Notes Payable

9 Months Ended

Sep. 30, 2011

Notes to Financial Statements

Notes Payable

NOTE 4 – NOTES PAYABLE

In April 2009, the Company borrowed $72,500 from a third party with the loan secured by certain property lots located in Compass Lake, Florida.  This note was due on demand after November 1, 2009 with interest accruing at 25% per annum based on the default interest rate.  In October 2010, Somerset Financial Group Pension Trust sued New Bastion Development, Inc. Elliot Bellen, Laurie Bergmann and William Troy for the alleged breach of a promissory note in the amount of $72,500 plus interest, court costs and attorney’s fees.  Somerset’s Motion for Summary Judgment against the Defendants was denied.  On March 20, 2012, Somerset received a Final Judgment of Foreclosure in the amount of $150,853 and the 24 Compass lots that are secured by lien, are scheduled to be sold at a public auction on April 19, 2012 to the highest bidder. The Company and Somerset are currently in discussions to resolve the matter and to avoid the auctioning of the properties.

During the nine months ended September 30, 2011 and 2010, interest of $0 and $4,917 was paid on the Somerset loan.

At September 30, 2011 and December 31, 2010, interest amounts due under the note amounted to $45,236 and $4,425, respectively. The weighted average interest rate on the Company’s short-term obligations was approximately 25%.

NOTE 5 – CONVERTIBLE NOTES PAYABLE

At September 30, 2011 and December 31, 2010, convertible notes payable consisted of the following:

		September 30, 2011		December 31, 2010
Convertible note payable, original principal of $62,500, entered into on May 26, 2009 with interest of 10% per annum, due on May 25, 2010.  The note is payable in cash or can be converted into shares of the Company's common stock at $0.0125 per share.  However, the payee may not convert this note into shares so that the holder owns in the aggregate more than 9.9% of the then issued and outstanding shares of common stock of the Company.  As of December 31, 2010, this note was in default. This note was extinguished in September 2011. See (a) below.	$	-	$	54,000
Convertible note payable, modified on January 17, 2010, with interest of 10% per annum, due on July 16, 2010. The modification is treated like a debt extinguishment and a new beneficial conversion value of $26,250 was recorded to be amortized over the term. The note was payable in cash or can be converted into shares of the Company's common stock at $0.0125 per share.  However, the payee may not convert this note into shares so that the holder owns in the aggregate more than 9.9% of the then issued and outstanding shares of common stock of the Company.  See (b) below.		-		25,000
Total convertible note payable	$	-	$	79,000

(a) On September 2, 2011, the Company entered into an agreement with the holder of a convertible promissory note that was in default to extinguish the total debt outstanding of $67,402, including accrued interest.  Under the terms of the original agreement, the holder was able to convert the promissory note and interest at $0.0125 per share up to 9.9% of the issued and outstanding Company’s common stock.  The holder agreed to receive 1,600,000 shares of the Company’s common stock and cash of $8,000 as complete settlement for the convertible promissory note.  Pursuant to ASB 470-20-40, since the convertible debt contained an embedded beneficial conversion feature, the amount of the reacquisition price allocated to the repurchased beneficial conversion was measured using the intrinsic value of the beneficial conversion feature at the extinguishment date. Accordingly, the Company recorded a gain on extinguishment of debt of $67,402. The shares received by the holder will be subject to a sales restriction agreement that prohibits the sale, transfer and hypothecation of the subject shares for a twenty-four (24) month period.  

(b) On September 19, 2011, the Company entered into an agreement with the holder of a convertible promissory note to extinguish the total debt outstanding of $29,199, including accrued interest.  Under the terms of the original agreement, the holder was able to convert the promissory note and interest at $0.0125 per share up to 9.9% of the issued and outstanding Company’s common stock.  The holder agreed to receive 1,000,000 shares of the Company’s common stock as complete settlement for the convertible promissory note.  Pursuant to ASB 470-20-40, since the convertible debt contained an embedded beneficial conversion feature, the amount of the reacquisition price allocated to the repurchased beneficial conversion was measured using the intrinsic value of the beneficial conversion feature at the extinguishment date. Accordingly, the Company recorded a gain on extinguishment of debt of $29,199.  The shares received by the holder will be subject to a sales restriction agreement that prohibits the sale, transfer and hypothecation of the subject shares for a twenty-four (24) month period.