee in the amount of $1,300,000.
 
Why are the two companies proposing to merge?
 
Both companies believe that the Transaction, if completed, will result in a combined company that will be well-positioned to realize substantial growth in SharpLink’s business and will have access to the capital markets for future financing needs. For a more complete discussion of MTS’s reasons to enter into the Transaction, please see “The Transaction - Reasons for the Transaction.
 
9

What amount of cash resources will SharpLink have available at the closing of the Transaction?
 
The actual amount of SharpLink cash and cash equivalents will depend mostly on the timing of the closing of the Transaction. However, one of the conditions to the consummation of the Transaction is the investment of at least $5 million, or the Closing Financing, in SharpLink by Alpha Capital Anstalt, or Alpha Capital, which is one of MTS’s major shareholders. Alpha Capital previously invested $2 million in SharpLink in connection with the execution of the letter of intent for the Transaction.  The Merger Agreement provides that in its discretion, SharpLink may increase the size of the Closing Financing, provided that any such increase will not decrease the percentage ownership in the combined company to be held by the current MTS securityholders as of the effective time of the Transaction (i.e., 14% of the combined company’s outstanding share capital on a fully-diluted basis, taking into account the shares reserved under the New Equity Plan).  Subsequent to the execution of the Merger Agreement, we were informed that Alpha Capital and SharpLink have agreed to increase the amount of the Closing Financing to $6 million.
 
Why am I receiving these materials?
 
You are receiving the notice and proxy statement and proxy card because you have been identified as a shareholder of MTS as of the record date, and you are entitled to vote at the Meeting to approve the matters described in this proxy statement. This proxy statement contains important information about the proposed Transaction and the Meeting and you should read it carefully and in its entirety. The enclosed proxy card allows you to authorize a proxy to vote your MTS Ordinary Shares without attending the Meeting. As promptly as practicable, please complete, sign, date and mail your proxy card in the pre-addressed postage-paid envelope provided.
 
What am I voting on?
 
The following matters are included on the agenda of the Meeting:
 
1.
Resolutions in connection with the approval of the Transaction and related transactions:
 

a.
To approve the consummation of the Transaction and the other transactions contemplated by the Merger Agreement, attached as Annex A to this proxy statement, including the issuance of Ordinary Shares, Preferred Shares and options and warrants to purchase Ordinary Shares at the effective time of the Transaction to the securityholders of SharpLink, including the issuance to SportsHub Games Network, Inc. of Ordinary Shares constituting in excess of 45% of the voting rights in the combined company pursuant to the terms of Section 328(b)(1) of the Companies Law;
 

b.
To approve and adopt the Company’s Revised Articles, attached as Annex B to this proxy statement, which among other things will (i) increase the registered share capital of MTS from NIS 600,000, divided into 17,000,000 Ordinary Shares and 3,000,000 Preferred Shares, nominal value NIS 0.03 each, to NIS 6,000,000, divided into 185,800,000 Ordinary Shares, 1,600,000 Preferred A Shares, 5,200,000 Preferred A-1 Shares and 7,400,000 Preferred B Shares, nominal value NIS 0.03 each, (ii) designate the currently outstanding Preferred Shares as Preferred A Shares, (iii) effect the Reverse Split, at a ratio in the range of between 1-for-2 to 1-for-5, inclusive, with such ratio to be determined in the discretion of the MTS Board, (iv) change MTS’s name from “Mer Telemanagement Solutions Ltd.” to “SharpLink Ltd.” or such other name as may be approved by SharpLink and the Israeli Registrar of Companies and (v) make such other changes as are set forth in the Revised Articles, and to approve corresponding amendments to the Company’s Memorandum of Association;
 

c.
To elect Rob Phythian, Chris Nicholas, Joseph Housman, Paul Abdo and Thomas Doering as members of the Company’s board of directors for a term expiring at the Company’s 2021 Annual General Meeting of Shareholders and until their successors are elected and qualified and to approve their terms of service;
 
10


d.
To elect Scott Pollei as an outside director (as such term is defined in the Companies Law) for an initial three-year term commencing on the effective time of the Transaction and to approve his terms of service;
 

e.
To elect Adrienne Anderson as an outside director (as such term is defined in the Companies Law) for an initial three-year term commencing on the effective time of the Transaction and to approve her terms of service;
 

f.
To approve an updated Compensation Policy for the Company, attached as Annex C to this proxy statement;
 

g.
To approve the compensation terms of Mr. Rob Phythian, the Chief Executive Officer of the combined company;
 

h.
To approve the compensation terms of Mr. Chris Nicholas, the Chief Operating Officer of the combined company;
 

i.
To approve the adoption of the New Equity Plan, attached as Annex D to this proxy statement, and the reservation of 4,673,264 Ordinary Shares for issuance thereunder; and
 

j.
To approve the purchase by the Company of a “run-off” directors’ and officers’ liability insurance policy for a period of seven years following the effective time of the Transaction;
 
2.
To approve equity-based compensation to Mr. Roy Hess, our Chief Executive Officer;
 
3.
To approve equity-based compensation to Ms. Ofira Bar, our Chief Financial Officer; and
 
4.
To transact any other business that may be properly brought before the Meeting or any continuation, adjournment or postponement thereof.
 
Proposals 1(a)-1(j) will become effective upon consummation of the Transaction, except that the MTS Board may elect to implement the Reverse Split prior to consummation of the Transaction. If approved, Proposals 2 and 3 will become effective upon the date of the Meeting.

What is required to consummate the Transaction?
 
To consummate the Transaction, Proposals 1(a) – 1(b) must be approved at the Meeting, or at any permitted adjournment thereof, by the requisite holders of MTS Ordinary Shares on the record date for the Meeting. In addition to the requirement of obtaining such shareholder approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived. For a more complete description of the closing conditions under the Merger Agreement, we urge you to read the section titled “The Merger Agreement — Conditions to the Completion of the Transaction” in this proxy statement.
 
Are there any federal or state regulatory requirements that must be complied with or federal or state regulatory approvals or clearances that must be obtained in connection with the Transaction?
 
Neither MTS nor SharpLink is required to make any filings or obtain any approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the Transaction. In the United States, MTS must comply with applicable federal and state securities laws, as well as Nasdaq rules and regulations in connection with the issuance of the shares in connection with the Transaction. Prior to consummation of the Transaction, MTS will file an initial listing application with Nasdaq, as required by Nasdaq to effect the continued listing of MTS’s Ordinary Shares following the Transaction. In addition, in connection with the Transaction, MTS has applied for a tax ruling from the tax authorities in Israel indicating that the issuance MTS securities in connection with the Transaction will be exempt from withholding obligations.
 
11

What will happen to SharpLink’s outstanding options in the Transaction?
 
As a result of the Transaction, MTS will assume all outstanding unexercised SharpLink options to purchase SharpLink common stock and each such SharpLink option will be converted into an option to purchase MTS Ordinary Shares, with the number of MTS Ordinary Shares subject to such option and the exercise price being appropriately adjusted to reflect the Exchange Ratio.
 
Will holders of the MTS Ordinary Shares or MTS Ordinary Shares issuable upon conversion of the MTS Preferred Shares that will be issued in the Transaction be able to sell those MTS Ordinary Shares without restriction?
 
The MTS Ordinary Shares and MTS Preferred Shares issued in the Transaction will be issued in transactions exempt from registration under the Securities Act of 1933, as amended, or the Securities Act, in reliance on Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder, and may not be offered or sold by the holders of those shares absent registration or an applicable exemption from registration requirements. As a general matter, absent registration under the Securities Act, holders of such shares will not be able to transfer any of their shares until at least six months after receiving MTS Ordinary Shares, which is when the shares would first be eligible to be sold under Rule 144 promulgated under the Securities Act, assuming the other conditions thereof are also satisfied.
 
In connection with the Transaction, MTS has agreed to register for resale on Form F-3, or the Registration Statement: (i) the MTS Ordinary Shares to be issued to all holders of SharpLink common stock, other than SportsHub and certain of SharpLink’s officers and directors, and (ii) the MTS Ordinary Shares underlying the MTS Preferred Shares issued in the Transaction. The effectiveness of the Registration Statement is one of the conditions to closing of the Transaction. Therefore, the MTS Ordinary Shares included on the Registration Statement will be able to be sold without restriction following the consummation of the Transactions, for so long as such registration statement remains effective, and thereafter pursuant to the requirements of Rule 144 promulgated under the Securities Act.
 
Holders of MTS Ordinary Shares prior to the closing of the Transaction shall not be subject to trading limitations as a result of the closing of the Transaction or the issuance of shares to SharpLink securityholders, other than holders who executed a lock-up agreement in connection with the execution of the Merger Agreement. See the section titled “Ancillary Documents Related to the Transaction — Lock-Up Agreements” for more details.
 
In connection with the investment of Alpha Capital in SharpLink, directors, officers and certain shareholders of SharpLink have agreed to certain transfer restrictions on MTS Ordinary Shares to be issued to them in the Transaction for a period of 180 days following the effective time of the Transaction.
 
What is the reverse share split and why is it necessary?
 
In connection with “reverse” merger transactions like the Transaction in which the legal acquiror (MTS in this case) is the surviving entity in the merger but the shareholders of the target (in this case SharpLink) will hold a majority of the outstanding shares of the combined company, Nasdaq rules require the combined company to comply with the initial listing standards of the applicable Nasdaq market to continue to be listed on such market following the Transaction. The Nasdaq Capital Market’s initial listing standards require a company to have, among other things, a $4.00 per share minimum bid price. Because MTS’s current price per share is less than $4.00, a reverse share split is necessary to meet the minimum bid listing requirement.
 
12

Who will be the directors and executive officers of the combined company immediately following the completion of the Transaction?
 
At the closing of the Transaction, and immediately following the closing of the Transaction, the Board of the combined company and its committees and the executive management team of the combined company are expected to be composed of the individuals set forth in the table below:
 
Name
 
Age
 
Position
 
Current Position in SharpLink
Joseph Housman
 
39
 
Chairman of the Board of Directors
 
Chairman of the Board of Directors
Rob Phythian
 
56
 
Chief Executive Officer and Director
 
Chief Executive Officer and Director
Chris Nicholas
 
52
 
Chief Operating Officer and Director
 
Chief Operating Officer and Director
Paul Abdo(1)
 
51
 
Director
 
Director
Thomas Doering(1)(2)(3)
 
55
 
Director
 
-
Adrienne Anderson(1)(2)(3)
 
43
 
Outside Director
 
-
Scott Pollei(1)(2)(3)
 
60
 
Outside Director
 
-
Christian Peterson
 
44
 
Vice President, Finance and Interim Chief Financial Officer
 
Vice President, Finance and Interim Chief Financial Officer
Barry Carpe
 
49
 
Vice President, Product Strategy and Business Development
 
Vice President – Product Strategy and Business Development
Mike Szajah
 
30
 
Engineering Director
 
Engineering Director
____________________
 

(1)
Indicates independent director under Nasdaq rules.

(2)
Member of the Audit Committee upon completion of the Transaction.

(3)
Member of the Compensation Committee upon completion of the Transaction.

Am I entitled to appraisal rights?
 
Holders of MTS’s Ordinary Shares are not entitled to appraisal rights in connection with the Transaction.
 
Have SharpLink’s shareholders adopted the Merger Agreement and approved the Transaction?
 
Yes. Prior to the execution of the Merger Agreement, the Merger Agreement and the Transaction were approved by the requisite majority of the SharpLink shareholders.
 
What are the material U.S. federal income tax consequences of the Transaction to MTS’s shareholders?
 
As noted above, as a result of the Transaction it is intended that MTS will be treated as a U.S. domestic corporation for U.S. federal income tax purposes pursuant to Section 7874(b) of the Code. This “conversion” to a domestic corporation is treated as an inbound Code Section 368(a)(1)(F) reorganization (in effect a deemed change in place of incorporation to the United States for U.S. federal tax purposes) that is deemed to have occurred at the end of the day immediately preceding the first date properties are acquired as part of the Transaction. Although under these circumstances certain exchanging shareholders may be taxable and required to include in income as a deemed dividend the all earnings and profits amount with respect to the shareholder’s Ordinary Shares in MTS, such taxation is not expected in this case because MTS is not expected to have earnings and profits. However, in the event that there were to be an income inclusion for certain exchanging shareholders, it is expected that such income would be treated as a qualified dividend and taxable at preferential U.S. federal income tax rates.
 
The above discussion does not address the impact on MTS shareholders if MTS were to be a passive foreign investment company, or a PFIC, as defined in Section 1297 of the Code. If MTS is a PFIC, then the U.S. federal income tax consequences for U.S. taxpayers could be materially worse than what is described above. Holders of MTS Ordinary Shares are urged to work with their own legal and tax advisors to determine the tax consequences of the Transaction to them based on such holder’s own particular circumstances.
 
For more information concerning the tax implications of the Reverse Split, see “The Proposals – Proposal 1(b) – Reverse Split – Certain Tax Consequences.”
 
Do persons involved in the Transaction have interests that may conflict with mine as an MTS shareholder?
 
Yes. When considering the recommendation of the MTS Board, you should be aware that certain members of the MTS Board and executive officers of MTS have interests in the Transaction that may be different from, or in addition to, interests you may have as an MTS shareholder. The MTS Board was aware of the following interests and considered them, among other matters, in its decision to approve the Merger Agreement:
 

Continued Service with Combined Company. One or more of the current executive officers of MTS may continue to be employed by the combined company in other positions. In the event their employment is terminated, some of our executive officers and other employees may be eligible to collect severance payments.
 
13


In addition, both Mr. Hess and Ms. Bar will be eligible to receive equity compensation that will accelerate upon consummation of the Transaction, to the extent approved by our shareholders at the Meeting under Proposals 2 and 3 included on the agenda of the Meeting. The equity compensation is not expected to impact the cash position of MTS, however the equity compensation will be included in the calculations of the Exchange Ratio in order to determine the number of MTS Ordinary Shares and MTS Preferred Shares to be issued to SharpLink’s security holders in connection with the Transaction.
 

The Merger Agreement includes undertakings in connection with indemnification and liability insurance of MTS’s directors and officers subsequent to the consummation of the Transaction.
 
In addition, as noted above, Alpha Capital, one of MTS’s major shareholders, invested $2 million in SharpLink in connection with the execution of the letter of intent for the Transaction and has agreed to invest an additional $6 million in SharpLink immediately prior to consummation of the Transaction in order to provide financing to the combined company and to facilitate the listing of the combined company’s Ordinary Shares on Nasdaq. Alpha Capital will receive shares of Series B Preferred Stock of SharpLink in consideration for the Closing Financing and these shares will convert into the right to receive MTS Preferred B Shares upon consummation of the Transaction. Therefore, Alpha Capital’s interests in the Transaction may be different than yours. The MTS Board was aware of these interests when it discussed and deliberated the execution of the letter of intent, throughout the negotiation process of the Transaction and when it unanimously approved the execution of the Merger Agreement and the Transaction and resolved to recommend that the MTS shareholders approve them.
 
In its deliberations and discussions concerning the Transaction, the MTS Board determined that Alpha Capital was not and should not be deemed to be a “controlling shareholder” of MTS, as such term is defined in Section 268 of the Companies Law, which means that Alpha Capital does not have the ability to direct the Company’s activities, due to, among other considerations, the Beneficial Ownership Limitation imposed pursuant to the Articles on the MTS Preferred Shares held by Alpha Capital, pursuant to which Alpha Capital may not vote more than 9.99% of the outstanding voting rights in any general meeting of the Company’s shareholders, which can only be revised with a 61-day prior written notice to MTS, the fact that none of the MTS Board members is affiliated with Alpha Capital, Alpha Capital’s intent to act as a “passive” investor as evidenced by the reporting of its holdings on a Schedule 13G pursuant to Rule 13d-1(c), the limitation on Alpha Capital changing the Beneficial Ownership Limitation to more than 24.99% of the voting rights of MTS based on the requirements of Section 328 of the Companies Law, which prohibits the acquisition of 25% or more of the voting rights of Israeli public companies, such as MTS, without a tender offer or obtaining specific shareholders’ approval, and the ownership interest of other major shareholders, including Mr. Haim Mer, our Chairman of the Board, who beneficially holds 11.35% of the voting rights and Mr. Roger Challen, who beneficially holds 9.7% of the voting rights.
 
Why is MTS seeking shareholder approval in connection with the Transaction?
 
In order to be able to complete the Transaction, the Merger Agreement provides that MTS needs to perform certain actions that require shareholders’ approval under Israeli law and under the Nasdaq regulation, including to complete a reverse split of its share capital, increase its authorized share capital, amend its Articles, change its name and purchase a “run-off” directors’ and officers’ liability insurance policy. In addition, based on the Companies Law the issuance of more than 45% of the voting rights in a public company such as MTS to one shareholder or a group of shareholders without a tender offer process requires the approval of such company’s shareholders. As following completion of the Transaction SportsHub will own more than 45% of the voting rights in MTS, the approval of MTS’s shareholders for the issuance of shares to SportsHub is required as well.
 
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How many votes are needed to approve each proposal?
 
The following table summarizes the minimum vote needed to approve each proposal:
 
Proposal Number
 
Proposal Description
 
Vote Required for Approval
1(a)
 
To approve the consummation of the Transaction and the other transactions contemplated by the Merger Agreement, including the issuance of Ordinary Shares, Preferred Shares and options and warrants to purchase Ordinary Shares at the effective time of the Transaction to the securityholders of SharpLink, including the issuance to SportsHub of Ordinary Shares constituting in excess of 45% of the voting rights in the combined company pursuant to the terms of Section 328(b)(1) of the Companies Law
 
 
The affirmative vote of the holders of a majority of the Ordinary Shares represented at the Meeting, in person or by proxy, entitled to vote and voting on the matter
1(b)
 
To approve the adoption of the Revised Articles and corresponding amendments to the Memorandum of Association
 
The affirmative vote of the holders of 75% of the Ordinary Shares represented at the Meeting, in person or by proxy, entitled to vote and voting on the matter
 
1(c)
 
To elect Rob Phythian, Chris Nicholas, Joseph Housman, Paul Abdo and Thomas Doering as members of the Company’s board of directors and to approve their terms of service

 
The affirmative vote of the holders of a majority of the Ordinary Shares represented at the Meeting, in person or by proxy, entitled to vote and voting on the matter
 
1(d)
 
To elect Scott Pollei as an outside director and approve his terms of service
 
The affirmative vote of a majority of the Ordinary Shares represented at the Meeting, in person or by proxy, entitled to vote and voting on the matter, provided that at least one of the following “special majority” requirements is met: (i) at least a majority of the shares of non-controlling shareholders and shareholders who do not have a personal interest in the resolution (excluding a personal interest that is not related to a relationship with the controlling shareholders) are voted in favor of the election of the outside director, or (ii) the total number of shares voted against the election of the outside director by shareholders referenced under (i) does not exceed 2% of the outstanding voting power in the Company
 
1(e)
 
To elect Adrienne Anderson as an outside director and approve her terms of service
 
The affirmative vote of a majority of the Ordinary Shares represented at the Meeting, in person or by proxy, entitled to vote and voting on the matter, provided that at least one of the following “special majority” requirements is met: (i) at least a majority of the shares of non-controlling shareholders and shareholders who do not have a personal interest in the resolution (excluding a personal interest that is not related to a relationship with the controlling shareholders) are voted in favor of the election of the outside director, or (ii) the total number of shares voted against the election of the outside director by shareholders referenced under (i) does not exceed 2% of the outstanding voting power in the Company

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Proposal Number
 
Proposal Description
 
Vote Required for Approval
1(f)
 
To approve an updated Compensation Policy for the Company
 
The affirmative vote of the holders of a majority of the Ordinary Shares represented at the Meeting, in person or by proxy, entitled to vote and voting on the matter, provided that at least one of the following “special majority” requirements is met: (i) the shares voting in favor of the matter include at least a majority of the shares voted by shareholders who are not controlling shareholders and who do not have a personal interest in the approval of the Updated Compensation Policy or (ii) the total number of shares voted against the Updated Compensation Policy by shareholders referenced under (i) does not exceed 2% of the outstanding voting power in the Company
 
1(g)
 
To approve the compensation terms of Mr. Rob Phythian, the CEO of the combined company
 
The affirmative vote of the holders of a majority of the shares present, in person or by proxy, and voting on the matter, provided that at least one of the following “special majority” requirements is met: (i) the shares voting in favor of the matter include at least a majority of the shares voted by shareholders who are not controlling shareholders and who do not have a personal interest in the approval of the proposal or (ii) the total number of shares voted against the proposal by shareholders referenced under (i) does not exceed 2% of the outstanding voting power in the Company
 
1(h)
 
To approve the compensation terms of Mr. Chris Nicholas, the COO of the combined company
 
The affirmative vote of the holders of a majority of the Ordinary Shares represented at the Meeting, in person or by proxy, entitled to vote and voting on the matter
 
1(i)
 
To approve the adoption of the New Equity Plan, and the reservation of 4,673,264 Ordinary Shares for issuance thereunder
 
The affirmative vote of the holders of a majority of the Ordinary Shares represented at the Meeting, in person or by proxy, entitled to vote and voting on the matter
 
1(j)
 
To approve the purchase by the Company of a “run-off” directors’ and officers’ liability insurance policy for a period of seven years following the effective time of the Transaction
 
The affirmative vote of the holders of a majority of the shares present, in person or by proxy, and voting on the matter, provided that at least one of the following “special majority” requirements is met: (i) the shares voting in favor of the matter include at least a majority of the shares voted by shareholders who are not controlling shareholders and who do not have a personal interest in the approval of the proposal or (ii) the total number of shares voted against the proposal by shareholders referenced under (i) does not exceed 2% of the outstanding voting power in the Company

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Proposal Number
 
Proposal Description
 
Vote Required for Approval
2
 
To approve equity-based compensation to Mr. Roy Hess, our Chief Executive Officer
 
The affirmative vote of the holders of a majority of the shares present, in person or by proxy, and voting on the matter, provided that at least one of the following “special majority” requirements is met: (i) the shares voting in favor of the matter include at least a majority of the shares voted by shareholders who are not controlling shareholders and who do not have a personal interest in the approval of the proposal or (ii) the total number of shares voted against the proposal by shareholders referenced under (i) does not exceed 2% of the outstanding voting power in the Company
 
3
 
To approve equity-based compensation to Ms. Ofira Bar, our Chief Financial Officer
 
The affirmative vote of the holders of a majority of the shares present, in person or by proxy, and voting on the matter, provided that at least one of the following “special majority” requirements is met: (i) the shares voting in favor of the matter include at least a majority of the shares voted by shareholders who are not controlling shareholders and who do not have a personal interest in the approval of the proposal or (ii) the total number of shares voted against the proposal by shareholders referenced under (i) does not exceed 2% of the outstanding voting power in the Company
_________________
 
(1)
The term “controlling shareholder” means any shareholder that has the ability to direct a company’s activities, other than by virtue of being an office holder. A shareholder is presumed to be a controlling shareholder if it holds or controls, by itself or together with others, one-half or more of any one of the “means of control” of the Company. “Means of control” is defined as any one of the following: (i) the right to vote at a general meeting of the Company, or (ii) the right to appoint directors of the Company or its chief executive officer.
 
We are unaware of any shareholder that would be deemed to be a controlling shareholder of our Company as of the current time.
 
(2)
Under the Companies Law, a “personal interest” of a shareholder (i) includes a personal interest of the shareholder and any member of the shareholder’s family, family members of the shareholder’s spouse, or a spouse of any of the foregoing, or a personal interest of a company with respect to which the shareholder (or such family member) serves as a director or chief executive officer, owns at least 5% of the shares or has the right to appoint a director or chief executive officer, and (ii) excludes an interest arising solely from the ownership of our Ordinary Shares.
 
Under the Companies Law, in the case of a person voting by proxy for another person, “personal interest” includes a personal interest of either the proxy holder or the shareholder granting the proxy, whether or not the proxy holder has discretion how to vote. If you do not have a personal interest in this matter, you may assume that using the form of proxy enclosed herewith will not create a personal interest.
 
As an MTS shareholder, how does the MTS Board recommend that I vote?
 
After careful consideration, the MTS Board unanimously recommends that MTS shareholders vote “FOR” all proposals included on the agenda of the Meeting.
 
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What risks should I consider in deciding whether to vote in favor of the matters set forth above?
 
You should carefully review the section of this proxy statement titled “Risk Factors,” which sets forth certain risks and uncertainties related to the Transaction, risks and uncertainties to which the combined company’s business will be subject, and risks and uncertainties to which SharpLink, as an independent company, is subject.
 
When do you expect the Transaction to be consummated?
 
We anticipate that the Transaction will be consummated as promptly as practicable after the Meeting and following satisfaction or waiver of all closing conditions, but we cannot predict the exact timing. For a more complete description of the closing conditions under the Merger Agreement, please see the section titled “The Merger Agreement  — Conditions to the Completion of the Transaction.”
 
Who can I contact with questions on how to vote?
 
MTS retained Okapi Partners to assist in its solicitation of proxies for the Meeting. Shareholders with questions on how to vote can contact Okapi Partners as follows:
 
Banks and Brokerage Firms, Please Call: (212) 297-0720
Shareholders and All Others Call Toll-Free: (877) 279-2311
E-mail:info@okapipartners.com
 
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RISK FACTORS
 
In addition to the other information included in this proxy statement, including the matters addressed under the caption titled “Cautionary Statement Concerning Forward-Looking Statements,” you should carefully consider the following risk factors in determining how to vote at the Meeting. The following is not intended to be an exhaustive list of the risks related to the Transaction and you should read and consider the risk factors described under Part 1, Item 3, “Key Information – Risk Factors” of MTS’s Annual Report on Form 20-F for the year ended December 31, 2020, which is on file with the SEC and incorporated herein by reference.
 
Risks Related to the Transaction
 
The issuance of MTS’s Ordinary Shares to SharpLink shareholders in connection with the Transaction will substantially dilute the relative voting power of current MTS shareholders, and as a result the MTS shareholders will exercise substantially less influence over the management of the combined company following the completion of the Transaction.
 
Pursuant to the terms of the Merger Agreement, it is anticipated that MTS will issue Ordinary Shares and Preferred Shares of MTS to the Shareholders of SharpLink. Following the closing of the Transaction, MTS’s current shareholders will own approximately 14% of the combined company’s outstanding share capital, on a fully-diluted and as-converted basis, and existing SharpLink shareholders will own approximately 86% of the combined company’s share capital on a fully-diluted and as-converted basis, taking into account the Ordinary Shares reserved under the New Equity Plan.
 
Accordingly, the issuance of MTS’s Ordinary Shares to SharpLink’s shareholders in connection with the Transaction will significantly reduce the relative voting power of each Ordinary Share held by current MTS shareholders, and the existing MTS shareholders will hold a minority stake in the combined company. In addition, all members of the board of directors of the combined company (including the outside directors) will are expected to be replaced in connection with the Transaction. Consequently, MTS’s shareholders will exercise substantially less influence over the management and policies of the combined company than they currently exercise over the management and policies of MTS.
 
MTS shareholders may not realize a benefit from the Transaction commensurate with the ownership dilution they will experience in connection with the Transaction.
 
If the combined company is unable to realize the full strategic and financial benefits anticipated from the Transaction, MTS shareholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the Transaction.
 
SharpLink is not a publicly traded company, making it difficult to determine the fair market value of SharpLink and the fairness of the Transaction.
 
The outstanding capital stock of SharpLink is privately held and is not traded on any public market, which makes it difficult to determine the fair market value of SharpLink and its securities. Since the number of shares of MTS Ordinary Shares and Preferred Shares to be issued to SharpLink’s shareholders was determined based on negotiations between the parties, it is possible that the value of the MTS Ordinary Shares and Preferred Shares to be issued in connection with the Transaction will be greater than the fair market value of SharpLink’s common and preferred stock.
 
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The conditions under the Merger Agreement to SharpLink’s consummation of the Transaction may not be satisfied at all or in the anticipated timeframe.
 
The obligation of MTS to complete the Transaction is subject to certain conditions, including the condition that MTS has at least $900,000 (subject to certain adjustments) in Cash at Closing, the approval by MTS’s shareholders of certain matters as set forth above, the accuracy of the representations and warranties contained in the Merger Agreement, subject to certain materiality qualifications, compliance by the parties with their respective covenants under the Merger Agreement, no law or order preventing the Transaction and other customary closing conditions. These conditions are described in more detail under “The Merger Agreement – Conditions to the Completion of the Transaction.” MTS cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Transaction may not occur or will be delayed, and MTS and SharpLink each may lose some or all of the intended benefits of the Transaction.
 
The pendency of the Transaction or failure to consummate the Transaction could have an adverse effect on MTS’s financial results, future business and operations, as well as the market price of MTS’s Ordinary Shares.
 
The pendency of the Transaction, or the failure to consummate the Transaction, could disrupt MTS’s business. Among other things, the attention of MTS’s management may be directed toward the completion of the Transaction and related matters and may be diverted from other opportunities that might otherwise be beneficial to MTS. Should they occur, any of these matters could adversely affect MTS’s financial condition, results of operations or business prospects.
 
The completion of the Transaction is subject to a number of closing conditions, including the approval by MTS’s shareholder, approval by Nasdaq of MTS’s initial listing application of the MTS Ordinary Shares, the requirement that MTS have a minimum of $900,000 in Cash at Closing (as such term is defined in the Merger Agreement), the investment of at least $5 million in SharpLink immediately prior to the consummation of the Transaction and other customary closing conditions. There can be no assurance that the conditions to the completion of the Transaction will be satisfied. If the Transaction is not completed, MTS will be subject to several risks, and its share price could be adversely affected, as follows:
 

MTS’s Ordinary Shares may be delisted from the Nasdaq Capital Market for failure to comply with continued listing requirements, as the consummation of the Transaction was included in MTS’s plan to regain compliance with Nasdaq’s continued listing requirements;
 

MTS may not have sufficient cash reserves to continue its business as a going concern;
 

most of the fees and expenses in connection with the Transaction, such as legal, accounting and other payments to advisors, must be paid even if the Transaction is not completed. In addition, under certain circumstances MTS may be subject to payment of a termination fee in the amount of $1,300,000;
 

it may be very difficult to retain MTS’s directors, senior management and other employees long enough to pursue other alternatives;
 

the MTS Board would need to reevaluate MTS’s strategic alternatives, many of which may be less favorable to shareholders, such as liquidation of the Company;
 

MTS would not realize any of the anticipated benefits of having completed the Transaction;
 

the price of MTS’s Ordinary Shares will likely decline and may remain volatile;
 

MTS could be subject to litigation related to any failure to consummate the Transaction or any related action that could be brought to enforce MTS’s obligations under the Merger Agreement; and
 

MTS’s collaborators and other business partners and investors in general may view the failure to consummate the Transaction as a poor reflection on its business or prospects.
 
In addition, if the Merger Agreement is terminated and the Board determines to seek another business combination, there can be no assurance that it will be able to find a transaction that is superior or equal in value to the Transaction.
 
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MTS has incurred and expects to continue to incur substantial transaction-related costs in connection with the Transaction.
 
MTS has incurred, and expects to continue to incur, a number of non-recurring transaction-related costs associated with the Merger Agreement, completing the Transaction and combining the two companies, which cannot be accurately estimated at this time. These fees and costs have been, and will continue to be, substantial. Non-recurring transaction costs include, but are not limited to, fees paid to legal, financial and accounting advisors, filing fees and printing costs. Additional unanticipated costs may be incurred in the combined company’s business, which may be higher than expected and could have a material adverse effect on the combined company’s financial condition and operating results.
 
Even if the Transaction is consummated, the combined company may fail to realize the anticipated benefits of the Transaction.
 
The success of the Transaction will depend on the combined company’s ability to achieve its business objectives and raise the necessary capital to fund its operations. If the combined company is not able to achieve these objectives, the anticipated benefits of the Transaction may not be realized fully, may take longer to realize than expected, or may not be realized at all.
 
The post-closing ownership percentage of MTS’s shareholders will not be adjusted in the event of any change in MTS’s share price or the value of SharpLink’s stock.

The post-closing ownership percentage of MTS’s shareholders provided in the Merger Agreement and described under “The Transaction – Consideration” will not be adjusted for changes in the market price or value of either MTS’s Ordinary Shares or SharpLink’s stock. The price of MTS Ordinary Shares at the closing of the Transaction may vary from the price on the date the Merger Agreement was executed and the date of the Meeting. As a result, the market value of the merger consideration will also vary. For example, if before completion of the Transaction the market price of MTS’s Ordinary Shares increases from the market price on the date of the Merger Agreement, then SharpLink’s securityholders will receive consideration in connection with the Transaction that is considerably more valuable than the consideration the parties had negotiated at the time they entered into the Merger Agreement.

Share price changes may result from a variety of factors (many of which are beyond our or SharpLink’s control), including the following:
 

changes in MTS’s and SharpLink’s respective businesses, operations and prospects, or market assessments;
 

market assessments regarding the likelihood that the Transaction will be completed; and
 

general market and economic conditions and other factors generally affecting the price of MTS’s Ordinary Shares or the value of SharpLink’s stock.
 
Alpha Capital, one of MTS’s shareholders, has interests in the Transaction that are different from yours and that may influence it to support or approve the Transaction without regard to your interests.

Alpha Capital, which is a major shareholder of MTS, has interests in the Transaction that are different than yours. Alpha Capital became a shareholder of SharpLink following the execution by MTS of the letter of intent in connection with the Transaction and has agreed to invest at least an additional $6 million in SharpLink immediately prior to consummation of the Transaction, in exchange for SharpLink Series B Preferred Stock, which will be converted into the right to receive MTS Preferred B Shares upon consummation of the Transaction. In addition, in consideration for its commitment to invest the funds in SharpLink, Alpha Capital is entitled to receive a commitment fee from SharpLink in SharpLink stock, which is expected to be converted into MTS Preferred A-1 Shares constituting, on a fully-diluted and as-converted basis, 3% of the combined company (such shares are included in the 86% aggregate SharpLink ownership percentage and do not dilute the 14% of the combined company (on a fully-diluted, as-converted basis) to be held by MTS securityholders upon consummation of the Transaction).  Therefore, when considering the approval of the Transaction and the other proposals related thereto, Alpha Capital may be influenced by its interests as a shareholder of SharpLink and such interests may not necessarily be aligned with, or may be contrary to, your interests as a shareholder of MTS.

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The Preferred B Shares that will be issued by MTS as consideration in the Transaction expose you to further dilution of your holdings in MTS and provide preferential rights to their holders in the event of liquidation and in connection with certain actions MTS may wish to take in the future.

As part of the consideration to be issued by MTS in connection with the Transaction, Alpha Capital, which will be issued SharpLink Series B Preferred Stock in consideration for its Closing Financing, will receive a newly created series of Preferred B Shares of MTS in consideration for its SharpLink Series B Preferred Stock.  The MTS Preferred B Shares are entitled to several preferential rights, including: (i) a right to receive a dividend during the two-year period following the Closing, at a rate of 8% per year, which will be paid on a quarterly basis in cash, or at the Company’s option, by issuance of MTS Preferred A-1 Shares, (ii) a liquidation preference in the amount equal to the purchase price of each outstanding Preferred B Share, plus any accrued and unpaid dividends, fees or liquidated damages due thereon, before any distribution to the other securityholders of the Company, (iii) a “full ratchet” anti-dilution adjustment to the conversion price of the Preferred B Shares, subject to certain exceptions and to a minimum price equal to the higher of: (A) $0.10 and (B) 20% of the closing price on the trading day immediately prior to the consummation of the Transaction, and (iv) the requirement that holders of at least 50.1% of the Preferred B Shares will consent in writing to certain actions by MTS or its subsidiaries, including repurchasing of MTS Ordinary Shares or certain other securities, payment of cash dividends or distributions to securities junior to the Preferred B Shares unless MTS has paid all dividends on the Preferred B Shares and the Preferred B Shares will participate ratably (on an as-converted basis) in the dividends, all for as long as 1,545,895 Preferred B Shares remain outstanding or unless the holders of at least 50.1% of the Preferred B Shares consent. To the extent the combined company elects to pay the 8% dividend in Preferred A-1 Shares, the payment of such dividend will dilute your holdings in the combined company, without additional investment by the holder of the Preferred B Shares and your holdings may be further diluted in the event the anti-dilution mechanism is triggered. For more information concerning the capital structure of the combined company see “The Merger Agreement – Consideration and Exchange Ratio” and “Principal Shareholders of Combined Company – Principal Shareholders of the Combined Company Immediately Following the Consummation of the Transaction.” To the extent the combined company elects to pay the dividend in cash, the holders of other securities of the combined company (other than the holders of the Preferred B Shares) will not be entitled to participate in such distribution. In addition, in the event of liquidation, winding-up or dissolution, you may not be entitled to receive any distributions from the combined company, or the distributions may be reduced, due to the liquidation preference provided to the holders of the Preferred B Shares. All of these rights may adversely affect the value of your MTS Ordinary Shares.

After the Transaction is consummated, the combined company will continue to be subject to Israeli income tax unless additional actions are taken.

MTS is incorporated in Israel, and the post-Transaction combined company will continue to be incorporated in Israel, while all of its offices, management, most of its business partners and assets and all of its board members are expected to be located in the United States. So long as the parent entity is an Israeli company with no Israeli operations, the combined company will be subject to Israeli income tax and an acquisition of the combined company may result in adverse tax consequences for potential acquirers (other than potential Israeli acquirers), which may reduce the value of the shares of the combined company.

After the Transaction is consummated, the combined company may reincorporate in the U.S. and such reincorporation may result in taxes imposed on the combined company and its shareholders.
 
As noted above, MTS is incorporated in Israel, and the post-Transaction combined company will continue to be incorporated in Israel, while all of its offices, management, most of it business partners and assets and all of its board members are expected to be located in the United States. Accordingly, the combined company may seek to reincorporate in one of the states in the United States, while maintaining its Nasdaq listing. The reincorporation of the combined company will be subject to all corporate approvals, which may include an approval of the shareholders of the combined company, and, such reincorporation may result in income recognition by, and tax liability for, the combined company and in certain of the combined company shareholders recognizing taxable income in the jurisdiction in which such shareholders (or combined company) are tax residents or, in certain cases, in which their members or partners are resident. If a reincorporation of the company is undertaken, the combined company does not intend to make any cash distributions to shareholders to pay such taxes. Shareholders may be subject to withholding taxes or other taxes with respect to their ownership of the combined company after the reincorporation.

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The financial results of the combined company and the value of shareholders’ investment may be impacted by the U.S. income tax imposed on MTS’s worldwide income.
 
Because MTS is expected to be treated as a U.S. domestic corporation as a result of the Transaction, it will be taxable by the United States on its worldwide income, which may adversely impact the financial results of the combined company and the value of shareholders’ investment after the Transaction.
 
The value of shareholders’ investment may be impacted if any of MTS’s non-U.S. subsidiaries are subject to U.S. controlled foreign corporation rules.
 
As a result of the Transaction and MTS’s treatment as a domestic corporation, all non-U.S. corporations in which MTS has direct or indirect interests exceeding 50%, by vote or by value, will be controlled foreign corporations, or CFCs, and subject to U.S. CFC rules, which generally provide that certain types of income of CFCs, though undistributed, must be included in MTS’s gross income in the year the income is earned by the CFC.  If the CFC rules were to apply, this could impact the value of shareholders’ investment after the Transaction.
 
The MTS officers and directors have interests in the Transaction that are different from yours and that may influence them to support or approve the Transaction without regard to your interests.
 
The officers of MTS participate in arrangements that provide them with interests in the Transaction that are different from yours, including, among others, the continued service as an officer or employee of the combined company and, to the extent approved by the MTS shareholders at the Meeting, equity compensation that will be granted to our CEO and CFO and that accelerates upon consummation of the Transaction. In addition, the purchase a run-off insurance policy for MTS’s officers and directors in effect for seven years from the closing of the Transaction is one of the conditions to closing. These interests, among others, may influence the officers and directors of MTS to support or approve the Transaction. For more information concerning the interests of MTS officers and directors, see the section titled “Interests of Certain Persons in the Transaction.
 
The Transaction may be completed even though material adverse changes may result from the announcement of the Transaction, industry-wide changes and other causes.
 
In general, either party can refuse to complete the Transaction if there is a material adverse change affecting the other party following April 15, 2021, the date of the Merger Agreement. However, some types of changes do not permit either party to refuse to complete the Transaction, even if such changes would have a material adverse effect on MTS or SharpLink, to the extent they resulted from the following (unless, in some cases, they have a disproportionate effect on MTS or SharpLink, as the case may be):
 

changes or conditions generally affecting the industries or markets in which MTS or SharpLink operate, and changes in the industries in which MTS or SharpLink operates regardless of geographic region (including legal and regulatory changes), other than such changes that materially adversely affect SharpLink’s business as now conducted and as proposed to be conducted by imposing licensing or permitting requirements or prohibiting or making illegal certain actions currently conducted or proposed to be conducted by SharpLink;
 

acts of war, armed hostilities or terrorism;
 

changes in financial, banking or securities markets;
 

any change in, or any compliance with or action taken for the purpose of complying with, any applicable law or GAAP (or interpretations of any applicable law or GAAP);
 
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changes resulting from the announcement of the Merger Agreement or the pendency of the Transaction;
 

changes resulting from the taking of any action required to be taken by the Merger Agreement; or
 

pandemics (including the COVID-19 pandemic) including any worsening thereof, man-made disasters, natural disasters, acts of God or other force majeure event.
 
If adverse changes occur but MTS and SharpLink must still complete the Transaction, the combined company’s market price may suffer.
 
The market price of the combined company’s shares may decline as a result of the Transaction.
 
The market price of the combined company’s shares may decline as a result of the Transaction for a number of reasons, including if:
 

the combined company does not achieve the perceived benefits of the Transaction as rapidly or to the extent anticipated by financial or industry analysts;
 

​the effect of the Transaction on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or
 

​investors react negatively to the effect on the combined company’s business and prospects from the Transaction.
 
During the pendency of the Transaction, MTS will be subject to contractual limitations set forth in the Merger Agreement, including contractual limitations that restrict its ability to enter into business combination transactions with another party.
 
Covenants in the Merger Agreement impede the ability of MTS to make acquisitions or complete other transactions or perform certain actions that are not in the ordinary course of business pending completion of the Transaction. As a result, if the Transaction is not completed, MTS may be at a disadvantage to its competitors. In addition, while the Merger Agreement is in effect and subject to limited exceptions, each party is prohibited from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition of such party’s securities, a tender offer for such party’s securities, a merger or other business combination outside the ordinary course of business. Any such transactions could be favorable to such party’s shareholders.
 
Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover or business combination proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
 
The terms of the Merger Agreement prohibit MTS from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover or business combination proposals, except in limited circumstances when the MTS Board determines in good faith that an unsolicited alternative proposal constitutes, or would reasonably be expected to result in, a transaction that is more favorable, from a financial point of view, to the MTS shareholders and is reasonably capable of being consummated within the six-month period following the date of the Merger Agreement, subject to certain exceptions, and that the failure to enter into discussions with, and provide information to, the person making such proposal would constitute a breach of the fiduciary duties of the MTS Board. In addition, if MTS or SharpLink terminate the Merger Agreement under certain circumstances, including terminating by us because of our decision to enter into definitive agreement with respect to a superior offer, we would be required to pay a termination fee of $1,300,000 to SharpLink within ten business days of termination. As MTS’s current cash resources are not sufficient for payment of this termination fee, any alternative proposal will be required to be accompanied with an immediate financing to MTS. This termination fee and requirement for financing may discourage third parties from submitting alternative takeover or business combination proposals to MTS.
 
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SharpLink’s shareholders, including SportsHub Gaming Network, Inc., SharpLink’s majority shareholder, will own a significant percentage of MTS’s Ordinary Shares following the Transaction and will be able to exert significant control over matters submitted to the shareholders for approval.
 
Under the terms of the Merger Agreement, on a pro-forma basis and after closing of the Transaction, SharpLink’s securityholders would own in the aggregate 86% of the combined company’s share capital (on a fully-diluted and as-converted basis), including the Ordinary Shares reserved under the New Equity Plan. In addition, immediately following the closing of the Transaction SportsHub is expected to hold 38.1% of the combined company’s outstanding Ordinary Shares on a fully-diluted and as-converted basis (including MTS Ordinary Shares reserved under the New Equity Plan) and 58.2% of the voting rights of the combined company. This is further described below in the section titled “The Merger Agreement – Consideration and Exchange Ratio.” This significant concentration of share ownership may adversely affect the trading price for MTS Ordinary Shares because investors often perceive disadvantages in owning shares in companies with controlling shareholders. SportsHub could significantly influence all matters requiring approval by the shareholders following the Transaction, including the election of directors and the approval of mergers or other business combination transactions. The interests of these shareholders may not always coincide with the interests of other shareholders.
 
Following consummation of the Transaction MTS may become involved in securities litigation or shareholder derivative litigation in connection with the Transaction, and this could divert the attention of MTS’s and the combined company’s management and harm the combined company’s business, and insurance coverage may not be sufficient to cover all related costs and damages.
 
Securities litigation or shareholder derivative litigation frequently follows the announcement of certain significant business transactions, such as the sale of a business division or announcement of a business combination transaction. MTS may become involved in this type of litigation in connection with the Transaction, and the combined company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the business of MTS, SharpLink and the combined company.
 
The Internal Revenue Service may not agree with the conclusion that, following the Transaction, MTS is not subject to certain adverse consequences for U.S. federal income tax purposes.
 
As described above (see “Questions and Answers About the Transaction - What is the Transaction?”), based on the rules for determining share ownership under Section 7874 of the Code and certain factual assumptions, after the Transaction, SharpLink’s current equity-holders are expected to own more than 80% of the combined company for purposes of applying Section 7874 of the Code. However, if the percentage ownership for purposes of applying Section 7874 of the Code were determined to be less than 80% but at least 60%, and certain other circumstances exist, Section 7874 of the Code would cause the combined company to be treated as a “surrogate foreign corporation,” which could result in a number of adverse U.S. tax consequences. Moreover, in such case, Section 4985 of the Code and rules related thereto would impose an excise tax on the value of certain MTS share compensation held directly or indirectly by certain “disqualified individuals” (including officers and directors of MTS) at a rate currently equal to 15%.
 
If the Transaction is not completed, MTS may elect to liquidate its remaining assets, and there can be no assurance as to the amount of cash available to distribute to MTS’s shareholders after paying MTS’s debts and other obligations.
 
If the Transaction is not completed, the Board of MTS may elect to take the steps necessary to liquidate all of its remaining assets. The process of liquidation may be lengthy and MTS cannot make any assurance regarding the timing of completing such a process. In addition, MTS would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims. There can be no assurance as to the amount of available cash, if any, that might be available to distribute to shareholders after paying the debts and other obligations and setting aside funds for reserves, nor as to the timing of any such distribution.
 
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Risks Related to SharpLink’s Business
 
COVID-19 has adversely affected SharpLink’s business, financial condition, results of operations and prospects, including as a result of the reduction in the quantity of global sporting events, closures or restrictions on business operations of its clients and a decrease in consumer spending, and it may continue to experience such effects in the future.

The worldwide outbreak of COVID-19 in early 2020 has negatively affected economic conditions regionally as well as globally and has caused a reduction in consumer spending. Efforts to contain the effect of the virus have included business closures, travel restrictions and restrictions on public gatherings and events. Many businesses eliminated non-essential travel and canceled in-person events to reduce instances of employees and others being exposed to public gatherings. Governments around the world, including governments in Europe and state and local governments in the U.S., have restricted business activities and strongly encouraged, instituted orders or otherwise restricted individuals from leaving their home. To date, governmental authorities have imposed or have recommended various measures, including social distancing, quarantine, limitations on the size of gatherings, closures of work facilities, schools, public buildings and businesses, and cancellation of events, including sporting events, concerts, conferences and meetings. The suspension, postponement and cancellation of sporting events affected by COVID-19 has had an adverse impact on the progression of SharpLink’s overall business plan and its revenue and the revenue of its clients.
 
Although many sports seasons and sporting events have recommenced in recent months, the fluidity of this situation, potential for virus variants and potential setbacks associated therewith precludes any prediction as to the ultimate impact of COVID-19, which remains a material uncertainty and risk with respect to SharpLink, its performance, and its financial results. The revenue of SharpLink’s clients, and its own revenue continue to depend on sports events taking place and consumer participation and spending on entertainment and leisure activities, and any further setbacks with respect to COVID-19 could have a material adverse effect on SharpLink’s business, financial condition, results of operations and prospects.
 
SharpLink sports betting conversion platform is still in the early-stage of development and commercialization. Failure to successfully develop, test and commercially expand such service offering could have a material adverse effect on SharpLink’s business, financial condition, results of operations and prospects.
 
SharpLink’s Affiliate Marketing Services and its sports betting conversion platform is critical to the overall business strategy and ability of SharpLink to achieve and maintain profitability. While its sports betting conversion platform has been launched, it is still in the early-stages of development, has had only limited functionality testing and development, and is commercialized with only one sportsbook and with bets that have been generally limited to American football and NASCAR auto racing. Successful development and testing depends on a number of circumstances, many of which are not in SharpLink’s control, including without limitation, the ability to attract and retain developers, the interest of third-parties in pilot testing or early-adoption and the response to any unexpected errors or issues.

In addition, even if development and testing of the platform is generally successful, there can be no assurance that SharpLink will be able to sell such service to prospective clients on commercially reasonable terms, if at all. If SharpLink is unable to successfully develop and test the platform to work seamlessly with other sportsbooks and media organizations on a wide variety of sports and bet types, or if SharpLink’s sports betting conversion platform fails to attract clients on commercially reasonable terms and/or meet client expectations, SharpLink may not experience any meaningful commercial success with respect to its betting conversion platform, which would materially and adversely affect SharpLink’s business, financial condition, results of operations and prospects.
 
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SharpLink relies on relationships with sports leagues, sports media organizations and sportsbooks and loss of existing relationships or failure to renew or expand existing relationships may cause loss of competitive advantage or require it to modify, limit or discontinue certain offerings, which could materially and adversely affect its business, financial condition, results of operations and prospects.
 
SharpLink relies on relationships with sports leagues, sports media organizations and sports betting bookmakers and the future success of its business may depend, in part, on its ability to obtain, retain and expand such relationships. SharpLink’s arrangements with sports leagues, sports media organizations and sportsbooks may not continue to be available to it on commercially reasonable terms or at all. In addition, the industries it operates in are highly competitive. It is common for multiple competitors to provide services to clients simultaneously and SharpLink expects this to continue. In the event that SharpLink loses existing arrangements or cannot renew and expand existing arrangements, it may be required to discontinue or limit its offerings or services, which could materially and adversely affect its financial condition and business operation.
 
SharpLink operates in a competitive market and it may lose clients and relationships to both existing and future competitors.
 
The markets for sports data related solutions and marketing services are competitive and rapidly changing. The sports betting and sports media industries are particularly competitive and fast growing. Competition in these markets may increase further if economic conditions or other circumstances, including as a result of COVID-19, cause consumer bases and consumer spending to decrease and service providers to compete for fewer consumer resources. SharpLink’s existing and future competitors have, or may in the future have or obtain, greater name recognition, larger customer bases, better technology or data, lower prices, exclusive or better access to data, greater user traffic or greater financial, technical or marketing resources than SharpLink has. SharpLink’s competitors may be able to undertake more effective marketing campaigns, obtain more data, adopt more aggressive pricing policies, make more attractive offers to potential employees, subscribers, sports betting operators, sports leagues, sports media organizations, distribution partners and content providers or may be able to respond more quickly to new or emerging technologies or changes in user requirements. If SharpLink’s competitors develop technology before it does, its business and profitability could be materially and adversely affected. If SharpLink is unable to maintain or develop relationships with sports leagues, sports media organizations and sportsbooks, its revenues will fail to grow or may even decline, in each case having a material adverse effect on its business, financial condition, results of operations and prospects.
 
SharpLink’s revenue prospects may be materially and adversely affected if SharpLink is unable to acquire companies with complimentary technology or that operate in the same or complementary industries, and any such acquisition efforts may divert management’s attention from other critical activities.
 
SharpLink may seek to grow revenue in part through acquisition of companies with similar or complementary technology or that operate in similar or complementary industries. The market for acquisitions is highly competitive and subject to a number of factors, including without limitation, general economic conditions and tax or other regulatory changes. Furthermore, acquisitions require a significant amount of management time and resources both in terms of execution and integration of any acquisition target.  In addition, SharpLink’s competitors have been and may continue to also pursue acquisitions and have or may have better capital resources than SharpLink, stronger name recognition in the acquisition market and a longer history of successful transactions.  SharpLink’s revenue prospects may be materially and adversely affected if SharpLink is unable to make successful acquisitions. Further, pursuing such activities may divert attention from other critical activities of SharpLink’s business plan, such as development, testing and commercialization of products and services.
 
SharpLink’s business may be materially and adversely affected if it is unable to keep pace with or adapt to rapidly changing technology, evolving industry standards and changing regulatory requirements, or if it does not invest in product development and provide services that are attractive to its clients.
 
SharpLink’s future business and financial success will depend on its ability to continue to anticipate the needs of its clients or potential clients in order to successfully introduce new and upgraded products and services and to successfully implement its current and future geographic and product expansion plans. To be successful, SharpLink must be able to quickly adapt to changes in technology, industry standards and regulatory requirements by continually enhancing its technology, services and solutions. Developing new services and upgrades to services, as well as integrating and coordinating current services, imposes burdens on SharpLink’s product development team, management and researchers. These processes are costly and time intensive, and SharpLink’s efforts to develop, integrate and enhance its products and services may not be successful. In addition, successfully scaling up and launching and selling a new or upgraded product or service puts additional strain on SharpLink’s sales and marketing resources. Investing resources towards increasing the depth of its coverage within existing markets imposes additional burdens on its personnel and capital resources. If SharpLink is unable to manage its expansion efforts effectively, in obtaining greater market share or in obtaining widespread adoption of its current or future products and services, SharpLink may not be able to offset the expenses associated with the launch and marketing of the new or upgraded service, which could have a material adverse effect on its financial results.
 
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If SharpLink is unable to develop new or upgraded products and services or decides to combine, shift focus from, or phase out a product or service, then its clients may choose a competitive product or service over it and its revenues may decline and its ability to achieve or maintain profitability may be reduced. If SharpLink incurs significant costs in developing new or upgraded services or combining and coordinating existing services, if SharpLink is not successful in marketing and selling these new services or upgrades, or if SharpLink’s clients fail to accept these new or combined and coordinating services, then there could be a material adverse effect on its results of operations and it may never achieve profitability. If SharpLink eliminates or phases out a service and is not able to offer and successfully market and sell an alternative service, its revenue may decrease, which could have a material adverse effect on its results of operations.
 
The loss or significant reduction in business from one or more of SharpLink’s large clients could materially and adversely affect its business, financial condition and results of operations.
 
A material portion of SharpLink’s revenues is concentrated in some of its largest clients, and it does not have long term contracts that require these clients to continue to use its services. SharpLink’s revenue growth depends on its ability to obtain new clients and achieve and sustain a high level of renewal rates with respect to its existing clients. Failure to achieve one or more of these objectives could have a material adverse effect on SharpLink’s business, financial condition and operating results.
 
SharpLink’s operations are subject to seasonal fluctuations that may impact results of operations and cash flow.
 
Although the sporting calendar is year-round, there is seasonality in sporting events that may impact SharpLink’s operations and operations of sports leagues, sports media organizations and sports betting bookmakers. Certain sports only hold events during portions of the calendar year, such as the NFL, which plays games in the fall and winter months. Sports off-seasons cause decreases in SharpLink’s revenues and revenues of its clients, and factors such as playoffs, championships or similar events are unknown and may not yield consistent sources of revenue for SharpLink and its clients. Further, SharpLink’s revenues and revenues of its clients may also be affected by the scheduling of major sporting events that do not occur annually, such as the Olympics or World Cup, or the cancellation or postponement of sporting events and races, such as the postponements as a result of the COVID-19 pandemic. Such fluctuations and uncertainties may have a material adverse effect on SharpLink’s financial condition or results of operation.
 
SharpLink’s business and operating results and the business and operating results of its clients and vendors may be significantly impacted by general economic, political and social conditions, pandemics, wars or terrorist activity, severe weather events and other natural disasters, and the health of the sports, entertainment and sports betting industries.
 
SharpLink’s business and operating results and the business and operating results of its clients and vendors are subject to global economic conditions and their impact on levels of consumer spending. Economic recessions have had, and may continue to have, far reaching adverse consequences across many industries, including the global sports, entertainment and sports betting industries, and may have a material adverse effect on SharpLink’s business and financial condition and the business and financial condition of its clients and vendors. There appears to be an increasing risk of a recession due to international trade and monetary policy, COVID-19 and other changes. If the U.S. or international economies experience another recession or any of the relevant regional or local economies suffer a continued downturn, SharpLink may experience a material adverse effect on its business, financial condition, results of operations and prospects.
 
Adverse developments affecting financial markets and economies throughout the world, including fluctuation in stock markets resulting from, among other things, trends in the economy as a whole, a general tightening of availability of credit, decreased liquidity in certain financial markets, increased interest rates, foreign exchange fluctuations, increased energy costs, acts of war or terrorism, transportation disruptions, severe weather events and other natural disasters, declining consumer confidence, sustained high levels of unemployment or significant declines or volatility in stock markets, as well as concerns regarding pandemics, epidemics and the spread of contagious diseases, may further reduce spending on sporting events, sports betting and marketing services and may negatively affect the sports, entertainment and sports betting industries. Any one of these developments could have a material adverse effect on SharpLink’s business, financial condition, results of operations and prospects.
 
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SharpLink’s recruitment and retention of qualified personnel and key employees, including members of its senior management team, are vital to growing its business and meeting its business plans. The loss of any of its key executives or other key employees could harm its business.
 
SharpLink depends on a limited number of key employees to manage and operate its business. SharpLink believes a significant portion of its success is owed to its co-founders, Rob Phythian and Chris Nicholas, and their longstanding relationships with sports leagues, sports media companies, and fantasy sports companies. The leadership of Mr. Phythian, Mr. Nicholas, and its current executive officers has been critical and the departure of Mr. Phythian, Mr. Nicholas, or any one of its other executive officers, or other extended or permanent loss of any of their services, or any negative market or industry perception with respect to any of them or their loss, could have a material adverse effect on SharpLink’s business. SharpLink may not be able to attract or retain such highly qualified personnel in the future, and it does not expect that it would be able to replace their longstanding industry relationships. In addition, the loss of employees or the inability to hire qualified personnel that are knowledgeable regarding the sports betting and online gaming industries could result in significant disruptions to SharpLink’s business, and the integration of replacement personnel could be time-consuming and expensive and cause additional disruptions to its business. The sports betting and online gaming industries require specific knowledge that is not easily transferable from other industries and finding suitable replacements for specialized roles can be challenging in a limited talent pool. If SharpLink does not succeed in attracting, hiring, and integrating qualified personnel, or retaining and motivating existing personnel, it may be unable to grow effectively and its business, financial condition, results of operations and prospects could be materially and adversely affected.
 
Risks Related to Legal Matters and Regulations Affecting SharpLink
 
SharpLink and its clients are subject to complex laws and regulations, which are subject to change and interpretation and which could subject SharpLink to claims or otherwise harm it and its clients. Any change in existing regulations or their interpretation, or the regulatory climate and requirements applicable to SharpLink or its clients’ businesses could have a material adverse impact on SharpLink’s business, prospects, financial condition and results of operations.
 
SharpLink and its clients are generally subject to laws and regulations relating to sports betting, online gaming, marketing and advertising in the jurisdictions in which SharpLink and its clients conduct their respective businesses, as well as the general laws and regulations that apply to all e-commerce and online businesses, such as those related to privacy and personal information, tax and consumer protection. The laws and regulations applicable to SharpLink and its clients vary from one jurisdiction to another and may be affected by, among other things, political pressures and changes in legislative or governmental priorities. Some jurisdictions have introduced regulations attempting to restrict or prohibit sports betting, online gaming and advertising, while others have taken the position that sports betting or online gaming should be licensed and regulated and have adopted or are in the process of considering legislation and regulations to enable sports betting or online gaming in their jurisdictions.
 
There can be no assurance that legally enforceable legislation will not be proposed and passed in jurisdictions relevant or potentially relevant to SharpLink’s business and/or the business of its clients. In addition, future regulatory action, court decisions or other governmental action, may have a material impact on SharpLink and/or its clients’ operations and financial results. Governmental authorities could view SharpLink or its clients as having violated applicable laws or regulations, despite SharpLink or its client’s efforts to obtain and maintain all applicable licenses or approvals. There is also a risk that civil and criminal proceedings, including class actions brought by or on behalf of prosecutors or public entities or incumbent providers, or private individuals, could be initiated against SharpLink, its clients, Internet service providers, payment processors, advertisers and others involved in sports betting and online gaming industries. Changes in applicable law and other regulatory, court or other proceedings could prohibit or impose significant restrictions being imposed upon SharpLink or its clients or other business partners. These events could also involve substantial and unexpected compliance and litigation expense, penalties, fines, seizure of assets and injunctions, while diverting the attention of SharpLink’s management team. Any such proceedings or any change in laws or regulations or their interpretation applicable to SharpLink or its clients could have a material adverse effect on SharpLink’s business, prospects, financial condition and results of operations.
 
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Failure to obtain or maintain the required regulatory approvals and licenses in the various jurisdictions that SharpLink operates or intends to operate, whether individually or collectively, could have a material adverse effect on SharpLink’s business.
 
SharpLink is currently licensed and compliant in five states in the United States that have adopted legislation permitting online sports betting. Any of SharpLink’s licenses to operate legally in the industry could be revoked, suspended or conditioned at any time. Any of SharpLink’s future license applications may also be denied or conditioned. The loss of a license in one jurisdiction could trigger the loss of a license or affect SharpLink’s eligibility for such a license in another jurisdiction, and any of such losses, or potential for such loss, could cause SharpLink to cease offering some or all of its offerings in the impacted jurisdictions. As laws and regulations change, SharpLink may need to obtain and maintain licenses or registrations in additional jurisdictions. In addition, once licensed, SharpLink may be subject to various ongoing requirements, including supervision by the respective governmental agency of certain transfers of ownership and acquisitions.
 
In addition, SharpLink intends to expand into new jurisdictions and will generally be required to obtain approval and licensures required by such states and jurisdictions. This is a time-consuming process that can be extremely costly. Any delays in obtaining or difficulty in maintaining regulatory approvals or licenses needed for expansion can negatively affect SharpLink’s opportunities for growth, including the growth of its client base, or delay its ability to recognize revenue from its offerings in any such jurisdictions. If SharpLink is unable to effectively develop and operate directly or indirectly within these new jurisdictions or if SharpLink’s competitors are able to successfully penetrate geographic jurisdictions that it cannot access or where it faces other restrictions, there could be a material adverse effect on its business, operating results and financial condition. Likewise, SharpLink’s failure to obtain or maintain the required regulatory approvals and licenses in the various jurisdictions that SharpLink operates or intends to operate, whether individually or collectively, could have a material adverse effect on SharpLink’s business, prospects, financial condition and results of operations.
 
The legal sports betting market in the United States may not continue to expand.
 
The legal sports betting market in the United States has increased significantly in recent years after the U.S. Supreme Court’s 2018 ruling that the federal restrictions on sports betting under the Professional and Amateur Sports Protection Act of 1992, or PASPA, were no longer enforceable, thus giving individual states the power to legalize sports betting. SharpLink’s growth strategy significantly depends on additional states legalizing sports betting. However, additional states may not adopt laws allowing sports betting as SharpLink’s management team expects. Moreover, states that have legalized sports betting may eliminate, narrow, or otherwise detrimentally changed their laws allowing legal sports betting. A failure for the legal sports betting market to expand or a contraction of the market would have a material adverse effect on SharpLink’s business, prospects, financial condition and results of operations.
 
SharpLink’s collection, storage and use of personal data are subject to applicable data protection and privacy laws, and any failure to comply with such laws may harm its reputation and business or expose it to fines and other enforcement action.
 
In the ordinary course of business, SharpLink collects, stores, uses and transmits certain types of information that are subject to different laws and regulations. In particular, data security and data protection laws and regulations relating to personal and consumer information that SharpLink is or may become subject to often vary significantly by jurisdiction and are evolving significantly as legislators and regulators continue to grapple with policy considerations surrounding the collection and use of data. Compliance with such data protection and privacy laws will require significant time and expense, particularly as SharpLink continues to expand its business across multiple jurisdictions.
 
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For example, California has enacted the California Consumer Privacy Act, or CCPA, which became effective on January 1, 2020. The CCPA requires new disclosures to California consumers, imposes new rules for collecting or using information, requires companies to comply with data subject access and deletion requests, and affords California consumers new abilities to opt out of certain disclosures of personal information. It remains unclear what, if any, regulations will be implemented pursuant to the law or how it will be interpreted. The Stop Hacks and Improve Electronic Data Security Act, otherwise known as the SHIELD Act, is a New York State bill, the data protection portions of which became effective on March 23, 2020. The SHIELD Act requires companies to adopt reasonable safeguards to protect the security, confidentiality, and integrity of private information. A company should implement a data security program containing specific measures, including risk assessments, employee training, vendor contracts, and timely data disposal. The effects of the CCPA and the SHIELD Act potentially are significant and may require SharpLink and its clients to modify data collection or processing practices and policies and to incur substantial costs in an effort to comply.

In addition, the new EU-wide General Data Protection Regulation, or GDPR, became applicable on May 25, 2018, replacing the data protection laws of each EU member state. The GDPR implemented more stringent operational requirements for processors and controllers of personal data, including, for example, expanded disclosures about what and how personal information is to be used, limitations on retention of information, increased requirements to erase an individual’s information upon request, mandatory data breach notification requirements and higher standards for data controllers to demonstrate that they have obtained valid consent from individuals to process their personal data (or reliance on another appropriate legal basis) for certain data processing activities. It also significantly increased penalties for noncompliance, including where SharpLink may act as a data processor.
 
Although SharpLink continues to review and improve its policies and procedures with respect to data protection and privacy to ensure compliance with applicable laws, rules and regulations, if SharpLink’s privacy or data security measures fail to comply with applicable current or future laws and regulations, SharpLink may be subject to fines, litigation, regulatory investigations, enforcement notices requiring it to change the way it uses personal data or its marketing practices or other liabilities such as compensation claims by individuals affected by a personal data breach, as well as negative publicity and a potential loss of business. Compliance with data protection and privacy laws and regulations will become more complex, time intensive and costly as SharpLink grows, particularly when it begins to rely on the movement of data across national boundaries.
 
SharpLink may face claims for data rights infringement, which could subject it to monetary damages.
 
Although SharpLink has generally adopted measures to avoid potential infringement of third-party data rights in the course of its operations, ownership of certain data rights is not always clear in certain jurisdictions SharpLink may operate in, particularly in “gray” jurisdictions which are presently unregulated or partially regulated. Should SharpLink face claims for illegal data rights sources or should it inadvertently infringe on another company’s data rights in any jurisdiction, it could be subject to claims of infringement, which could be time consuming and expensive to litigate or settle, divert the attention of management and materially disrupt the conduct of its business, and it may not prevail. Any such clams, which could include a claim for injunctive relief and damages, if successful, could have a material adverse effect on SharpLink’s business, prospects, financial condition and results of operations.
 
Risks Related to SharpLink’s Technology, Intellectual Property and Infrastructure
 
SharpLink’s failure to protect or enforce its proprietary and intellectual property rights, including its unregistered intellectual property, and the costs involved in such protection and enforcement could harm its business, financial condition, results of operations and prospects.
 
SharpLink relies on database, trademark, trade secret, confidentiality and other intellectual property protection laws to protect its rights. Circumstances outside its control could pose a threat to its intellectual property rights. Effective intellectual property protection may not be available in the U.S. or other countries in which SharpLink intends to operate its business. Also, the efforts SharpLink has taken to protect its intellectual property rights may not be sufficient or effective, and any significant impairment of its intellectual property rights could harm its business or ability to compete. For example, it may not always have been possible or commercially desirable to obtain registered protection for SharpLink’s products, software, databases or other technology and, in such situations, SharpLink relies on laws governing protection of unregistered intellectual property rights, confidentiality and/or contractual exclusivity of and to underlying data and technology to prevent unauthorized use by third parties. As such, if SharpLink is unable to protect its proprietary offerings via relevant laws or contractual exclusivity, technology and features, competitors may copy them. Additionally, protecting SharpLink’s intellectual property rights is costly and time-consuming. Any unauthorized use of its intellectual property or disclosure of its confidential information or trade secrets could make it more expensive to do business, thereby harming its operating results. Furthermore, if SharpLink is unable to protect its intellectual property rights or prevent unauthorized use or appropriation by third parties, the value of its brand and other intangible assets may be diminished, and competitors may be able to more effectively mimic its product offerings and services. Any of these events could seriously harm SharpLink’s business, financial condition, results of operations and prospects.
 
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SharpLink currently does not hold any patents, which means its technology, products and services are susceptible to copying. The fact that SharpLink currently does not hold any patents also means third parties may claim patent rights over its technology, products and services and may bring infringement proceedings in respect of the same. Any pending and future trademark or patent applications may not be approved. In any of these cases, SharpLink may be required to expend significant time and expense to prevent infringement of or to enforce its rights, and it may fail to enforce its rights which may have a material adverse effect on its business. Notwithstanding SharpLink’s intellectual property rights, there can be no assurance that others will not offer products or services that are substantially similar to it and compete with its business.
 
SharpLink may face claims for intellectual property infringement, which could subject it to monetary damages or limit it in using some of its technologies or providing certain solutions.
 
Although SharpLink has generally adopted measures to avoid potential infringement of third-party intellectual property rights in the course of its operations, it may not be successful in ensuring all components of its platform have proper authorization. Additionally, the legal position in all jurisdictions in relation to the ownership and permitted use of sports data and databases is subject to change. This area may receive additional focus in the U.S. after the overturning of federal restrictions on sports betting under PASPA, thus giving individual states the power to legalize sports betting.
 
SharpLink cannot be certain that its current uses of data from publicly available sources (including third party websites) or otherwise, which are not known to infringe or misappropriate third party intellectual property today, will not result in claims for infringement or misappropriation of third party intellectual property in the future. Intellectual property infringement claims or claims of misappropriation against SharpLink could subject it to liability for damages and restrict it from providing solutions or require changes to certain solutions and technologies. Claims of infringement or misappropriation of a competitor’s or other third party’s intellectual property rights, regardless of merit, could be time consuming and expensive to litigate or settle, divert the attention of management and materially disrupt the conduct of its business, and it may not prevail. Any such clams, which could include a claim for injunctive relief and damages, if successful, could have a material adverse effect on SharpLink’s business, prospects, financial condition and results of operations.
 
SharpLink relies on information technology and other systems and platforms, including its data center and Amazon Web Services and certain other third-party platforms, and failures, errors, defects or disruptions therein could diminish SharpLink’s brand and reputation, subject it to liability, disrupt its business, affect its ability to scale its technical infrastructure and have a material adverse effect on its operating results and growth prospects. SharpLink’s product offerings and other software applications and systems, and certain third-party platforms that it uses could contain undetected errors or errors that it fails to identify as material.
 
SharpLink’s technology infrastructure, including Amazon Web Services and certain other third-party platforms, is critical to the performance of its product and service offerings and to client satisfaction. Consequently, SharpLink may be subject to service disruptions as well as failures to provide adequate support for reasons that are outside of its direct control. The performance and availability of Amazon Web Services with the necessary speed, data capacity and security for providing reliable access and services can affect the delivery, availability and performance of its services. Decisions by the owners and operators of the data centers where SharpLink’s cloud infrastructure, Amazon Web Services, is deployed to terminate its contracts, discontinue services to it, shut down operations or facilities, increase prices, change service levels, limit bandwidth or prioritize the traffic of other parties could also affect the delivery, availability and performance of SharpLink’s services.
 
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SharpLink’s devotes significant resources to network and data security to protect its systems and data. However, SharpLink’s systems may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could be harmful to its business. SharpLink cannot assure you that absolute security will be provided by the measures it takes to: prevent or hinder cyber-attacks and protect its systems, data and user information; to prevent outages, data or information loss and fraud; and to prevent or detect security breaches. Such measures include a disaster recovery strategy for server and equipment failure, back-office systems and the use of third parties for certain cybersecurity services. SharpLink may experience website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors and capacity constraints. To date, such disruptions have not had a material impact on SharpLink, individually or in the aggregate; however, future disruptions from unauthorized access to, fraudulent manipulation of, or tampering with its computer systems and technological infrastructure, or those of third parties, could result in a wide range of negative outcomes, each of which could have a material adverse effect on SharpLink’s business, financial condition, results of operations and prospects.
 
Additionally, SharpLink’s service and product offerings may contain errors, bugs, flaws or corrupted data that it has not detected, and these defects may become apparent only after their launch and could result in a vulnerability that could compromise the security of SharpLink’s systems. Additionally, SharpLink has detected certain errors, bugs and flaws in its product and service offerings, and has judged them to be immaterial. If SharpLink has misjudged the materiality of such errors, bugs and flaws, its business could be harmed. If a particular product offering is slower than they expect, clients may be unable to use SharpLink’s product and services offerings as desired and may be less likely to continue to use SharpLink’s product and services offerings, if at all. Furthermore, programming errors, defects and data corruption could disrupt SharpLink’s operations, adversely affect the experience of SharpLink’s clients and their customers, harm its reputation, cause SharpLink’s clients to stop utilizing its product and service offerings, divert its resources or delay market acceptance of its product and service offerings, any of which could result in legal liability to it or harm its business, financial condition, results of operations and prospects. Insufficient business continuity management could diminish SharpLink’s brand and reputation, subject it to liability, disrupt its business and adversely affect its operating results and growth prospects, and failure of planned availability and continuity solutions and disaster recovery when activated in response to an incident could result in system interruptions and degradation of service.
 
As SharpLink continues to grow and expand its business, SharpLink will need an increasing amount of technical infrastructure, including network capacity and computing power, to continue to satisfy its needs. Such infrastructure expansion may be complex, and unanticipated delays in completing these projects or availability of components may lead to increased project costs, operational inefficiencies, or interruptions in the delivery or degradation of the quality of SharpLink’s product and service offerings. In addition, there may be issues related to this infrastructure that are not identified during the testing phases of design and implementation, which may become evident only after SharpLink has started to fully use the underlying equipment or software, that could further degrade the user experience or increase its costs. As such, SharpLink could fail to continue to effectively scale and grow its technical infrastructure to accommodate increased demands. In addition, a lack of resources (e.g., hardware, software, personnel, and service providers) could result in an inability to scale its services to meet business needs, system interruptions, degradation of service, or operational mistakes. SharpLink’s business also may be subject to interruptions, delays or failures resulting from adverse weather conditions, other natural disasters, power loss, terrorism, cyber-attacks, public health emergencies (such as the COVID-19 pandemic) or other catastrophic events.
 
SharpLink believes that if its clients or their customers have a negative experience with respect to its product and service offerings, or if its brand or reputation is negatively affected, clients may be less inclined to continue or resume utilizing its product and service offerings or to recommend its product and service offerings to other potential clients. As such, a failure or significant interruption in its service could harm its reputation, its business, financial condition, results of operations and prospects.
 
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Despite SharpLink’s security measures, its information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disruption of SharpLink’s operations and the services it provides to clients, damage to its reputation, and a loss of confidence in its products and services, each of which could adversely affect its business, financial condition, results of operations and prospects.
 
The secure maintenance and transmission of information is a critical element of SharpLink’s operations. SharpLink’s information technology and other systems that maintain and transmit information, or the systems of third-party service providers and business partners, may be compromised by a malicious third-party penetration of its network security, or the network security of a third-party service provider or business partner, or impacted by intentional or unintentional actions or inactions by its employees, or the actions or inactions of a third-party service provider or business partner. As a result, SharpLink’s information may be lost, disclosed, accessed or taken without consent. SharpLink has experienced attempts to breach its systems and other similar incidents in the past. The data industry is a particularly popular target for malware attacks. SharpLink expects that it will continue to be subject to attempts to gain unauthorized access to or through its information systems or those it develops for its clients, including phishing attacks by computer programmers and hackers who may develop and deploy viruses, worms or other malicious software programs. To date these attacks have not had a material impact on SharpLink’s operations or financial results, but SharpLink cannot provide assurance that it will not have a material impact in the future, including by overloading its systems and network and preventing its product offering from being accessed by legitimate users through the use of ransomware or other malware.
 
SharpLink relies on encryption and authentication technology licensed from third parties in an effort to securely transmit confidential and sensitive information. Advances in computer capabilities, new technological discoveries or other developments may result in the whole or partial failure of this technology to protect transaction data or other confidential and sensitive information from being breached or compromised. In addition, websites are often attacked through compromised credentials, including those obtained through phishing and credential stuffing. SharpLink’s security measures, and those of its third-party service providers, may not detect or prevent all attempts to breach its systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by its websites, networks and systems or that SharpLink or such third parties otherwise maintain, including certain confidential information, which may subject SharpLink to fines or higher transaction fees or limit or terminate its access to such confidential information. SharpLink and such third parties may not anticipate or prevent all types of attacks until after they have already been launched. Further, techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against SharpLink or its third-party service providers.
 
Furthermore, security breaches can also occur as a result of non-technical issues, including intentional or inadvertent breaches by SharpLink’s employees or by third parties. In addition, any party who is able to illicitly obtain a user’s password could access the user’s transaction data or personal information, resulting in the perception that SharpLink’s systems are insecure. These risks may increase over time as SharpLink’s increases the number of clients and the complexity and number of technical systems and applications it uses and employees it has also increases. Breaches of SharpLink’s security measures or those of its third-party service providers or cybersecurity incidents may result in: unauthorized access to its sites, networks and systems; unauthorized access to and misappropriation of information, including personally identifiable information, or other confidential or proprietary information of SharpLink or third parties; viruses, worms, spyware, ransomware or other malware being served from SharpLink’s sites, networks or systems; deletion or modification of content or the display of unauthorized content on its sites; interruption, disruption or malfunction of operations; costs relating to breach remediation, deployment of additional personnel and protection technologies, response to governmental investigations and media inquiries and coverage; engagement of third-party experts and consultants; or litigation, regulatory action and other potential liabilities. In addition, the sports betting and online gaming industries have experienced and may continue to experience social engineering, phishing, malware and similar attacks and threats of denial-of-service attacks. To date, SharpLink has not experienced a security breach material to its business; however, such breaches could in the future have a material adverse effect on its operations. If any of these breaches of security should occur and be material, SharpLink’s reputation and brand could be damaged, its business may suffer, it could be required to expend significant capital and other resources to alleviate problems caused by such breaches, and it could be exposed to a risk of loss, litigation or regulatory action and possible liability. SharpLink cannot guarantee that recovery protocols and backup systems will be sufficient to prevent data loss. Actual or anticipated attacks may cause SharpLink to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants.
 
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Any compromise or breach of SharpLink’s security measures, or those of its third-party service providers, could violate applicable privacy, data protection, data security, network and information systems security and other laws and cause significant legal and financial exposure, adverse publicity and a loss of confidence in SharpLink’s security measures, which could have a material adverse effect on its business, financial condition, results of operations and prospects. SharpLink continues to devote significant resources to protect against security breaches or it may need to in the future to address problems caused by breaches, including notifying affected users and responding to any resulting litigation, which in turn, diverts resources from the growth and expansion of its business.
 
SharpLink uses third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could restrict its ability to provide its product and service offerings.
 
SharpLink uses software components licensed to it by third-party authors under “open source” licenses, which we refer to as Open Source Software. Use and distribution of Open Source Software may entail greater risks than use of third-party commercial software, as licensors of Open Source Software generally do not provide support, warranties, indemnification or other contractual protections regarding infringement claims or the quality of the licensed code. In addition, the public availability of Open Source Software may make it easier for others to compromise SharpLink’s product and service offerings.
 
Some licenses for Open Source Software contain requirements that SharpLink makes available source code for modifications or derivative works it creates, or grants other licenses to its intellectual property, if it uses such Open Source Software in certain ways. If SharpLink combines its proprietary software with Open Source Software in a certain manner, it could, under certain licenses for Open Source Software, be required to release the source code of its proprietary software to the public. This would allow its competitors to create similar offerings with lower development effort and time and ultimately could result in a loss of its competitive advantages. Alternatively, to avoid the public release of the affected portions of SharpLink’s source code, it could be required to expend substantial time and resources to re-engineer some or all of its proprietary software.
 
Although SharpLink periodically reviews its use of Open Source Software to avoid subjecting its product and service offerings to conditions it does not intend, the terms of many licenses for Open Source Software have not been interpreted by U.S. or foreign courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on SharpLink’s ability to provide or distribute its product or service offerings. From time to time, there have been claims challenging the ownership of Open Source Software against companies that incorporate Open Source Software into their solutions. SharpLink could be subject to lawsuits by parties claiming ownership of what it believes to be Open Source Software. Moreover, SharpLink cannot assure you that its processes for controlling its use of Open Source Software in its product and service offerings will be effective. If SharpLink is held to have breached or failed to fully comply with all the terms and conditions of an Open Source Software license, it could face infringement or other liability, or be required to seek costly licenses from third parties to continue providing its product and service offerings on terms that are not economically feasible, to find replacement software, to discontinue or delay the provision of its product and service offerings if replacement cannot be accomplished on a timely basis or to make generally available, in source code form, SharpLink’s proprietary software, any of which could have a material adverse effect on its business, financial condition, results of operations and prospects.
 
Risks Related to SharpLink’s Financial Condition
 
SharpLink has a history of losses and may not be able to achieve or sustain profitability in the future.
 
SharpLink has a history of incurring net losses, and it may not achieve or maintain profitability in the future. SharpLink has experienced net losses of approximately $1.14 million and $0.3 million for the years ended December 31, 2020 and December 31, 2019, respectively. As of December 31, 2020, SharpLink had an accumulated deficit of approximately $2.7 million. While SharpLink has experienced growth in revenue, it cannot predict when or whether it will reach or maintain profitability. SharpLink also expects its operating expenses to increase in the future as it continues to invest for its future growth, which will negatively affect its results of operations if its total revenue does not increase.
 
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If SharpLink is unable to increase its revenues or its operating costs are higher than expected, it may not be able to achieve profitability and its operating results may fluctuate significantly.
 
SharpLink may not be able to accurately forecast its revenues or future revenue growth rate. Many of its expenses, particularly personnel costs and occupancy costs, are relatively fixed, but it may experience higher than expected operating costs, including increased selling and marketing costs, investments in geographic expansion, acquisition costs, communications costs, travel costs, software development costs, professional fees and other costs. As a result, it may not be able to adjust spending quickly enough to offset any unexpected increase in expenses or revenue shortfall. Increased competition could lead to significant price pressure for the products and services SharpLink provides, which could make profitability even more challenging. Such competition may also mean SharpLink loses access to certain data if a third party is granted exclusivity over such data. If operating costs exceed SharpLink’s expectations and cannot be adjusted accordingly, its results of operations and financial position could be materially and adversely affected. Additionally, SharpLink may not be able to sustain its current revenue and any revenue growth. Reduced demand, whether due to a weakening of the global economy, reduction in consumer spending, competition or other reasons, may result in decreased revenues and growth, and a material adverse effect on its operating results. SharpLink’s projections are subject to significant risks, assumptions, estimates and uncertainties, including assumptions regarding future legislation and changes in regulations. As a result, SharpLink’s projected revenues, market share, expenses and profitability may differ materially from its expectations.
 
SharpLink will likely require additional capital to support its growth plans and such capital may not be available on reasonable terms or at all. This could hamper SharpLink’s growth and have a material adverse effect on its business.
 
SharpLink will likely require significant funds to support its business growth and to respond to business challenges, track and comply with applicable laws and regulations, develop new technology and services or enhance its existing offering, improve its operating infrastructure, enhance its information security systems to combat changing cyber threats and expand personnel to support its business. Accordingly, SharpLink may need to engage in equity or debt financings to secure additional funds. SharpLink’s ability to obtain additional capital, if and when required, will depend on its business plans, investor demand, operating performance, market conditions, credit rating and other factors. If SharpLink raises additional funds by issuing equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of its currently issued and outstanding equity or debt, and its existing shareholders may experience dilution. If SharpLink is unable to obtain additional capital when required, or on reasonable terms, its ability to continue to support its business growth or to respond to business opportunities, challenges or unforeseen circumstances could be materially and adversely affected, and its business may be harmed.
 
Risks Related to the Combined Company
 
Due to the change in the management, ownership and asset structure and location of MTS as a result of the Transaction, it is currently expected that the combined company will cease to be a “foreign private issuer,” which would subject the combined company to increased regulatory requirements under the U.S. securities laws and would subject the combined company’s affiliates to the beneficial ownership reporting, short-swing trading and other requirements of Section 16 of the Exchange Act.
 
MTS currently qualifies as a foreign private issuer, as defined under the Exchange Act.  As a foreign private issuer, MTS is permitted by the SEC to file an annual report on Form 20-F and copies of certain home country materials on Form 6-K in lieu of filing annual, quarterly and current reports on Forms 10-K, 10-Q and 8-K; MTS is exempt from SEC proxy statement requirements and certain SEC tender offer requirements; MTS is permitted to sell securities outside the United States without resale restrictions under the Securities Act; U.S. holders of MTS restricted securities may resell such securities to persons outside the United States who receive such securities without resale restrictions under the U.S. Securities Act and MTS’s affiliates are exempt from Section 16 of the Exchange Act. It is currently expected that due to the change in the management, ownership and asset structure and location as a result of the transaction, the combined company will cease to be a foreign private issuer and cease to be eligible for the foregoing exemptions and privileges effective January 1, 2023 (assuming the Transaction is consummated in the third quarter of 2021). We expect that any loss of our status as a foreign private issuer would have an adverse effect on the cost of our compliance with U.S. securities law requirements and on the ability of U.S. holders of our restricted securities to resell such securities outside the United States.  In addition, the combined company would become subject to the beneficial ownership reporting, short-swing trading and other requirements of Section 16 of the U.S. Securities Exchange Act.
 
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Maintaining and improving the combined company’s financial controls and the requirements of being a public company may strain the combined company’s resources, divert management’s attention and affect its ability to attract and retain qualified board members.
 
As a public company, the combined company will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and Nasdaq rules. The requirements of these rules and regulations will impact the combined company’s legal and financial compliance costs, make some activities more difficult, time-consuming or costly and place strain on its personnel, systems and resources. As noted above, it is expected that as a result of the Transaction, the combined company will cease to be a “foreign private issuer.” Therefore, under the Exchange Act the combined company will be required to initially be required to file annual and current reports and once it loses its foreign private issues status will be required to file annual, quarterly and current reports with respect to its business and financial condition. The Sarbanes-Oxley Act requires, among other things, that the combined company maintain effective disclosure controls and procedures and internal control over financial reporting. Ensuring that the combined company will have adequate internal financial and accounting controls and procedures in place is a costly and time-consuming effort that needs to be re-evaluated frequently. We do not expect that the combined company will have an internal audit group, and the combined company may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Implementing any appropriate changes to the combined company’s internal controls may require specific compliance training for the combined company’s directors, officers and employees, entail substantial costs, and take a significant period of time to complete. Such changes may not, however, be effective in maintaining the adequacy of the combined company’s internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase the combined company’s operating costs and could materially impair its ability to operate its business. Moreover, effective internal controls are necessary for the combined company to produce reliable financial reports and are important to help prevent fraud.
 
In accordance with Nasdaq rules, unless it is eligible for an exemption, the combined company will be required to maintain a majority of independent directors on the board. The various rules and regulations applicable to public companies make it more difficult and more expensive for the combined company to maintain directors’ and officers’ liability insurance, and the combined company may be required to accept reduced coverage or incur substantially higher costs to maintain coverage. If the combined company is unable to maintain adequate directors’ and officers’ insurance, its ability to recruit and retain qualified officers and directors will be significantly curtailed.
 
We expect that the rules and regulations applicable to public companies will result in the combined company incurring substantial legal and financial compliance costs. These costs will decrease the combined company’s net income or increase its net loss and may require it to reduce costs in other areas of its business.
 
If the combined company is required to write down goodwill and other intangible assets relating to MTS’ legacy business, the combined company’s financial results would be negatively affected.
 
For accounting purposes, SharpLink is considered to be acquiring the Company in connection with the Transaction since, among other reasons, upon completion of the Transaction, SharpLink’s current shareholders will collectively hold a majority of the outstanding Ordinary Shares of the Company, directors designated for election by SharpLink will constitute the Company’s board of directors, and SharpLink employees will be appointed as officers of the combined company. Under the acquisition method of accounting, the purchase price paid by SharpLink in the Transaction is allocated to the Company’s underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair market values with any excess purchase price allocated to goodwill. Under this method, the parties expect that a significant portion of the purchase price paid by SharpLink will be allocated to goodwill. It is expected that more than 90% of the purchase price of the acquisition will be allocated to goodwill and other identifiable intangible assets. The amount that will be allocated to goodwill is expected to represent a significant portion of the combined company’s assets on its consolidated balance sheet. For more information see “Unaudited Pro Forma Condensed Combined Financial Statements.”
 
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Applicable accounting rules require that the combined company test the value of the goodwill asset booked in connection with the Transaction at least annually and potentially more frequently if the circumstances require.  An impairment in the value of the goodwill may result from, among other things, the performance of MTS’s business in a manner that will not be consistent with the assumptions of management, adverse market conditions, adverse changes in applicable laws or regulations, changes in the combined company’s strategies, disposals of assets and a variety of other factors. Under current accounting standards, if in the future the combined company determines the goodwill booked in connection with the Transaction is impaired, the combined company will be required to write down the value of the goodwill asset and record significant impairment losses. Any such write-down and losses would have a negative effect on the combined company’s financial results.
 
The management team of MTS will be replaced as part of the Transaction and the new directors and executive officers may not have the expertise or the capacity to effectively manage the combined company.
 
In accordance with the terms of the Merger Agreement with SharpLink, the directors and executive officers of SharpLink will become the directors and executive officers of the combined entity. The new directors and executive officers of SharpLink may not have the expertise or capacity to effectively manage the combined businesses after the Merger. If they are unable to operate the new combined businesses at a profit or if substantial costs are incurred in managing the merging of the businesses, either of such eventualities could materially and adversely affect our business, results of operations and financial condition.
 
If securities or industry analysts do not publish research or publish unfavorable research about the combined company’s business, its share price and trading volume could be adversely affected.
 
The trading market for the combined company’s securities will depend in part on the research and reports that securities or industry analysts publish about the combined company. The combined company may never obtain sufficient research coverage by securities and industry analysts. If no sufficient securities or industry analysts commence coverage of the combined company, the trading price for the combined company’s shares could be negatively impacted. If the combined company obtains sufficient securities or industry analyst coverage and if one or more of the analysts who covers it downgrades the combined company’s shares or publishes inaccurate or unfavorable research about the combined company’s business, its share price would likely decline. If one or more of these analysts ceases coverage of the combined company or fails to publish reports regularly, demand for the combined company’s shares could decrease, which could cause its share price and trading volume to decline.
 
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on the combined company’s share price.
 
Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC require an annual management assessment of the effectiveness of our internal control over financial reporting. SharpLink is currently a private company with limited accounting personnel to adequately execute accounting processes and other supervisory resources with which to address internal control over financial reporting and, as a result, the combined company may experience difficulty in meeting these reporting requirements in a timely manner. To date, SharpLink has never conducted a review of internal controls over financial reporting for the purpose of providing the reports required by the Sarbanes-Oxley Act. During review and testing, the combined company may identify deficiencies and be unable to remediate them on a timely basis.
 
If the combined company fails to maintain the adequacy of its internal control over financial reporting as such standards are modified, supplemented or amended from time to time, it may not be able to ensure that it can conclude on an ongoing basis that it has effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC. If the combined company cannot in the future favorably assess the effectiveness of its internal control over financial reporting, investor confidence in the reliability of its financial reports may be adversely affected, which could have a material adverse effect on the combined company’s share price.
 
Sales of a substantial number of shares of the combined company in the public market by its existing shareholders could cause its share price to decline.
 
Sales of a substantial number of shares of the combined company in the public market, including shares that will be registered for resale under a registration statement that MTS undertook to file prior to the consummation of the Transaction, or the perception that these sales might occur, could depress the market price of its securities and could impair its ability to raise capital through the sale of additional equity securities. MTS is not able to predict the effect that sales may have on the prevailing market price of the combined company’s securities.
 
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The combined company’s securities could be delisted from Nasdaq if it does not comply with Nasdaq’s listing standards.
 
Pursuant to Nasdaq rules, consummation of the Transaction requires the combined company to submit an initial listing application and, at the time of the consummation of the Transaction, meet all of the criteria applicable to a company initially requesting listing. While MTS and SharpLink intend to obtain listing status for the combined company and maintain the same, no guarantees can be made about the combined company’s ability to do so. If the combined company’s securities are delisted by Nasdaq, its securities may be eligible to trade on the OTC Bulletin Board or another over-the-counter market. Any such alternative would likely result in it being more difficult for the combined company to raise additional capital through the public or private sale of equity securities and for investors to dispose of or obtain accurate quotations as to the market value of, the combined company’s securities. In addition, there can be no assurance that the combined company’s securities would be eligible for trading on any such alternative exchange or markets.
 
Future sales and issuances of the combined company’s Ordinary Shares or other securities or rights to purchase Ordinary Shares by it, including pursuant to its equity incentive plans, and future issuances or adjustments in connection with the MTS Preferred B Shares to be issued to Alpha Capital in connection with the Transaction could result in additional dilution of the percentage ownership of its shareholders and could cause its share price to decline.
 
The combined company will not be generally restricted from issuing additional Ordinary Shares or preferred shares that are included in its authorized but unissued share capital, including any securities that are convertible into or exchangeable for, or that represent the right to receive, such shares. The market price of the combined company’s Ordinary Shares could decline as a result of sales of shares or securities that are convertible into or exchangeable for, or that represent the right to receive, shares of the combined company or the perception that such sales could occur.
 
MTS expects that additional capital will be needed in the future to continue the combined company’s planned operations and growth and to fund the costs associated with operating as a public company. To the extent the combined company raises additional capital by issuing equity or convertible securities, its existing shareholders may experience substantial dilution. The combined company may sell Ordinary Shares, convertible securities or other equity securities in one or more transactions at prices and in a manner determined from time to time by its board of directors. If the combined company sells Ordinary Shares, convertible securities or other equity securities, investors may be materially diluted. Such sales may also result in material dilution to its existing shareholders, and new investors could gain rights superior to its existing shareholders.
 
In addition, the combined company may grant or provide for the grant of rights to purchase shares of its Ordinary Shares pursuant to the combined company’s equity incentive plans, including the New Equity Plan that is presented for approval by MTS’s shareholder at the Meeting. Increases in the number of shares available for future grant or purchase pursuant to the combined company’s equity incentive plans may result in additional dilution, which could cause the combined company’s share price to decline.
 
Moreover, in connection with the Transaction, Alpha Capital will receive MTS Preferred B Shares that are entitled, among other rights, to an 8% annual dividend for a period of two years, that may be paid in cash or in MTS Preferred A-1 Shares and to anti-dilution protection in the event the combined company issues Ordinary Shares or other securities convertible into Ordinary Shares at a price per share lower than the price per share of the MTS Preferred B Shares, subject to certain exceptions. Any future issuances of Preferred A-1 Shares as dividends or adjustments to the conversion rate of the Preferred B Shares as a result of future issuances of equity by the combined company, will result in additional dilution, which could cause the combined company’s share price to decline.
 
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The combined company does not anticipate paying any cash dividends on the combined company’s Ordinary Shares in the foreseeable future.
 
Neither MTS nor SharpLink have ever declared or paid cash dividends on their respective share capital. Neither MTS nor SharpLink anticipate paying any cash dividends on the combined company’s Ordinary Shares in the foreseeable future. It is anticipated that the combined company will retain all available funds and any future earnings to fund the development and growth of its business. As a result, capital appreciation, if any, of the combined company’s Ordinary Shares will be the combined company’s shareholders’ sole source of gain for the foreseeable future.
 
Risks Related to the Proposed Reverse Split
 
The Reverse Split may not increase MTS’s share price over the long-term.
 
The principal purpose of the Reverse Split is to comply with the minimum bid price requirement under the rules of the Nasdaq Capital Market for the combined company. It cannot be assured, however, that the Reverse Split will accomplish this objective for any meaningful period of time. While it is expected that the reduction in the number of outstanding shares will proportionally increase the market price of MTSs Ordinary Shares, it cannot be assured that the Reverse Split will increase the market price of such shares by a multiple of the reverse split ratio chosen by MTS’s Board in its sole discretion, or result in any sustained increase in the market price of MTS’s Ordinary Shares, which is dependent upon many factors, including the combined company’s business and financial performance, general market conditions, and prospects for future success. Thus, while the share price of the combined company might meet the listing requirements for the Nasdaq Capital Market initially, it cannot be assured that it will continue to meet the Nasdaq continued listing standards in the future.
 
The Reverse Split may decrease the liquidity of MTS’s Ordinary Shares.
 
Although the anticipated increase in the market price of MTS’s Ordinary Shares could encourage interest in its shares and possibly promote greater liquidity for its shareholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the Reverse Split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for MTS’s Ordinary Shares.
 
The Reverse Split may lead to a decrease in the combined company’s overall market capitalization.
 
Should the market price of MTS’s Ordinary Shares decline after the Reverse Split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the Reverse Split. A reverse share split is often viewed negatively by investors and, consequently, can lead to a decrease in the combined company’s overall market capitalization. If the per share market price does not increase in proportion to the reverse share split ratio, then the value of the combined company, as measured by its capitalization, will be reduced. In some cases, the per-share share price of companies that have effected reverse share splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of the combined company’s Ordinary Shares will remain the same after the Reverse Split is effected, or that the Reverse Split will not have an adverse effect on the combined company’s share price due to the reduced number of shares outstanding after the Reverse Split.
 
The Reverse Split may result in some shareholders owning “odd lots” that may be more difficult to sell or require greater transaction costs per share to sell.
 
The Reverse Split may result in some shareholders owning “odd lots” of less than 100 Ordinary Shares on a post-split basis. These odd lots may be more difficult to sell, or require greater transaction costs per share to sell, than shares in “round lots” of even multiples of 100 shares.
 
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
 
This proxy statement, including information set forth or incorporated by reference in this document, contains statements that constitute forward-looking information statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements regarding the expected timetable for completing the Transaction, the satisfaction or waiver of any conditions to the Transaction, anticipated benefits, growth opportunities and other events relating to the Transaction, MTS’s, SharpLink’s and the combined company’s plans, objectives and expectations for future operations, including its projected results of operations and statements contained in “Questions and Answers About the Transaction” and “The Transaction” and in statements containing words such as “believes,” “estimates,” “anticipates,” “intends,” “continues,” “contemplates,” “expects,” “may,” “will,” “could,” “should,” or “would” or other similar words or phrases. These statements, which are based on information currently available to MTS, are not guarantees and involve risks and uncertainties that could cause actual results to materially differ from those expressed in, or implied by, these statements, including those described under “Risk Factors” and in MTS’s filings with the SEC that are incorporated herein by reference. We cannot guarantee any future results, including with respect to the Transaction. Readers should not place undue reliance on forward-looking statements. These forward-looking statements speak only as of the date on which the statements were made and we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statement included in this proxy statement or elsewhere, except as required by law.
 
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THE TRANSACTION
 
This section and the section entitled “The Merger Agreement” in this proxy statement describe the material aspects of the Transaction, including the Merger Agreement. Although MTS believes that this description covers the material terms of the Transaction and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement for a more complete understanding of the Transaction and the Merger Agreement, including the Merger Agreement attached as Annex A, the Revised Articles attached as Annex B and the other documents to which you are referred herein. See the section titled “Where You Can Find More Information” in this proxy statement.
 
Historical Background of MTS
 
MTS was incorporated under the laws of the State of Israel in December 1995. The MTS Ordinary Shares were initially offered to the public in May 1997 and since such offering the shares have been listed on the Nasdaq Stock Market.
 
Since our inception, we have focused on providing innovative products and services for enterprises in the area of telecom expense management, or TEM, call accounting and contact center software. Headquartered in Israel, we market our solutions through wholly-owned subsidiaries in Israel, the U.S. and Hong Kong, as well as through distribution channels. In April 2015, we acquired 100% of the outstanding shares of Vexigo, a privately-held Israeli-based software company supporting video advertising over the internet and mobile devices. As a result of the continuing weakness in the Vexigo business unit and the industry in which it operated, we sold the Vexigo business in June 2018 to an unaffiliated third party for $250,000.
 
In response to our efforts to raise additional working capital, in October 2018, Alpha Capital invested $1.5 million in a newly-created class of convertible preferred shares, at a price per preferred share of $1.14 following an initial investment in the amount of $200,000 in June 2018, in consideration for the issuance of 175,439 of the MTS Ordinary Shares. During the period March 2019 to June 2020, Alpha Capital exercised its $1.5 million Greenshoe option in the newly created preferred shares at a price per preferred share of $1.14. Given the continued decline in our TEM call accounting business over the recent years, in November 2018 we commenced the process to seek potential candidates and alternatives for business combination transactions to allow us to continue in business and to enhance shareholder value.  Since April 2019, we have repeatedly indicated our efforts to seek a business combination in our public filings.
 
During the two-year period prior to the commencement of discussions with SharpLink, MTS reviewed more than twenty other merger candidates, entered into confidentiality agreements with seven potential candidates and negotiated letters of intent with ten potential candidates in various fields, including biotech, cyber and medical devices. In December 2019, MTS entered into a letter of intent with a private company in the medical device field and commenced negotiations of a definitive agreement and due diligence efforts. However, due to disagreements on the business terms of the transaction and the management of the combined company, the letter of intent was terminated in February 2020.
 
Background of the Transaction
 
The following chronology sets forth a summary of the material events leading up to the execution of the Merger Agreement.
 
On November 20, 2020, we were approached by GreenBlock Capital, LLC, or GreenBlock, a financial advisory firm. GreenBlock presented SharpLink to us as a merger candidate. On November 24, 2020, we and SharpLink entered into a mutual non-disclosure agreement and we received a SharpLink corporate presentation.
 
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On December 2, 2020, following initial discussions, GreenBlock, on behalf of SharpLink, provided us with a draft non-binding letter of intent that included a proposed post-closing ownership division of 90% for the current SharpLink shareholders, including an investor that would commit to invest an aggregate of $7 million in SharpLink prior to consummation of the proposed transaction, a 3% commitment fee in MTS shares to be issued to such investor, warrants to be issued to GreenBlock in consideration for its services and an employee share option plan with a reserve of 10% of the post-closing capitalization and the remaining 10% to the current MTS shareholders and other security holders. The letter of intent also provided for the issuance of contingent value rights to the current MTS shareholders that would entitle them to receive cash, equity or other value upon a sale of the MTS current business in the event such sale is consummated in the two-year period following closing of the contemplated transaction, net of certain expenses and funds provided by the combined company to support operations during the period until the sale. The draft letter of intent further noted that the current management of MTS that would remain to oversee the current business and be entitled to receive a success bonus of up to 10% of the net proceeds from a sale of the current business. GreenBlock informed us that Alpha Capital agreed in principle to provide the financing required for SharpLink during the period commencing on the execution of the letter of intent and the consummation of the transaction and further agreed to provide financing immediately prior to consummation of the proposed transaction in order to support the initial listing of the combined company’s shares.
 
Following receipt of the draft letter of intent, SharpLink and MTS negotiated the terms of the letter of intent, and agreed to revise certain terms, mainly to reduce the post-closing holdings percentages of the SharpLink securityholders from 90% to 88%. For purposes of the assessment, discussion and negotiations of the relative valuation of each company in the proposed transaction, the proposed valuation of SharpLink was based on the proposed investment of Alpha Capital in SharpLink during the period between the execution of the letter of intent and the consummation of the proposed transaction.
 
On December 7, 2020, the MTS Board was informed of the negotiations with SharpLink and was provided with its corporate presentation.
 
On December 15, 2020, the MTS Board and its Israeli and U.S. Counsel, Ephraim Abramson & Co. and Carter Ledyard & Milburn LLP, met to discuss the SharpLink letter of intent with management and legal counsel. During the meeting, the MTS Board reviewed the letter of intent and discussed certain issues requiring additional negotiations, mainly, that the 45-day “no shop” provision included in the letter of intent should be revised so that it will apply also to SharpLink and not only to MTS and the need to seek an arrangement for payment of the premium of a “run off” D&O liability insurance policy that will enable MTS to continue to operate its current business after closing. During such meeting, the Board members also discussed the potential conflict of interest of Alpha Capital in the transaction and determined that Alpha Capital is not a “controlling shareholder” of MTS (as such term is defined in Section 268 of the Companies Law). The Board instructed Mr. Roy Hess, the Company’s CEO, to renegotiate the issues discussed at the Board meeting.
 
On December 22, 2020, the MTS Board met to discuss a further revised letter of intent with members of management and legal counsel. Mr. Hess updated the MTS Board members on the outcome of the negotiations with SharpLink, including SharpLink’s agreement that the “no shop” provision will be mutual and the arrangement that provides that a portion of the premium for the “run off” D&O liability insurance policy will be paid by SharpLink and will thereafter be deducted from any proceeds from the sale of the MTS current business, prior to distribution of the proceeds of the sale to the current MTS shareholders. The Board members discussed the changes to the letter of intent, discussed the situation of the Company in light of its declining cash position and the potential Nasdaq delisting process in the event the stockholders’ equity of the Company for the year ended December 31, 2020, would decline below the minimum required for continued listing on the Nasdaq Capital Market and authorized Mr. Hess to execute the revised letter of intent. The Board members further discussed Alpha Capital’s potential conflict of interest in connection with the proposed transaction and resolved that Alpha Capital, which holds less than 25% of the voting rights in the Company, is not and should not be deemed to be a “controlling shareholder” of MTS (as such term is defined in Section 268 of the Companies Law).
 
On December 28, 2020, the non-binding letter of intent was executed. The letter of intent provided, among other things, that to the extent the contingent value rights solution will not be feasible, the parties will negotiate an alternative solution in good faith.
 
On December 31, 2020, the parties held an initial meeting along with representatives of legal counsel to the parties, to discuss the timeline for the negotiations of the transaction. During early January 2021, MTS retained the services of Kesselman & Kesselman, a member firm of PricewaterhouseCoopers International Limited to perform financial and tax due diligence reviews of SharpLink and of Variance Ascola Ltd., or Variance, to conduct a fairness study of the Transaction. On January 13, 2021, a meeting was held (via electronic means) with representatives of SharpLink, MTS, GreenBlock, and advisors to the parties, in which the SharpLink’s management reviewed the SharpLink business and answered preliminary questions. SharpLink retained the services of U.S. and Israeli Counsel, Fredrikson & Byron, P.A. and Yigal Arnon & Co., respectively.
 
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The parties then began drafting and negotiating a merger agreement and commenced due diligence efforts. During this time period, numerous calls were held and e-mails were exchanged between the two companies and their advisors to ask and answer questions regarding a variety of issues, including SharpLink’s financial situation and budget, the status of the audit of SharpLink’s financial statements, SharpLink’s agreements with its clients and SharpLink’s software and products. Both parties’ management and advisors were provided access to an electronic data room set up by MTS. The data room contained business, financial and legal information about MTS and SharpLink.
 
On January 21, 2021, the MTS Board held a discussion concerning the SEC filings and correspondence of an activist shareholder and discussed the continuation of the discussions with SharpLink. The MTS Board resolved to approve the continued advancement of the SharpLink transaction and determined that under the circumstances such action is in the best interests of the Company.
 
On January 28, 2021, MTS provided an initial draft of the Merger Agreement to SharpLink, which agreement was subject to ongoing negotiations, and on March 15, 2021, SharpLink provided an initial draft of the proposed Articles of the combined company to MTS and its counsel. These documents were negotiated by the parties, along with their respective legal advisors, and several drafts of each were exchanged.
 
On February 15, 2021, the MTS Board held a discussion with management and legal counsel, including representatives of the Israeli branch of Sullivan & Worcester LLP, which was retained as special counsel in connection with the activist shareholder, concerning the demand by the activist shareholder to convene an extraordinary meeting of the MTS shareholders to remove three of the current five Board members and elect three nominees presented by the activist. The MTS Board also discussed the extension of the “no shop” provision under the letter of intent and certain outstanding due diligence issues and outstanding required materials. The MTS Board resolved to agree to approve the extension of the “no shop” period by an additional 30 days subject to receipt of certain data and information by February 19, 2021.
 
On February 18, 2021, the MTS Board held a discussion with management and legal counsel to receive an update on the SharpLink transaction and to discuss actions in connection with the activist demand. The MTS Board resolved that in light of the potential delisting threat it is in the best interests of MTS to approach the Israeli court and ask for a postponement of the date for publishing the notice of the extraordinary shareholders’ meeting demanded by the activist shareholder.
 
On March 1, 2021, the MTS Board met with management and legal counsel to receive updates on the SharpLink transaction and open issues and to discuss proposals for potential alternative transactions forwarded to MTS by the activist shareholder. The Board discussed the proposals (by two companies, Company A – in the biotech field and Company B – in the bitcoin mining field). The MTS Board concluded that based on an initial review and analysis, including discussions with an expert in the field, Company A’s prospects were unclear and that Company B would require substantial financing before it could present any value and the proposed valuation of Company B was very high. The Board members discussed the ability of MTS to examine more than one transaction in parallel and noted that due to the limited cash and management time resources, MTS could not examine more than one transaction and the only currently viable transaction was the SharpLink transaction. The MTS Board members discussed the valuation of MTS and of SharpLink in the proposed transaction and noted that the market value of the MTS shares has been impacted by the actions of the activist shareholder. The MTS Board members discussed the necessity of including a provision in the Merger Agreement that would enable the MTS Board to pursue alternative transactions, under certain circumstances.
 
In addition to the legal, financial and tax due diligence, MTS retained the services of Mr. Eytan Bar to perform the technical due diligence of the SharpLink platform. Mr. Bar met remotely with SharpLink’s management and research and development team and MTS management and. SharpLink’s management presented the platform, explained its structure and the tools used to create it and demonstrated it abilities.
 
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During mid-March 2021, the parties continued to negotiate the terms of the definitive agreement and ancillary documents. Following discussions with both parties’ tax advisors, the parties resolved that the contingent value rights solution was not feasible, mainly due to taxation issues and the risk that the MTS shareholders will be taxed upon receipt of the contingent value rights and at a higher tax rate. Following additional negotiations between the parties, the parties decided to eliminate the contingent value rights mechanism and to compensate the current MTS shareholders by reducing the post-closing holdings percentages of the SharpLink securityholders from 88% to 86%.
 
During early April 2021, MTS concluded its diligence of SharpLink and received the fairness opinion from Variance.
 
On April 6, 2021, the MTS Audit Committee met to discuss the Merger Agreement and related transactions with management and legal counsel. The MTS Audit Committee received an overview of the accounting, tax and legal due diligence, of the valuation analysis, and of the key provisions of the draft Merger Agreement. The Audit Committee resolved that the Transaction is an “extraordinary transaction” under the Companies Law and noted that to the extent the equity compensation for Mr. Hess and Ms. Bar proposed to be approved at the Meeting will be approved, these officers could be deemed to have a personal interest in the Transaction. The Audit Committee further resolved to approve the entry by MTS into the Merger Agreement, to recommend that the Company’s Board and shareholders approve the Merger Agreement and related transactions, and that the Merger Agreement and related transactions are in the best interest of the Company.
 
On April 8, 2021, the MTS Board held a meeting with management and legal counsel. At the meeting, the MTS Board received an overview of the SharpLink accounting, tax and legal due diligence and of the technical due diligence of SharpLink’s platform and research and development operations. At the meeting, MTS’s counsel presented a detailed summary of the key provisions of the Transaction documents and reviewed the fiduciary duties of directors in connection with the Transaction. In addition, representatives of Variance discussed the proposed Transaction and went over various analyses and other materials that were presented to the Board, and then delivered to the MTS Board its opinion, to the effect that and subject to the various assumptions, qualifications and limitations set forth in its opinion, as of that date, the exchange ratio in the Transaction, from a financial point of view, is fair and reasonable to MTS.
 
MTS’s Audit Committee and Board engaged in extensive discussions relating to SharpLink, its business, its financial situation and the terms of the proposed Transaction and the Audit Committee and Board each unanimously determined that the Merger Agreement and the transactions contemplated thereby are fair to, advisable, and in the best interest of, the Company and its shareholders, and, accordingly, the Board approved the Merger Agreement and the Transaction.
 
Reasons for the Transaction
 
The Board considered the following factors in reaching its conclusion to approve the Merger Agreement and to recommend that the MTS shareholders approve the items included on the agenda of the Meeting in connection with the Transaction, all of which the Board viewed as supporting its decision to approve the business combination with SharpLink:
 

SharpLink is engaged in online technology and provides services to sports leagues, fantasy sports sites and sports media companies, in the growing field of online sports gaming and gambling, which is an attractive field with a significant growth potential as more and more states in the U.S. and countries around the world legalize online gambling;
 

SharpLink currently provides services to major U.S. sports leagues, which the Board believes makes it well-positioned to grow, enhance and expand its services as more and more publishers and sports leagues develop and express an interest in enhancing their offerings and connecting their fans and users with sportsbook partners;
 

SharpLink’s management is seasoned and has considerable experience and expertise in the SharpLink business and a deep knowledge of the market and technology requirements related to the online gambling field;
 
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SharpLink has a current stream of revenues from its online fantasy sports and other gaming solutions, which is expected to continue to grow over the next few years alongside the anticipated expansion of SharpLink into the online gaming middleware business;
 

SharpLink uses advanced technology, has a seasoned and experienced research and development team and its platform is easily integrated into the websites of its clients, and has the scalability required for future growth of both SharpLink’s business and its clients’ businesses;
 

the consummation of the Transaction will enable the MTS shareholders to share and participate in the potential growth of SharpLink’s business;
 

the consummation of the Transaction and the transformation of SharpLink into a public company will provide SharpLink’s business with direct access to the capital markets and provide it with means and flexibility to raise the funds that will be required to continue its growth and fund its operations;
 

the willingness of Alpha Capital, a seasoned institutional investor, to invest the funds required in order to finance SharpLink’s and the combined company’s operations and in order to support the combined company and the Nasdaq initial listing process and the valuation derived from Alpha Capital’s investment that supports the Exchange Ratio determined under the Merger Agreement; and
 

the opinion of Variance delivered to the Board to the effect that, as of the date of the opinion, and based upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations set forth in the opinion, the Exchange Ratio was fair and reasonable, from a financial point of view, to MTS.
 
The MTS Board also reviewed and considered the financial condition, results of operations and status of MTS, including:
 

the ongoing decline in revenues of the MTS business and the losses suffered by MTS in recent years;
 

the Company’s cash position and the risk that the Company will not have sufficient cash to continue its operations and will be required to obtain financing, which may not be available on terms beneficial to the Company or at all;
 

the imminent risk of delisting given the expected reduction in the Company’s stockholders’ equity as of December 31, 2020 and the expectation that Nasdaq will require the Company to present a viable plan to regain compliance with the listing requirements, which the Transaction will assist with; and
 

the selection of SharpLink as a merger candidate was reached after a two-year process of significant efforts by MTS’s management in reviewing and negotiating numerous business combination transactions in various fields, including biotech and technology, which did not advance or mature into a definitive agreement.
 
The Board also reviewed the terms of the Transaction and associated transactions, including:
 

the MTS Board’s assessment that as a result of arm’s length negotiations with SharpLink, the MTS management and Board negotiated the most favorable exchange ratio for MTS that SharpLink was willing to agree to, and that the terms of the Merger Agreement include the most favorable terms to MTS in the aggregate to which SharpLink was willing to agree, including the compensation for the elimination of the contingent value rights (especially given the past results of the MTS business) and SharpLink’s agreement to include specific provisions in the Merger Agreement that will enable the MTS Board, subject to certain conditions, to review and contemplate alternative transactions that may be superior to the Transaction;
 
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the Exchange Ratio used to establish the number of MTS Ordinary Shares and MTS Preferred Shares to be issued in the merger is fixed based on the relative valuations of the companies, and thus the relative percentage ownership of MTS shareholders and SharpLink shareholders immediately following the closing of the Transaction is similarly fixed;
 

the existence of contractual provisions that will enable the MTS Board, under certain circumstances and subject to payment of the $1,300,000 termination fee, to accept and pursue acquisition proposals that are determined to be superior to the terms of the Transaction;
 

the limited number and nature of the conditions to SharpLink’s obligation to consummate the Transaction, and the fact that the Transaction is not conditioned on obtaining financing as there is a commitment by Alpha Capital to provide the Closing Financing, which is required to complete the Nasdaq initial listing process and for the ongoing operations of the combined company;
 

the fact that the requisite majority of SharpLink’s shareholders approved the Merger Agreement and the Transaction prior to execution of the Merger Agreement; and
 

the assessment that the terms of the Merger Agreement, including the parties’ representations, warranties and covenants, which do not survive the closing, and the conditions to their respective obligations, are reasonable under the circumstances and for the benefit of the Company and its shareholders.
 
In the course of its deliberations, the Board also considered a variety of risks and other countervailing factors related to entering into the Transaction, including:
 

The dilution to the shareholders of MTS in connection with the consummation of the Transaction;
 

Potential adverse tax implications on MTS and its shareholders;
 

The contractual relationship of SharpLink with SportsHub, its current controlling shareholder, which will become the controlling shareholder of the combined company upon completion of the Transaction;
 

The preferential rights attached to the Preferred B Shares to be issued to Alpha Capital in connection with the Transaction, including the potential dilution to the combined company shareholders following the consummation of the Transaction;
 

The expected needs of the combined company for additional financing in the future, including the burn-rate of SharpLink and the expected dilution to all of the shareholders of the combined company in the event such funds are raised in one or more equity financings;
 

The potential effect of the termination fee of $1,300,000 payable to SharpLink upon the occurrence of certain events and the other conditions included in the definition of a “Superior Offer” in the Merger Agreement in deterring other potential acquirers from proposing an alternative transaction that may be more advantageous to MTS’s shareholders, especially given the fact that MTS does not expect to have the cash required in order to pay the termination fee and therefore the funds required in order to pay the termination fee will have to be obtained from an outside source in a debt or equity financing, which will further dilute the holdings of the current MTS shareholders;
 

The substantial expenses that were and will continue to be incurred in connection with the Transaction, including the costs associated with any merger related litigation;
 

The possibility of any suit, action or proceeding with respect to the Transaction;
 
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The risk that the Transaction might not be consummated in a timely manner or at all, including the risk that the Company’s shareholders will not vote to approve the Transaction;
 

Sharplink’s business and current and future risks to its activities and to the industry in which it operates; and
 

Various other risks associated with the combined company and the Transaction, including those described in “Risk Factors” above.
 
The foregoing information and factors considered by the MTS Board are not intended to be exhaustive but are believed to include all of the material factors considered by the Board. In view of the wide variety of factors considered in connection with its evaluation of the Transaction and the complexity of these matters, the MTS Board did not find it useful and did not attempt to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of the MTS Board may have given different weights to different factors. The MTS Board conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, the MTS management team and the legal, financial and other advisors of MTS, and considered the factors overall to be favorable to, and in support of, its unanimous determination.
 
Opinion of Variance Ascola
 
Pursuant to an engagement letter dated January 11, 2021, MTS retained Variance Ascola to act as its independent financial advisor in connection with the Transaction and the transactions contemplated by the Merger Agreement and to render an opinion to MTS’s Board as to the fairness, from a financial point of view, of the Exchange Ratio. In meetings of the MTS Audit Committee and MTS Board, held on April 6, 2021 and April 8, 2021, respectively, representatives of Variance Ascola reviewed the financial aspects of the proposed Transaction and rendered Variance Ascola’s opinion, which we refer to as the opinion, to MTS’s Board, that, as of the date of such opinion, and based upon the various assumptions, qualifications and limitations set forth therein, that the Exchange Ratio was fair and reasonable, from a financial point of view, to MTS.
 
The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached as Annex E to this proxy statement and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by Variance Ascola in preparing its opinion. Variance Ascola’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the MTS Audit Committee and Board (in their capacity as such) in connection with its consideration of the financial terms of the Transaction. The opinion addressed the fairness, from a financial point of view, to MTS of the Exchange Ratio in the proposed Transaction pursuant to the Merger Agreement. It did not address the underlying business decision of the MTS Board to engage in the Transaction or enter into the Merger Agreement. It does not constitute a recommendation to the MTS Board in connection with the Transaction or a recommendation to any holder of MTS securities as to how to vote or act in connection with the Transaction or any other matter.
 
Except for Variance Ascola’s engagement to deliver its fairness opinion in connection with the Transaction and its engagement in assisting the combined company with the purchase price allocation study required to be made subsequent to the consummation of the Transaction, Variance Ascola has not acted as financial advisor to MTS in connection with MTS’s consideration of the Transaction and has not participated in the negotiations leading to the Transaction. Variance Ascola will receive a fee in connection with the delivery of its opinion, and MTS has agreed to reimburse certain of Variance Ascola’s expenses and indemnify Variance Ascola against certain liabilities arising out of its engagement. No portion of Variance Ascola’s fee is contingent upon either the conclusion expressed in its opinion or whether the Transaction is successfully consummated. Variance Ascola may provide valuation advisory services to MTS, SharpLink or the combined company in the future, in connection with which Variance Ascola may receive compensation. From time to time, Variance Ascola has in the past provided valuation services to MTS unrelated to the proposed Transaction, including valuation services for MTS for financial reporting purposes.
 
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In conducting their analysis and arriving at the opinion expressed herein, Variance Ascola has, among other things, (i) reviewed the draft of the Agreement dated April 4, 2021, including the draft Second Amended and Restated Articles attached thereto as an exhibit, which, for purposes of the opinion Variance Ascola assumed to be identical in all material respects to the document to be executed; (ii) reviewed audited financial statements of SharpLink for fiscal years ended December 31, 2019 and 2020; (iii) reviewed audited financial statement of MTS for the fiscal year ended December 31, 2019 and unaudited financial results of MTS for the fiscal year ended December 31, 2020; (iv) reviewed information furnished to Variance Ascola by the managements of MTS & SharpLink, including certain financial forecasts and estimates, internal financial analyses, budgets, reports and other information, or, together, the Forecasts; (v) held discussions with various members of senior management of MTS and SharpLink concerning historical and current operations, financial conditions and prospects, including recent financial performance; (vi) reviewed the recent share trading price history of MTS; and (vii) reviewed the valuation of MTS implied by the Alpha Capital Closing Financing. In addition, Variance Ascola conducted such other quantitative reviews, analyses and inquiries relating to MTS and SharpLink as Variance Ascola considered appropriate in rendering this opinion.
 
In rendering the opinion, Variance Ascola relied upon and assumed, without independent verification or investigation, the accuracy and completeness of all of the financial and other information provided to or discussed with Variance Ascola by MTS, SharpLink and their employees, representatives and affiliates or otherwise reviewed by Variance Ascola. With respect to the Forecasts, Variance Ascola assumed, with MTS’s consent, without independent verification or investigation, that those forecasts and estimates were reasonably prepared on bases reflecting the best available information, estimates and judgments of the management of MTS and SharpLink as to such companies’ future financial condition and operating results. At the direction of representatives of MTS, Variance Ascola also assumed that the final terms of the Merger Agreement would not vary materially from those set forth in the draft reviewed by it. Variance Ascola also assumed, with MTS’s consent, that the Transaction will be consummated in accordance with its terms without waiver, modification or amendment of any material term, condition or agreement and in compliance with all applicable laws and other requirements and that, in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the Transaction, no delay, limitation, restriction or condition would be imposed that would have a material adverse effect on the Transaction. Variance Ascola also assumed that there were no material changes in the assets, liabilities, financial conditions, results of operations, business or prospects of MTS and SharpLink since the date of the last financial statements that were made available to Variance Ascola. Variance Ascola neither made nor obtained any independent evaluations or appraisals of the assets or liabilities, contingent or otherwise, of MTS or SharpLink.
 
The Variance Ascola opinion does not constitute a due diligence examination and does not claim to opine on any factual information provided to Variance Ascola and did not involve the scrutiny of MTS and SharpLink contracts and contractual relations.  It is emphasized that Variance Ascola are not legal, tax, regulatory or accounting advisors and it relied upon, without independent verification, the assessment of MTS and SharpLink and their legal, tax or regulatory advisors with respect to legal, tax or regulatory matters. The Variance Ascola opinion does not constitute any legal advice, accounting, tax, or regulatory opinion.
 
In performing its analyses, Variance Ascola made numerous assumptions with respect to the industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of Variance Ascola, MTS and SharpLink. Any estimates contained in the analyses performed by Variance Ascola are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such business or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty.
 
Summary of Financial Analyses by Variance Ascola
 
Set forth below is a summary of the material financial analyses performed by Variance Ascola in connection with providing the opinion to the MTS Board and presented to the MTS Board and Audit Committee. The summary is not a complete description of the financial analyses underlying the opinion or the presentation made by Variance Ascola to the MTS Board and Audit Committee but summarizes the material analyses performed and presented in connection with its opinion. While this summary describes the analyses and factors that Variance Ascola deemed material in its presentation to the MTS Board and Audit Committee, it is not a comprehensive description of all analyses and factors considered by Variance Ascola. The preparation of a fairness opinion is a complex process that involves various determinations as to appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, neither the opinion nor Variance Ascola’s underlying analysis is susceptible to partial analysis or summary description. In arriving at its opinion, Variance Ascola did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Variance Ascola’s analyses must be considered as a whole and selecting portions of its analyses and of the factors considered by it in rendering the opinion, without considering all analyses and factors, could create a misleading or incomplete view of the evaluation process underlying the opinion. The conclusion reached by Variance Ascola was based on all analyses and factors taken as a whole, and also on the application of Variance Ascola’s own experience and judgment.
 
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 SharpLink Fair Value
 
Discounted Cash Flow (DCF) Analysis
 
Variance Ascola performed a discounted cash flow analysis with two scenarios, which are designed to imply a potential current value of SharpLink by calculating the estimated present value of the standalone after-tax free cash flows for years 2021 until 2028 and the residual year. “Free cash flow” is defined as the cash generated by a company that is available either to reinvest or to distribute to shareholders. The scenarios differ as one projects a high market penetration rate with high EBITDA and the alternative projects lower market penetration rate with EBITDA in line with competitors. The discount rate was in the range of 20% to 30%, reflecting the risks involved in the alternatives, in order to discount the projected unlevered free cash flows and terminal value. Variance Ascola calculated SharpLink’s projected unlevered free cash flows by taking SharpLink’s projected earnings before interest and taxes (“EBIT”), subtracting taxes, adding back depreciation and subtracting capital expenditures and the change in working capital.  After adding SharpLink’s expected cash balance as of the Transaction, SharpLink’s average implied equity value based on the two scenarios was $17.9 million.
 
Selected Public Companies Analysis
 
As of the Valuation Date, SharpLink has low volume of revenues, therefore Variance Ascola derived SharpLink’s value from future multiples. Variance Ascola analyzed the future revenue multiples for fiscal year+2 (year 2022) of four selected publicly-traded companies in the gaming industry that Variance Ascola deemed relevant to its analysis. Variance Ascola compared SharpLink’s future financial performance and other operating characteristics with those of the selected public companies and applied valuation multiples to SharpLink’s future financial performance to indicate SharpLink’s equity value.
 
The selected public companies that were analyzed (collectively, the Comparable Companies) are:
 

Better Collective A/S;
 

Catena Media plc;
 

Gaming Innovation Group Inc.; and
 

Sportech PLC.
 
The revenue multiplier resulting from the analysis of these companies ranges between 0.8 to 5.1 with an average of 2.9.
 
Variance Ascola then applied a range of +/- 0.5 of the average revenue multiplier after adding SharpLink’s estimated cash balance of $7.6 million (assuming a Closing Financing in the amount of $5 million). This analysis resulted in implied equity values of SharpLink ranging from $17.7 million to $22.0 million, with a mid-point of $19.8 million.
 
MTS Fair Value
 
Variance Ascola estimated MTS’s fair value based on DCF approach plus the value of a publicly traded shell.
 
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Variance Ascola performed a discounted cash flow analysis with two scenarios, which are designed to imply a potential current value of MTS by calculating the estimated present value of the standalone after-tax free cash flows for years 2021 until 2025 and the residual year. The first scenario was based on management projections and the second scenario was based on a more optimistic alternative. The discount rate was in the range of 21% to 26% reflecting the risks involved in the alternatives, in order to discount the projected unlevered free cash flows and terminal value. Variance Ascola calculated MTS’s projected unlevered free cash flows by taking its EBIT, subtracting taxes, adding back depreciation and subtracting capital expenditures and the change in working capital. After adding MTS’s December 31, 2020 cash balance, Variance Ascola derived an implied equity value of MTS of $2.2 million to $2.8 million.
 
To the fair value of MTS derived from the DCF, Variance Ascola added a shell company value of $0.5 million to $1 million, which value was derived from public information.
 
Based on these assumptions, Variance Ascola determined that MTS’s total fair value ranged between $2.7 million to $3.8 million.
 
MTS Market Capitalization
 
The price per share of the MTS’s Ordinary Shares ranged between $0.8 to $2 during 2020 and since the beginning of 2021, it gradually increased up to $3.7, where the main developments reported to the public were related to the actions of an activist shareholder who attempted to replace the majority of the MTS Board members. Therefore, there is a gap between MTS’s market cap as reflected by the price per share and MTS’s fair value as derived from the valuation of its operation and the shell value. Variance noted in its review and presentation to the MTS Board that some of the reasons that might explain the gap are: (a) the relatively low liquidity and trading volume of MTS’s Ordinary Shares; (b) the market expectation that MTS would merge with new/high growth operations and (c) the control struggle that started in early 2021.  As Variance Ascola cannot quantify the impact of these and other potential factors influencing the market cap and their economic value, Variance Ascola relied on the prominent and acceptable methods that can be quantified, such as the fair value approach using the DCF method, as detailed above.
 
Implied Exchange Ratio Analysis
 
Variance Ascola utilized the low and high end of the fair values of SharpLink and of MTS to calculate the implied Exchange Ratio derived out of the combined company. Based on the following analysis of the equity valuation of SharpLink and MTS, Variance Ascola calculated that SharpLink’s and MTS’s fair value in the combined company derives a ratio of 85%-86% and 15%-14%, respectively.
 
Review of Alpha Capital’s Investment in SharpLink and Holdings in the Combined Company
 
In addition to the foregoing analyses and calculations, Variance Ascola reviewed the terms of the Alpha Capital investment in SharpLink. In connection with such investment, Alpha Capital invested $2 million in SharpLink during December 2020 and is contractually bound to invest an additional $5 million in SharpLink immediately prior to closing of the Transaction. Upon consummation of the Transaction, Alpha Capital is expected to receive securities in the combined company in consideration for its ownership interests in SharpLink.
 
Variance Ascola treated the securities that Alpha Capital is expected to receive as a financial package that was issued to Alpha in consideration for a $7 million aggregate investment amount. Variance Ascola therefore back-solved the combined company value that results in the total value of the financial package in the model being equal to the Alpha Capital aggregate investment amount ($7 million).
 
As the combined company has a complex capital structure, Variance Ascola applied a back-solve option pricing method to determine MTS’s and SharpLink’s holding in the combined company and the Exchange Ratios that derive from it.
 
Based on the liquidation preference included in the draft Revised Articles and the back-solving described herein, SharpLink’s and MTS’s fair value in the combined company derives an Exchange Ratio of 87% and 13%, respectively.
 
As noted above, subsequent to the execution of the Merger Agreement we were informed that Alpha Capital and SharpLink have agreed to increase the amount of the Closing Financing to $6 million. Variance Ascola was provided with this information and confirmed that the increase in the Closing Financing does not change the conclusion stated in its fairness opinion.
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THE MERGER AGREEMENT
 
The following is a summary of the material terms of the Merger Agreement and of the rights attached to the MTS capital stock to be issued in connection with the Transaction. A copy of the Merger Agreement is attached as Annex A to this proxy statement and is incorporated by reference. The Revised Articles are attached as Annex B to the Merger Agreement and are also incorporated by reference. The Merger Agreement has been attached to this proxy statement to provide you with information regarding its terms. It is not intended to provide any other factual information about MTS, Merger Sub or SharpLink. The following description does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement and its ancillary documents, including the Revised Articles. You should refer to the full text of the Merger Agreement and the ancillary documents for details of the Transaction, the terms and conditions of the Merger Agreement and the Revised Articles.
 
The Merger Agreement contains representations and warranties that MTS and Merger Sub, on the one hand, and SharpLink, on the other hand, have made to one another as of specific dates. These representations and warranties have been made for the benefit of the other parties to the Merger Agreement and may be intended not as statements of fact but rather as a way of allocating the risk to one of the parties if those statements made in the representations and warranties prove to be incorrect. In addition, the assertions made in the representations and warranties are qualified by the information in confidential disclosure schedules exchanged by the parties in connection with the signing of the Merger Agreement. While MTS and SharpLink do not believe that these disclosure schedules contain information required to be publicly disclosed under the applicable securities laws, other than information that has already been so disclosed, the disclosure schedules do contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Merger Agreement. Accordingly, you should not rely on the representations and warranties as current characterizations of factual information about MTS, Merger Sub or SharpLink, because they were made as of specific dates, may be intended merely as a risk allocation mechanism between MTS and Merger Sub on the one hand, and SharpLink on the other hand, and are modified by the disclosure schedules.
 
Structure
 
Under the Merger Agreement, at the Effective Time, Merger Sub will merge with and into SharpLink, with SharpLink surviving as a wholly-owned subsidiary of MTS.
 
Completion and Effectiveness of the Transaction
 
The Transaction will be completed as promptly as practicable after all of the conditions to completion of the Transaction are satisfied or waived, including the approval of the shareholders of MTS. MTS and SharpLink are working to complete the Transaction as quickly as practicable. The Transaction is anticipated to close during the third quarter of 2021. However, MTS and SharpLink cannot predict the exact timing of the completion of the Transaction because it is subject to various conditions.
 
Consideration and Exchange Ratio
 
Consideration
 
At the effective time of the Transaction, or the Effective Time, upon the terms and subject to the conditions set forth in the Merger Agreement:
 

each share of SharpLink common stock outstanding immediately prior to the Effective Time will be converted into the right to receive a number of MTS Ordinary Shares calculated pursuant to the Exchange Ratio described below;
 
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each share of SharpLink Series A Preferred Stock outstanding immediately prior to the Effective Time will be converted into the right to receive a number of MTS Preferred A-1 Shares, calculated pursuant to the Preferred A Exchange Ratio described below;
 

each share of SharpLink Series A-1 Preferred Stock outstanding immediately prior to the Effective Time will be converted into the right to receive a number of MTS Preferred A-1 Shares, calculated pursuant to the Exchange Ratio described below;
 

each share of SharpLink Series B Preferred Stock outstanding immediately prior to the Effective Time will be converted into the right to receive a number of MTS Preferred B Shares, calculated pursuant to the Exchange Ratio described below; and
 

each option and warrant to purchase shares of SharpLink common stock outstanding immediately prior to the Effective Time will be assumed by MTS and will be converted into an option or warrant, as applicable, to purchase the number of MTS Ordinary Shares as determined pursuant to the Exchange Ratio.
 
No fractional MTS Ordinary Shares, MTS New Preferred A-1 Shares or MTS New Preferred B Shares will be issued in connection with the Transaction. Each holder of SharpLink capital stock who would otherwise be entitled to receive a fraction of an MTS Ordinary Share, MTS New Preferred A-1 Shares or MTS New Preferred B Shares (after separately aggregating all fractional MTS Ordinary Shares, all fractional MTS New Preferred A-1 Shares and all fractional MTS New Preferred B Shares issuable to such holder) would not receive such fraction, and will instead receive such amount rounded to the nearest whole number of MTS Ordinary Shares, MTS New Preferred A-1 Shares and MTS New Preferred B Shares, as the case may be.
 
The Merger Agreement does not provide for an adjustment to the total number of MTS Ordinary Shares, Preferred A-1 Shares and Preferred B Shares that SharpLink shareholders will be entitled to receive for changes in the market price of MTS Ordinary Shares prior to the Effective Time. Accordingly, the market value of the MTS Ordinary Shares issued or underlying MTS Preferred Shares issued in connection with the Transaction will depend on the market value of the MTS Ordinary Shares at the time the Transaction closes, and could vary significantly from the market value of the MTS Ordinary Shares on the date the Merger Agreement was executed or on the date of this proxy statement.
 
Exchange Ratios
 
Under the formulas of the Exchange Ratios described in the Merger Agreement, immediately following the Transaction, SharpLink’s securityholders (including holders of SharpLink options; SharpLink’s securities held by Alpha Capital and issued to Alpha Capital in connection with the Closing Financing; and SharpLink’s common stock issued to GreenBlock upon exercise of a warrant issued to GreenBlock as consideration for services rendered to SharpLink) are expected to own approximately 86% of the combined company’s share capital (on a fully-diluted basis, assuming the issuance of all Ordinary Shares issuable upon the exercise of outstanding options and warrants and the conversion of preferred shares), including the Ordinary Shares reserved under the New Equity Plan, and MTS’s securityholders (including MTS’s CEO and CFO, to the extent their equity compensation under Proposals 2 and 3 is approved), are expected to own the remaining 14% of the combined company’s outstanding share capital (on a fully-diluted basis).
 
The Exchange Ratio formula for purposes of exchanging SharpLink common stock, preferred B stock and options and warrants to purchase common stock is the quotient obtained by dividing (i) ((A/B) - A) by (ii) C, where “A” equals the number of issued and outstanding MTS Ordinary Shares immediately prior to the Effective Time, calculated on a Pre-Close Fully-Diluted Basis, “B” equals the MTS Percentage (expressed as a fraction) and “C” equals the number of shares of SharpLink common stock issued and outstanding immediately prior to the Effective Time, calculated on a Pre-Close Fully-Diluted Basis.
 
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The following terms will have the following meanings as they relate to the Exchange Ratio formula:
 

“Alpha Capital Commitment Fee” means such number of MTS Preferred A-1 Shares representing, post-Closing, three percent of the Post-Closing Fully-Diluted Capital Stock.
 

“MTS Percentage” means fourteen percent.
 

“New Equity Incentive Pool” means such number of MTS Ordinary Shares representing, post-Closing, ten percent of the Post-Closing Fully-Diluted Capital Stock.
 

“Pre-Close Fully-Diluted Basis” means all of the issued and outstanding share capital of the relevant entity as of immediately prior to the Effective Time (unless otherwise explicitly noted), on an as-converted and fully-diluted basis, and assuming the full exercise of all outstanding options and warrants and the full conversion of all other convertible securities; provided, for the avoidance of doubt, (i) with respect to MTS, such calculation will assume the issuance of MTS Ordinary Shares in respect of all MTS Preferred Shares, MTS Options, MTS Warrants, and other outstanding options, warrants or rights to receive such shares, in each case, outstanding as of immediately prior to the Effective Time, whether conditional or unconditional and including any outstanding options, warrants or rights triggered by or associated with the consummation of the Merger (but excluding for the avoidance of doubt, the New Equity Incentive Pool and any MTS Ordinary Shares reserved for issuance pursuant to future award grants under the MTS Share Plans (as such term is defined in the Merger Agreement); and (ii) with respect to the SharpLink, such calculation will take into account (a) the number of shares of SharpLink Common Stock issuable upon exercise of SharpLink Options and SharpLink Warrants, which shall be assumed by MTS in accordance with the Merger Agreement, and (b) all SharpLink Common Stock issuable upon conversion of all issued and outstanding SharpLink Series A Preferred Stock assuming such conversion were to occur at the Effective Time in accordance with the term of the SharpLink’s Articles of Incorporation and bylaws, and (c) the New Equity Incentive Pool, and (d) all SharpLink Series A-1 Preferred Stock issued to Alpha Capital to satisfy the Alpha Capital Commitment Fee, and (e) all SharpLink Series B Preferred Stock issued to Alpha Capital pursuant to the closing of the Closing Financing, and (f) the SharpLink Capital Stock issued or issuable upon conversion of the GreenBlock Warrant.
 

“Post-Closing Fully-Diluted Capital Stock” means the number of MTS Ordinary Shares resulting from dividing (i) the number of issued and outstanding shares of MTS Ordinary Shares immediately prior to the Effective Time, calculated on a Pre-Close Fully-Diluted Basis, by (ii) the MTS Percentage (expressed as a fraction).
 

“GreenBlock Warrant” means a warrant to acquire SharpLink Common Stock that SharpLink issued to its financial advisor in connection with the Transaction. Upon the effective time of the Merger and in accordance with its terms, the GreenBlock Warrant will automatically convert into the right to purchase MTS Ordinary Shares.  If the GreenBlock Warrant is exercised prior to the Effective Time, then the shares of SharpLink Common Stock issued upon such exercise will convert into MTS Ordinary Shares in accordance with the Exchange Ratio.
 
The Preferred A Exchange Ratio for purposes of exchanging SharpLink Series A Preferred Stock is calculated by multiplying the Exchange Ratio by the number determined by dividing: (A) $1,000, by (B) the “Conversion Price” (as such term is defined in Section 2(b) of SharpLink’s Articles of Incorporation) in effect immediately prior to the Effective Time (which was $2.1693 as of the date of the Merger Agreement).
 
Closing Financing
 
The Closing is conditioned on the consummation of the Closing Financing, which is the investment by Alpha Capital, one of MTS’s shareholders, of at least $5 million in SharpLink’s equity immediately prior to the consummation of the Transaction, in consideration for SharpLink Series B Preferred Stock, which will help to satisfy the requirements to maintain the listing of MTS’s Ordinary Shares on the Nasdaq Capital Market upon completion of the Transaction. In its discretion, SharpLink may increase the size of the Closing Financing, provided that any such increase will not decrease the percentage ownership in the combined company to be held by the current MTS securityholders as of the effective time of the Transaction (i.e., 14% of the combined company outstanding share capital on a fully-diluted basis, taking into account the shares reserved under the New Equity Plan). Subsequent to the execution of the Merger Agreement, we were informed that SharpLink and Alpha Capital agreed to increase the size of the Closing Financing to $6 million. The Closing Financing is in addition to Alpha Capital’s $2 million investment in SharpLink’s Series A Preferred Stock in connection with the execution of the letter of intent for the Transaction between MTS and SharpLink in December 2020.
 
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In connection with the Closing Financing, Alpha Capital is entitled to receive a commitment fee from SharpLink, which will be exchanged into the Alpha Capital Commitment Fee upon consummation of the Transaction.
 
As the Closing Financing will be invested in SharpLink immediately prior to the Closing and as the commitment fee will be issued by SharpLink to Alpha Capital, the MTS share capital that will be issued at Closing to Alpha Capital in exchange for the SharpLink securities that will be issued to Alpha Capital in connection with the Closing Financing and the Alpha Capital Commitment Fee is included in the SharpLink Holdings and will not further dilute the holdings of the Company’s securityholders.
 
New Preferred Shares
 
The Preferred Shares to be issued by MTS as consideration in connection with the Transaction will be newly created classes of preferred shares as follows:

Preferred A-1 Shares

Preferred A-1 Shares with equal rights to the Ordinary Shares and convertible into Ordinary Shares on a 1-for-1 basis (subject to customary adjustments); provided, however, that MTS shall not effect any conversion of the Preferred A-1 Shares to the extent that, after giving effect to such conversion, the holder of the Preferred A-1 Shares (together with such holder’s Affiliates and any Persons acting as a group together with such holder) would beneficially own in excess of the beneficial ownership cap, which is initially set at 9.99%, of the number of the Ordinary Shares outstanding immediately after giving effect to the issuance of Ordinary Shares issuable upon conversion of the Preferred A-1 Shares held by the holder, or the Beneficial Ownership Limitation.

Prior to conversion into MTS Ordinary Shares, the Preferred A-1 Shares are entitled to the following rights:


equal rights to receive dividends, if and when distributed to holders of Ordinary Shares, whether in cash or any other manner, and to participate in a distribution of bonus shares, if and when distributed, according to the ratio between the shareholders’ holdings in the Company’s issued and outstanding share capital (Ordinary Shares and Preferred Shares on an as-converted basis, without regard to the Beneficial Ownership Limitation) and the Company’s total issued and outstanding share capital (Ordinary Shares and Preferred Shares on an as-converted basis, without regard to the Beneficial Ownership Limitation);
 

equal right to participate in a distribution of the Company’s assets available for distribution, in the event of liquidation or winding-up of the Company, on an as-converted basis, following the distribution to the holders of the Series B Preferred Shares, if applicable, and pari passu with the Ordinary Shares; and
 

equal rights to vote on all matters submitted to a vote of the Ordinary Shares (on an as-converted basis, but only up to the number of votes equal to the number of Ordinary Shares into which the Preferred Shares would be convertible pursuant to the Beneficial Ownership Limitation). The rights attached to any class (other than modifications to the Beneficial Ownership Limitation, which may not be modified) may be modified or abrogated by the affirmative consent of the respective Determining Majority of the shares of such class; provided, however, that the creation of additional shares of a specific class, or the issuance of additional shares of a specific class, shall not be deemed a modification or abrogation of rights attached to shares of such class or of any other class.
 
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In connection with the consummation of the Transaction and adoption of the Revised Articles, the MTS Preferred Shares currently held by Alpha Capital (1,591,579 shares as of the date of this proxy statement) will be designated Preferred A Shares and will have rights identical to the Preferred A-1 Shares set forth above, other than the Conversion Price and the Per Preferred Share Purchase Price, which will be set at $1.14 per share for the Preferred A Shares and at $0.8123 for the Preferred A-1 Shares.

Preferred B Shares

The Preferred B Shares shall be non-voting shares and convertible into Ordinary Shares on a 1-for-1 basis (subject to customary adjustments), subject to the Beneficial Ownership Limitation.

Prior to conversion into MTS Ordinary Shares, the Preferred B Shares are entitled to the following rights:


from the Effective Time until the second anniversary of the Effective Time, a right to receive cumulative dividends at the rate per share (as a percentage of the Preferred B Shares’ Per Preferred Share Purchase Price) of 8% per annum, payable quarterly on January 1, April 1, July 1 and October 1, beginning on the Effective Time and on each Conversion Date (with respect only to Preferred B Shares being converted) (each such date, a “Dividend Payment Date”) in cash, or at the combined company’s option, in duly authorized, validly issued, fully paid and non-assessable Preferred A-1 Shares, or a combination thereof. Dividends on the Preferred B Shares shall be calculated on the basis of a 360-day year, consisting of twelve 30 day periods, and shall accrue daily commencing on the date a Preferred B Share is issued, and shall be deemed to accrue from such date whether or not earned or declared and whether or not there are profits, surplus or other funds of the combined company legally available for the payment of dividends. The payment of the dividends in Preferred A-1 Shares shall be made in a number of shares equal to the amount to be paid divided by the Per Preferred Share Purchase Price of the Preferred A-1 Shares as of the Dividend Payment Date;
 

a right to receive from the Company an amount equal to the purchase price of each outstanding Preferred B Share, plus any accrued and unpaid dividends, fees or liquidated damages due thereon (in connection with delays in conversion of Preferred B Shares), to be paid upon any liquidation, dissolution or winding-up of the Company, before any distribution to the other securityholders of the Company;
 

a “full ratchet” anti-dilution adjustment to the conversion price of the Preferred B Shares in the event the Company issues or sells Ordinary Shares or Ordinary Share Equivalents for a consideration per share that is less than the conversion price per share of the Preferred B Shares then in effect, other than in connection with an Exempt Issuance (as such term is defined in the Revised Articles) and to a minimum price equal to the higher of: (A) $0.10 and (B) 20% of the closing price on the trading day immediately prior to the consummation of the Transaction; and
 

as long as 1,545,895 of the Preferred B Shares (constituting approximately 20.9% of the Preferred B Shares expected to be outstanding immediately following the consummation of the Transaction) remain outstanding, unless the holders of at least 50.1% of the Preferred B Shares shall otherwise consent in writing, the Company shall not, and shall not permit any of its subsidiaries to, directly or indirectly: (A) amend charter documents in any manner that materially and adversely affects any rights of holders of the Preferred B Shares, (B) repay, repurchase or otherwise acquire more than a de minimis number of its Ordinary Shares, Ordinary Share Equivalents or Junior Securities (as such terms are defined in Revised Articles), subject to certain exceptions, (C) pay cash dividends or distributions to Junior Securities unless the Company has paid all dividends on the Preferred B Shares and the Preferred B Shares will participate ratably (on an as-converted basis) in the dividends paid to the Ordinary Shares, (D) enter into any transaction with any Affiliates of the Company which would be required to be disclosed in any public filing with the SEC, unless such transaction is made on an arms’-length basis and approved by a majority of the disinterested directors of the Company, or (E) enter into any agreement with respect to any of the foregoing.
 
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Representations and Warranties
 
The Merger Agreement contains customary representations and warranties made by MTS, Merger Sub and SharpLink relating to their respective businesses, as well as other facts pertinent to the Transaction. These representations and warranties are subject to materiality, knowledge and other similar qualifications and expire at the effective time of the Transaction. The representations and warranties of each of MTS, Merger Sub and SharpLink have been made solely for the benefit of the other parties and those representations and warranties should not be relied on by any other person. In addition, those representations and warranties may be intended not as statements of actual fact, but rather as a way of allocating risk among the parties, may have been modified by the disclosure schedules delivered in connection with the Merger Agreement, are subject to the materiality standard described in the Merger Agreement, which may differ from what may be viewed as material by you, will not survive completion of the Transaction and cannot be the basis for any claims under the Merger Agreement by the other parties after termination of the Merger Agreement, and were made only as of the date of the Merger Agreement or another date as is specified in the Merger Agreement.
 
SharpLink made a number of representations and warranties to MTS and Merger Sub in the Merger Agreement, including representations and warranties relating to the following matters:
 

due organization; subsidiaries; directors and officers; key employees; organizational documents
 

authority; binding nature of agreement;
 

non-contravention; consents;
 

capitalization;
 

financial statements;
 

absence of changes;
 

absence of undisclosed liabilities
 

title to assets;
 

real property; leasehold;
 

intellectual property;
 

data protection;
 

information technology;
 

agreements, contracts and commitments;
 

compliance; permits;
 

tax matters;
 

employee and labor matters; benefit plans;
 

environmental matters;
 

insurance;
 
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legal proceedings; orders;
 

inapplicability of anti-takeover statutes;
 

no financial advisors;
 

transactions with affiliates;
 

anti-bribery;
 

control stake;
 

trade and sanctions compliance;
 

closing financing; and
 

disclaimer of other representations or warranties.
 
Significant portions of SharpLink’s representations and warranties are qualified as to “materiality” or “material adverse effect.” Under the Merger Agreement, a material adverse effect with respect to SharpLink means any effect, change, event, circumstance or development that, when considered together with all other effects, changes, events, circumstances or developments that have occurred prior to the date of determination of the occurrence of such material adverse effect, has or would reasonably be expected to have a material adverse or effect on the business, condition (financial or otherwise), assets, liabilities or results of operations of SharpLink; provided that effects, changes, events, circumstances or developments arising or resulting from the following shall not be taken into account in determining whether there has been a material adverse event with respect to SharpLink:
 

changes or conditions generally affecting the industries or markets in which SharpLink operates, and changes in the industries in which SharpLink operates regardless of geographic region (including legal and regulatory changes), other than such changes that materially adversely affect SharpLink’s business as now conducted and as proposed to be conducted by imposing licensing or permitting requirements or prohibiting or making illegal certain actions currently conducted or proposed to be conducted by SharpLink;
 

acts of war, armed hostilities or terrorism;
 

changes in financial, banking or securities markets;
 

any change in, or any compliance with or action taken for the purpose of complying with, any applicable laws or U.S. GAAP (or interpretations of any applicable law or U.S. GAAP);
 

changes resulting from the announcement of the Merger Agreement or the pendency of the transactions contemplated thereby;
 

changes resulting from the taking of any action required to be taken by the Merger Agreement; or
 

pandemics (including the COVID-19 pandemic) including any worsening thereof, man-made disasters, natural disasters, acts of God or other force majeure event.
 
except (in the case of the first three bulleted items above), to the extent disproportionately affecting SharpLink, relative to other companies in the industries in which SharpLink operates.
 
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MTS and Merger Sub made a number of representations and warranties to SharpLink in the Merger Agreement, including representations and warranties relating to the following subject matters:
 

subsidiaries; due organization; organizational documents;
 

authority; binding nature of agreement
 

vote required;
 

non-contravention; consents;
 

capitalization;
 

SEC filings; financial statements;
 

absence of changes;
 

absence of undisclosed liabilities
 

title to assets;
 

real property;
 

leaseholds;
 

intellectual property;
 

material contracts;
 

compliance; permits; legal proceedings; orders;
 

tax matters;
 

employee and labor matters; benefit plans;
 

environmental matters;
 

transactions with affiliates;
 

insurance;
 

no financial advisors;
 

anti-bribery;
 

valid issuance;
 

opinion of financial advisor;
 

shell company status;
 

trade and sanctions compliance; and
 

disclaimer of other representations or warranties.
 
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Significant portions of MTS’s representations and warranties are also qualified as to “materiality” or “material adverse effect.” Under the Merger Agreement, a material adverse effect with respect to MTS means any effect, change, event, circumstance or development that, considered together with all other effects, changes, events, circumstances or developments that have occurred prior to the date of determination of the occurrence of such material adverse effect, has or would reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), assets, liabilities or results of operations of MTS or its subsidiaries, taken as a whole, regardless of whether or not such change constitutes a breach of the representations and warranties made by the MTS or Merger Sub in the Merger Agreement; provided that effects, changes, events, circumstances or developments arising or resulting from the following shall not be taken into account in determining whether there has been a material adverse event with respect to MTS:
 

changes or conditions generally affecting the industries or markets in which MTS and its subsidiaries operate, and changes in the industries in which MTS operates regardless of geographic region (including legal and regulatory changes;
 

acts of war, armed hostilities or terrorism;
 

changes in financial, banking or securities markets;
 

any change in, or any compliance with or action taken for the purpose of complying with, any applicable law or U.S. GAAP (or interpretations of any applicable law or U.S. GAAP);
 

changes resulting from the announcement of the Merger Agreement or the pendency of the transactions contemplated thereby;
 

changes resulting from the taking of any action required to be taken by the Merger Agreement; or
 

pandemics (including the COVID-19 pandemic) including any worsening thereof, man-made disasters, natural disasters, acts of God or other force majeure event;
 
except (in the case of the first three bulleted items above), to the extent disproportionately affecting MTS and its subsidiaries, taken as a whole, relative to other similarly situated companies in the industries in which MTS and its subsidiaries operate.
 
Covenants; Conduct of Business Pending the Transaction
 
Each of the parties agreed that, during the period commencing on the execution date of the Merger Agreement and ending at the earlier of the date of termination of the Merger Agreement and the Effective Time, it and its subsidiaries (i) will conduct its business and operations in the ordinary course, consistent with past practices; provided that during any period of full or partial suspension of operations related to the COVID-19 pandemic, each party may, in connection with the COVID-19 pandemic, take such actions as are reasonably necessary: (x) to protect the health and safety of such parties' employees and other individuals having business dealings with such party(ies); or (y) to respond to third-party supply or service disruptions caused by the COVID-19 pandemic; provided further that following any such suspension, to the extent that a party took any actions pursuant to the immediately preceding proviso that caused deviations from its business being conducted in the ordinary course of business, to resume conducting its business in the ordinary course of business in all material respects as soon as reasonably practicable; and (ii) shall conduct their business and operations in compliance in all material respects with all applicable Laws and the requirements of all contracts that constitute material contracts under the Merger Agreement. Each party also agreed that it would provide the other party with prompt notice upon the occurrence of certain events or discovery of certain conditions, facts or circumstances.
 
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MTS also agreed that prior to the earlier of termination of the Merger Agreement and the Effective Time, subject to certain limited exceptions set forth in the Merger Agreement, without the prior written consent of SharpLink, MTS would not and would not permit any of its subsidiaries to:
 

declare, accrue, set aside or pay any dividend or make any other distribution in respect of any of its shares or make any other actual, constructive or deemed distribution in respect of its share capital, except for cash dividends made by any direct or indirect subsidiary of MTS to MTS or one of its subsidiaries, or directly or indirectly acquire, repurchase, redeem or otherwise reacquire any of its shares or other securities (except in connection with the payment of the exercise price and/or withholding taxes incurred upon the exercise, settlement or vesting of any award granted under the MTS share option plans and in accordance with their current terms);
 

sell, issue, grant, pledge or otherwise dispose of or encumber or authorize any of the foregoing with respect to: (A) any shares or other security of MTS (except for MTS Ordinary Shares issued upon the valid exercise of outstanding MTS Options and except as contemplated by the Reverse Split); (B) any option, warrant or right to acquire any shares or any other security; or (C) any instrument convertible into or exchangeable for any shares or other security of MTS;
 

propose to adopt a plan of merger, consolidation, restructuring, recapitalization or other reorganization of MTS, or initiate the election or appointment of any new directors or executive officers of MTS, except for reelection of incumbent directors and the transactions contemplated by the Merger Agreement and actions and resolutions adopted in the course of its implementation;
 

except as required to give effect to anything in contemplation of the closing of the Transaction, amend any of its or its subsidiaries’ organizational documents, or effect or be a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split, or similar transaction except, for the avoidance of doubt, the transactions contemplated by the Merger Agreement and as permitted by the Merger Agreement;
 

form any subsidiary, except for Merger Sub, or acquire any equity interest or other interest in any other entity or enter into a joint venture, strategic alliance or partnership with any other entity;
 

acquire or agree to acquire (by merger, consolidation or acquisition of stock or assets or by any other manner) (1) any business or other person or (2) any assets that are material, individually or in the aggregate, to MTS and its subsidiaries, taken as a whole; or (3) sell, lease (as lessor), license or otherwise dispose of or subject to any Encumbrance any properties or assets of MTS or its subsidiaries, which are material to MTS and its subsidiaries individually or taken as a whole;
 

(A) lend money to any individual, entity or governmental body (except for reasonable advances to employees and consultants for travel and other reasonable business related expenses in the ordinary course of business), (B) incur or guarantee any indebtedness for borrowed money, or (C) guarantee any debt securities of others;
 

recognize any labor union, labor organization, or similar individual, entity or governmental body;
 

enter into any material transaction outside the ordinary course of business;
 

acquire any material asset or sell, lease or otherwise irrevocably dispose of any of its assets or properties, or grant any encumbrance with respect to such assets or properties, except in the ordinary course of business;
 

sell, assign, transfer, license, sublicense or otherwise dispose of any material MTS intellectual property, other than in the ordinary course of business;
 

make, change or revoke any material tax election, fail to pay any income or other material tax as such tax becomes due and payable (subject to good faith disputes with respect to such taxes), file any amendment making any material change to any tax return, settle or compromise any income or other material tax liability, enter into any tax allocation, sharing, indemnification or other similar agreement or arrangement, request or consent to any extension or waiver of any limitation period with respect to any claim or assessment for any income or other material taxes (other than pursuant to an extension of time to file any tax return granted in the ordinary course of business of not more than six months), or adopt or change any material accounting method in respect of taxes;
 
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enter into, materially amend or terminate any MTS material contract, except if such execution, amendment or termination is in the ordinary course of business;
 

(A) except in the ordinary course of business, make any expenditures, incur any liabilities, settle or discharge or satisfy any claims, litigation, or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), or (B) cancel any material indebtedness for borrowed money (individually or in the aggregate) or waive any claims or rights with a value in excess of $250,000, or (C) give any material discount, accommodation or other concession (other than in the ordinary course of business) in order to accelerate or induce the collection of any receivable;
 

enter into, engage in or amend any transaction or Contract with any interested parties;
 

other than as required by applicable law or U.S. GAAP, take any action to change accounting policies or procedures;
 

cancel or fail to in good faith seek to renew any material insurance policies;
 

adopt any new compensation arrangements or benefit plans or materially increase the existing compensation or benefits of any employee, consultant, director or service provider, except for increases to compensation in the ordinary course of business;
 

apply for or accept any material governmental grants from any governmental body;
 

initiate, settle, compromise, or agree to or settle any claims or legal proceeding; or
 

agree, resolve or commit to do any of the foregoing. 
 
SharpLink also agreed that prior to the earlier of termination and the Effective Time, subject to certain limited exceptions set forth in the Merger Agreement, without the prior written consent of MTS, SharpLink would not:
 

declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of its share capital or make any other actual, constructive or deemed distribution in respect of the SharpLink capital stock, or directly or indirectly acquire, or repurchase, redeem or otherwise reacquire any shares of its share capital or other securities (except in connection with the payment of the exercise price and/or withholding taxes incurred upon the exercise, settlement or vesting of any award granted under the SharpLink stock option plan in accordance with their current terms);
 

sell, issue, grant, pledge or otherwise dispose of or encumber or authorize any of the foregoing with respect to: (A) any share capital or other security of SharpLink or its subsidiary (except for outstanding SharpLink common stock issued upon the valid exercise of SharpLink options, the issuance of the GreenBlock Warrant and issuance of SharpLink common stock upon valid exercise thereof, the conversion of SharpLink Series A Preferred Stock, the issuance of SharpLink Series A-1 Preferred Stock to satisfy the Alpha Capital Commitment Fee and the issuance of SharpLink Series B Preferred Stock to Alpha Capital in connection with the Closing Financing); (B) any option, warrant or right to acquire any share capital or any other security, other than option grants to employees and service providers; or (C) any instrument convertible into or exchangeable for any share capital or other security of SharpLink or its subsidiary;
 

except as required to give effect to anything in contemplation of the consummation of the Transaction, amend any of its organizational documents (other than that the amendments contemplated by the Merger Agreement), or effect or be a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction except, for the avoidance of doubt, the transactions contemplated by the Merger Agreement;
 
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propose to adopt a plan of merger, consolidation, restructuring, recapitalization or other reorganization of SharpLink or its subsidiary, or elect or appoint any new directors or executive officers of SharpLink or its subsidiaries, except for the appointment of one additional director as communicated to MTS and except for the transactions contemplated by the Merger Agreement and actions and resolutions adopted in the course of its implementation;
 

form any subsidiary or acquire any equity interest or other interest in any other entity or enter into a joint venture, strategic alliance or partnership with any other entity;
 

acquire or agree to acquire (by merger, consolidation or acquisition of stock or assets or by any other manner) (1) any business or other individual, entity or governmental body or (2) any assets that are material, individually or in the aggregate, to SharpLink and its subsidiary; or (3) other than in the ordinary course of business, sell, lease (as lessor), license or otherwise dispose of or subject to any encumbrance any properties or assets of SharpLink or its subsidiary, which are material to SharpLink or subsidiary, except for purchases of inventory, services or supplies in the ordinary course of business;
 

(A) lend money to any individual, entity or governmental body (except for reasonable advances to employees and consultants for travel and other reasonable business related expenses in the ordinary course of business), (B) incur or guarantee any indebtedness for borrowed money, or (C) guarantee any debt securities of others;
 

recognize any labor union, labor organization, or similar individual, entity or governmental body;
 

enter into any material transaction other than in the ordinary course of business;
 

acquire any material asset or sell, lease or otherwise irrevocably dispose of any of its assets or properties, or grant any encumbrance with respect to such assets or properties, except in the ordinary course of business;
 

sell, assign, transfer, license, sublicense or otherwise dispose of any material SharpLink intellectual property (other than pursuant to non-exclusive licenses in the ordinary course of business);
 

make, change or revoke any material tax election, fail to pay any income or other material tax as such tax becomes due and payable (subject to good faith disputes with respect to such taxes), file any amendment making any material change to any tax return, settle or compromise any income or other material tax liability, enter into any tax allocation, sharing, indemnification or other similar agreement or arrangement (other than customary commercial contracts entered into in the ordinary course of business the principal subject matter of which is not taxes), request or consent to any extension or waiver of any limitation period with respect to any claim or assessment for any income or other material taxes (other than pursuant to an extension of time to file any tax return granted in the ordinary course of business of not more than six months), or adopt or change any material accounting method in respect of taxes;
 

enter into, materially amend or terminate any company material contract, except if such execution, amendment or termination is in the ordinary course of business or is required or reasonably advisable to issue shares in connection with the Closing Financing and/or the Alpha Capital Commitment Fee in order to facilitate the consummation of the Transaction, which, for clarity, will include entering into amendments to the Closing Financing as contemplated in the Merger Agreement;
 

(A) except in the ordinary course of business, make any expenditures, incur any liabilities, settle or discharge or satisfy any claims, litigation, or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), or (B) cancel any material indebtedness for borrowed money (individually or in the aggregate) or waive any claims or rights with a value in excess of $250,000, or (C) give any material discount, accommodation or other concession (other than in the ordinary course of business consistent with past practice) in order to accelerate or induce the collection of any receivable;
 
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enter into, engage in or amend any transaction or contract with any “related party”, except as required for the consummation of the Transaction;
 

other than as required by applicable law or U.S. GAAP, take any action to change accounting policies or procedures;
 

cancel or fail to in good faith seek to renew any material insurance policies;
 

apply for or accept any material governmental grants from any governmental body;
 

initiate or settle, compromise, or agree to settle any legal proceeding; or
 

agree, resolve or commit to do any of the foregoing.
 
Non-Solicitation and Superior Offers
 
The Merger Agreement contains provisions prohibiting MTS and SharpLink from seeking a competing transaction, subject to specified exceptions described below. Under these “non-solicitation” provisions, each of MTS and SharpLink has agreed that neither it nor its subsidiaries, nor any of its officers, directors, employees, representatives, affiliates, advisors or agents will directly or indirectly: (i) solicit, initiate, respond to or take any action to facilitate or encourage any inquiries or the communication, making, submission or announcement of any acquisition proposal or acquisition inquiry or take any action that could reasonably be expected to lead to an acquisition proposal or acquisition inquiry; (ii) enter into or participate in any discussions or negotiations with any individual or entity with respect to any acquisition proposal or acquisition inquiry; (iii) furnish any information regarding such party to any individual or entity in connection with, in response to, relating to or for the purpose of assisting with or facilitating an acquisition proposal or acquisition inquiry; (iv) approve, endorse or recommend any acquisition proposal (subject to terms of the Merger Agreement); (v) execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to any acquisition transaction; or (vi) grant any waiver or release under any confidentiality, standstill or similar agreement (other than to the other party).
 
However, prior to receipt of the approval of the proposal relating to the Transactions set forth in this proxy statement, MTS or SharpLink (i) may enter into discussions or negotiations with, any individual or entity that has made (and not withdrawn) a bona fide, unsolicited, acquisition proposal, which the MTS or SharpLink Board of Directors, as the case may be, determines in good faith, after consultation with its independent financial advisor, if any, and its outside legal counsel, constitutes, or would reasonably be expected to result in, a “superior offer,” and (ii) may thereafter furnish to such individual or entity non-public information regarding such party pursuant to an executed confidentiality agreement at least as favorable to such party as those contained in the confidentiality agreement executed between MTS and SharpLink, but in each case of the foregoing clauses (i) and (ii), only if: (A) neither such party nor any representative of such party has breached the provisions of the non-solicitation section of the Merger Agreement; (B) the Board of Directors of such party determines in good faith based on the advice of outside legal counsel, that the failure to take such action would constitute a breach of the fiduciary duties of the Board of Directors of such party under applicable law; (C) at least three (3) business days prior to furnishing any such non-public information to, or entering into discussions with, such individual or entity, such party gives the other party(ies) written notice of the identity of such individual or entity and of such party’s intention to furnish non-public information to, or enter into discussions with, such individual or entity; and (D) at least three (3) business days prior to furnishing any such non-public information to such individual or entity, such party furnishes such non-public information to the other party(ies) (to the extent such non-public information has not been previously furnished by such party to the other party(ies)).
 
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If any party or any representative or subsidiary of such party receives an acquisition proposal or acquisition inquiry, then such party shall promptly (and in no event later than one business day after such party becomes aware of such acquisition proposal or acquisition inquiry) advise the other party(ies) in writing of such acquisition proposal or acquisition inquiry (including the identity of the individual or entity making or submitting such acquisition proposal or acquisition inquiry, and the terms thereof). Such party shall keep the other party(ies) fully informed, on a current basis, in all material respects with respect to the status and terms of any such acquisition proposal or acquisition inquiry and any modification or proposed modification thereto. In addition to the foregoing, each party shall provide the other party(ies) with at least five (5) business days’ written notice of a meeting of its board of directors (or any committee thereof) at which its board of directors (or any committee thereof) is reasonably expected to consider an acquisition proposal or acquisition inquiry it has received.
 
An acquisition inquiry means, with respect to MTS or SharpLink, an inquiry, indication of interest or request for information to a party (other than an inquiry, indication of interest or request for information made or submitted by SharpLink, on the one hand, or MTS, on the other hand, to the other party) that would reasonably be expected to lead to an acquisition proposal with such party.
 
An acquisition proposal means, with respect to MTS or SharpLink, any offer or proposal, whether written or oral (other than an offer or proposal made or submitted by or on behalf of SharpLink or any of its affiliates, on the one hand, or by or on behalf of MTS or any of its affiliates, on the other hand, to the other party) made by a third party contemplating or otherwise relating to any acquisition transaction with such party.
 
An acquisition transaction means any transaction or series of related transactions involving:
 

any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction: (a) in which a party is a constituent entity; (b) in which an individual or entity or “group” (as defined in the Exchange Act and the rules promulgated thereunder) of individuals and/or entities directly or indirectly acquires beneficial or record ownership of securities representing more than 20% of the outstanding securities of any class of voting securities of a party or any of its subsidiaries; or (c) in which a party or any of its subsidiaries issues securities representing more than 20% of the outstanding securities of any class of voting securities of such party or any of its subsidiaries; or
 

any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 20% or more of the consolidated book value or the fair market value of the assets of a party and its subsidiaries, taken as a whole; or
 

in the case of SharpLink, any of the following: (A) its initial public offering, (B) SharpLink (or any successor/surviving entity in a reverse merger or other business combination transaction) becoming subject to the reporting requirements under the Exchange Act, whether directly or through a parent or holding entity, and (C) the date the SharpLink common stock is listed or quoted on any trading market.
 
Provided however that a sale or other disposition of part or all of the MTS legacy business shall, for the avoidance of doubt, not be considered an acquisition transaction.
 
A superior offer means unsolicited, bona fide written acquisition proposal (with all references to 20% in the definition of acquisition proposal being treated as references to 50% for these purposes) made by a third party that (a) was not obtained or made as a direct or indirect result of a breach of (or in violation of) the Merger Agreement; and (b) is on terms and conditions that the MTS Board or SharpLink’s board, as applicable, determines, in its reasonable, good faith judgment, after obtaining and taking into account such matters that the MTS Board or SharpLink’s board, as applicable, deems relevant following consultation with its outside legal counsel and financial advisor, if any (i) is more favorable, from a financial point of view, to the MTS shareholders or SharpLink shareholders, as applicable, than the terms of the Transaction; and (ii) is reasonably capable of being consummated within the six-month period following the date of the Merger Agreement; provided, however, that any such offer shall not be deemed to be a “superior offer” if (A) any financing required to consummate the transaction contemplated by such offer is not committed and is not reasonably capable of being obtained by third parties or (B) if the consummation of such transaction is contingent on any such financing being obtained which is not reasonably capable of being obtained by third parties.
 
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SharpLink and MTS, as the case may be, may terminate the Merger Agreement under certain circumstances, including circumstances relating to breaches of the non-solicitation provisions, changes in the MTS board recommendation, entry into letters of intent or contracts relating to any acquisition proposals. Terminations in connection with these circumstances result in the obligation of the party causing the termination to pay a termination fee in the amount of $1.3 million.
 
 Proxy Statement and General Meeting
 
The Merger Agreement provides that as promptly as practicable after the execution of the Merger Agreement, the parties shall prepare, and MTS shall cause to be filed with the SEC, the proxy statement that will include the following: (i) the change of control of MTS resulting from the Transaction pursuant to the Nasdaq rules, (ii) the issuance of a “control stake” (dvukat shlita) or more than 45% of the voting rights, as the case may be, to SportsHub pursuant to the terms of Section 328(b)(1) of the Companies Law, (iii) the issuance of the MTS Ordinary Shares, MTS Preferred A-1 Shares and MTS Preferred B Shares in an unregistered offering pursuant to the Nasdaq rules, (iv) the adoption of the Revised Articles, which shall include (A) an increase to the Company’s registered capital and, if agreed by the Parties, changes to reflect the Reverse Split, (B) the creation of the MTS Preferred A-1 Shares and MTS Preferred B Shares and (C) a name change of MTS (subject to consent of the Israeli Companies Registrar), effective upon the consummation of the Transaction, (v) the election of SharpLink’s board nominees as board members, commencing at the Effective Time, (vi) the purchase by MTS of the “runoff” D&O liability insurance policy, (vii) the adoption of the form of Indemnification Agreement to be entered into by each member of MTS’s Board of Directors and officers from time to time (following the effective time of the Transaction), (viii) adoption of SharpLink’s option plan and the New Equity Plan by MTS, as determined by SharpLink, and (ix) any other matter required or advisable, at the reasonable discretion of the Board of Directors of MTS or SharpLink and as agreed to by the other party, including without limitation, compensation matters, in order to give effect to, and reflect governance, leadership and operational changes in connection with, the transactions contemplated under the Merger Agreement. These matters are collectively referred to as the “MTS Shareholder Matters.” MTS shall take reasonable measures to ensure that all proxies solicited in connection with the Meeting are solicited in compliance with all applicable law. If on or before the date of the Meeting, MTS reasonably believes that: (i) it will not receive proxies sufficient to obtain the required approvals, whether or not a quorum would be present or (ii) it will not have sufficient MTS Ordinary Shares represented (whether in person or by proxy) to constitute a quorum necessary to conduct the business of the Meeting, MTS may postpone or adjourn, or make one or more successive postponements or adjournments of, the Meeting as long as the date of the Meeting is not postponed or adjourned more than an aggregate of 60 calendar days in connection with any postponements or adjournments.
 
MTS agreed that, subject to certain exceptions: (1) the MTS Board shall recommend that MTS’s shareholders vote to approve the MTS Shareholder Matters, (2) the proxy statement shall include a statement to the effect that the MTS Board recommends that MTS’s shareholders vote to approve the MTS Shareholder Matters, or the MTS Board Recommendation; and (3) the MTS Board Recommendation shall not be withheld, amended, withdrawn or modified in a manner adverse to the Company without the Company’s prior written consent.  The actions set forth in the foregoing clause (3) are collectively hereinafter referred to as an MTS Board Adverse Recommendation Change.
 
The Merger Agreement provides that prior to the receipt of the required MTS shareholder vote the MTS Board may make an MTS Board Adverse Recommendation Change, if (i) without any a breach of (or in violation of) the non-solicitation provision of the Merger Agreement, the MTS Board has received an acquisition proposal that the MTS Board has determined in its reasonable, good faith judgment, after consultation with MTS’s outside legal counsel, constitutes a superior offer, and (ii) the MTS Board determines in its good faith judgment, after consultation with MTS’s outside legal counsel, that given the superior offer, failing to make an MTS Board Adverse Recommendation Change would reasonably constitute a breach of its fiduciary obligations under applicable law; provided, however, that prior to MTS taking any such action, MTS must (1) promptly notify SharpLink, in writing, within 3 business days before making an MTS Board Adverse Recommendation Change, of its intention to take such action with respect to a superior offer, which notice shall state expressly that MTS has received an acquisition proposal that the MTS Board intends to declare a superior offer and that the MTS Board intends to make an MTS Board Adverse Recommendation Change, and (2) attach to such notice the most current version of the proposed agreement and the identity of the third party making such superior offer.
 
Registration Statement
 
The Merger Agreement provides that, as promptly as practicable after the execution of the Merger Agreement, the parties shall prepare, and MTS shall cause to be filed with the SEC, a registration statement on Form F-3, or the Registration Statement, registering the following for resale: (i) if requested by SharpLink, all of the MTS Ordinary Shares to be issued to Alpha Capital as the Alpha Capital Commitment Fee and/or the MTS Ordinary Shares underlying the MTS Preferred B Shares to be issued as consideration in the Transaction, (ii) all of the MTS Ordinary Shares to be issued to SharpLink’s shareholders, other than SportsHub and certain of SharpLink’s current officers and directors, (iii) all of the MTS Ordinary Shares issuable upon conversion of MTS Preferred A-1 Shares to be issued consideration in connection with the Transaction, and (iv) all of the MTS Ordinary Shares issuable upon exercise of the GreenBlock Warrant.
 
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Regulatory Approvals
 
Each party shall use commercially reasonable efforts to file or otherwise submit, as soon as practicable after the execution of the Merger Agreement, all applications, notices, reports, filings and other documents reasonably required to be filed by such party with or otherwise submitted by such party to any governmental body with respect to the Transaction, and to submit promptly any additional information requested by any such governmental body. MTS does not intend to seek any regulatory approval to consummate the Transaction.
 
Employee Benefit Matters
 
Under the terms of the Merger Agreement, for purposes of vesting, eligibility to participate, and level of benefits under the employee benefit plans, programs, contracts or arrangements of SharpLink providing benefits to any employee who is not an employee of MTS or any of its subsidiaries who is transferred to be employed by MTS or any of their respective subsidiaries immediately following the closing of the Transaction will be credited with his or her years of service with SharpLink and its respective predecessors, subject to certain customary exceptions.
 
Indemnification and Insurance for Officers and Directors
 
Under the Merger Agreement, from the closing of the Transaction through the seventh anniversary of the date on which the effective time of the Transaction occurs, MTS and the surviving corporation in the Transaction agree to, jointly and severally, indemnify and hold harmless to the fullest extent allowed applicable law, each present and former director or officer of MTS against all claims, losses, liabilities, damages judgments, fines and reasonable fees, costs and expenses, including attorneys’ fees and disbursements, incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of such individual’s position as a director or officer of MTS, whether asserted or claimed prior to, at or after the effective time of the Transaction.
 
Under the Merger Agreement, the provisions of the MTS Articles with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers of MTS that are presently set forth in the MTS Articles shall not be amended, modified or repealed for a period of seven years from the Effective Time in a manner that would adversely affect the rights thereunder of individuals who, at or prior to the Effective Time, were officers or directors of MTS. The certificate of incorporation and bylaws of SharpLink shall contain, and MTS shall cause the certificate of incorporation and bylaws of SharpLink to so contain, provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers as those presently set forth in SharpLink’s certificate of incorporation and bylaws.
 
The Merger Agreement also provides that MTS will purchase a run-off insurance policy for MTS’s officers and directors in effect for seven years from the closing, providing coverage not in excess of MTS’s current directors’ and officers’ liability insurance policy. The Merger Agreement further provides that MTS will be responsible for payment of all deductibles and other expenses in connection with the run-off insurance policy following the effective time of the Transaction. MTS is proposing the purchase of such a run-off insurance policy pursuant to Proposal 1(j) of this proxy statement.
 
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Additional Agreements
 
Each of MTS, Merger Sub and SharpLink has agreed to, among other things:
 

use its commercially reasonable efforts to cause to be taken all actions necessary to consummate the Transaction and any other transaction contemplated by the Merger Agreement;
 

reasonably cooperate with the other parties and provide the other parties with such assistance as may be reasonably requested for the purpose of facilitating the performance by each party of its respective obligations under the Merger Agreement and to enable the surviving corporation to continue to meet its obligations under the Merger Agreement following the closing;
 

make all filings and other submissions (if any) and give all notices (if any) required to be made and given by such party in connection with the Transaction and any other transaction contemplated by the Merger Agreement;
 

use its commercially reasonable efforts to lift any injunction prohibiting, or any other legal bar to, the Transaction and any other transaction contemplated by the Merger Agreement;
 

use its commercially reasonable efforts to satisfy the conditions precedent to the consummation the Transaction and any other transaction contemplated by the Merger Agreement;
 

use its commercially reasonable efforts to satisfy the conditions precedent to the consummation of the Merger Agreement; and
 

use its commercially reasonable efforts to cause the merger to qualify, and agree not to, and not permit or cause any of its affiliates or any subsidiaries to, take any actions or cause any action to be taken which would reasonably be expected to prevent the merger from qualifying, as a “reorganization” under Section 368(a) of the Code or to prevent MTS from being treated as a domestic corporation for U.S. federal income tax purposes under Section 7874(b) of the Code following consummation of the Transaction.
 
Nasdaq Stock Market Listing
 
The MTS Ordinary Shares are currently listed on The Nasdaq Capital Market under the symbol “MTSL.” The Merger Agreement provides that MTS shall use its commercially reasonable efforts, (a) to the extent required by the rules and regulations of Nasdaq, to prepare and submit to Nasdaq a notification form for the listing of the MTS Ordinary Shares to be issued in connection with the transactions contemplated by the Merger Agreement, and to cause such shares to be approved for listing (subject to official notice of issuance); and (b) to file an initial listing application for the MTS Ordinary Shares on Nasdaq, or the Nasdaq Listing Application, and to cause such listing application to be approved prior to the Effective Time subject to official notice of issuance. In addition, under the Merger Agreement, each of MTS’s and SharpLink’s obligation to complete the Transaction is subject to satisfaction or waiver by each of the parties, at or prior to the closing of the Transaction, of various conditions, including that the existing MTS Ordinary Shares must have been continually listed on The Nasdaq Capital Market, the MTS Ordinary Shares to be issued in the Transaction shall be approved for listing (subject to official notice of issuance) on The Nasdaq Capital Market as of the effective time of the Transaction and, to the extent required by Nasdaq Marketplace Rule 5110, the Nasdaq Listing Application has been approved for listing (subject to official notice of issuance).
 
If the Nasdaq Listing Application is accepted, MTS anticipates that its Ordinary Shares will be listed on The Nasdaq Capital Market following the closing of the Transaction under the trading symbol “BETS” or an alternative symbol submitted by us and SharpLink and accepted by Nasdaq.
 
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Conditions to the Completion of the Transaction
 
The respective obligations of MTS, Merger Sub and SharpLink to complete the Transaction and the other transactions contemplated by the Merger Agreement are subject to the satisfaction or waiver of various conditions that include, in addition to other customary closing conditions, the following:
 

there must not have been issued any temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Transaction by any court of competent jurisdiction or other governmental body of competent jurisdiction and remain in effect, and there shall not be any applicable law, statute, rule, regulation, ruling or decree which has the effect of making the consummation of the Transaction illegal;
 

the holders of the requisite majority of the MTS Ordinary Shares shall have approved the MTS Shareholder Matters;
 

the securities purchase agreement between Alpha Capital and SharpLink shall be in full force and effect and concurrently with the consummation of the Transaction cash proceeds of not less than the Closing Financing shall have been received by SharpLink pursuant to such agreement;
 

holders of no more than 2% of the outstanding SharpLink capital stock shall have validly exercised, or remained entitled to exercise, their appraisal rights under the Minnesota Business Corporations Act;
 

SharpLink shall have received a tax ruling from the Israel Tax Authority that explicitly indicates that the issuance of shares by MTS as consideration in the Transaction will be exempt from withholding obligations;
 

the existing MTS Ordinary Shares must have been continually listed on The Nasdaq Capital Market through the closing of the Transaction, the MTS Ordinary Shares to be issued in the Transaction must be approved for listing on The Nasdaq Capital (subject to official notice of issuance) as of the effective time of the Transaction, and, to the extent required by Nasdaq Marketplace Rule 5110, the Nasdaq Listing Application has been approved for listing (subject to official notice of issuance); and
 

there shall not be any legal proceeding pending, or overtly threatened in writing, by an official of a governmental body in which such governmental body indicates that it intends to conduct any legal proceeding or taking any other action: (a) challenging or seeking to restrain or prohibit the consummation of the Transaction; (b) relating to the Transaction and seeking to obtain from MTS, Merger Sub or SharpLink any damages or other relief that may be material to SharpLink or MTS; (c) seeking to prohibit or limit in any material and adverse respect a party’s ability to vote, transfer, receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of SharpLink; (d) seeking to invalidate or render unenforceable any material provision of the Merger Agreement or any of the other agreements attached as exhibits thereto or contemplated thereby; (e) that would materially and adversely affect the right or ability of MTS or SharpLink to own the assets or operate the business of MTS or SharpLink; or (f) seeking to compel SharpLink, MTS or any subsidiary of MTS to dispose of or hold separate any material assets as a result of the Transaction.
 
In addition, the obligation of MTS and Merger Sub to complete the Transaction is further subject to the satisfaction or waiver of the following conditions:
 

the representations of SharpLink contained in the Merger Agreement were accurate as of the date of the Merger Agreement and are accurate as of the consummation of the Transaction, in all respects (in the case of any representation containing any materiality qualification) or in all material respects (in the case of any representation without any materiality qualification), except for representations and warranties made as of a specific date, which shall be accurate as of such date, and except for changes contemplated by the Merger Agreement;
 
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SharpLink shall have performed or complied in all material respects with all agreements and covenants required to be performed or complied with by it under the Merger Agreement at or prior to the effective time of the Transaction;
 

MTS shall have received certain documents, certificates and declarations and a waiver from Alpha Capital waiving any contractual or other right it may have in connection with the Merger Agreement and the transactions contemplated thereby, under the MTS Articles and pursuant to the securities purchase agreement between MTS and Alpha Capital, other than such rights specifically set forth in the Merger Agreement; and
 

Since the date of the Merger Agreement, there shall not have occurred any material adverse effect with respect to SharpLink.
 
In addition, the obligation of SharpLink to complete the Transaction is further subject to the satisfaction or waiver of certain conditions, including:
 

The representations of MTS and Merger Sub contained in the Merger Agreement were accurate as of the date of the Merger Agreement and are accurate as of the consummation of the Transaction, in all respects (in the case of any representation containing any materiality qualification) or in all material respects (in the case of any representation without any materiality qualification), except for representations and warranties made as of a specific date, which shall be accurate as of such date and except for changes contemplated by the Merger Agreement;
 

MTS and Merger Sub shall have performed or complied with in all material respects all of their agreements and covenants required to be performed or complied with by each of them under the Merger Agreement at or prior to the effective time of the Transaction;
 

SharpLink shall have received certain documents, certificates and declarations and written resignations of the directors and officers of MTS who are not to continue as directors and/or officers of MTS after the consummation of the Transaction;
 

the SEC shall have declared effective the Registration Statement;
 

Since the date of the Merger Agreement, there shall not have occurred any material adverse effect with respect to MTS;
 

SharpLink shall have received the lock-up agreements duly executed by each of Mr. Haim Mer, Mr. Roy Hess and Ms. Ofira Bar, each of which shall be in full force and effect; and
 

(a) MTS and SharpLink shall have agreed in writing upon the estimates of the MTS cash at closing and the transaction expenses that will not have been paid by MTS prior to consummation of the Transaction, or a designated accounting firm shall have delivered its determination with respect to the such estimates, and (b) the MTS cash at closing at the anticipated effective time of the Transaction shall be at least $900,000, provided, however, that this amount will be increased by an amount equal to the aggregate amount of MTS transaction expenses not paid by MTS prior to consummation of the Transaction, if any, but only to the extent such transaction expenses were not taken into account in the calculation of the MTS cash at closing.
 
Under the Merger Agreement, the term MTS cash at closing means: (i) cash and cash equivalents held by MTS, on a consolidated basis, plus (ii) accounts receivable of MTS immediately prior to the effective time of the Transaction that are reasonably expected to be collected by MTS, on a consolidated basis, in the ordinary course of business without any counterclaim, or a claim for a chargeback, deduction, credit, set-off or other offset, with such amount to be estimated in good faith based upon the internal A/R aging report dated as of such estimation, plus (iii) any amount of the premiums in connection with the “runoff” D&O liability insurance policy paid by MTS prior to consummation of the Transaction, if any, plus (iv) any documented fees and expenses paid by MTS prior to consummation of the Transaction in connection with the Nasdaq Listing Application, the Nasdaq listing process, the preparation and filing of the Registration Statement and the fees and expenses of a proxy solicitor mutually agreed on by MTS and SharpLink that were not reimbursed by SharpLink prior to consummation of the Transaction.
 
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Termination of the Merger Agreement and Termination Fee
 
The Merger Agreement may be terminated at any time before the consummation of the Transaction, whether before or after the required MTS shareholder approval to complete the Transaction has been obtained (unless indicated otherwise below) as follows:
 

a.
by mutual written consent of MTS and SharpLink;
 

b.
by either SharpLink or MTS if the Transaction is not consummated on or before July 31, 2021 (as extended by the parties prior to the publication of this proxy statement), or such later date as SharpLink and MTS may mutually agree (except that a party seeking to terminate the Merger Agreement pursuant to this option may not do so if the failure to consummate the Transaction by such date shall be due to the action or failure to act of the party seeking to terminate the Merger Agreement in breach of such party’s obligations under the Merger Agreement);
 

c.
by either MTS or SharpLink if a court of competent jurisdiction or other governmental body shall have issued a final and non-appealable order, decree or ruling, or shall have taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by the Merger Agreement;
 

d.
by either MTS or SharpLink if: (i) the Meeting (including any adjournments and postponements thereof) shall have been held and completed and MTS’s shareholders shall have taken a final vote on the MTS Shareholder Matters and (ii) the MTS Shareholder Matters shall not have been approved at the Meeting (or at any adjournment or postponement thereof) by the required majority;
 

e.
by SharpLink (at any time prior to obtaining the required majority in connection with the MTS Shareholder Matters) if any of the following events have occurred: (i) MTS shall have failed to include in the proxy statement the recommendation of the MTS Board as contemplated under the Merger Agreement or shall have made a MTS Board Adverse Recommendation Change; (ii) the MTS Board or any committee thereof shall have publicly approved, endorsed or recommended any acquisition proposal (or shall have not publicly recommended against any acquisition proposal that is a tender offer or exchange offer within five business days after the commencement thereof); (iii) MTS shall have entered into any letter of intent or contract or similar document contemplating or otherwise relating to any acquisition proposal (other than a confidentiality agreement permitted pursuant to the non-solicitation provision of the Merger Agreement); or (d) MTS or any of its representatives has willfully and intentionally breached the non-solicitation provision of the Merger Agreement;
 

f.
by MTS (at any time prior to obtaining the required majority in connection with the MTS Shareholder Matters) if any of the following events have occurred: (i) the SharpLink shareholders vote to terminate the Merger Agreement or take any other action that is reasonably likely to prevent the consummation of the transactions contemplated by the Merger Agreement (other than as a result of any action or inaction by MTS or its subsidiaries that constitutes a material breach of the Merger Agreement that permits SharpLink to terminate the Merger Agreement under (i) below after the opportunity to cure such breach as set forth in (i) below, if applicable, has elapsed without cure of such breach); (ii) the SharpLink board of directors has approved, endorsed or recommended any acquisition proposal; (iii) SharpLink shall have entered into any letter of intent or contract or similar document contemplating or otherwise relating to any acquisition proposal (other than a confidentiality agreement permitted pursuant to the non-solicitation provision of the Merger Agreement); or (iv) SharpLink or any of its representatives has willfully and intentionally breached the non-solicitation provision of the Merger Agreement;
 

g.
by MTS, by written notice to SharpLink, prior to obtaining the required majority in connection with the MTS Shareholder Matters, if the MTS Board authorizes MTS to enter into a definitive agreement to effect a transaction constituting a superior offer, in compliance with the non-solicitation provision of the Merger Agreement;
 
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h.
by SharpLink, by written notice to MTS, prior to obtaining the required majority in connection with the MTS Shareholder Matters, if SharpLink’s board of directors authorizes SharpLink to enter into a definitive agreement to effect a transaction constituting a superior offer, in compliance with the non-solicitation provision of the Merger Agreement;
 

i.
by SharpLink, upon a breach of any representation, warranty, covenant or agreement set forth in the Merger Agreement by MTS or Merger Sub or if any representation or warranty of MTS or Merger Sub shall have become inaccurate, in either case, such that certain closing conditions could not be satisfied; provided that SharpLink is not then in material breach of any representation, warranty, covenant or agreement under the Merger Agreement; provided, further, that if such inaccuracy in MTS’s or Merger Sub’s representations and warranties or breach by MTS or Merger Sub is curable by MTS or Merger Sub within 30 calendar days, then the Merger Agreement shall not terminate as a result of such particular breach or inaccuracy until the expiration of a 30 calendar day period commencing upon delivery of written notice from SharpLink to MTS or Merger Sub of such breach or inaccuracy and its intention to terminate the Merger Agreement (it being understood that the Merger Agreement shall not terminate as a result of such particular breach or inaccuracy if such breach by MTS or Merger Sub is cured prior to such termination becoming effective); provided further, however, that no termination may be made pursuant to this option solely as a result of the failure to obtain the required majority in connection with the MTS Shareholder Matters (in which case, termination must be made pursuant to (d) above); or
 

j.
by MTS, upon a breach of any representation, warranty, covenant or agreement set forth in the Merger Agreement by SharpLink or if any representation or warranty of SharpLink shall have become inaccurate, in either case, such that certain closing conditions could not be satisfied; provided that neither MTS nor Merger Sub is not then in material breach of any representation, warranty, covenant or agreement under the Merger Agreement; provided, further, that if such inaccuracy in SharpLink’s representations and warranties or breach by SharpLink is curable by SharpLink within 30 calendar days, then the Merger Agreement shall not terminate as a result of such particular breach or inaccuracy until the expiration of a 30 calendar day period commencing upon delivery of written notice from MTS to SharpLink of such breach or inaccuracy and its intention to terminate the Merger Agreement (it being understood that this Agreement shall not terminate as a result of such particular breach or inaccuracy if such breach by the Company is cured prior to such termination becoming effective).
 
MTS is required to pay SharpLink a nonrefundable termination fee of $1,300,000 if the Merger Agreement is terminated by SharpLink pursuant to clause (e) above or by MTS pursuant to clause (g) above, within ten business days of the termination.
 
SharpLink is required to pay MTS a nonrefundable termination fee of $1,300,000, if the Merger Agreement is terminated by MTS pursuant to clause (f) above or by SharpLink pursuant to clause (h) above, within ten business days of the termination.
 
Any termination of the Merger Agreement and the payment of the termination fee shall not relieve any party of any liability for fraud or for any willful and material breach of any representation, warranty, covenant, obligation or other provision contained in the Merger Agreement.
 
Expenses
 
The Merger Agreement provides all fees and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby will be paid by the party incurring such expenses, except that SharpLink will pay all Nasdaq fees associated with the Nasdaq Listing Application and any payments charged by consultants reasonably agreed upon by SharpLink and MTS assisting with the listing process.
 
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Amendment
 
The Merger Agreement may be amended by an instrument in writing signed on behalf of each of MTS, Merger Sub and SharpLink with the approval of the respective boards of directors of MTS, Merger Sub and SharpLink at any time, except that after the Merger Agreement has been adopted by the shareholders of MTS, no amendment which by law requires further approval by the shareholders of MTS will be made without such further approval.
 
Governing Law and Jurisdiction
 
The Merger Agreement is governed by, and construed in accordance with, the laws of New York, regardless of the applicable laws that might otherwise govern under applicable principles of conflicts of laws, except for corporate governance matters applicable to MTS which shall be subject to the laws of the State of Israel and for corporate law matters relating to the merger between SharpLink and Merger Sub, which shall be subject to the Laws of the State of Minnesota and the State of Delaware, as applicable. In any action or proceeding between any of the parties arising out of or relating to the Merger Agreement or any of the transactions contemplated thereby, other than certain exceptions, each of the parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the competent courts located in New York County, New York, USA.
 
Revised Articles
 
In connection with the Transaction, MTS agreed to adopt the Second Amended and Restated Articles of Association of MTS, effective upon the consummation of the Transaction, which will, among other things: (i) increase the registered share capital of MTS from NIS 600,000, divided into 17,000,000 Ordinary Shares and 3,000,000 Preferred Shares, nominal value NIS 0.03 each, to NIS 6,000,000, divided into 185,800,000 Ordinary Shares, 1,600,000 Preferred A Shares, 5,200,000 Preferred A-1 Shares and 7,400,000 Preferred B Shares, nominal value NIS 0.03 each, (ii) designate the currently outstanding Preferred Shares as Preferred A Shares, (iii) effect the Reverse Split, at a ratio in the range of between 1-for-2 to 1-for-5, inclusive, with such ratio to be determined in the discretion of the MTS Board, (iv) change MTS’s name from “Mer Telemanagement Solutions Ltd.” to “SharpLink Ltd.” or such other name as may be approved by SharpLink and the Israeli Registrar of Companies and (v) make such other changes as are set forth in the Revised Articles, and to approve corresponding amendments to the Company’s Memorandum of Association.
 
For more information concerning the rights attached to the Preferred A Shares, Preferred A-1 Shares and Preferred B Shares see “Merger Consideration and Exchange Ratio – New Preferred Shares.”
 
The MTS Ordinary Shares shall have equal rights for every purpose and will confer upon the holder thereof:
 

equal rights to receive an invitation to, attend all of and vote at all of the general meetings of MTS. Each one of the MTS Ordinary Shares will confer upon its holder a single vote at every general meeting of MTS at which the holder participates and votes, in person, by agent, or by proxy;
 

equal rights to receive dividends, if and when distributed, whether in cash or any other manner, and to participate in a distribution of bonus shares, if and when distributed, according to the ratio between the shareholders’ holdings in MTS’s issued and outstanding share capital (Ordinary Shares and Preferred Shares on an as-converted basis, without regard to the Beneficial Ownership Limitation) and MTS’s total issued and outstanding share capital (Ordinary Shares and Preferred Shares on an as-converted basis, without regard to the Beneficial Ownership Limitation); and
 

equal rights to participate in a distribution of MTS’s assets available for distribution, in the event of liquidation or winding-up of MTS, following the distribution to the holders of the Preferred B Shares, if applicable, and pari passu with the Preferred A Shares and Preferred A-1 Shares (on an as-converted basis).
 
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Ancillary Documents related to the Transaction
 
Lock-up Agreements
 
Concurrently with the execution of the Merger Agreement, Mr. Haim Mer, our Chairman of the Board, Mr. Roy Hess, our CEO and Ms. Ofira Bar, our CFO, entered into lock-up agreements, or the MTS Lock-Up Agreements, pursuant to which they accepted certain restrictions on transfers of shares of MTS held, or to be held, by them until the earliest of (A) 90 days after the consummation of the Transaction, (B) the 90 days after they cease to be members of the MTS Board or an officer of MTS, as the case may be, and (C) the termination of Merger Agreement. Each of the signatories to the MTS Lock-Up Agreements agreed that during such period, subject to certain exceptions, she or he will not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by them or any of their affiliates or any person in privity with them), directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act.
 
In connection with the $2 million investment by Alpha Capital in shares of SharpLink’s Series A Preferred Stock in December 2020, SportsHub and the officers and directors of SharpLink entered into lock-up agreements, or the SharpLink Lock-Up Agreements, pursuant to which they accepted certain restrictions on transfers of shares of SharpLink held, or to be held, by them until 180 days after the consummation of the Transaction, including securities of MTS issued in exchange for such SharpLink shares in the Transaction. Each of the signatories to the SharpLink Lock-Up Agreements agreed that during such period, subject to certain exceptions, he or it will not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by them or any of their affiliates or any person in privity with them), directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act.
 
Support Letter
 
Concurrently with the execution of the Merger Agreement, Mr. Haim Mer, our Chairman of the Board and a shareholder of MTS, holding approximately 11.4% of the MTS Ordinary Shares, provided a support letter to SharpLink, or the Support Letter.  In the Support Letter, Mr. Mer represented to SharpLink that he duly signed (including by authorized electronic or telephonic means) and returned to MTS (or its transfer agent or other designee) one or more proxies relating to all MTS Share Capital beneficially owned (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) by him and instructed that all of such shares be voted at the shareholders’ meeting held on May 5, 2021 in connection with the demand of the activist shareholder, against the proposals of the activist shareholder and for the proposal presented by the MTS Board. In addition, Mr. Mer informed SharpLink, in connection with the meeting of MTS shareholders at which any of the Merger Agreement, the Transaction, the MTS Shareholder Matters and the other transactions contemplated by the Merger Agreement will be considered, that he intends to vote all MTS Ordinary Shares beneficially owned by him in favor of (a) the Transaction and the transactions contemplated by the Merger Agreement, (b) the MTS Shareholder Matters, and (c) any other matters required to be approved by the shareholders of MTS as a condition to completion of the Transaction under the terms of the Merger Agreement.
 
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ABOUT SHARPLINK
 
Overview

SharpLink is a business-to-business, or B2B, provider of advanced technology that seamlessly connects sports fans with online sports betting bookmakers, which it refers to as its Affiliate Marketing Services, and a leading U.S. provider of free to play games and betting feed integrations, which it refers to as its Sports Gaming Client Services.

SharpLink’s Affiliate Marketing Services business focuses on acquiring sports fans through SharpLink’s partnerships with professional sports leagues, large sports media websites and its own network of related sports websites, bringing them highly relevant and timely sports betting content. Specifically, SharpLink’s analytical software tools allow it to collect data on sports fans, intelligently connect those fans with personally relevant sports betting offers, and convert the sports fans into paying customers for online bookmakers.  SharpLink’s vision is to be the leader in the emerging U.S. sports gaming and betting markets by developing advanced technology that seamlessly connects sports fans with online sports bookmakers.

SharpLink’s Sports Gaming Client Services business has been providing custom development, hosting and management services for free-to-play games and prize-winning contests for major sports leagues and media companies for over 15 years.  In addition to its traditional games development business, SharpLink has developed and deployed betting integration services for major leagues in the U.S. By leveraging its technology and building on its current client relationships, SharpLink believes it is well positioned to earn a leadership position in the rapidly evolving sports betting industry by delivering high-value users to gaming operators.

Founded in 2019, SharpLink’s management team has more than 100 years of combined experience delivering innovative sports solutions to partners such as Turner Sports, Google, Facebook, the National Football League (NFL), the National Collegiate Athletic Association (NCAA) and the National Basketball Association (NBA), among many other iconic organizations, with executive experience at companies such as ESPN, NBC, Sportradar, AOL, Cantor Gaming, Betfair and others.  SharpLink’s current Sports Gaming Client Services business was originally established in 2006 as Sports Technologies Inc., or STI, which was founded by its Chief Operating Officer. STI was acquired by SharpLink’s parent company, SportsHub, in 2016. In November 2020, SportsHub spun-off and SharpLink subsequently acquired STI in an all-stock transaction. SharpLink’s Client Services division is based in Collinsville, Connecticut and employs 17 developers and sales personnel.

SharpLink’s Businesses

Affiliate Marketing Services

Over the last three years, SharpLink has developed and launched its sports betting conversion platform, which is fully-licensed and compliant in five states where online sports betting is currently legal in the United States (see “–Government Regulations”). This technology-enabled platform is designed to analyze a broad base of information on sports fans, intelligently learn from this data and deliver the most advanced targeting solutions to the sports betting market. SharpLink’s technologies and solutions eliminate the need for multiple Application Programming Interface, or API, integrations with individual sportsbooks and work with SharpLink’s clients’ existing sports data providers to make their sites fully-transactional betting online destinations. SharpLink’s platform gains insight on the strongest markets from deep learning across the entire network in order to deliver the right message to the right person at the right time. As such, SharpLink provides technological solutions for its platform and its clients that can generate significant additional revenue streams while reducing the need for building internal development and integration teams.

For instance, SharpLink created a fully-contextualized experience within SportsHub Game Network’s Daily Fantasy Sports and High Stakes Fantasy Football games.  The contextual bet placements allowed users to become acclimated to new betting opportunities without leaving their fantasy team environment. This resulted in exponentially higher conversion rates versus ads previously run, and a snowball momentum effect for response rates as the season progressed. With a deep product and service suite and the ability to develop custom solutions for its partners, SharpLink is actively pioneering frictionless betting technology and onboarding services to enable next-generation connections between league content, media properties and sportsbooks. With these integrated solutions that connect, cultivate and convert passionate sports fans to sports bettors, SharpLink seeks to deliver entertainment, fun and meaningful information alongside rich, resonating content to further connect sports fans with sports betting opportunities that specifically appeal to their unique betting preferences.

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Sports Gaming Client Services

SharpLink’s Sports Gaming Client Services division designs, develops, tests, hosts and manages games for a licensing fee.  SharpLink also integrates sports betting markets for major league and media clients for a licensing fee.

SharpLink’s experience and expertise in both free-to-play fantasy games and sports betting make it easy for its clients to reach their users in multiple ways, from traditional fantasy games to full geo-targeted betting integrations.

By way of example, SharpLink created and seamlessly integrated a custom live betting module on the homepage of NASCAR.com, geo-targeting NASCAR.com users with multiple betting opportunities for each weekly race within an intuitive platform.  By using SharpLink, NASCAR is able to provide its audience with a weekly, dynamic, real-time betting experience.

SharpLink also holds longstanding free-to-play game development agreements with some of the biggest names in sports including Turner Sports, NBA, NHL, NFL, PGA Tour and the Women’s Tennis Association (WTA).  SharpLink is also currently pursuing new business arrangements with some of the top professional sports leagues and media companies in the United States.

SharpLink’s Sports Gaming Client Services division specializes in helping sports media companies and league operators develop strategies, products and innovative solutions to drive deep, sustainable customer engagement with highly interactive games and mobile applications.

Business Model and Growth Strategy

SharpLink’s management believes the company is well positioned to help established sports brands connect with the sports betting ecosystem, maximizing user engagement, data insights and monetization.  The following is a summary of SharpLink’s business model and growth strategy.

Frictionless Betting Technology

SharpLink’s management believes that the company has developed an industry leading, cost-effective and automated user conversion management system that makes it easy for gaming operators and publishers to acquire and scale sports betting customers. The system drives low-cost conversion of fantasy sports users and general sports fans into sports bettors. SharpLink’s platform allows it to make most websites fully transactional betting sites without having to build internal teams to engineer custom technical integrations that cost time and money. Once implemented, SharpLink’s technology identifies the relevant sport, teams and players and then matches a user’s personal data to establish a relationship with a sportsbook before it serves a betting offer. Through its relationships with multiple sportsbook partners, SharpLink manages constantly changing betting markets and displays bets best matched to the content and the user.

As an example, if a sports fan is on a sports-related website and SharpLink learns as a result of his online patterns that he likes football, he is a fan of the Tampa Bay Buccaneers and his favorite player is Tom Brady, then SharpLink’s technology, in conjunction with the online bookmakers, can offer this sports fan a bet that Tom Brady will throw a touchdown on the first drive of the second half in that afternoon’s game. Clearly, this bet offer would have more relevance to this specific sports fan than if he were offered a bet on Patrick Mahomes of the Kansas City Chiefs scoring a touchdown on the first drive while playing the Philadelphia Eagles. These customized, contextual offers are generated automatically and dynamically and are embedded within website content for frictionless activation, thereby removing the need for ongoing maintenance and parsing of each sportsbook in order to automate the delivery of real-time creative across multiple channels.

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SharpLink’s management believes that this level of customized, user-relevant bets gives its technology a competitive advantage in the marketplace, and will allow SharpLink to convert more sports fans into sports bettors, thereby increasing revenue for both itself and its partners.

Sports Betting Data Services

As part of its frictionless betting technology platform, SharpLink works closely with a wide range of industry leading sportsbooks to ingest, normalize, and monitor their betting markets; and then provides an API to give partners near real-time access to the latest betting markets and their prices. Additionally, SharpLink manages the ongoing updates to these APIs and markets, removing the technical headache of changing and evolving specifications in a fast-moving industry. Every market ingested from a sportsbook is presented with additional market metadata enabling partners to quickly cross-reference similar markets across different operators and removing the need for them to parse and map new and changing market names for each sportsbook. Every betting market is also cross-referenced to the relevant sporting entity, allowing SharpLink’s clients to access every market for Tom Brady, for example, in just one API call. SharpLink’s technologies remove the need for developers to parse and understand these sporting relationships across multiple sports, instead enabling them to leverage existing data sources, such as Sportradar, to automatically select the right markets.

SharpLink’s Betting Data Services are currently being licensed by NASCAR and the PGA Tour.  Several other major league and media companies are in active discussions to license SharpLink’s service and looking forward, SharpLink’s management expects this service offering could provide the basis for implementing full affiliate relationships when the market matures.

Free-To-Play Games Development

Through its Sports Gaming Client Services division, SharpLink specializes in enabling sports media companies to drive deep customer engagement with interactive games and mobile applications. SharpLink designs, develops, tests, hosts and manages these games and applications for a licensing fee. SharpLink has established relationships with the NBA, Turner Sports, NASCAR, PGA Tour, NHL, and Minnesota Vikings; and is pursuing new business arrangements with some of the top professional sports leagues and media companies in the U.S. In 2020, SharpLink supported more than 2.5 million active users with 58 total projects launched across all of its league partners. SharpLink’s long-term strategy is to leverage these relationships to integrate and bundle its frictionless betting technology to maximize conversion of users from free-to-play to sports betting.

Sales and Revenue

SharpLink derives revenue from several sources, including:


Software-as-a-Service (“SaaS”) Fees:  SharpLink enters into fee-based contracts for the development, hosting, operations, and maintenance of games and contests. These contracts generally provide for a term of one year, with renewal terms thereafter as agreed to by the parties.


Revenue Share: On revenue share agreements, SharpLink receives a portion of the revenues that a partner sportsbook operator generates as a result of a player playing on their site.


Cost Per Acquisition:  On cost per acquisition, or CPA, agreements, SharpLink receives a one-time fee for each player who deposits money on the partner sportsbook operator website. The fee is negotiated with each of SharpLink’s partner sportsbook operators at the time of contracting.


Fixed Fees:  SharpLink receives a fixed fee in exchange for providing sports betting data (e.g. betting lines) feeds to its client.

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Growth Opportunities

SharpLink intends to utilize multiple levers for growth with existing clients, as well as ongoing client and partner acquisition strategies, as follows:


Growth of U.S. Sports Betting Market.  SharpLink’s growth prospects depend in large part on continuing legalization of sports betting across the United States. As of June 2021, 25 U.S. states and Washington, D.C., have passed measures to legalize sports betting, of which 21 states have launched active sports betting industries with 14 states allowing mobile sports betting. This trend is expected to continue. SharpLink also has a forward-looking gaming licensing strategy. SharpLink already holds necessary licenses from gaming regulators in five U.S. states and plans to be licensed as required in all states that legalize sports betting.


Technology and Product Development.  Continued development in the breadth of SharpLink’s technology and services means that it expects to expand the number of partners it works with, as well as the number of products it offers to existing and new clients. SharpLink believes this will enable the company to further build long-term, sticky relationships with its partners.


Strategic Acquisitions.  SharpLink intends to seek acquisition opportunities that it believes will provide long-term value to its shareholders. While a primary area of focus is expected to be on smaller, complementary technology companies that enhance and expand its product and technology offerings, SharpLink will seek to develop an active pipeline of larger, more transformational opportunities.  SharpLink does not have any agreements for acquisition at the current time, and there is no guarantee that it will ultimately close any acquisitions in the future.


New Markets.  As other nascent industries such as iGaming grow, SharpLink will have the opportunity to leverage its technology and existing distribution to expand its offerings into new verticals.

Intellectual Property and Technology

Intellectual Property

Intellectual property rights are important to the success of SharpLink’s business. SharpLink relies on a combination of database, trademark, trade secret, confidentiality and other intellectual property protection laws in the United States and other jurisdictions, as well as license agreements, confidentiality procedures, non-disclosure agreements with third parties and other contractual protections, to protect its intellectual property rights, including its database, proprietary technology, software, know-how and brand. In the United States, SharpLink has filed trademark applications, currently hold several trademarks and domain names and, in the future, it may acquire patents, additional trademarks and domain names. SharpLink has also entered into license agreements, data rights agreements and other arrangements with sports organizations for rights to collect and supply their sports data.  These agreements typically have terms of several years and are subject to renewal or extension.  As of April 30, 2021, SharpLink owns one registered trademark in the United States and 14 domain-name registrations.

It has not always been, and in the future may not be, possible or commercially desirable to obtain registered protection for SharpLink’s products, software, databases or other technology. In such situations, SharpLink relies on laws governing protection of unregistered intellectual property rights, confidentiality and/or contractual exclusivity of and to underlying data and technology to prevent unauthorized use by third parties. SharpLink uses Open Source Software in its services and periodically reviews its use of Open Source Software to attempt to avoid subjecting its services and product offerings to conditions SharpLink does not intend to impose on them.

SharpLink controls access to and use of its data, database, proprietary technology and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, clients and partners. SharpLink requires its employees, consultants and other third parties to enter into confidentiality and proprietary rights agreements, and it controls and monitors access to its data, database, software, documentation, proprietary technology and other confidential information. SharpLink’s policy is to require all of its employees and independent contractors to sign agreements assigning to it any inventions, trade secrets, works of authorship, developments, processes and other intellectual property generated by them on its behalf and under which they agree to protect its confidential information. In addition, SharpLink generally enters into confidentiality agreements with its clients and partners.

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Sports Betting Conversion Technology

SharpLink gathers a wide range of sporting data, from official data providers and sportsbooks, via their official API channels. Once gathered, SharpLink reshapes those data feeds into a standardized SharpLink format and supplements the feed with additional metadata enabling its clients to understand the context of any given bet, without needing to understand the naming conventions used by each sportsbook. This standardization is, for the most part, done automatically within SharpLink’s systems; but is additionally supplemented and error checked by an operations team to ensure high integrity and availability of metadata.

Using Natural Language Processing, SharpLink is then able to extract relevant sporting entities (such as players and teams) from each sportsbook market – linking each market to a canonical reference entity and allowing its clients to seamlessly integrate sports betting content into their existing systems.

SharpLink’s cloud-based, horizontally scaling delivery systems then distribute this content through GraphQL and JavaScript layers, offering both visual components that are embedded directly within its clients’ websites, and a low latency data feed for clients to ingest directly.

SharpLink’s JavaScript components offer a wide range of market presentations, targeting the most effective sports props to the user. This recommendation system leverages its tracking database, coupled with machine learning/artificial intelligence (“MI/AI”) methods to make timely, highly effective recommendations across its network based on modelled user preferences. Each module can be styled to suit the particular branding requirements of the client, with new content iterations being constantly upgraded and released across SharpLink’s network of clients.

Sports Gaming Client Technology

The Client Services teams are focused on building compelling free-to-play fantasy sports games for major sports leagues and media partners. SharpLink believes these games will play an important role in the conversion funnel to creating sports bettors.

The Client Services team has a large collection of game engines including brackets, prop-style questions, salary cap, and many more. SharpLink uses the right mix of technologies for each application, building on its previous work and enabling new functionality. SharpLink is continuing to explore new technologies throughout its entire stack, whether it is new JavaScript framework or a new database engine to enable a unique new feature. SharpLink’s applications are fully cloud-native, containerized and optimized to scale to support events with national audiences comprising millions of fans.

U.S. Sports Betting Industry and SharpLink Opportunity

U.S. Sports Betting Industry

Prior to May 2018 in the United States, the Professional and Amateur Sports Protection Act of 1992, or PASPA, restricted the ability of individual states to legalize sports betting.  However, in May 2018, the U.S. Supreme Court ruled that PASPA violated the United States Constitution.  As a result of the Supreme Court’s decision, the federal restrictions on sports betting under PASPA were no longer enforceable, giving individual states the power to legalize sports betting. Since PASPA was overturned, 25 states and Washington, D.C. are now offering legalized sports betting. Another five states have enacted sports betting legislation, which is not yet effective, and an additional 14 states have either pending sports betting legislation or are considering introducing sports betting bills at their state legislatures. SharpLink expects additional states to legalize sports betting in the coming years, which will further grow the U.S. sports betting market. The American Gaming Association forecasts that 75% of the U.S. population will have some form of regulated sports betting available to it by 2023. This rapid expansion of legalized sports betting is projected to result in a shift of over $150 billion in bets moving from offshore to the U.S. in the coming years. In an online March 2021 U.S. survey conducted by Statista, a leading provider of market and consumer data, the results revealed that 74% of survey respondents defined themselves as sports fans.  Moreover, the Fantasy Sports Trade Association, or FSTA, reported that in 2018 there were 59.3 million fantasy sports players in the U.S. and Canada. FSTA also published research statistics reflecting that 80% of fantasy sports users plan to participate in legalized sports wagering while continuing to play fantasy sports.

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Morgan Stanley estimates that the online sports betting market will generate over $9.2 billion in annual net gaming revenue, or NGR, in the U.S. alone by 2025.  SharpLink estimates that 30% of NGR will be paid out by sportsbook operators for affiliates services, leading to a $2.76 billion affiliate market opportunity. According to internal research, an estimated $20 billion has already been invested in acquisitions and partnerships by gaming operators, sports leagues and media companies as the industry rapidly expands and prepares for betting growth in the U.S.

Competition

A number of businesses exist in the markets in which SharpLink operates – namely the B2B provision of sports data-driven technology and related services to sports and betting companies. These businesses generally fall into three categories: small companies with some similar products but with minimal distribution; companies that acknowledge official rights but lack meaningful scale; and genuine competitors that offer similar products and services to the same target clients.  SharpLink considers its most direct and relevant competitors to be Catena Media, Bettor Collective, Genius Sports, Sportradar, Fresh8Gaming (recently acquired by Sportradar) and MetaBet.

In its sports gaming betting services business, SharpLink and one or more of its competitors will often simultaneously serve the same clients. SharpLink’s competitors have their own portfolio of technology products and services, and sportsbooks rarely agree to have exclusive agreements with just one provider as this prevents them from offering a broad range of solutions, placing them at a competitive disadvantage.  These dynamics result in a highly competitive industry.

SharpLink believes that the principal differentiating factors in the sports data industry include the breadth and depth of sports data rights, reliability of key services, relationships with sportsbooks and leagues, ease of integration and scalability. SharpLink’s products, services, experience, industry relationships and corporate culture allow it to compete effectively across all these factors.  By delivering what SharpLink believes is an unprecedented level of user engagement and stickiness for its valued clients made possible by its proprietary technology platform, SharpLink helps its clients to reduce their customer acquisition costs and achieve significantly higher customer lifetime values.

Government Regulations

SharpLink operates in various jurisdictions and its business is subject to extensive regulation under the laws, rules and regulations of the jurisdictions in which it operates. Violations of laws or regulations in one jurisdiction could result in disciplinary action in that and other jurisdictions.

SharpLink has a progressive licensing strategy. SharpLink is currently authorized to provide sports betting services in New Jersey (by the New Jersey Division of Gaming Enforcement), in Colorado (by the Colorado Division of Gaming), in Indiana (by the Indiana Gaming Commission), in West Virginia (by the West Virginia Lottery Commission), and in Pennsylvania (by the Pennsylvania Gaming Control Board). SharpLink is also currently pursuing new licensing arrangements in Tennessee, Michigan, and Virginia. SharpLink plans to obtain necessary licensure in all states that have legalized sports betting and actively monitors legislation across all U.S. states in order to move quickly into new jurisdictions.

Among others, applicable laws include those regulating privacy, data/cyber security, data collection and use, cross-border data transfers, advertising regulations and/or sports betting and online gaming laws and regulations. These laws impact, among other things, data collection, usage, storage, security and breach, dissemination (including transfer to third parties and cross-border), retention and destruction. Certain of these laws provide for civil and criminal penalties for violations.

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The data privacy and collection laws and regulations that affect SharpLink’s business include, but are not limited to:


U.S. federal, state and local data protections laws such as the Federal Trade Commission Act and similar state laws;
 

state data breach laws and state privacy laws, such as the California Consumer Privacy Act, the California Consumer Privacy Rights Act, and the Stop Hacks and Improve Electronic Data Security Act of New York; and
 

other data protection, data localization and state laws impacting data privacy and collection.

Other regulations that affect SharpLink’s business include:


U.S. state laws regulating sports betting and online gaming and related licensing requirements;
 

laws regulating the advertising and marketing of sports betting, including but not limited to the U.S. Federal Trade Commission Act;
 

laws and regulations relating to antitrust, competition, anti-money laundering, economic and trade sanctions, intellectual property, consumer protection, accessibility claims, securities, tax, labor and employment, commercial disputes, services and other matters; and
 

other international, domestic federal and state laws impacting marketing and advertising, including but not limited to laws such as the Americans with Disabilities Act, the Telephone Consumer Protection Act of 1991, state telemarketing laws and regulations, and state unfair or deceptive practices acts.

These laws and regulations are complex, change frequently and have tended to become more stringent over time. The laws and regulations applicable to some parts of SharpLink’s business are still developing in certain jurisdictions, and there can be no assurance that its activities will not become the subject of any regulatory or law enforcement, investigation, proceeding or other governmental action or that any such proceeding or action, as the case may be, would not have a material adverse impact on SharpLink or its business, financial condition or results of operations. SharpLink incurs significant expenses in its attempt to ensure compliance with these laws. Currently, public concern is high with regard to the operation of companies in the data collection industry, as well as the collection, use, accuracy, correction and sharing of personal information. In particular, some consumer advocates, privacy advocates, legislatures and government regulators believe that existing laws and regulations do not adequately protect privacy and have become increasingly concerned with the use of these types of personal information. In the United States, Congress and state legislatures may propose and enact additional data privacy requirements. Additional laws could result in significant limitations on or changes to the ways in which SharpLink can collect, use, host, store or transmit the personal information and data of its customers or employees, and deliver products and services, or may significantly increase its compliance costs. As its business expands to include new uses or collection of data that is subject to privacy or security regulations, SharpLink’s compliance requirements and costs will increase and it may be subject to increased regulatory scrutiny. Additional legislative or regulatory efforts in the United States could further regulate its businesses.

Employees and Contractors

As of April 30, 2021, SharpLink employed a total of 27 full-time employees, including five in general and administrative, two in sales/marketing/customer support, and 20 in research and product development. SharpLink outsources certain employment benefit and other employee-related administrative functions to a third party service provider, which serves as a co-employer of its employees for these purposes. None of SharpLink’s employees are currently represented by a labor union or covered by a collective bargaining agreement, and SharpLink’s management believes that the company’s relations with its employees are good.

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Properties

SharpLink occupies approximately 725 square feet of office space in Minneapolis, Minnesota, which also serves as its corporate headquarters.  The rights to its Minneapolis offices are provided by SportsHub, which is the majority shareholder of SharpLink and holds the lease for this facility.  SharpLink reimburses SportsHub for various services and other benefits it provides to SharpLink in exchange for a monthly fee of $1,435.

SharpLink also holds a lease for 2,200 square feet of office space located in Collinsville, Connecticut pursuant to a lease agreement with an initial term that expires in December 2023, subject to a three-year right of SharpLink to extend.  The lease provides for annual lease payments of $38,400. This facility is indirectly owned by Chris Nicholas, SharpLink’s Chief Operating Officer and member of its Board of Directors. See “Related Party Transactions,” below.

SharpLink believes its current facilities will be adequate to meet its needs. It does not own any real property for use in its operation or otherwise.

Legal Proceedings

SharpLink is not party to any currently pending legal proceedings, and its management is not aware of any governmental authority contemplating any proceeding to which it would be a party or to which its properties would be subject.

Related Party Transactions

Shared Services with SportsHub

SharpLink and SportsHub, its controlling shareholder, are party to a Shared Services Agreement dated May 28, 2021. Under the terms of the Shared Services Agreement, SportsHub provides SharpLink with office space for certain company employees, accounting and other administrative services from SportsHub personnel, webhosting services and IT subscriptions, business insurance coverage, cell phone and ISP access, and additional services the parties may agree upon from time to time. SharpLink reimburses SportsHub for SharpLink’s allocated share of the cost of such services. Generally, services are allocated based on passthrough of the cost of SharpLink’s direct usage (such as cellphone plan coverage and webhosting services) or allocated based on share of headcount (such as the office lease and ISP).

The cost of shared personnel is allocated based on the parties’ estimate of time performing services for each entity. Shared personnel costs include salary, benefits, and related tax withholdings, which are allocated pro rata based on SharpLink’s and SportsHub’s estimate of the percentage of the working time a shared employee provides services to each company. Under the Shared Services Agreement, employees of SharpLink may also provide services to SportsHub. To the extent that SharpLink employees provide services to SportsHub, the cost of those services is offset against amounts otherwise owed under the Shared Services Agreement. Mr. Phythian, the Chief Executive Officer of SharpLink and the anticipated Chief Executive Officer of the combined company, and Mr. Nicholas, Chief Operating Officer SharpLink and the anticipated Chief Operating Officer of the combined company, were also both employees of SportsHub until June 1, 2021.

SharpLink does not pay a markup or share of overhead expenses to SportsHub for the shared services. The Shared Services Agreement has a one-year term and automatically renews for successive one-year periods unless terminated by either party. SharpLink may terminate the Shared Services Agreement or any individual services received thereunder upon 30 days’ notice to SportsHub, and SportsHub may terminate the Shared Services Agreement or any service thereunder upon 90 days’ notice to SharpLink.

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The Shared Services Agreement formally documented the shared service arrangement that was previously in place between SportsHub and SharpLink. Prior to the entry into the Shared Services Agreement, SharpLink reimbursed SportsHub for services in the amounts of $2,211,303 and $2,297,723 in 2020 and 2019, respectively. Included in those amounts is an amount of approximately $1.5 million (for each of 2020 and 2019) related to SharpLink’s Sports Gaming Client Services operating segment, which was acquired by SharpLink from SportsHub in November 2020, with expenditures by SportsHub on the Sports Gaming Client Services business treated, until the date of acquisition by SharpLink, as reimbursements for accounting purposes. Beginning in late 2020, SharpLink implemented steps to separate its operations from SportsHub, including transferring the payroll of the Sports Gaming Client Services segment and SharpLink’s Chief Executive Officer and Chief Operating Officer to SharpLink. Further, effective as of June 1, 2021, SharpLink’s Chief Executive Officer and Chief Operating Officer resigned from their positions as officers of SportsHub. As a result, SharpLink now receives significantly fewer services from SportsHub than in previous periods. In the first quarter of 2021, SharpLink reimbursed SportsHub for approximately $140,000 of services and expects to reimburse a similar amount for each of the remaining quarters of 2021. The reduction from 2020 was primarily the result of the transfer of employees referenced above. Pursuant to the terms of the Shared Services Agreement, for as long as SharpLink’s employees provide services to SportsHub, the cost of such services provided to SportsHub will be offset against amounts reimbursable by SharpLink to SportsHub. Christian Peterson, SharpLink’s Interim Chief Financial Officer, remains as an employee of SportsHub and provides approximately 25% of his time to SharpLink on a monthly basis for which SharpLink reimburses SportsHub under the Shared Services Agreement. SharpLink expects to hire a full-time chief financial officer in 2021, after which it no longer expects to utilize Mr. Peterson’s services.

SportsHub Affiliate Marketing Partner Agreement

SharpLink and SportsHub are party to an Affiliate Marketing Partner Agreement, or Partner Agreement, dated September 1, 2020. Under the Partner Agreement, SportsHub integrates SharpLink’s sportsbook marketing product suite into websites operated by SportsHub, and SharpLink pays SportsHub a portion of the fees SharpLink receives for sportsbook client referrals through the marketing products. The Partner Agreement has a five-year term and its general terms are the same as those of equivalent agreements with other unaffiliated third party marketing partners of SharpLink. SportsHub has earned approximately $600 under the Partner Agreement during 2021.

Connecticut Facility Lease

SharpLink leases office space in Collinsville, Connecticut from CJEM, LLC, an entity owned by Chris Nicholas, SharpLink’s Chief Operating Officer and member of its Board of Directors and a director nominee, pursuant to a lease dated December 16, 2020. SharpLink paid $38,400 in each of 2020 and 2019 under such lease. The current term of the lease expires on December 31, 2023, and SharpLink has the right to extend the Lease under the same terms for an additional three-year term through December 31, 2026.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF SHARPLINK’S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion of SharpLink’s results of operations should be read together with its audited consolidated financial statements and the related notes, which are attached as Annex F to this proxy statement. The following discussion contains forward-looking statements that reflect SharpLink’s current plans, estimates and beliefs and involve risks and uncertainties. Actual results may differ materially from those discussed in the forward-looking statements. SharpLink’s past results may not be indicative of future results. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this proxy statement.
 
Overview
 
SharpLink is a B2B provider of technology and services that connect sports media consumers to online sports betting bookmakers. SharpLink acquires sports fans via its partnership agreements with professional sports leagues, large sports media websites, and its own network of related sports websites via two principal product lines: Affiliate Marketing Services and Sports Gaming Client Services.
 
SharpLink’s Offerings and Growth Strategy
 
SharpLink helps established sports media publishers connect with the sports betting ecosystem, with a focus on frictionless betting technology, sports betting data services, and free-to-play games and applications.
 

Frictionless Betting Technology. Using its platform, SharpLink’s clients can establish a connection to sportsbook operators without having to expend their own resources to perform costly and time-consuming technical integrations with multiple sportsbook partners. SharpLink’s technology analyzes user interactions with online content in order to serve a betting offer that is tied specifically to the sport, team, or player the sports fan is interested in. For example, by analyzing a consumer’s interactions with a sports content, SharpLink learns that the consumer is interested in Tampa Bay Buccaneers quarterback Tom Brady. Its technology analyzes this information in relation to the available betting markets available and is able to serve this consumer a betting offer from a third-party bookmaker that Tom Brady will throw more than two touchdown passes in his upcoming game. SharpLink’s technology also provides marketing automation tools, unified affiliate systems, back-office reporting, and auditing tools to allow our clients to scale their operations quickly and easily. To the extent possible under various state laws, SharpLink’s platform also insulates its clients from extensive state licensing and compliance requirements.
 

Sports Betting Data Services. SharpLink works closely with a wide range of industry leading sportsbooks to ingest, normalize, and monitor their betting markets. SharpLink packages this information into an Application Programming Interface (“API”) that gives its clients – sports website and media publishers - access to real time betting markets and prices from multiple sportsbooks.
 

Free-to-Play Games and Applications. SharpLink helps media companies and league operators engage with their customers via interactive games and mobile applications. In 2020, SharpLink supported more than 2.5 million active users with 58 total projects across a wide variety of professional sports leagues and media companies.
 
Factors Affecting Comparability of Financial Information
 
Impact of COVID-19
 
The COVID-19 pandemic had a significant adverse effect on SharpLink’s business and that of its clients. The direct impact on SharpLink’s business was primarily driven by the suspension, postponement, or cancellation of major sports seasons and events. For example, in 2020 the NCAA March Madness men’s basketball tournament was cancelled, while professional leagues like Major League Baseball and the National Basketball Association played significantly shorter or limited seasons.
 
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SharpLink does not expect there to be a long-term financial impact from the COVID-19 pandemic and expects revenues and operations to return to pre-COVID-19 levels in the next twelve months or less. However, there can be no assurance that more postponements or cancellations of major sporting events will not occur in response to a resurgence in COVID-19 outbreaks. SharpLink has also taken appropriate business continuity measures to ensure that employees are safe and can work remotely to support all aspects of the business.
 
Seasonality
 
Certain of SharpLink’s products and services are tied to specific sporting events and/or seasons. For example, SharpLink expects that its revenues will increase during the National Football League season, which starts in early September and ends in early February. Accordingly, its operations are subject to seasonal fluctuations that may result in revenue and cash flow volatility between reporting periods.
 
Basis of Presentation
 
SharpLink operates two complementary reportable segments, as described below:
 
Affiliate Marketing Services
 
SharpLink’s Affiliate Marketing Services segment focuses on enabling sports media consumers to interact with SharpLink’s partner sportsbook operators in several different ways. Its frictionless betting technology collects information on potential sports bettors, connects them with contextual sports betting content, and converts them to paying sports betting customers in exchange for either a pre-negotiated share of the sportsbook operators’ revenue, or a fixed fee from such operators. SharpLink also provides sports betting data (e.g., betting lines) to sports media publishers in exchange for a fixed fee, typically based on the number of sports and the number of sportsbook feeds to ingest. SharpLink’s Affiliate Marketing Services segment is currently in the development stage with no revenue as of December 31, 2020.
 
Sports Gaming Client Services
 
SharpLink’s Sports Gaming Client Services segment provides its clients with development, hosting, operations, maintenance, and service of free-to-play games and contests. These relationships can be either software-as-a-service, or SaaS, arrangements, that are hosted by SharpLink and accessed through its clients’ websites or other electronic media; or software licenses that allow the client to take the software on premise.
 
Key Factors Affecting SharpLink’s Performance
 
Industry Trends and Competitive Landscape
 
SharpLink operates within the global sports betting industry. Its growth prospects depend in part on continuing and increasing legalization of sports betting across the United States.
 
On May 14, 2018, the U.S. Supreme Court issued an opinion that struck down on constitutional grounds the Professional and Amateur Sports Protection Act of 1992 (“PASPA”), a law that prohibited most states from authorizing and regulating sports betting. In striking down PASPA, the Supreme Court opened the potential for state-by-state authorization of sports betting.
 
As of June 2021, 25 U.S. states and Washington, D.C., have passed measures to legalize sports betting. Twenty-one of those states have launched active sports betting industries, with fourteen states allowing mobile sports betting. After the U.S. Supreme Court struck down PASPA in May 2018, we believe this trend is expected to continue.
 
SharpLink has a forward-looking permitting strategy. SharpLink already holds permits from five U.S. states and plans to be licensed in all states that legalize sports betting. The process of securing the necessary licenses or partnerships to operate in any given jurisdiction may cost more or take longer than SharpLink anticipates. Further, regulatory restrictions and betting fees or taxes may make it less attractive or more difficult for SharpLink to successfully do business in a particular jurisdiction. See “About SharpLink – Government Regulations.”
 
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Key Components of Revenue and Expense
 
Revenue
 
SharpLink’s Affiliate Marketing Services segment is in a pre-revenue stage. All revenue recognized in the years ended December 31, 2020 and 2019 was from its Sports Gaming Client Services segment.
 
Sports Gaming Client Services
 
Sports Gaming Client Services segment revenue is primarily derived via fee-based contracts for the development, hosting, operation, maintenance, and services of games and contests. In SaaS arrangements, such games or contests are hosted by SharpLink and accessed through its clients’ websites or other electronic media, and revenue is recognized upon transfer of control of the products or services to the client. In licensing arrangements, SharpLink’s client takes the software on premise and revenue is recognized after the software has been delivered. SharpLink’s Sports Gaming Client Services segment is fully operational and currently generates substantially all of its revenue.
 
Affiliate Marketing Services
 
Revenue from our Affiliate Marketing Services segment will be generated through revenue share agreements and/or fixed fee agreements. When a consumer who was referred via a SharpLink offer generates revenue by playing on a sportsbook operator’s platform, SharpLink will receive a share of its partner sportsbook operator’s revenues generated by that player, or a fixed one-time fee on a cost per acquisition, or CPA, basis for each player who deposits money on the partner sportsbook operator platform. Revenue will also be generated through the delivery of sports betting data (e.g. betting lines) in exchange for a fixed fee, typically based on the number of sports and the number of sportsbook feeds to ingest.
 
SharpLink’s Affiliate Marketing Services segment is currently in the pre-revenue stage. With several contracts in place to provide such services to SharpLink clients in 2021, SharpLink’s management expects these segments to continue to expand over the next twelve months.
 
Costs and Expenses
 
Cost of Revenue. SharpLink’s cost of revenue consists primarily of labor directly related to its SaaS product and on premise software development for clients, as well as fees for third-party hosting services.
 
Research and development. Research and development, or R&D, expenses consist primarily of costs incurred for the development of new products related to SharpLink’s Affiliate Marketing Services segment as well as improving existing products and services. The costs incurred are related to personnel salaries and benefits. R&D costs can be volatile between periods, as SharpLink capitalizes its internally developed software costs when the preliminary project stage is complete and it is probable the project will be completed and performed as intended.
 
Selling, general and administrative. Selling, general and administrative expenses, or SG&A, consist primarily of administrative personnel costs, including executive salaries, bonuses and benefits, professional services (including legal, regulatory, accounting, audit and licensing), rent expense, marketing and public relations costs.
 
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Results of Operations
 
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
 
The following table summarizes SharpLink’s consolidated results of operations for the periods indicated.
 
   
Year Ended December 31,
   
Variance
 
   
2020
   
2019
   
In dollars
   
In %
 
                         
Revenue
 
$
2,278,814
   
$
2,381,737
   
$
(102,923
)
   
(4
)%
Cost of revenue
   
1,799,384
     
1,961,183
     
(161,799
)
   
(8
)%
Gross profit
   
479,430
     
420,554
     
58,876
     
14
%
Operating expenses:
                               
   Selling, general and administrative
   
1,553,095
     
704,460
     
848,635
     
120
%
   Depreciation and amortization
   
133,030
     
97,857
     
35,173
     
36
%
Total operating expenses
   
1,686,125
     
802,317
     
883,808
     
110
%
Loss from operations
   
(1,206,695
)
   
(381,763
)
   
(824,932
)
   
216
%
Interest income (expense), net
   
22,093
     
(4,260
)
   
26,353
     
(619
)%
Other income
   
46,500
     
     
46,500
     
100
%
Total other income (expense)
   
68,593
     
(4,260
)
   
72,853
     
(1,710
)%
Loss before income taxes
   
(1,138,102
)
   
(386,023
)
   
(752,079
)
   
195
%
   Provision for (Benefit from) income taxes
   
970
     
(79,870
)
   
80,840
     
(101
)%
Net Loss
 
$
(1,139,072
)
 
$
(306,153
)
   
(832,919
)
   
272
%

Revenue
 
Revenue was $2.28 million for the year ended December 31, 2020, compared to $2.38 million for the year ended December 31, 2019. Revenue decreased by $103,000, or 4%, from the prior period. The decrease was primarily due to the effects of the COVID-19 pandemic, which caused the cancellation of the NCAA March Madness men’s basketball tournament and a delay in and shortening of several other professional sports seasons. This reduced revenue from SharpLink’s Sports Gaming Client Services segment and pushed the timing of revenue from 2020 into 2021.
 
Cost of revenues
 
Cost of revenue was $1.80 million for the year ended December 31, 2020, compared to $1.96 million for the year ended December 31, 2019. The decrease of $162,000, or 8%, was due to reduced headcount within SharpLink’s Sports Gaming Client Services segment. This reduction of headcount represented normal attrition within our development team, and SharpLink opted not to replace the employees to manage costs during the ongoing COVID-19 pandemic.
 
Selling, general and administrative
 
Selling, general and administrative expenses increased by $848,635, or 120%, from $704,460 during the year ended December 31, 2019 to $1.55 million for the year ended December 31, 2020. This increase was due to dedicating resources to SharpLink’s Affiliate Marketing Services segment, which began development in April of 2019 and only had significant labor costs for the final eight months of 2019. With a full year of payroll related to business development, executive oversight, administrative support, development, and project management, SharpLink’s Affiliate Marketing Services segment incurred incremental 2020 payroll costs of $455,000 when compared to 2019. SharpLink also increased its headcount, hiring two additional developers and a product manager within its Affiliate Marketing Services segment, which accounted for $274,000 of the increase. SharpLink also had incremental legal and other professional service fees of $120,000 in 2019 related to the formation of its Affiliate Marketing Services segment. Selling, general and administrative expenses with SharpLink’s Sports Gaming Client Services segment decreased by approximately $38,000 during the year ended December 31, 2020 compared to the year ended December 31, 2019 due in part to a decrease of $18,000 in travel, meals, and entertainment expenses in 2020 as a result of COVID-19 related travel restrictions. Additionally, SharpLink incurred $19,000 of incremental employee recruiting costs during 2019 compared to 2020.
 
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Depreciation and amortization
 
Depreciation and amortization was $133,000 for the year ended December 31, 2020, compared to $98,000 for the year ended December 31, 2019. This increase of $35,000, or 36%, was due to increased amortization of capitalized software research and development costs. Costs related to the initial build of our Affiliate Marketing Services core product in the amount of $341,000 were deferred until the launch of our alpha product in July of 2020.
 
Other Income
 
SharpLink received a loan in the amount of $46,500 under the Payroll Protection Program, or PPP, in April 2020. The loan obligation was fully forgiven in by the U.S. Small Business Administration in December 2020.
 
Liquidity and Capital Resources
 
SharpLink was formed in February of 2019 and subsequently raised a total of $2.69 million in 2019 and 2020 via a combination of convertible note and common stock issuances. In December of 2020, SharpLink raised an additional $2 million by issuing 9,000 shares of 8% convertible preferred stock to Alpha Capital Anstalt. The preferred stock was issued with a discount, comprised of issuance costs and a commitment fee of approximately $658,000, which is expected to be accreted over a one-year period through the anniversary date, which will be treated as a reduction in income to common shareholders. Additional details regarding the terms of the preferred stock can be found in the attached audited financial statements.
 
SharpLink measures liquidity in terms of its ability to fund the cash requirements of its business operations, including working capital and capital expenditure needs, contractual obligations, and other commitments, with cash flows from operations and other sources of funding. SharpLink’s current working capital needs relate mainly to launching its product offerings, establishing relationships with key clients, becoming compliant with various state regulations, and compensation and benefits of its employees. SharpLink’s recurring capital expenditures consist primarily of internally developed software costs and compensation and benefits for the employees responsible for its Affiliate Marketing Services segment. SharpLink expects its capital expenditure and working capital requirements to increase as it expands its product offerings, acquires new clients, forms partnerships with additional sportsbook operators, and incurs significant legal, accounting, audit, insurance, and other incremental costs related to the proposed Transaction and post-Transaction operations as a public company. However, SharpLink has not made any firm capital commitments. SharpLink’s ability to expand and grow its business will depend on many factors, including its working capital needs, its ability to raise additional capital, and the evolution of its cash flows.
 
SharpLink had $2.59 million of cash and cash equivalents as of December 31, 2020. SharpLink’s management believes its operating cash flows, together with cash on hand and cash it expects to obtain as a result of a financing round in conjunction with the closing of the proposed Transaction, will be sufficient to meet its working capital and capital expenditure requirements for a period of at least twelve months from the date of this proxy statement.
 
SharpLink cannot guarantee that its available cash resources will be sufficient to meet its liquidity needs. SharpLink may need additional cash resources due to changed business conditions or other developments, including unanticipated regulator developments, significant acquisitions, or competitive pressures. To the extent that its current resources are insufficient to satisfy its cash requirements, SharpLink may need to seek additional equity and/or debt financing. If the needed financing is not available, or if the terms of the financing are less desirable than expected, SharpLink may be forced to decrease its level of investment in new product launches or scale back its existing operations, which could have an adverse impact on its business and financial prospects.
 
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Cash Flows
 
The following table summarizes SharpLink’s cash flows for the periods indicated.
 
   
Year Ended December 31,
 
   
2020
   
2019
 
             
Net cash (used in) provided by operating activities
 
$
(769,104
)
 
$
74,829
 
Net cash used in investing activities
   
(298,299
)
   
(193,000
)
Net cash provided by financing activities
   
1,851,353
     
1,919,401
 

Operating activities
 
Net cash used in operating activities was $769,000 for the year ended December 31, 2020, while net cash provided by operating activities was $75,000 for the year ended December 31, 2019. For the year ended December 31, 2020, net cash used by operating activities was primarily driven by the impact of SharpLink’s net loss of $1.14 million, offset by non-cash items of $155,000 and a change in working capital of $215,000 which was comprised primarily of decreases in accounts receivable and accrued expenses of $558,000 and $152,000, respectively, offset by an increase in deferred revenue of $410,000. For the year ended December 31, 2019, net cash provided by operating activities was primarily driven by the impact of SharpLink’s net loss of $306,000, offset by a change in working capital of $363,000 which was comprised primarily of a decrease in deferred revenue of $350,000.
 
Investing activities
 
Net cash used in investing activities was $298,000 and $193,000 for the year ended December 31, 2020 and 2019, respectively, and was primarily driven by expenditures for internally developed software costs.
 
Financing activities
 
Net cash provided by financing activities was $1.85 million and $1.92 million for the years ended December 31, 2020 and 2019, respectively. Net cash provided by financing activities in 2020 was primarily driven by the issuance of preferred stock (net of commitment fees) of $1.92 million, collection of stock subscriptions of $131,000, and proceeds from the PPP loan of $47,000, partially offset by the net effect of proceeds from SharpLink’s parent company, SportsHub, of $409,000 and distributions to SportsHub of $654,000. Net cash provided by financing activities in 2019 was primarily driven by proceeds of from the issuance of common stock of $2.56 million and convertible notes of $1.89 million, offset by principal payments on convertible notes of $1.81 million, and $714,000 of advances and distributions to SportsHub.
 
Critical Accounting Policies and Estimates
 
SharpLink’s consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. Preparation of financial statements requires SharpLink’s management to make judgments, estimates, and assumptions that impact the reported amount of revenue and expenses, assets and liabilities and the disclosure of contingent assets and liabilities. Management considers an accounting judgment, estimate or assumption to be critical when (1) the estimate or assumption is complex in nature or requires a high degree of judgment and (2) the use of different judgments, estimates, and assumption could have a material impact on SharpLink’s consolidated financial statements. SharpLink’s significant accounting policies are described in Note 1 – Summary of Significant Accounting Policies, to SharpLink’s audited consolidated financial statements included elsewhere in this proxy statement. SharpLink’s critical accounting policies are described below.
 
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Revenue Recognition
 
SharpLink’s revenue is derived as follows:
 
Sports Gaming Client Services
 
SharpLink enters into contracts for the development, hosting, operations, maintenance, and service of games and contests that are hosted by SharpLink and accessed through the clients’ websites or other electronic media. This generally results in revenue from developing, hosting, and maintaining software for clients (cloud-hosted SaaS) or licensing revenue for the development of software. Revenue is recognized upon transfer of control of products or services (i.e. performance obligations) to clients in an amount that reflects the consideration to which SharpLink expects to be entitled in exchange for promised goods or services. SharpLink’s performance obligations are satisfied either over time (for cloud-hosted SaaS) or at a point in time (for software licenses).
 
Affiliate Marketing Services
 
SharpLink’s Affiliate Marketing Services segment is in its pre-revenue development stage. Affiliate marketing revenue will be recognized to the extent that it is probable that the economic benefits will be realized and the revenue can be reliably measured, regardless of when the payment is received. SharpLink may enter into contracts with its clients under revenue share or cost per acquisition (CPA) models.
 
In revenue share arrangements, SharpLink will receive a percentage of the revenues generated by SharpLink’s partner sportsbooks from players referred to the sportsbook via SharpLink. Revenue will be recognized during the month in which it is earned by the respective sportsbook operator.
 
In CPA arrangements, SharpLink will receive a fixed one-time fee for each referred player who deposits money on the partner sportsbook operator’s website. Cost per acquisition consists of a contractual rate agreed upon with each respective sportsbook operator. Revenue will be recognized during the month in which the deposits are made.
 
Internally Developed Software
 
SharpLink capitalizes software that is developed for internal use in accordance with the guidance in ASC 350-40, Intangibles, Goodwill and Other — Internal-Use Software (“ASC 350-40”). ASC 350-40 requires that costs related to preliminary project activities and post implementation activities are expensed as incurred. Judgment is required in determining when development costs can be capitalized. Qualifying costs incurred to develop software for internal use are capitalized when (i) the preliminary project stage is completed, (ii) management has authorized further funding for the completion of the project and (iii) it is probable that the project will be completed and performed as intended. These capitalized costs include salaries for employees who devote time directly to developing internal-use software and external direct costs of services consumed in developing the software. Capitalization of these costs ceases once the project is substantially complete and the software is ready for its intended purpose. Internally developed software is amortized using the straight-line method over an estimated useful life of three years. SharpLink evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Goodwill

SharpLink records goodwill when consideration paid in an acquisition exceeds the fair value of the net tangible assets and the identifiable intangible assets acquired. Goodwill is not amortized, but rather is tested for impairment annually or more frequently if facts and circumstances warrant a review. SharpLink has determined that there are two reporting units for the purpose of goodwill impairment tests, though only one reporting unit contains goodwill.
 
For purposes of assessing the impairment of goodwill, SharpLink annually, at its fiscal year end, estimates the fair value of the reporting unit and compares this amount to the carrying value of the reporting unit. SharpLink determines the fair value of its reporting units by utilizing market multiples from the guideline public companies and other factors that it believes marketplace participants would utilize. If SharpLink determines that the carrying value of the reporting unit exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds its fair value. As of December 31, 2020 and 2019, SharpLink completed its annual impairment test of goodwill and determined that its goodwill was not impaired.
 
Recently Adopted and Issued Accounting Pronouncements
 
Recently issued and adopted accounting pronouncements are described in Note 1 – Summary of Significant Accounting Policies, to SharpLink’s audited consolidated financial statements included elsewhere in this proxy statement.
 
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MANAGEMENT FOLLOWING THE TRANSACTION
 
Termination of Current Executive Officers and Directors of MTS
 
The executive officers of MTS are expected to be removed from their positions effective upon the completion of the Transaction. In addition, the current directors of MTS will be resigning effective upon the completion of the Transaction.
 
Executive Officers, Key Employees and Directors of the Combined Company Following the Transaction
 
The following table lists the names, ages and positions of the individuals who are expected to serve as executive officers, key employees and directors of the combined company upon completion of the Transaction:
 
Name
 
Age
 
Position
Executive Officers
       
Rob Phythian
 
56
 
President and Chief Executive Officer and Director
Chris Nicholas
 
52
 
Chief Operating Officer and Director
Christian Peterson
 
44
 
Vice President, Finance, and Interim Chief Financial Officer
Barry Carpe
 
49
 
Vice President, Product Strategy and Business Development
Mike Szajah
 
30
 
Engineering Director
         
Non-Employee Directors
       
Joseph Housman
 
39
 
Chairman of the Board
Paul Abdo(1)
 
51
 
Director
Thomas Doering(1)(2)(3)
 
55
 
Director
Scott Pollei (1)(2)(3)(4)
 
60
 
Outside Director
Adrienne Anderson (1)(2)(3)(4)
 
43
 
Outside Director
_______________________

(1)
Indicates independent director under Nasdaq rules.

(2)
Member of the Audit Committee upon completion of the Transaction.

(3)
Member of the Compensation Committee upon completion of the Transaction.

(4)
Outside Director under the Companies Law.

Executive Officers
 
Rob Phythian: Mr. Phythian is currently President and Chief Executive Officer of SharpLink, a position he has held since he co-founded the company in February 2019.  Since 2015, Mr. Phythian has been Chief Executive Officer and a director of SportsHub Games Network, Inc., a fantasy sports consolidation and daily game operator. Effective as of June 1, 2021, Mr. Phythian resigned from his position as Chief Executive Officer of SportsHub, but will remain as a director of that company. SportsHub is the controlling shareholder of SharpLink and will be the controlling shareholder of the combined company. Before SportsHub, Mr. Phythian was co-founder and CEO of SportsData, where he was responsible for corporate operations, business development and strategic partnerships. Mr. Phythian was CEO of SportsData from 2010 until 2013, when SportsData was sold to international data company Sportradar AG. Mr. Phythian stayed with this company until August 2015, working on key league and customer relationships including Google, Turner Sports, NBC, CBS and the NFL. Prior to Sportradar US, Mr. Phythian founded Fanball.com, which was sold to FUN Technologies, a publicly-traded company. Mr. Phythian a bachelor’s degree in Business Administration from the University of St. Thomas (Minnesota).
 
Chris Nicholas: Mr. Nicholas has been the Chief Operating Officer of SharpLink since its founding in February 2019. Prior to SharpLink, Mr. Nicholas was Chief Operating Officer of SportsHub Games Network, Inc., from 2016-2019, and continued providing services to SportsHub on a limited part-time basis until June 1, 2021. Mr. Nicholas will continue to serve as a director of SportsHub following the completion of the Transaction. Prior to SportsHub, he was the Founder and CEO of Sports Technologies, Inc, which SportsHub purchased in 2016. Prior to Sports Technologies, Mr. Nicholas spent ten years at ESPN.com, most recently as Executive Producer, where he was responsible for the Fantasy Sports and ESPN Insider businesses. Mr. Nicholas began his career in 1994 at Starwave Corporation, an internet media company that was the first to put sports news, information and fantasy games on the Internet. Mr. Nicholas earned his B.A. from Dartmouth College.
 
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Christian Peterson: Mr. Peterson has nearly 15 years of experience in the fantasy sports industry in both finance and operations. Mr. Peterson has been Vice President, Finance and Interim Chief Financial Officer of SharpLink since April 2019.  From October 2016 to January 2019, he served as Vice President, Finance of SportsHub, and since January 2019 he has served as Chief Financial Officer of SportsHub. Mr. Peterson currently spends approximately 80% of his working time with SharpLink and approximately 20% of his time with SportsHub. However, SharpLink is searching for a full time Chief Financial Officer and expects to hire a candidate at approximately the time of the closing of the Transaction, at which time Mr. Peterson will return full time to his role of Chief Financial Officer of SportsHub. Prior to SportsHub, from 2008 to 2016, he was Director of Operations at LeagueSafe, where he managed all aspects of the company’s business, including accounting, finance, banking relationships, strategic partnerships and website operations.  Mr. Peterson began his career in public accounting, first at Arthur Andersen LLP and then at Deloitte LLP, from 1999 until 2004.  Mr. Peterson completed his undergraduate studies at Saint John’s University (Minnesota) where he earned a B.S. in Accounting and Management.

Barry Carpe: Since January 2019, Mr. Carpe has served as SharpLink’s Vice President of Product Strategy and Business Development.  From April 2016 to January 2019, he served as Vice President of Product Strategy & Operations of SportsHub. Prior to SportsHub, Mr. Carpe was the COO of Synkt Games, a mobile-platform developer and publisher focused on building sports games for casual sports fans, from January 2014 to February 2016. Before Synkt, Mr. Carpe founded Jogonaut, an innovative social and mobile gaming company that developed a cross-platform role-playing strategy game, in January 2011, serving as CEO of that company until 2013. Mr. Carpe earned a BSBA degree in Accounting from the University of Hartford.

Mike Szahaj:  Mr. Szahaj has been Engineering Director of SharpLink since November 2020 when SharpLink acquired Sports Technologies, Inc.  Prior to that, from 2013, Mr. Szahaj was employed by Sports Technologies where he worked on applications for NASCAR, NCAA, NBA, NFL and PGA TOUR.  Among his responsibilities at both Sports Technologies and SharpLink has been scaling clients’ games to handle traffic from millions of active users, including the annual March Madness bracket free-to-play game. Mr. Szajah earned his Bachelor of Science in Computer Science from the University of Connecticut.

Non-Employee Directors
 
Paul J. Abdo:  Mr. Abdo is the CEO of Abdo Publishing, a world-wide educational publisher of print and digital content for schools.  Prior to becoming CEO in 2015, Mr. Abdo worked in several different facets of the company including editorial, marketing, and international sales, starting and leading several divisions in the company including Spotlight Books, EPIC Press, and Essential Library. Mr. Abdo also serves on the board of the parent company, Abdo Consulting Group Inc. (ACGI), which has holdings in publishing, finance, real estate, and gaming.  Mr. Abdo is also on the board of BankVista, a community bank with several branches in Minnesota.  He obtained his bachelor’s and M.A. degrees in English from Minnesota State University, Mankato.
 
Joseph Housman: Mr. Housman has served on the board of directors of SharpLink since its inception in February 2019.  Since 2014, Mr. Housman has served as Vice President for Hays Companies | Brown & Brown Insurance, a national insurance brokerage firm, where he works with clients on risk management solutions with an emphasis on private equity and M&A transactions.  Prior to Hays Companies, Mr. Housman was employed at Deloitte from 2004 to 2014 in the firm’s private company tax group.  Mr. Housman also serves as a director of several private company businesses, working closely with the management teams on strategic growth and management initiatives, as well as advising and negotiating on acquisitions, operations, and dispositions of private company investments.  Since 2015, Mr. Housman has been a director of SportsHub Games Network, SharpLink’s controlling shareholder. He is a CPA (inactive) in the state of Minnesota and earned his B.A. in Accounting from Saint John’s University (Minnesota).
 
Thomas Doering: Mr. Doering is an experienced business leader, technology investor and strategic advisor. Since 2006, he has served on the boards of directors and as an advisor for multiple privately-held companies in the technology, fantasy sports, consumer services, travel and non-profit industries. In 2008, he co-founded and served on the board of directors of LeagueSafe, a premier fantasy sports league management company that was acquired by Sports Hub Game Network in 2016.  Prior to LeagueSafe, Mr. Doering Co-Founded E-Travel Experts (ETX) in 1998 and served as CEO until it was acquired in 2004 by Affiliated Computer Services, a provider of technology enabled solutions as well as fraud prevention, ticketing, accounting and back-office operations to the then-emerging internet travel industry.
 
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Outside Directors
 
Scott Pollei:  Mr. Pollei is currently a partner at Dunn Lake Partners, LLC, a business and financial advisory firm that he founded in April 2019.  From March 2020 to December 2020, Mr. Pollei served as Interim Chief Financial Officer of Crescent Electrical Supply Company, a wholesale distributor of electrical supplies based in East Dubuque, Illinois, and he served as a board member and finance and audit committee chair of that company from 2011 until his appointment as Interim CFO.  From June 2017 to December 2019, Mr. Pollei was Chief Financial Officer at Fastbridge Learning, Inc., a SaaS provider of educational and assessment tools to the pre-K through 12th grade education market. Mr. Pollei was a partner in B2B CFO, LLC, a business and financial consulting firm, from September 2016 until March 2019. Prior to that, from August 2014 to August 2016, Mr. Pollei was Chief Operating Officer at Boulay PLLP, a public accounting and financial advisory firm. Prior to Boulay, from January 1994 until March 2014 he served in a number of positions of increasing responsibility at The Dolan Company, a Nasdaq-traded publisher and media company, including serving as its Chief Financial Officer from 1994 to 2009 and thereafter as Chief Operating Officer until his resignation in March 2014.  The Dolan Company filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in March 2014, and emerged from bankruptcy in June 2014.  Mr. Pollei began his career in public accounting with KPMG US, LLP.  He is a certified public accountant (inactive) and earned a bachelor’s degree in Accounting, cum laude, from Luther College.

Adrienne Anderson:  Ms. Anderson is a certified public accountant and has spent the last several years of her career primarily focused on financial statement audits under Public Company Accounting Oversight Board auditing standards for SEC reporting companies. Since January 2019, Ms. Anderson has been an audit partner at D. Brooks and Associates, CPAs, a certified public accounting firm based in West Palm Beach, Florida, where she focuses her practice on accounting, auditing, attest and review services, specializing in working with emerging growth and high growth technology, manufacturers, distributors and service companies, as well as government contractors, both SEC registrants and private companies. Prior to that, from October 2014 to December 2018, she was with WithumSmith + Brown, a large regional CPA firm, having been promoted to partner of the firm in July 2017.  Ms. Anderson earned a Bachelor of Science in Accounting from Eastern Illinois University and is a certified public accountant licensed in the states of Florida and Illinois.

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Board of Directors Practices of the Combined Company Following the Transaction
 
Unless otherwise noted herein, and except for the composition of the Board of the combined company and its committees, the practices of the MTS Board and its committees will remain unchanged for the combined company immediately following the closing of the Transaction. Please refer to “Board practices” in Part I, Item 6.C of MTS’s Annual Report on Form 20-F for the year ended December 31, 2020 for a more detailed description of such practices.
 
Board of Directors
 
Under the Revised Articles, the Board of the combined company must consist of at least four and not more than twelve directors. Immediately following the closing of the Transaction, the Board of the combined company will be composed of seven members. The appointment of all director nominees other than outside directors as members of the MTS Board effective as of the consummation of the Transaction was also unanimously approved by the MTS Board. The new directors, other than the outside directors, will serve until the next annual shareholders meeting of the combined company, subject to the provisions of the Revised Articles.

Outside Directors
 
Under the Companies Law, except as provided below, companies incorporated under the laws of the State of Israel that are publicly traded, including Israeli companies with shares listed on the Nasdaq, are required to appoint at least two outside directors, who meet the qualifications requirements set forth in the Companies Law.
 
The definitions of an outside director under the Companies Law and independent director under the Listing Rules of Nasdaq are similar such that it would generally be expected that the two outside directors will also comply with the independence requirement under the Listing Rules of Nasdaq.
 
We expect that our two currently serving outside directors, Ms. Varda Trivaks and Mr. Ronen Twito, will resign their position effective as of the consummation of the Transaction. Therefore, the election of two new outside directors, Scott Pollei and Adrienne Anderson, effective as of the consummation of the Transaction is included on the agenda of the Meeting. For more information, see Proposals 1(d) and 1(e) under “The Proposals.”
 
Leadership Structure of the Board
 
In accordance with the Companies Law and the Revised Articles, the Board is required to appoint one of its members to serve as Chairman of the Board. It is currently expected that the Board of the combined company will appoint Joseph Housman to serve as Chairman of the Board of the combined company.
 
Audit Committee
 
Under the Companies Law and the Listing Rules of Nasdaq, the combined company will be required to maintain an audit committee consisting of at least three independent directors (including the two outside directors), all of whom are financially literate and one of whom has accounting or related financial management expertise.
 
Immediately following the closing of the Transaction, the audit committee of the combined company will consist of Ms. Anderson, who is expected to serve as the chairperson, Mr. Pollei and Mr. Doering, all of whom are independent under the listing standards of the Listing Rules of Nasdaq. The existing MTS Board has determined that each of Ms. Anderson and Mr. Pollei is an audit committee financial expert as defined by the SEC rules and has the requisite financial sophistication as defined by the Listing Rules of Nasdaq. All of the members of the Audit Committee meet the requirements for financial literacy under the applicable Listing Rules of Nasdaq.
 
Each member of the Audit Committee is also required to be “independent” as such term is defined in Rule 10A-3(b)(1) under the Exchange Act.
 
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Compensation Committee
 
Under the Companies Law and the Listing Rules of Nasdaq, the combined company will be required to maintain a compensation committee consisting entirely of independent directors. The compensation committee must consist of three members, at least two of whom are outside directors and the third a director whose compensation is the same as the two outside directors.  Alternatively, the audit committee can server as the compensation committee, but this is also conditioned upon the third member being compensated the same as the outside directors.
 
Immediately following the closing of the Transaction, the compensation committee of the combined company will consist of Mr. Pollei, who is expected to serve as the chairperson, Ms. Anderson and Mr. Doering, all of whom are independent under the listing standards of the Listing Rules of Nasdaq.
 
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PRINCIPAL SHAREHOLDERS OF COMBINED COMPANY
 
The following tables and the related notes present information on the beneficial ownership of Ordinary Shares of the combined company by:
 

each shareholder known by us that will beneficially own more than 5% of the combined company’s outstanding Ordinary Shares (on an as-converted basis, with and without giving effect to the Beneficial Ownership Limitation) immediately following the consummation of the Transaction;
 

each prospective director of the combined company;
 

each prospective executive officer of the combined company; and
 

all of the combined company’s prospective directors and executive officers as a group.
 
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. The number of Ordinary Shares beneficially owned and the percentage of Ordinary Shares beneficially owned assumes, in each case, the consummation of the Transaction, including the investment of an additional $6 million in SharpLink by Alpha Capital immediately prior to the consummation of the Transaction, resulting in a total of approximately 29,878,172 Ordinary Shares, 1,591,579 Preferred A Shares, 2,025,898 Preferred A-1 Shares and 7,385,730 Preferred B Shares issued and outstanding immediately following the consummation of the Transaction, without giving effect to the proposed Reverse Split.
 
Ordinary Shares of the combined company that may be acquired by an individual or group within 60 days of the date of consummation of the Transaction, which is expected to be on or about July 21, 2021, pursuant to the exercise of options or warrants or the conversion of a security, are deemed outstanding for the purposes of computing the percentage of Ordinary Shares beneficially owned by such shareholder, but are not deemed outstanding for purposes of computing the percentage of Ordinary Shares beneficially owned by any other individual or group shown in the tables.
 
In addition, as noted the following table provides information immediately following consummation of the Transaction, and therefore does not include information concerning potential additional issuances to Alpha Capital as the holder of the MTS Preferred B Shares under the dividend provision included in the Revised Articles as more fully described under “The Merger Agreement – Consideration and Exchange Ratio – New Preferred Shares.” To the extent the combined company chooses to pay such dividend in MTS Preferred A-1 Shares and not in cash, and to the extent Alpha Capital will continue to hold all of the Preferred B Shares expected to be issued to it upon consummation of the Transaction, Alpha Capital is expected to receive an additional aggregate amount of 1,181,717 MTS Preferred A-1 Shares during the two-year period following the consummation of the Transaction.
 
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Principal Shareholders of the Combined Company Immediately Following the Consummation of the Transaction
 
   
On an as-converted basis, giving effect the Beneficial Ownership Limitation
   
On an as-converted basis,
without giving effect to the
Beneficial Ownership Limitation
 
Name
 
Number of
Ordinary Shares
Beneficially Owned
   
Percentage of
Outstanding
Ordinary
Shares(1)
   
Number of
Ordinary Shares
Beneficially Owned
   
Percentage of
Outstanding
Ordinary
Shares(2)
 
Principal Shareholders
                       
SportsHub Games Network, Inc.
   
17,787,633
     
58.2
%
   
17,787,633
     
43.5
%
Alpha Capital(3)
   
3,050,820
(4) 
   
9.99
%
   
13,393,461
(5) 
   
32.8
%
Executive Officers
                               
Rob Phythian
   
653,684
(6) 
   
*
     
653,684
(6) 
   
*
 
Chris Nicholas
   
453,684
(7) 
   
*
     
453,684
(7) 
   
*
 
Christian Peterson
   
30,041
(8) 
   
*
     
30,041
(8) 
   
*
 
Non-Employee Directors
                               
Paul Abdo
   
179,573
(9) 
   
*
     
179,573
(9) 
   
*
 
Joe Housman
   
186,925
(10) 
           
186,925
(10) 
       
Tom Doering
   
0
     
*
     
0
     
*
 
Scott Pollei
   
0
     
*
     
0
     
*
 
Adrienne Anderson
   
0
      *

   
0
     
*
 
All prospective director and executive officers as a group
   
1,503,907
(11) 
   
4.7
%
   
1,503,907
(11) 
   
3.6
%
_______________________
*
Indicates less than 1%.


(1)
Percentages are calculated based on 29,878,172 outstanding Ordinary Shares and 660,567 Ordinary Shares issuable to Alpha Capital upon conversion of Preferred Shares giving effect to the Beneficial Ownership Limitation, each as expected to be outstanding immediately following consummation of the Transaction.
 

(2)
Percentages are calculated based on 29,878,172 outstanding Ordinary Shares and 11,003,205 Ordinary Shares issuable to Alpha Capital upon conversion of Preferred Shares ignoring the Beneficial Ownership Limitation, each as expected to be outstanding immediately following consummation of the Transaction.
 

(3)
As of the consummation of the Transaction, Alpha Capital is expected to hold 2,390,254 Ordinary Shares, 1,591,579 Series A Preferred Shares, 2,025,898 Series A-1 Preferred Shares, and 7,385,730 Series B Preferred Shares. The Series B Preferred Shares will accrue 8% annual dividends, which the Company may elect to pay in MTS A-1 Preferred Shares at a rate of 0.08 MTS A-1 Preferred Share per each Series B Preferred Share per annum. As noted above, MTS A-1 Preferred Shares that may be issued as dividends on the Series B Preferred Shares are not included in this table.
 

(4)
Consists of 2,390,254 Ordinary Shares and 660,567 Ordinary Shares issuable upon conversion of Preferred Shares, each as expected to be held by Alpha Capital immediately following consummation of the Transaction. The share number does not include 10,342,640 Ordinary Shares issuable upon conversion of Preferred Shares that could not be converted given the Beneficial Ownership Limitation.
 

(5)
Consists of 2,390,254 Ordinary Shares and 11,003,207 Ordinary Shares issuable upon conversion of Preferred Shares (ignoring the effect of the Beneficial Ownership Limitation), each as expected to be held by Alpha Capital immediately following consummation of the Transaction.
 

(6)
Consists of 133,518 Ordinary Shares and 520,166 Ordinary Shares issuable upon exercise of stock options that will be exercisable within 60 days of July 21, 2021, each as expected to be held by Mr. Phythian as of immediately following the Transaction. This amount includes the Ordinary Shares underlying the relevant portion of the option grant to Mr. Phythian that is proposed to be approved at the Meeting (see Proposal 1(g) for further details).
 

(7)
Consists of 133,518 Ordinary Shares and 320,166 Ordinary Shares issuable upon exercise of stock options that will be exercisable within 60 days of July 21, 2021, each as expected to be held by Mr. Nicholas as of immediately following the Transaction. This amount includes the Ordinary Shares underlying the relevant portion of the option grant to Mr. Nicholas that is proposed to be approved at the Meeting (see Proposal 1(h) for further details).
 
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(8)
Consists of 30,041 Ordinary Shares issuable upon exercise of stock options that will be exercisable within 60 days of July 21, 2021, as expected to be held by Mr. Peterson as of immediately following the Transaction.
 

(9)
Consists of 152,870 Ordinary Shares and 26,704 Ordinary Shares issuable upon exercise of stock options that will be exercisable within 60 days of July 21, 2021, each as expected to be held by Mr. Abdo as of immediately following the Transaction.
 

(10)
Consists of 160,221 Ordinary Shares and 26,704 Ordinary Shares issuable upon exercise of stock options that will be exercisable within 60 days of July 21, 2021, each as expected to be held by Mr. Housman as of immediately following the Transaction.
 
(11)
Consists of 580,126 Ordinary Shares and 923,780 Ordinary Shares issuable upon exercise of stock options that will be exercisable within 60 days of July 21, 2021, each as expected to be held by the directors and officers as a group as of immediately following the Transaction.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 
 
Except where specifically noted, the following information and all other information contained in this proxy statement do not give effect to the proposed reverse stock split described in Proposal 1(b).

In April 2021, the Company and SharpLink entered into the Merger Agreement. Pursuant to the Merger Agreement, the Company proposes that New SL Acquisition Corp., a wholly owned subsidiary of MTS, or Merger Sub, merge with and into SharpLink, with SharpLink surviving as a wholly-owned subsidiary of MTS, which we refer to as the Transaction or the Merger. On a pro forma and fully-diluted basis for the combined company, SharpLink shareholders are expected to own approximately 86% of the combined company (inclusive of an equity incentive pool of 10% of the fully-diluted outstanding share capital of the combined company), and MTS’s securityholders are expected to own approximately 14% of the fully-diluted outstanding capital of the combined company, or the MTS Percentage.

Upon the closing of the Transaction, each outstanding share of SharpLink common stock will be converted into the right to receive MTS Ordinary Shares, calculated pursuant to the Exchange Ratio. Each outstanding share of SharpLink Series A 8% Convertible Preferred Stock, or SharpLink Series A Preferred Stock, will be converted into the right to receive MTS Preferred A-1 Shares, calculated pursuant to the Preferred A Exchange Ratio (as defined in the Merger Agreement).  Each outstanding share of SharpLink Series A-1 Preferred Stock will be converted into the right to receive MTS Preferred A-1 Shares, calculated pursuant to the Exchange Ratio.  Each outstanding share of SharpLink Series B Preferred Stock will be converted into the right to receive MTS Preferred B Shares, calculated pursuant to the Exchange Ratio.

In connection with a closing condition of the Merger Agreement, Alpha Capital, a major shareholder of both MTS and SharpLink, is investing $6 million in exchange for 2,765,824 shares of SharpLink Series B Preferred Stock.

The following unaudited pro forma condensed combined financial statements give effect to the Transaction and were prepared in accordance with the regulations of the SEC. The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting under U.S. GAAP. For accounting purposes, SharpLink is considered to be acquiring MTS in the Transaction. SharpLink was determined to be the acquirer based upon the terms of the Merger Agreement and other factors including: (i) SharpLink security holders are expected to own approximately 82.3% of the voting interests of the combined company immediately following the closing of the Merger, (ii) directors designated by SharpLink will constitute the board of directors of the combined company; and (iii) employees of SharpLink will constitute the entire management of the combined company. Under the acquisition method of accounting, the purchase price is allocated to the underlying MTS tangible and intangible assets acquired and liabilities assumed based on their respective fair market values with any excess purchase price allocated to goodwill.

The unaudited pro forma condensed combined statements of combined operations for the year ended December 31, 2020 combine the historical statements of consolidated operations for MTS and SharpLink, giving effect to the Transaction as if it had been completed on January 1, 2020, the beginning of the earliest period presented. The unaudited pro forma condensed combined balance sheet combines historical condensed consolidated balance sheets of MTS and SharpLink as of December 31, 2020, giving effect to the Transaction as if it had been completed on December 31, 2020.

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The value of the consideration paid by SharpLink upon the completion of the Transaction will be determined based on the closing price of the Company’s Ordinary Shares on the closing date. As of the date of this proxy statement, SharpLink has not completed the detailed valuation study necessary to arrive at the required final estimates of the fair value of the MTS assets acquired and liabilities assumed and the related allocations of purchase price, nor has it identified all adjustments necessary to conform MTS’s accounting policies to SharpLink’s accounting policies. As a result of the foregoing, the adjustments implemented in order to prepare the unaudited pro forma condensed combined financial statements are preliminary and are subject to change as additional information becomes available and as additional analysis is performed and based on the actual closing price of the Company’s Ordinary Shares on the closing date. The preliminary pro forma adjustments have been made solely for the purpose of preparing the unaudited pro forma financial statements presented below. SharpLink estimated the fair value of MTS’s assets and liabilities based on discussions with MTS’s management, preliminary valuation studies, due diligence and information presented in MTS’s filings with the SEC. Any increases or decreases in the fair value of assets acquired and liabilities assumed upon completion of the final valuations will result in adjustments to the unaudited pro forma financial statements. The final purchase price allocation may be materially different than that reflected in the pro forma purchase price allocation presented herein.

Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. The historical consolidated financial statements have been adjusted in the unaudited condensed combined pro forma financial statements to give effect to pro forma events that are: (1) directly attributable to the Transaction; (2) factually supportable; and (3) with respect to the unaudited pro forma statements of operations, expected to have a continuing impact on the combined results of SharpLink and MTS following the consummation of the Transaction. The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and are not necessarily indicative of the operating results and financial position that would have been achieved had the Transaction occurred on the dates indicated. Further, the unaudited pro forma financial statements do not purport to project the future operating results or financial position of the combined company following the consummation of the Transaction.

The unaudited pro forma condensed combined financial statements, including notes thereto, should be read in conjunction with the accompanying historical audited consolidated financial statements of SharpLink, Inc. and Subsidiary for the years ended December 31, 2019 and 2020, included as Annex F to this proxy statement, and the historical audited consolidated financial statements of MTS for the years ended December 31, 2019 and 2020, included in MTS’s Annual Report on Form 20-F for the year ended December 31, 2020.

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Unaudited Pro Forma Condensed Combined Balance Sheet
 
 
 
 
 
 
 
 
 
As of December 31, 2020
 
 
 
 
 
 
 
 
 

 
 
SharpLink Historical
   
MTSL Historical
   
Pro Forma Adjustments
 
Notes
 
Pro Forma Combined
 
 
                 
 
     
Cash and cash equivalents
   
2,585
     
1,504
     
6,000
 
 (a)
   
8,424
 
 
                   
(1,665
)
 (e)
       
Restricted cash
   
-
     
1,003
         
 
   
1,003
 
Trade receivables
   
356
     
407
         
 
   
763
 
Other accounts receivable and prepaid expenses
   
5
     
399
         
 
   
404
 
Assets of discontinued operations
   
-
     
178
         
 
   
178
 
Contract asset
   
275
     
-
         
 
   
275
 
Total current assets
   
3,221
     
3,491
     
4,335
 
 
   
11,047
 
Severance pay fund
   
-
     
252
         
 
   
252
 
Property and equipment, net
   
17
     
35
         
 
   
52
 
Deferred taxes
   
-
     
171
         
 
   
171
 
Right-of-use asset - operating lease
   
193
     
-