23. Appendix 2 - Creation and Distribution of Tokens

The Company has created the Tokens to be allocated as follows:

(a) The Company has minted an initial 100,000,000 (one hundred million) HUGS Tokens on the Polygon network.

(b) 25% of the Tokens, 25,000,000 (twenty-five million) will be made available for the Token Sale during the Private and Public Sale.

(c) 75% of the Tokens, 75,000,000 (seventy-five million) will be made available as follows:

i. 5%, 5,000,000 (five million) Tokens for development;

ii. 2%, 2,000,000 (two million) Tokens for partnerships;

iii. 3% 3,000,000 (three million) Tokens for bounties and marketing;

iv. 10% 10,000,000 (ten million) Tokens for CEX/DEX liquidity;

v. 10%, 10,000,000 (ten million) Tokens for team and advisors; and

vi. 45%, 55,000,000 (fifty-five million) Tokens for project incentives.

The above indications are provided on the basis that the Company reserves the right to use the 75% of Tokens not available for the Token Sale for any purposes at its sole discretion. Furthermore, the above will be subject to change at the Company’s sole discretion subject to the uptake of participants for the Tokens during the Token Sale offering period.

The 45 million tokens reserved for project incentives can, at a later stage be repurposed with the sole purpose of creating a Reward Pool meant for automated rewarding of contributors of crowdsourcing initiatives. These tokens would then be locked in a smart contract capable of distributing a fixed percentage of tokens at a set time interval. The Reward Pool will also accept transaction fees, by which the token supply locked in the pool has a continuous influx of tokens. The concept of the Reward Pool is explained in our whitepaper and in the separate Reward Pool Paper. Whether and when the Reward Pool is launched will be determined in the future based on the following factors:

i. Market research and feasibility study;

ii. Technical R&D and Beta testing; and

iii. Legal implications.

In case one or more of these determining factors would be deemed unfavourable for the creation of such Reward Pool, then these extra tokens will not be added to the circulating supply. HUGS Ltd. shall be the sole party deciding whether these conditions have been met and whether the concept of the Reward Pool will be launched and added to the existing circulating token supply.