American Fusion, Inc. 10-Q

ITEM 2. Unregistered Sales Of Equity Securities And Use Of Proceeds. None. ITEM 3. Defaults Upon Senior Securities. See Notes to Condensed Consolidated Financial Statements, Note 6 Debt YA Global Investments, L.P., $300,000 convertible debenture, due December 31, 2009 YA Global Investments, L.P., $1,000,000 convertible debenture, due April 20, 2009 YA Global Investments, L.P., $400,000 convertible debenture, due May 31, 2009 YA Global Investments, L.P., $2,000,000 convertible debenture, due July 2, 2009 Montgomery Equity Partners, Ltd., $300,000 15% convertible debenture, due on demand Montgomery Equity Partners, Ltd., $208,920 15% convertible debenture, due on demand LH Financial, $156,080 18% convertible promissory note, due on demand Phoenix Investors, LLC, $341,651, due July 15, 2008, due on demand Forbearance Agreement On April 28, 2008, the Company entered into a Forbearance Agreement (the “Agreement”) with Montgomery Equity Partners, Ltd. (“Montgomery”) and YA Global. This secured convertible indebtedness of Montgomery and YA Global (collectively, “Lenders”) had an aggregate principal balance, as of April 21, 2008, of approximately $4,249,720, and aggregate accrued unpaid interest of approximately $562,920. Pursuant to the Agreement, the Company gave formal written notice to the Lenders of events constituting defaults under the notes and other documents evidencing and securing the Indebtedness (the “Loan Documents”), that are continuing, including the Company’s failure to repay a portion of the indebtedness that had matured. Pursuant to the Agreement, Lenders agreed to forbear from exercising their rights and remedies under the Loan Documents until September 30, 2008, unless and until there is a new default under the Loan Documents. In connection with the Forbearance Agreement, the Company agreed (a) to amend the warrant entitling YA Global to purchase 1,050,000 common shares of the Company, to reduce the exercise price to $.001 per share; (b) to increase the interest rate payable on the Indebtedness to 13% per annum; (c) to allow the Company to prepay the indebtedness at any time prior to September 30,2008; (d) to extend the maturity of the portion of the debentures due December 28, 2006 (evidencing a portion of the Indebtedness in the aggregate principal amount of $549,720, and being the only portion of the indebtedness that has or will mature prior to September 30,2008) to September 30, 2008; and (e) for the Company’s cash deposits, to enter into a Deposit Account Control Agreement with a bank that, upon the earlier of a new default under the Loan Documents or September 30, 2008, gives YA Global exclusive and immediate control over the Company’s cash deposits in such account. ITEM 4. Submission Of Matters To A Vote Of Security Holders. None.