LFAP LGBTQ Loyalty Holdings Inc (CE)

On January 25, 2019, we entered into and closed a securities exchange under a Securities Exchange Agreement (the “Securities Exchange Agreement”) with LGBT Loyalty LLC, a New York limited liability company (“LGBT Loyalty”), and Maxim Partners, LLC, a New York limited liability company (“Maxim”), pursuant to which we acquired all of the membership interests of LGBT Loyalty, making LGBT Loyalty a wholly owned subsidiary of ours, in exchange for 120,959,996 shares (the “Shares”) of our restricted common stock and one share of our newly created Series A Convertible Preferred Stock (the “Series A Preferred Stock”). The Shares issued to Maxim represented, upon issuance, 49.99% of our then issued and outstanding shares of common stock. Through LGBT Loyalty, we intend to create, establish, develop, manage and fund a LGBT Preference Index, LGBT Exchange Traded Fund and/or LGBT Loyalty Sponsor Fund.

The LGBT Loyalty (ETF) Index Fund is expected to be the first “preference” index fund to survey a representative group of the LGBT community to determine which companies within the S&P 500 best support and are supported by the LGBT community. We are also in development of a LGBT Advertising Agency and a LGBT Media Distribution Network to assist businesses and brands in the creation and distribution of specific content targeting the highly desired spending power of the LGBT consumer. The LGBT demographic is proven itself to be a fiercely loyal consumer group to supporting companies and their brands. In addition, the company is in the development of a LGBT Approved business model designed for businesses to promote and showcase their support for the LGBT community.

The Series A Preferred Stock has no voting, liquidation or other rights other than the right to convert into common stock. The Series A Preferred Stock will automatically convert into additional shares of our restricted common stock immediately after such time that (i) the number of shares of our authorized common stock is increased from 500,000,000 to 1,000,000,000 shares (the “Share Increase”); and (ii) the January 25, 2019 warrants issued to Brian Neal, our President, and Robert Gayman, our Executive Management Consultant, at the closing of the securities exchange transaction (the “Management Warrants”) are automatically exercised for shares of our restricted common stock. The Management Warrants represent common stock purchase warrants that were issuable to Robert Blair, our Chief Executive Officer, Brian Neal and Robert Gayman, and/or their designees or assignees (collectively, the “Management Holders”) in exchange for the cancellation of all amounts due to the Management Holders by us as of, but not including, January 1, 2019, which amounts consisted solely of accrued salaries and/or consulting fees earned by the Management Holders through December 31, 2018, plus interest due thereon. These amounts consisted of $161,629 due to Robert Blair, representing $154,600 of compensation and $7,029 of interest, $25,054 due to Brian Neal, representing $24,000 of compensation and $1,054 of interest and $161,629 due to Robert Gayman, representing $154,600 of compensation and $7,029 of interest. Prior to their issuance, Robert Blair gifted his right to receive Management Warrants to Brian Neal. The Management Warrants are automatically exercisable for shares of our restricted common stock following the Share Increase at an exercise price equal to a 10% discount to the volume weighted average price (“VWAP”) for our common stock during the three trading days ending on the seventh trading day following the date on which this Current Report is filed with the Securities and Exchange Commission. Except as otherwise provided below, the share of Series A Preferred Stock is automatically convertible into 99.98% of the number of shares issued upon the automatic exercise of the Management Warrants. However, upon the conversion of the Series A Preferred Stock, Maxim may not own more than 49.99% of our then issued and outstanding common stock. In the event that the full conversion of the Series A Preferred Stock would result in Maxim owning more than 49.99% of our then issued and outstanding common stock, the conversion will be limited to such number of shares that will result in Maxim owning 49.99% of our then issued and outstanding common stock and the issuance of the remaining shares issuable upon conversion will be deferred until such time that their issuance will not increase Maxim’s ownership of our common stock to more than 49.99%.

For purposes of the foregoing, VWAP means, for any date, the price determined by the first of the following clauses that applies: (a) if our common stock is then listed or quoted on a national securities exchange, the daily volume weighted average price for our common stock on such date (or the nearest preceding date) on the Trading Market on which our common stock is then listed or quoted as reported by Bloomberg L.P. (based on a trading day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if our common stock is then listed on the OTCQB or OTCQX, the volume weighted average price of our common stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if our common stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for our common stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of our common stock so reported, or (d) in all other cases, the fair market value of a share of our common stock as determined by an independent appraiser selected in good faith by the holders of a majority in interest of the Management Warrants then outstanding and reasonably acceptable to us, the fees and expenses of which shall be paid by us, and “Trading Market” means any of the following markets or exchanges on which our common stock is listed, quoted for trading or reported on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX, the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices).

In connection with the Securities Exchange Agreement and the closing thereunder, no changes were made to the composition of our Board of Directors (the “Board”) or executive officers. Accordingly, our Board continues to be comprised of Robert Blair and Lawrence Roan, and our executive officers continue to be comprised of Robert Blair (Chief Executive Officer and Chief Financial Officer) and Brian Neal (President). Pursuant to the Securities Exchange Agreement, we are entitled to appoint one additional member to the Board and Maxim is entitled to appoint two additional members to the Board. At such time that Maxim designates and we appoint its two Board appointees, we intend to appoint Robert Gayman as our Board appointee.

The Securities Exchange Agreement also provides that during the six month period following the January 25, 2019 closing under the Securities Exchange Agreement (i) we cannot enter into any financing transactions without the prior written consent of Maxim, which consent cannot be unreasonably withheld, and (ii) we cannot issue any equity or debt securities without the prior written consent of Maxim, which consent cannot be unreasonably withheld. As further provided in the Securities Exchange Agreement, since its formation, LGBT Loyalty has had no material operations, assets or liabilities.

The foregoing description of the Securities Exchange Agreement is qualified in its entirety by reference to the full text of the Securities Exchange Agreement, a copy of which is filed herewith as Exhibit 10.1, and is incorporated by reference herein.

The foregoing description of the Series A Preferred Stock is qualified in its entirety by reference to the full text of the Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock which we filed with the Delaware Secretary of State on January 24,2019, a copy of which is filed herewith as Exhibit 3.1, and is incorporated by reference herein.

The foregoing description of the Management Warrants is qualified in its entirety by reference to the full text of the Management Warrants, copies of which are filed herewith as Exhibits 10.2, 10.3, and 10.4, and are incorporated by reference herein.