Risks

RISKS RELATED TO SECURITY OF OUR GAMING PLATFORM. HACKERS OR OTHER MALICIOUS GROUPS OR ORGANIZATIONS MAY ATTEMPT TO INTERFERE WITH THE CHESSX PLATFORM IN A VARIETY OF WAYS, INCLUDING, BUT NOT LIMITED TO, MALWARE ATTACKS, DENIAL OF SERVICE ATTACKS, CONSENSUS-BASED ATTACKS, SYBIL ATTACKS, SMURFING AND SPOOFING. SUCH ATTACKS MAY RESULT IN THEFT OF THE NFTS AND/OR THE REWARD TOKENS. THERE IS ALSO AN INHERENT RISK THAT THE SOFTWARE AND RELATED TECHNOLOGIES AND THEORIES THE COMPANY USES COULD CONTAIN WEAKNESSES, VULNERABILITIES OR BUGS (“GLITCHES”). GLITCHES COULD CAUSE, AMONG OTHER THINGS, COMPLETE LOSS OF THE NFTS PURCHASED BY USERS OR THE REWARD TOKENS EARNED BY USERS.

RISKS RELATED TO BLOCKCHAIN TECHNOLOGY.THE COMPANY’S BUSINESS WILL BE DEPENDENT ON BLOCKCHAIN TECHNOLOGY, WHICH CARRIES CERTAIN RISKS. THE BLOCKCHAIN IS A DISINTERMEDIATING TECHNOLOGY THAT HAS THE POTENTIAL TO FACILITATE TRUST AND COMMERCE BETWEEN ECONOMIC ACTORS, WHETHER INDIVIDUALS OR COMPANIES. PUBLISHED IN 2008 BY SATOSHI NAKAMOTO, THE BITCOIN WHITE PAPER DESCRIBES A PAYMENT SYSTEM THAT ALLOWS INDIVIDUALS TO CONFIDENTLY TRANSACT WITH ONE ANOTHER WITHOUT KNOWING OR TRUSTING ONE ANOTHER AND WITHOUT INVOLVING A TRUSTED THIRD PARTY. BITCOIN WAS DESIGNED TO BE WITHOUT A CENTRAL POINT OF FAILURE AND SECURED BY CRYPTOGRAPHY AND MATHEMATICS, RATHER THAN TRUST IN A CENTRALIZED THIRD PARTY, FOR EXAMPLE. THIS CONCEPT OF A DECENTRALIZED ARCHITECTURE IS NOVEL AND INTENDED TO ALLOW INDIVIDUALS TO FREELY AND RAPIDLY TRANSACT WITH ONE ANOTHER REGARDLESS OF GEOGRAPHIC CONSTRAINTS. THE PHRASE “SMART CONTRACT” WAS COINED BY COMPUTER SCIENTIST NICK SZABO IN 1994 TO EMPHASIZE THE GOAL OF BRINGING WHAT HE CALLED THE “HIGHLY EVOLVED” PRACTICES OF CONTRACT LAW AND RELATED BUSINESS PRACTICES TO THE DESIGN OF ELECTRONIC COMMERCE PROTOCOLS ON THE INTERNET. PROPONENTS OF SMART CONTRACTS CLAIM THAT MANY KINDS OF CONTRACTUAL CLAUSES MAY THUS BE MADE PARTIALLY OR FULLY SELF-EXECUTING, SELF-ENFORCING OR BOTH. SMART CONTRACTS AIM TO PROVIDE SECURITY SUPERIOR TO TRADITIONAL CONTRACTS AND TO REDUCE OTHER TRANSACTION COSTS ASSOCIATED WITH CONTRACTING. SMART CONTRACTS IN THE FORM OF DIGITAL “TOKENS” LIKE THE TOKENS CAN NOW REPRESENT ANY TRADABLE ASSET. AS SUCH, DIGITAL TOKENS HAVE EMERGED AS A NEW ALTERNATIVE CHANNEL FOR COMPANIES TO RAISE FUNDS AND AS AN ENTIRELY NEW ASSET CLASS FOR INVESTORS. ACCORDINGLY, WHILE BUSINESSES BUILT ON BLOCKCHAIN-BASED TECHNOLOGY AND DIGITAL ASSETS MAY PRESENT INVESTMENT OPPORTUNITIES, THEY ALSO REQUIRE A HIGH DEGREE OF INVESTING SOPHISTICATION AND SPECIALIZATION AND DIFFERENTIATION BETWEEN WELL- AND POORLY- CONSTRUCTED OFFERINGS—ESPECIALLY IN REGARDS TO UNDERLYING BUSINESS MODEL; TOKEN ECOSYSTEM FUNCTIONALITY; INCENTIVE ALIGNMENT; PRODUCT-MARKET FIT; TOKEN MARKET AND LIQUIDITY; AND LEGAL, REGULATORY AND FINANCIAL MECHANICS. IN THE CASE OF THE COMPANY, THE EXACT BUSINESS MODEL CONTINUES TO EVOLVE.

RISKS RELATED TO THE REGULATORY ENVIRONMENT. THE NFTS AND THE REWARD TOKENS (THE “DIGITAL ASSETS”) MAY BE DEEMED TO BE SECURITIES UNDER U.S. AND STATE SECURITIES LAWS AND LAWS OF OTHER JURISDICTIONS. THE NFTS ARE INTENDED TO BE VIRTUAL, CRYPTOGRAPHIC COLLECTIBLES. WE BELIEVE THEY ARE GOODS AND UTILITY TOKENS FOR USE AND CONSUMPTION AND PRESENT THE SAME USE CASE AND CONSUMPTIVE PURPOSE AS TRADING CARDS HAVE BEFORE. AS PART OF THAT EXPERIENCE, WE INTEND TO ALLOW THE NFTS TO BE PURCHASED AND SOLD ON CHESSX PLATFORM. IN OUR OPINION, THE BUYING AND SELLING OF THE NFTS, EVEN IN THE HOPE THAT THE PRICE WILL INCREASE, DOES NOT INVOLVE THE TRADING OF A SECURITY. TO DETERMINE WHETHER ANY OF THE DIGITAL ASSETS CONSTITUTE SECURITIES, THEY NEED TO BE ANALYZED AS “INVESTMENT CONTRACTS” UNDER THE U.S. SUPREME COURT’S DECISION IN SEC V. W.J. HOWEY CO., 328 U.S. 293 (1946) (“HOWEY”) AND ITS PROGENY. UNDER HOWEY, AN INSTRUMENT IS AN “INVESTMENT CONTRACT” AND, THUS, A SECURITY, IF THE PURCHASER MAKES AN INVESTMENT OF MONEY IN A COMMON ENTERPRISE WITH AN EXPECTATION OF PROFIT DERIVED PRIMARILY FROM THE ENTREPRENEURIAL OR MANAGERIAL EFFORTS OF OTHERS. WE DO NOT BELIEVE THE SALE OF NFTS OR THE NFTS THEMSELVES, NOR THE EARNING OF THE REWARD TOKENS OR THE REWARD TOKENS THEMSELVES CONSTITUTE AN INVESTMENT CONTRACT. IF THE DIGITAL ASSETS OR THE OFFER AND SALE OF THE DIGITAL ASSETS WERE DEEMED TO BE A SECURITY UNDER U.S. FEDERAL SECURITIES LAWS, THEN WE MAY BE REQUIRED TO REGISTER EACH ISSUANCE UNDER THE SECURITIES ACT OR RELY ON AN EXEMPTION THEREFROM. EITHER PROCESS WOULD RESULT IN SIGNIFICANT DELAYS AND COSTS THAT COULD REQUIRE THE COMPANY TO CEASE OPERATION OF CHESSX PLATFORM. IN ADDITION, THE COMPANY MAY BE SUBJECT TO PENALTIES FOR PROMOTING THE SALE OF UNREGISTERED SECURITIES. THE BUSINESS OF THE COMPANY IS SUBJECT TO COMPLEX AND EVOLVING U.S. AND OTHER FOREIGN LAWS AND REGULATIONS REGARDING PRIVACY, TECHNOLOGY, DATA PROTECTION AND OTHER MATTERS, MANY OF WHICH ARE SUBJECT TO CHANGE AND UNCERTAIN INTERPRETATION, AND COULD RESULT IN CLAIMS, CHANGES TO OUR BUSINESS PRACTICES, INCREASED COST OF OPERATIONS OR OTHERWISE HARM OUR BUSINESS. WE ARE SUBJECT TO A VARIETY OF ADDITIONAL LAWS AND REGULATIONS IN THE U.S. (INCLUDING NEW YORK’S BIT LICENSE LAW) AND ABROAD THAT INVOLVE MATTERS CENTRAL TO OUR BUSINESS, INCLUDING USER PRIVACY, BLOCKCHAIN TECHNOLOGY, DATA PROTECTION AND INTELLECTUAL PROPERTY, AMONG OTHERS. THESE U.S. FEDERAL AND STATE AND FOREIGN LAWS AND REGULATIONS ARE CONSTANTLY EVOLVING AND CAN BE SUBJECT TO SIGNIFICANT CHANGE. IN ADDITION, THE APPLICATION AND INTERPRETATION OF THESE LAWS AND REGULATIONS ARE OFTEN UNCERTAIN, PARTICULARLY IN THE NEW AND RAPIDLY EVOLVING INDUSTRY IN WHICH WE OPERATE. WE PLAN ON ADOPTING POLICIES AND PROCEDURES DESIGNED TO COMPLY WITH THESE LAWS AND REGULATIONS IN THE U.S. AND ABROAD. THE RISK OF THE COMPANY BEING FOUND IN VIOLATION OF THESE OR OTHER LAWS AND REGULATIONS (BOTH THE U.S. AND ABROAD) IS FURTHER INCREASED BY THE FACT THAT MANY OF THEM HAVE NOT BEEN FULLY INTERPRETED BY THE REGULATORY AUTHORITIES OR THE COURTS AND ARE OPEN TO A VARIETY OF INTERPRETATIONS. ANY ACTION BROUGHT AGAINST US FOR VIOLATION OF THESE OR OTHER LAWS OR REGULATIONS, EVEN IF WE SUCCESSFULLY DEFEND AGAINST IT, COULD CAUSE US TO INCUR SIGNIFICANT LEGAL EXPENSES AND DIVERT OUR MANAGEMENT’S ATTENTION FROM THE OPERATION OF OUR BUSINESS. IF OUR OPERATIONS ARE FOUND TO BE IN VIOLATION OF ANY OF THESE LAWS AND REGULATIONS, WE MAY BE SUBJECT TO ANY APPLICABLE PENALTY ASSOCIATED WITH THE VIOLATION, INCLUDING CIVIL AND CRIMINAL PENALTIES, DAMAGES AND FINES, WE COULD BE REQUIRED TO REFUND PAYMENTS RECEIVED BY US, AND WE COULD BE REQUIRED TO CURTAIL OR CEASE OUR OPERATIONS OR MODIFY OUR PRACTICES, PROCEDURES OR FEATURES OF THE CHESSX PLATFORM. ANY OF THE FOREGOING CONSEQUENCES COULD SERIOUSLY HARM OUR BUSINESS AND ITS FINANCIAL RESULTS. THESE EXISTING AND PROPOSED LAWS AND REGULATIONS CAN BE COSTLY TO COMPLY WITH AND CAN DELAY OR IMPEDE THE DEVELOPMENT OF NEW PRODUCTS AND WORK ON THE CHESS X PLATFORM, RESULT IN NEGATIVE PUBLICITY, INCREASE OUR OPERATING COSTS, REQUIRE SIGNIFICANT MANAGEMENT TIME AND ATTENTION, AND SUBJECT US TO CLAIMS OR OTHER REMEDIES, INCLUDING FINES OR DEMANDS THAT WE MODIFY OR CEASE EXISTING BUSINESS PRACTICES.