U.S. Securities and Exchange Commission

Washington, D.C. 20549

 

 

FORM 10-K

 

  

[X]	Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Fiscal Year Ended December 31, 2010

 

[  ]	Transition Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Transition Period from _______ to _______

 

 

BLUESKY SYSTEMS, CORP.

 (Exact name of small business issuer as specified in its charter) 

 

Pennsylvania	05-6141009
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

 

191 Chestnut Street, Springfield, MA. 01103

 (Address of principal executive offices)

 

(413) 734-3116

(Issuer's telephone number, including area code)

 

Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of each class	Name of each exchange on
To be so registered	which each class is to be
	registered
None.	N/A

 

 

Securities to be registered pursuant to Section 12(g) of the Act:

 

Common Stock, $.001 par value

(Title of Class)

 

Indicate by check mark if the registrant is a well-know seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [x]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [x]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [x] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

Yes [ ] No [ ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 if Regulation S-K (229.405 of this Chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.

Yes [ ] No [x]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	
Non-accelerated filer	(Do not check if a smaller reporting company)
Accelerated filer	
Smaller reporting company	x

 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the exchange act).

Yes [ ] No [x]

 

The Registrant’s revenues for its fiscal year ended December 31, 2010 were $16,845.

 

The aggregate market value of the voting stock on April 11, 2011 (consisting of Common Stock, $0.001 par value per share) held by non-affiliates can not be determined because BlueSky Systems Corp. currently has no market for their common stock. Non affiliates own 7,648,933 shares of the common stock outstanding.

 

Number of shares of common stock, par value $.001, outstanding as of April 11, 2011: 25,548,933

 

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

 

The discussion contained in this 10-K under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Financial Statements" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-K. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. Statements contained in this Form 10-K that are not historical facts are forward-looking statements that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.

 

 

TABLE OF CONTENTS

PART I:
Item 1	Business	2
Item 1A	Risk Factors	8
Item 1B	Unresolved Staff Comments	10
Item 2	Properties	10
Item 3	Legal Proceedings	10
Item 4	Submission of Matters to a Vote of Security Holders	10
PART II:
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	11
Item 6	Selected Financial Data	13
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	16
Item 8	Financial Statements and Supplementary Data	16
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	32
Item 9A(T)	Controls and Procedures	32
Item 9B	Other Information	32
PART III:
Item 10	Directors, Executive Officers and Corporate Governance	33
Item 11	Executive Compensation	35
Item 12	Security Owenership of Certain Beneficial Owners and Management and Related Stockholder Matters	36
Item 13	Certain Relationships and Related Transactions, and Director Independence	37
Item 14	Principal Accounting Fees and Services	37
PART IV:
Item 15	Exhibits, Financial Statement Schedules	39
SIGNATURES:		40

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ITEM 1. BUSINESS

 

We were incorporated on September 21, 2004 under the laws of the State of Pennsylvania to engage in the business of buying, selling, renting, and improving real estate. Over the last year we have been engaged in buying and selling our property and we have entered into new agreements for the management of new rental property.  In 2008, we owned 100% of the common stock of School Second Corp., which, in turn, owned property in central downtown Chicopee, Massachusetts at 192 School Street. Specifically, we owned a two-story building that consists of four units and generated revenues by rentals on units. During 2008 we sold this property and acquired a new property in Chicopee Massachusetts near Springfield in western Massachusetts at 12-14 Osgood Street.  Accordingly, all of the leases and agreements relating to the property at 192 School Street were terminated.  

 

The Registrant sold the property at 192 School Street, Chicopee, Massachusetts to Serena Cieplinski of 5126 Castle Harbor Way, Centreville, VA 20120 on October 29, 2008 for $212,500.

 

Also on October 29, 2008 the Registrant entered into a Stock Purchase Agreement between Pablo Torres, the majority shareholder of Oswego Real Estate Services, Inc. (“Seller”) and Bluesky Systems Corporation (“Buyer” or “Bluesky”).

 

The Seller sold 20,000,000 shares (twenty million) of Oswego Real Estate Services, Inc. (“Oswego”) in exchange for 250,000 shares (two hundred fifty thousand) of Bluesky Systems Corporation along with $5,000 in additional cash consideration so that such property located at 12-14 Osgood Street in Springfield, Massachusetts (“Property”) is owned by the Buyer. The Buyer and Seller agreed and Oswego become a wholly owned subsidiary of the Buyer.

 

As per the terms of the Stock Purchase Agreement, the mortgage will continue to be a liability of the Seller until paid in full by the seller. All rental proceeds are to be collected by and controlled by the Seller until the property is resold and any negative cash flows for repairs or expenses will be the sole responsibility of the Seller. Furthermore in the event, cash flow after all expenses exceeds 20%, Bluesky and the Seller will equally share the proceeds. Upon liquidation of the property after expenses, the Seller will receive 25% of the capital gains profit and Bluesky will receive 75% of the capital gains profit. If the Seller is incapable of managing the property, then Bluesky will hire a professional property management company to manage the day to day operations, at the Seller’s expense. Additionally, 100,000 (one hundred thousand) shares of the 250,000 (two hundred fifty thousand) shares are to be sold at a mutually acceptable price and the proceeds to be used exclusively for the pay down of the mortgage on the 12-14 Osgood Street property. Bluesky paid $5,000 (five thousand) dollars for consideration in this transaction

 

Our executive offices are located at 191 Chestnut Street in Springfield, Massachusetts 01103. Our telephone number is (413) 734-3116. We are currently authorized to issue 50,000,000 shares of common stock. We currently have 25,548,933 shares of common stock issued and outstanding.

 

Our business plan is to buy more investment properties, which we believe have good cash flows or good cash flow potential, plus a favorable estimated resale value. We plan to lease our properties primarily to residential tenants. We plan to make limited improvements to our properties (on a case by case basis, if commercially reasonable), so that we can increase occupancy, improve cash flows, and enhance potential resale value.

 

As shown in the accompanying audited financial statements, we have suffered recurring losses from operations since our inception. We experienced losses of $136,164 and $12,111 during 2010 and 2009, respectively. We also had a total accumulated deficit of $1,480,403 as of December 31, 2010. These factors raise substantial doubt about our ability to continue as a going concern.

 

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THE BUILDING AT 12-14 OSGOOD STREET, SPRINGFIELD, MASSACHUSETTS

 

On October 29, 2008, we acquired 20,000,000 shares of common stock of Oswego Real Estate Services, Inc. (“Oswego) in exchange for 250,000 shares of the Company along with $5,000 in additional cash consideration. In turn, Oswego became a wholly owned subsidiary of the Company and the property located at 12-14 Osgood Street in Springfield, Massachusetts is now owned by the Company through its subsidiary Oswego Real Estate Services.

 

The building at 12-14 Osgood Street consists of 2 family rental units. Both units are currently leased and yield approximately $1,400 rental income per month. The mortgage payable on this property as of December 31, 2010 is $102,024.

 

OVERVIEW OF OUR MARKET AREA

 

The city of Chicopee lies on the outskirts of the Springfield, Massachusetts urban area, located in the Pioneer Valley near the intersection of U.S. Interstates 90 (the Massachusetts Turnpike) and 91.  Interstate 90 is the major east-west highway crossing Massachusetts. Interstate 91 is the major north-south highway that runs directly through the heart of New England. Chicopee is located approximately 90 miles west of Boston, Massachusetts, 70 miles southeast of Albany, New York and 30 miles north of Hartford, Connecticut.  Chicopee is located in Hampden County, Massachusetts, whose estimated 2006 population was 460,805.

 

The economy in our primary market area enjoys the presence of large employers such as the University of Massachusetts, Baystate Medical Center, Mass Mutual Life Insurance Company, Big Y Foods, Inc., Friendly Ice Cream Corporation, Old Colony Envelope, Hamilton Standard, Pratt and Whitney and Strathmore Paper Company. Other employment and economic activity is provided by financial institutions, eight other colleges and universities, seven other hospitals and a variety of wholesale and retail trade businesses.

 

Respected national economists have given mixed opinions about the market for multi-family rentals in 2010.  However, according to Moody's, Economy.com and Fiserv Lending Solutions, Springfield MA is expected to see slight gains of 0.8%, while the rest of the state is expected to see significant losses as high as -3.0%.

 

Recent local developments, such as the proposed New Haven-Hartford-Springfield commuter rail line, have brought improvements to the local economy.  According to the NAI 2006 Global Market Report, although there will be some slowdown in the real estate market in Western Massachusetts, it is expected that the Springfield, Massachusetts area will not see a dramatic drop in market prices like many of the costal regions of the state.

 

These market factors form the setting in which we plan to execute our business model.

 

OUR PLAN TO ACQUIRE OTHER RENTAL PROPERTIES

 

Our business plan is to buy more rental properties that we believe are undervalued, compared to their cash flows and estimated resale value. Our strategy is to identify rental properties with a favorable purchase price relative to their market value, as well as positive cash flow. We plan to buy properties primarily leased to residential tenants. We are prepared to make some improvements to our properties (on a case by case basis, if commercially reasonable), so that we can increase occupancy, improve cash flows, and enhance potential resale value. However, given our current financial condition, we will most likely seek properties in the Springfield, Massachusetts area for the next 12 months.  However, after that time, we also plan to explore the possibility of acquiring additional properties in other areas of Western Massachusetts and possibly North Carolina.

 

Our success will be dependent upon implementing our plan of operations and the risks associated with our business plans. We operate primarily in the Springfield, Massachusetts area. We plan to strengthen our position in these markets. We plan to expand our operations through our acquisition and improvement of real estate.

 

We presently own one two-story apartment house in Springfield, Massachusetts. We hope to acquire additional real estate in the next 12 months, and to utilize the rental proceeds of those properties to pay our operating costs for that period; however, there are no assurances that this revenue will be sufficient to cover our operating costs. Accordingly, if our revenues are not sufficient, we will rely upon capital infusions from our director Duane Bennett; however, there are no assurances that Mr. Bennett will have sufficient funds to provide such capital infusions. He has made no assurance of the minimum or maximum capital amounts he could provide.

 

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PROPERTY LOCATION PROCEDURES

 

We plan to conduct a preliminary analysis that consists of:

 

	Reviewing real estate sales information provided by local board of realtors associations and our review of the census tract increases. The information that we may obtain that would weigh in favor or our proceeding with a property acquisition would be:
o		High volume of real estate sales within the specific area
o		New schools and major commercial developments in the area
o		Improved state and city roads in the area

 

The information that we may obtain that would weigh against our proceeding with a property acquisition would be:

o	Hazardous waste in the area
o	Crime rates in the area that are higher than the national average (per 100,000 people, based on 2005 FBI Uniform Crime Reports, released Sept. 2006)
o	Vacancy rates of 10% or more in the area

 

The data that we analyze to determine whether to purchase properties are:

 

	Demographic data that suggests increased demand in a specific area. The data that would weigh in favor of our proceeding with a purchase would be:
o		Continued economic development in the area, such as a major corporation moving into the area creating new jobs and increasing residential housing demand.
o		Increase in the population’s median income levels of 5 – 10% per year for a certain area.
o		Lower than the national average of violent and property crimes in the area (per 100,000 people, based on 2005 FBI Uniform Crime Reports, released Sept. 2006)

 

	Demographic data that would weigh against a purchase would be:
o		Migration of industrial companies outside the area.
o		Decrease of 10% or more in median income levels
o		Violent and property crime rates in the area that are higher than the national average (per 100,000 people, based on 2005 FBI Uniform Crime Reports, released Sept. 2006)

 

In order to determine and evaluate the fastest growing areas, we will obtain reports from sources such as the Pioneer Valley Planning Commission, Western Massachusetts Economic Development Council, Massachusetts Alliance for Economic Development, and University of Massachusetts Donahue Institute's Economic and Public Policy Research unit. Most of the reports available through these organizations are free of charge and will provide detailed information that we will then study to determine the areas with good growth rates.

 

We will also rely on statistics provided by the U.S. Census Bureau to obtain information pertaining to population shifts and number of total people in a specific area. In addition, we plan to utilize economic, housing and population data available from such sources as the Massachusetts Office of Economic Development and Massachusetts Institute for Social and Economic Research to further assess the best areas in which to purchase property.

 

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DETAILED MARKET AND FINANCIAL ANALYSIS

 

Our Secretary will perform detailed market and financial analysis regarding each property we decide to review for purchase to determine whether the specific location is appropriate for acquisition and development. That detailed information will include the following:

 

-	Number of properties on the market.
-	Number of properties sold in the past 12 months.
-	Sales prices asked per property.
-	Sales price sold per property.

 

-	Total square footage and acreage per property
-	Total number of units per property.
-	Total number of pending closings per property.

 

Our secretary is a licensed realtor which provides the education for the above reviews. He acquired training from his past experiences with ABC Realty, Inc. and Xenicent, Inc. (FKA Great Land Development Corp.)

 

The activities that our secretary engaged in with both of the above noted companies prior to their business combinations with unrelated businesses in unrelated industries are identifying perceived under valued properties, developing such properties by trying to add value in making the properties more valuable, and subsequently reselling such properties to individual customers.

 

PURCHASE PROCEDURES

 

Once we have located a property that we may want to purchase, if it is not currently listed for sale, we will ascertain whether the owner is willing to sell the property*. We then negotiate a purchase price and ask the following questions of the prospective seller and/or obtain answers from third parties:

 

-	When does the owner want to sell and close? Favorable conditions we look for regarding this factor are:
o		The seller is willing and able to sell within a six-month period.
o		Typically, the timing and motivation of sellers to enter into contract to sell may include several factors such as: estate planning, gifts to family, age, health and other personal factors.

 

-	How much will the owner sell the land for? Favorable conditions we will look for regarding this factor are:
o		The price is below market value. We determine market value through appraisals and comparable sales reports in the area.
o		With respect to price, we would also consider value trends, such as historical yearly increases in property values

 

-	Are there any defects on the title?  Favorable conditions we will look for regarding this factor are:
o		No liens and/or encumbrances.
o		The buyer is able to deliver a clean title within the time we would like to close.

 

-	Does the landowner have title insurance on the property? Favorable conditions we will look for regarding this factor are:
o		The landowner has title insurance on the property.
o		The landowner is able to secure title insurance on the property.
o		We would be able to obtain title insurance on the purchased property.

 

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We will obtain the following documents from the seller during our due diligence on the property:

 

-	General maps;
-	Environmental reports
-	Copies of existing zoning maps and regulations;
-	Conduct land inspection procedures;

 

-	Proposed zoning regulations;
-	Deeds;
-	Title insurance; and
-	Tax bills.

 

We then verify the accuracy of these documents and determine how the information contained in the documents impacts the property that we are considering to purchase.

 

We plan to evaluate properties not listed for sale because of the potential benefit of acquiring a property in a particular location at a lower cost by not having to pay realtor commissions or other costs and fees associated with purchasing properties only listed for sale with realtors. Since, in this case, there would not be a seller’s agent, there is a chance that we can get a better price on the property since a seller would not have to pay a realtor a commission. Therefore, the seller would not have to absorb the realtor’s commission in to his or hers selling price, which there is a chance a seller would do in order to obtain his or her needed price on a property.

 

OUR FINANCING PROCEDURES

 

We will attempt to obtain financing from local banks doing business within the area where we are attempting to purchase property. In the past, our director, Mr. Bennett, has personally guaranteed repayment of debt for property purchases along with necessary corporate guarantees for us as well as for two other companies, Axiom III, Inc. and Moixa III, Inc. We do not have any written agreements now or in the past with Mr. Bennett, obligating him to guarantee repayment of future debt or any of our other obligations. Mr. Bennett is not otherwise under any legal obligation to provide us with capital.

 

When obtaining financing we will look for mortgages at the then current lending rates but will also consider interest rates as high as 11% if we are able to purchase a property at least 25% below its existing market value, as determined by an appraiser.

 

Our credit status was sufficient enough for us to acquire our current building at 12-14 Osgood Street so long as we had a personal guarantee of Mr. Bennett. We believe we can use this same approach for future purchases.

 

In order to finance down payments of property purchases in the future, if applicable, we can seek debt or equity funding from related parties, including our director, as discussed above. If necessary, we will also attempt to raise capital from unrelated investors in the form of a debt or equity offering.

 

The procedures for obtaining our financing are as follows:

 

1.	File loan application.
2.	Credit checks, property appraisal done.
3.	Loan documents drafted.
4.	Down payment made that is typically approximately 5 to 10% of the appraised value.
5.	Institution lends funds for the balance, less certain transaction fees that are typically between approximately 2 to 3%.
6.	A lien is then filed with the appropriate recorder’s office.

 

There are no assurances that our financing procedures will be adequate to secure the funds needed to sustain our operations.

 

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DISTRIBUTION

 

We have no distribution agreements in place with anyone. We plan to sell the properties we acquire primarily through direct selling efforts involving established real estate brokers and property managers and corporations that may have a need for residential and/or commercial real estate. We plan to contract with real estate brokers, sub-contractors and other agents to assist in us on a project-by-project basis.

 

NEW PRODUCTS OR SERVICES

 

We currently have no new products or services announced to the public. We will make public announcement in the future upon entering into material contracts to acquire any new real estate projects.

 

COMPETITIVE BUSINESS CONDITIONS

 

We face significant competition both in acquiring rental properties and in attracting renters. Our primary market area of residential multi-family unit rentals is highly competitive, and we face direct competition from a significant number of multi-family unit landlords, many with a local, state-wide or regional presence and, in some cases, a national presence. Many of these landlords are significantly larger and have greater financial resources than us. Our competition for renters comes from newer built apartment complexes as well as older apartment buildings.

 

In addition, we face significant competition from home builders and land developers, because many renters have moved out of the rental market into single-family homes due to recent mortgage interest rates, which have reached 40-year lows in some cases. Nationally, there are over one hundred major land developers. Approximately 10% of these developers capture approximately 50% of the market for such developments. These developers have greater financial resources than we do and are better poised for market retention and expansion than we are. Specifically, our competition with national homebuilders is as follows: 

 

-	Pulte Homes;
-	Ryan Homes;
-	Ryland Homes;
-	John Weiland Homes;

 

-	Crescent Resources; and
-	Harris Group

 

Of the builders listed above, Pulte Homes is the only one that currently operates in Massachusetts.  All the other builders operate in various states on the East Coast and throughout the country.

 

These national homebuilders purchase land or lots of vacant land parcels to build single-family homes, often in connection with nearby shopping centers and commercial buildings. The national homebuilders have substantial resources to enable them to build single-family homes for resale.

 

These builders engage in single-family home development and have greater financial resources than we do. In addition, these companies have greater operational resources because they are able to perform a variety of development tasks themselves. These companies purchase vacant land tracts and perform all the work necessary to construct the homes, such as land clearing and road development and then build the homes themselves. In contrast, we do not have the financial or operational resources to perform these tasks. These national and local builders are better equipped to acquire tracts of land equipped with these capabilities due to their operational and financial superiority over us.

 

We have no competitive advantages over any of the individuals and/or companies against whom we compete. We have significantly less capital, assets, revenues, employees and other resources than our local and/or national competition. There are no barriers to entry into this market.

 

INTELLECTUAL PROPERTY

 

At present, we do not have any patents, trademarks, licenses, franchises, concessions, and royalty agreements, labor contracts or other proprietary interests.

 

GOVERNMENT REGULATION ISSUES

 

We are subject to applicable provisions of federal and state securities laws and to regulations specifically governing the real estate industry, including those governing fair housing and federally backed mortgage programs. Our operations will also be subject to regulations normally incident to business operations, such as occupational safety and health acts, workmen's compensation statutes, unemployment insurance legislation and income tax and social security related regulations. Although we will use our best efforts to comply with applicable regulations, we can provide no assurance of our ability to do so, nor can we fully predict the effect of these regulations on our proposed activities.

 

RESEARCH AND DEVELOPMENT

 

We have spent no funds on research and development.

 

EMPLOYEES

 

With the exception of Duane Bennett and Pablo Torres, we have no employees. We have no employment agreements with any of our management. We do not anticipate hiring any additional employees in the next 12 months.

 

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ITEM 1A. RISK FACTORS

 

In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition or future results. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deems to be immaterial also may materially adversely affect our business, financial condition or results of operations.

 

BECAUSE WE HAVE A LIMITED OPERATING HISTORY AND NEAR ABSENCE OF REVENUES, EVALUATING OUR BUSINESS AND PROSPECTS MAY BE DIFFICULT.

 

While our competitors have operated real estate businesses for a significant period of time, we have only had limited operations and a near absence of revenues since our inception in September 2004. As a result, we have a limited operating history upon which you can evaluate us and our prospects. In addition, we have an accumulated deficit of $1,480,403 since inception through December 31, 2010. These uncertainties increase the risk that you may lose your investment.

 

WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK, THUS YOU MAY NEVER RECEIVE A RETURN ON YOUR INVESTMENT IN OUR COMMON STOCK.

 

To date, we have not paid any dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Any payment of future dividends and the amounts thereof will depend upon our earnings, financial requirements and other factors deemed relevant by our board of directors. Thus, there is a greater risk you may never receive a return on your investment in our common stock.

 

THERE IS NO TRADING MARKET FOR OUR SHARES OF COMMON STOCK, AND YOU MAY BE UNABLE TO SELL YOUR SHARES.

 

There is not, and has never has been, a trading market for our securities. There is no established public trading market or market maker for our securities. There can be no assurance that a trading market for our common stock will be established or that, if established, can be sustained. Thus, there is a risk that you may never be able to sell your shares.

 

OUR LACK OF AN ESTABLISHED BRAND NAME AND RELATIVE LACK OF RESOURCES COULD DECREASE OUR ABILITY TO COMPETE IN THE REAL ESTATE MARKET EFFECTIVELY.

 

We do not have an established brand name or reputation in the residential real estate business. We also have a relative lack of resources to conduct our business operations. Thus, we may have difficulty effectively competing with companies that have greater name recognition and resources than we do. Presently, we have no patents, copyrights, trademarks and/or service marks that would protect our brand name or our proprietary information, nor do we have any current plans to file applications for such rights. Our inability to promote and/or protect our brand name may decrease our ability to compete effectively in the residential real estate market.

 

WE HAVE SUBSTANTIAL NEAR-TERM CAPITAL NEEDS; WE MAY BE UNABLE TO OBTAIN THE ADDITIONAL FUNDING NEEDED TO ENABLE US TO OPERATE PROFITABLY IN THE FUTURE AND MAY BE REQUIRED TO CURTAIL OPERATIONS OR SHUT DOWN COMPLETELY.

 

We will need additional funding over the next twelve months to develop our business. The estimated need for funds could be as little as $45,000 or as high as $1,000,000, depending on the properties we plan to acquire and the maintenance of current facilities. Please note that the $45,000 amount above consists of $25,000 in cash to purchase such properties as discussed in more detail in this paragraph plus $20,000 which covers additional expense related to our newly acquired reporting obligation. For instance, if we can purchase a property with as little money down, such as low as 5% for illustrative purposes, then we would only require the low end of the above range, or about $25,000 in cash, exclusive of the $20,000 which covers the expense of our newly acquired reporting obligation, to purchase such property costing $500,000 for illustrative purposes. On the other hand, if we purchase a property with only cash and without borrowing, then we would spend as much as $500,000 on the same purchase in the illustration above. If two of these properties are purchased with no borrowings, then we would spend $1,000,000 as an example. In addition, much depends of the quality of the property. For example, the property may require significant expenditures to obtain a certificate of occupancy for it. As of December 31, 2010, we had no liquid assets with which to pay our expenses. Accordingly, we will seek outside sources of capital such as conventional bank financing; however, there can be no assurance that we will be able to obtain favorable terms for such financing. If adequate funds are not available, we may be required to curtail operations or shut down completely.

 

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WE MAY NEED TO ISSUE MORE STOCK, WHICH COULD DILUTE YOUR STOCK

 

If we do not have enough capital to meet our future capital requirements, we may need to conduct additional capital-raising in order to continue our operations. To the extent that additional capital is raised through the sale of equity and/or convertible debt securities, the issuance of such securities could result in dilution to our shareholders and/or increased debt service commitments. Accordingly, if we issue additional stock, it could reduce the value of your stock.

 

OUR PRINCIPAL STOCKHOLDER CONTROLS OUR BUSINESS AFFAIRS, SO YOU WILL HAVE LITTLE OR NO PARTICIPATION IN OUR BUSINESS AFFAIRS.

 

Currently, our principal stockholder, Duane Bennett, owns approximately 61 % of our common stock. Most of this stock is held by the Northeast Nominee Trust. Duane Bennett is the sole trustee of this trust. As a result, he will have control over all matters requiring approval by our stockholders and can outvote all minority stockholders. In addition, he will be able to elect all of the members of our Board of Directors, which will allow him to significantly control our affairs and management. He will also be able to affect most corporate matters requiring stockholder approval by written consent, without the need for a duly noticed and duly-held meeting of stockholders. Accordingly, you will be limited in your ability to effect change in how we conduct our business.

 

IF WE LOSE THE SERVICES OF OUR KEY DIRECTOR, OUR BUSINESS COULD LOSE MONEY OR SHUT DOWN COMPLETELY.

 

Our success is heavily dependent upon the continued active participation of our key director, Duane Bennett. Mr. Bennett has twenty years of experience in the real estate business selling, buying and renovating multifamily homes in the Springfield, Massachusetts area and land development and buying and selling real estate in the Massachusetts area. If we lost Mr. Bennett’s services, we could lose money or shut down completely. We do not maintain "key person" life insurance on Mr. Bennett. We do not have a written employment agreement with Mr. Bennett. There can be no assurance that we will be able to recruit or retain other qualified personnel, should it be necessary to do so.

 

WE DO NOT HAVE ANY PLANS TO HIRE ADDITIONAL PERSONNEL FOR AT LEAST THE NEXT TWELVE MONTHS, WHICH MAY CAUSE SUBSTANTIAL DELAYS IN OUR OPERATIONS.

 

Although we plan to expand our business and operations, we have no plans to hire additional personnel for at least the next twelve months. As we expand our business there will be additional strains on our operations due to increased cost. In addition, expanded operations of our business may create additional demand for the time and services of our president, who currently devotes approximately 10 hours per week to our business. We now only have the services of our president to accomplish our current business and our planned expansion. If our growth outpaces his ability to provide services and we do not hire additional personnel, it may substantially delay our operations.

 

WE FACE INTENSE COMPETITION, WHICH PUTS US AT A COMPETITIVE DISADVANTAGE; IF WE ARE UNABLE TO OVERCOME THESE COMPETITIVE DISADVANTAGES, WE MAY NEVER BECOME PROFITABLE.

 

We face intense competition from companies engaged in similar businesses. We will compete with numerous companies that lease or sell residential real estate both over the Internet and via traditional forms of business. We anticipate that competition will intensify within Internet distribution channels, which we do not utilize. Many of our competitors have significantly greater customer bases, operating histories, financial, technical, personnel and other resources than we do, and may have established reputations for success in the real estate industry. There can be no assurance that we will be able to compete effectively in the highly competitive real estate industry. As a response to changes in the competitive environment, we may from time to time make certain service, marketing or supply decisions or acquisitions that could reduce our revenues, increase our expenses, or alter our pricing in a way that would diminish or prevent our profitability.

 

WE HAVE INCURRED LOSSES FROM OPERATIONS AND LIMITED CASH, WHICH RAISES SUBSTANTIAL DOUBT AS TO WHETHER WE CAN CONTINUE AS A GOING CONCERN.

 

As of December 31, 2010, our accumulated deficit was $1,480,403. Our cash flows (used in) operations were $(30,630) and $(3,222) for the years ended December 31, 2010 and 2009, respectively. We have incurred losses from operations and limited cash that raises substantial doubt as to whether we can continue as a going concern.

 

DECLINING ECONOMIC CONDITIONS COULD NEGATIVELY IMPACT OUR BUSINESS

 

Our operations are affected by local, national and worldwide economic conditions.  Markets in the United States and elsewhere have been experiencing extreme volatility and disruption for more than 12 months, due in part to the financial stresses affecting the liquidity of the banking system and the financial markets generally.  In recent weeks, this volatility and disruption has reached unprecedented levels.  The consequences of a potential or prolonged recession may include a lower level of economic activity and uncertainty regarding energy prices and the capital and commodity markets. While the ultimate outcome and impact of the current economic conditions cannot be predicted, a lower level of economic activity might result in a decline in energy consumption, which may adversely affect the price of oil, liquidity and future growth.  Instability in the financial markets, as a result of recession or otherwise, also may affect the cost of capital and our ability to raise capital.

 

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ITEM 1B. UNRESOLVED STAFF COMMENTS 

 

None.

 

ITEM 2. PROPERTIES

 

Currently we do not own any property for the use of administration nor do we have any plans to acquire any property in the future for such use. We are currently operating out of offices located at 191 Chestnut Street in Springfield, Massachusetts. We occupy approximately 200 square feet, which we feel is adequate for our present and planned future operations. We pay no rent for the use of this space. We have no current plans to occupy other or additional office space.

 

Location and Description

 

We currently own a three-story building located at 12-14 Osgood Street, Springfield, Massachusetts. The building consists of two family units each with a combined monthly rental rate of $1,400.00.

 

The nature of the business of each of these tenants and the principal provisions of their leases are outlined as follows: all are residential leases for individuals or families, for monthly rent, according to the usual terms for residential lease agreements.

 

The building, which is zoned as residential property, is located in the city of Chicopee located near the Pioneer Valley near the intersection of U.S. Interstates 90 (the Massachusetts Turnpike) and 91. Interstate 90 is the major east-west highway crossing Massachusetts. Interstate 91 is the major north-south highway that runs directly through the heart of New England. Springfield is located approximately 90 miles west of Boston, Massachusetts, 70 miles southeast of Albany, New York and 30 miles north of Hartford, Connecticut.

 

Management is of the opinion that the building is adequately covered by insurance.

ITEM 3. LEGAL PROCEEDINGS

 

We may be subject to, from time to time, various legal proceedings relating to claims arising out of our operations in the ordinary course of our business. We are not currently a party to any legal proceedings, the adverse outcome of which, individually or in the aggregate, would have a material adverse effect on the business, financial condition, or results of operations of the Company.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

We did not submit any matters to a vote of security holders during the fourth quarter of fiscal year 2010.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Trading Market for Common Equity

 

Our common stock is not traded on any exchange. We plan to have our shares of common stock quoted on the Over-The-Counter Bulletin Board. The Over-The-Counter Bulletin Board is a quotation medium for subscribing members only. And only market makers can apply to quote securities on the Over-The-Counter Bulletin Board. We cannot guarantee that we will obtain a market maker or such a quotation. Although we will seek a market maker for our securities, our management has no agreements, understandings or other arrangements with market makers to begin making a market for our shares. There is no trading activity in our securities, and there can be no assurance that a regular trading market for our common stock will ever be developed, or if developed, will be sustained.

 

A shareholder in all likelihood, therefore, will not be able to resell their securities should he or she desire to do when eligible for public resale. Furthermore, it is unlikely that a lending institution will accept our securities as pledged collateral for loans unless a regular trading market develops. We have no plans, proposals, arrangements or understandings with any person with regard to the development of a trading market in any of our securities.

 

HOLDERS.

 

As of April 11, 2011, there were 69 holders of record of our common stock.

 

DIVIDENDS.

 

We have not declared any cash dividends on our common stock since our inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business. Any decisions as to future payment of dividends will depend on our earnings and financial position and such other factors, as the Board of Directors deems relevant.

 

DIVIDEND POLICY.

 

All shares of common stock are entitled to participate proportionally in dividends if our Board of Directors declares them out of funds legally available. These dividends may be paid in cash, property or additional shares of common stock. We have not paid any dividends since our inception and presently anticipate that all earnings, if any, will be retained to develop our business. Any future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, operating and financial condition, capital requirements, and other factors.

 

Our Shares are "Penny Stocks" within the Meaning of the Securities Exchange Act of 1934

 

Our Shares are "penny stocks" within the definition of that term as contained in the Securities Exchange Act of 1934, generally equity securities with a price of less than $5.00. Our shares will then be subject to rules that impose sales practice and disclosure requirements on certain broker-dealers who engage in certain transactions involving a penny stock.

 

Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or "accredited investor" must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, unless the broker-dealer or the transaction is otherwise exempt, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the Registered Representative and current bid and offer quotations for the securities. In addition a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account, the account’s value and information regarding the limited market in penny stocks. As a result of these regulations, the ability of broker-dealers to sell our stock may affect the ability of Selling Security Holders or other holders to sell their shares in the secondary market. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction.

 

These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. These additional sales practice and disclosure requirements could impede the sale of Information Systems Associate's securities, if our securities become publicly traded. In addition, the liquidity for Information Systems Associate's securities may be adversely affected, with concomitant adverse affects on the price of Information Systems Associate's securities. Our shares may someday be subject to such penny stock rules and our shareholders will, in all likelihood, find it difficult to sell their securities.

 

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VOTING RIGHTS.

 

Each share of common stock entitles the holder to one vote at meetings of shareholders. The holders are not permitted to vote their shares cumulatively. Accordingly, the holders of common stock holding, in the aggregate, more than fifty percent of the total voting rights can elect all of our directors and, in such event, the holders of the remaining minority shares will not be able to elect any of such directors. The vote of the holders of a majority of the issued and outstanding shares of common stock entitled to vote thereon is sufficient to authorize, affirm, ratify or consent to such act or action, except as otherwise provided by law.

 

MISCELLANEOUS RIGHTS AND PROVISIONS.

 

Holders of common stock have no preemptive or other subscription rights, conversion rights, or redemption provisions. In the event of our dissolution, whether voluntary or involuntary, each share of common stock is entitled to share proportionally in any assets available for distribution to holders of our equity after satisfaction of all liabilities and payment of the applicable liquidation preference of any outstanding shares of preferred stock.

 

There is no provision in our charter or by-laws that would delay, defer or prevent a change in our control.

 

DEBT SECURITIES.

 

We have not issued any debt securities.

 

DIVIDEND RIGHTS.

 

The common stock has no rights to dividends, except as the Board may decide in its discretion, out of funds legally available for dividends. The Company has never paid any dividends on its common stock, and has no plans to pay any dividends in the foreseeable future.

 

RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES

 

During the past three years the Registrant has issued the following securities without registration under the Securities Act of 1933, as amended:

 

On April 6, 2009, 50,000 common shares were issued to a party related under common ownership in exchange for a $5,000 in service rendered.

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ITEM 6. SELECTED FINANCIAL DATA

 

If the registrant qualifies as a smaller reporting company as defined by Rule 229.10(f)(1), it is not required to provide the information required by this Item.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

Forward Looking Statements

 

Certain statements in this report, including statements of our expectations, intentions, plans and beliefs, including those contained in or implied by "Management's Discussion and Analysis" and the Notes to Consolidated Financial Statements, are "forward-looking statements", within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are subject to certain events, risks and uncertainties that may be outside our control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “will”, and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements. These forward-looking statements include statements of management's plans and objectives for our future operations and statements of future economic performance, information regarding our expansion and possible results from expansion, our expected growth, our capital budget and future capital requirements, the availability of funds and our ability to meet future capital needs, the realization of our deferred tax assets, and the assumptions described in this report underlying such forward-looking statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including, without limitation, those described in the context of such forward-looking statements, our expansion strategy, our ability to achieve operating efficiencies, our dependence on distributors, capacity, suppliers, industry pricing and industry trends, evolving industry standards, domestic and international regulatory matters, general economic and business conditions, the strength and financial resources of our competitors, our ability to find and retain skilled personnel, the political and economic climate in which we conduct operations and the risk factors described from time to time in our other documents and reports filed with the Securities and Exchange Commission (the "Commission"). Additional factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to: 1) our ability to successfully establish brand name or reputation in the residential real estate business; 2) our ability to compete effectively with other companies in the same industry; 3) our ability to raise sufficient capital in order to effectuate our business plan; and 4) our ability to retain our key executives.

 

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010 and 2009

 

Revenues (for the years ended December 31, 2010 and 2009).

 

Revenues increased $6,182 or approximately 58% to $16,845 for the year ended December 31, 2010, as compared with $10,663 for the year ended December 31, 2009. Our revenues consisted of rentals on residential rental properties located at 12-14 Osgood Street in Springfield, Massachusetts.

 

All sales transactions were with unrelated parties.

 

Cost of Sales (for the years ended December 31, 2010 and 2009).

 

None.

 

Expenses (for the years ended December 31, 2010 and 2009).

 

Operating expenses for the years ended December 31, 2010 and 2009 were $77,774 and $5,799, respectively. The increase was mainly due to the $63,531 consulting fees that were expensed in 2010.

 

We do not have any lease agreements for our principal office and do not currently have any employment agreements.

 

Income Taxes (for the years ended December 31, 2010 and 2009).

 

We had no provision for income taxes for the year ended December 31, 2010 and 2009, respectively, due to our net loss.

 

If we incur losses, we may have a deferred tax asset. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that, some portion or all of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment. We do not currently have any net deferred tax assets.

 

Income/Losses (for the years ended December 31, 2010 and 2009).

 

We had a net loss of $136,164, or $.01 per common share for the year ended December 31, 2010. This compares to a net loss of $12,111 for the year ended December 31, 2009. The decreases in net losses are attributable to the change in fair value of derivative liability.

 

Impact of Inflation.

 

We believe that inflation has had a negligible effect on operations since inception. We believe that we can offset inflationary increases in the cost of operations by increasing sales and improving operating efficiencies.

 

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Liquidity and Capital Resources (for the years ended December 31, 2010 and 2009).

 

Cash flows (used in) operations were $(2,020) and $(3,222) for the years ended December 31, 2010 and 2009, respectively. Cash flows used in operations during 2010 were due primarily to the change in fair value of derivative liabilities, offset by depreciation, amortization of debt discount, decrease in prepaid expense, and increase in accounts payable and accrued expense. Cash flows used in operations during 2009 were due primarily to the net loss of $12,111, offset by stock issued for services and the non-cash expense in depreciation.

 

There was no cash flow from investing activities during the two years ended December 31, 2010 and 2009.

 

Cash flows provided by financing activities were $(1,776) during the year ended December 31, 2010, compared to cash flows of $3,275 provided by financing activities for the year ended December 31, 2009.

 

Cash flows from financing activities in 2010 were due to principal repayment of $1,776 for the long term debt. Cash flows from financing activities in 2009 were due to capital contribution of $4,660, offset by the principal repayment of $1,385 for the long-term debt.

 

Overall, we have funded our cash needs from inception through December 31, 2010 with a series of equity and debt transactions, including those with related parties as described above. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on our operations and financial condition. This could include an inability to do sufficient advertising for the homes that we sell, which would make us less competitive in the marketplace. We could also find it more difficult to enter into strategic joint venture relationships with third parties. Finally, it would most likely delay the implementation of our business plan. An alternative plan of operation in the event of a failure to obtain financing would be to continue operations as currently configured, with the result being little, if any, projected growth. Another alternative would be to enter into a joint venture with another company that has working capital available, albeit on less favorable terms than had we obtained financing, for the development of our business plan.

 

We had cash on hand of only $297 and a working capital deficit of $149,143 as of December 31, 2010. Our current amount of cash in the bank is insufficient to fund our operations for the next twelve months. We will rely on the existence of revenue from our business, if any, and funding from outside sources; however, we have no current or projected capital reserves that will sustain our business for the next 12 months. Also, if the projected revenues fall short of needed capital we will not be able to sustain our capital needs for the next twelve months. We will then need to obtain additional capital through equity or debt financing to sustain operations for an additional year. A lack of significant revenues during 2011 will significantly affect our cash position and make it necessary to raise additional funds through equity or debt financing. Our current level of operations would require capital of approximately $10,000 to sustain operations through year 2011 and approximately $35,000 per year thereafter. Modifications to our business plans or additional property acquisitions may require additional capital for us to operate. There can be no assurance that additional capital will be available to us when needed or available on terms favorable to us.

 

On a long-term basis, liquidity depends on continuation and expansion of operations, receipt of revenues, and additional infusions of capital and debt financing. We are considering launching a local advertising campaign. Our current capital and revenues are insufficient to fund such marketing. If we choose to launch such a campaign, we will require substantially more capital. If necessary, we will raise this capital through an additional stock offering. However, there can be no assurance that we will be able to obtain additional equity or debt financing in the future, if at all. If we are unable to raise additional capital, our growth potential will be adversely affected and we will have to significantly modify our plans. For example, if we unable to raise sufficient capital to develop our business plan, we may need to:

 

- Seek projects of lesser value or that may be less profitable

- Seek smaller projects, which are less capital intensive, in lieu of larger projects; or

- Seek projects that are outside our geographical area to generate some revenue for us.

 

Demand for our rental services will be dependent on, among other things, market acceptance of our services, the real estate market in general and general economic conditions, which are cyclical in nature. Inasmuch as a major portion of our activities is the receipt of rents from residential properties, our business operations may be adversely affected by our competitors and prolonged recession periods.

 

Our success will depend upon implementing our plan of operations and the risks associated with our business plans. We operate a small real estate rental business in the Springfield, Massachusetts area. We plan to strengthen our position in this market. We also plan to expand our operations in the Springfield area.

 

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Going concern

 

As shown in the accompanying audited financial statements, the Company has suffered recurring losses from operations to date. It experienced losses of $136,164 and $12,111 during 2010 and 2009, respectively. The Company had a net deficiency of $1,480,403 as of December 31, 2010. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to this matter are to raise equity capital and seek strategic relationships and alliances in order to increase sales in an effort to generate positive cash flow. Additionally, the Company must continue to rely upon equity infusions from investors in order to improve liquidity and sustain operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

CRITICAL ACCOUNTING POLICIES

 

We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. The list is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management’s judgment in their application. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. Note that our preparation of the financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

 

Basis of Presentation

 

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in U.S. dollars. The Company’s fiscal year-end is December 31.

 

Use of Estimates

 

The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to valuation and amortization policies on property and equipment and valuation allowances on deferred income tax losses. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

Revenue Recognition

 

Revenue from the performance of services or sale of products is recognized in accordance with ASC-605 codification standards. Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is provided, and collectability is assured.

 

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Property, Plant, and Equipment

 

Property and equipment is stated at cost. Depreciation is provided by the straight-line method over the estimated economic life of the property and equipment (five to twenty seven and a half years). When assets are sold or retired, their costs and accumulated deprecation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the statement of operations.

 

The Company recognizes an impairment loss on property and equipment when evidence, such as the sum of expected future cash flows (undiscounted and without interest charges), indicates that future operations will not produce sufficient revenue to cover the related future costs, including depreciation, and when the carrying amount of the asset cannot be realized through sale. Measurement of the impairment loss is based on the fair value of the assets.

 

Basic and Diluted Net Income (Loss) Per Share

 

The Company computes net income (loss) per share in accordance with FASB codification standards. The standard requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

 

Income Taxes

 

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted FASB codification regarding the required tax asset benefit computations for net operating losses carry forward. The potential benefits of net operating losses have not been recognized in these consolidated financial statements.

 

Derivative Financial Instruments

 

The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. The Company utilizes various types of financing to fund our business needs, including convertible notes with warrants attached and other instruments not indexed to our stock. The Company is required to record its derivative instruments at their fair value. Changes in the fair value of derivatives are recognized in earnings in accordance with ASC 815.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

ITEM 8. FINANCIAL STATEMENTS

 

The report of the independent Registered Public Accounting Firm appears on page 25 and financial statements and notes to financial statements appear on page 26-40.

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CONTENTS

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 18

 

CONSOLIDATED BALANCE SHEETS……………………………………….….… 19

 

CONSOLIDATED STATEMENTS OF OPERATIONS……………………………. 20

 

CONSOLIDATED STATEMENTS OF CASH FLOWS…………………………..… 21

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT………….….. 22

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS…………………….... 23-31

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors

Bluesky Systems, Corp.

 

We have audited the accompanying balance sheets of Bluesky Systems, Corp. as of December 31, 2010 and 2009 and the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bluesky Systems, Corp. as of December 31, 2010 and 2009, and the results of its operations, changes in stockholders’ equity (deficit) and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note E to the financial statements, the Company has insufficient working capital, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note E. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ M&K CPAS, PLLC

www.mkacpas.com

Houston, Texas

April 11, 2011

 

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BLUESKY SYSTEMS, CORP.
Consolidated Balance Sheets
At December 31, 2010 and December 31, 2009
		12/31/2010				12/31/2009
Assets:						(Restated)
Current assets
Cash		$	297			$	53
Prepaid consulting expense			26,469				—
Total current assets			26,766				53
Fixed assets
Property and equipment			105,000				105,000
Accumulated depreciation			(8,426	)			(4,537	)
Total fixed assets			96,574				100,463
Total assets		$	123,340			$	100,516
Liabilities and Stockholders' (Deficit)
Current liabilities
Accounts payable and accrued expenses		$	15,610			$	8,500
Accounts payable -  related party			5,000				5,000
Accrued interest payable			2,536				—
Derivative liability			134,900				—
Current portion of notes payable-related party			1,645				1,506
Convertible note, net of discount of $73,782			16,218				—
Total current liabilities			175,909				15,006
Long-term notes payable - related party			100,379				102,294
Total liabilities			276,288				117,300
Stockholders' (Deficit)
Common stock, (50,000,000 shares authorized, 25,548,933
shares issued and outstanding, par value $.001 per share)			25,549				25,549
Additional paid-in capital			1,301,906				1,301,906
Retained deficit			(1,480,403	)			(1,344,239	)
Total stockholders' (deficit)			(152,948	)			(16,784	)
Total liabilities and stockholders' (deficit)		$	123,340			$	100,516
The accompanying notes are an integral part of these consolidated financial statements

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BLUESKY SYSTEMS, CORP.
Consolidated Statements of Operations
For the Years Ended December 31, 2010 and 2009
		Year Ended				Year Ended
		12/31/2010				12/31/2009
						(Restated)
Rental income		$	16,845			$	10,663
Total revenue			16,845				10,663
Selling, general and administrative expenses			77,774				5,799
Depreciation			3,889				3,889
Total expenses			81,663				9,688
Net ordinary income (loss)			(64,818	)			975
Other income (expense):
Change in fair value of derivative liability			(44,900	)			—
Interest expense			(26,446	)			(13,086	)
Total other income (expense)			(71,346	)			(13,086	)
Net income (loss)		$	(136,164	)		$	(12,111	)
Net income (loss) per share, basic and fully diluted		$	0.01				$                       *
Weighted Average Common Shares Outstanding			25,548,933				25,523,933
* = Less than $.01 per share
The accompanying notes are an integral part of these consolidated financial statements

 

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BLUESKY SYSTEMS, CORP.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2010 and 2009
		Year Ended				Year Ended
		12/31/2010				12/31/2009
						(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(136,164	)		$	(12,111	)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Stock issued for services			—				5,000
Debt issued for services			32,650				—
Change in fair value of derivative liabilities			44,900				—
Depreciation			3,889				3,889
Amortization of debt discount			16,218				—
Changes in operating assets and liabilities
Prepaid expense			30,881				—
Accounts payable			7,110				—
Accrued expense			2,536				—
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES			2,020				(3,222	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution of capital			—				4,660
Principal repayments of long term debt			(1,776	)			(1,385	)
NET CASH  PROVIDED BY (USED IN) FINANCING ACTIVITIES			(1,776	)			3,275
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			244				53
CASH AND CASH EQUIVALENTS:
Beginning of year			53				—
End of year		$	297			$	53
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the year for interest		$	7,692			$	12,523
Cash paid during the year for income taxes		$	—			$	—
NON-CASH FINANCING ACTIVITIES
Derivative liability		$	90,000			$	—
The accompanying notes are an integral part of these consolidated financial statements

 

(21)

Table of Contents

BLUESKY SYSTEMS, CORP.
Consolidated Statement of Stockholders' Deficit
For the Years Ended December 31, 2010 and 2009
		Common
		Stock								Additional
		(Par Value				Common				Paid in				Retained				Stockholders' equity
		$.001)				Shares				Capital				(Deficit)				(Deficit)
Balances, December 31, 2008		$	25,499				25,498,933			$	1,292,296			$	(1,332,128	)		$	(14,333	)
Capital contribution											4,660								4,660
Stock Issued for Services			50				50,000				4,950				—				5,000
Net loss for the year			—				—				—				(12,111	)			(12,111	)
Balances, December 31, 2009		$	25,549				25,548,933			$	1,301,906			$	(1,344,239	)		$	(16,784	)
Net loss for the year			—				—				—				(136,164	)			(136,164	)
Balances, December 31, 2010		$	25,549				25,548,933			$	1,301,906			$	(1,480,403	)		$	(152,948	)
The accompanying notes are an integral part of these consolidated financial statements

(22)

Table of Contents

BLUESKY SYSTEMS CORP.

NOTES TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

 

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Business Activity— BlueSky System, Corp. (“The Company”) was organized under the laws of the State of Pennsylvania in June 2004 as a C-Corporation. The Company owns one subsidiary, School Street Second Corp. (“The Subsidiary”). The purpose of the Subsidiary is to buy, sell, rent, and improve any and all aspects of real estate. The Subsidiary currently owns one building in Chicopee, Massachusetts.

 

Basis of Presentation—The Company's consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund its operations and debt obligations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Principles of Consolidation—The consolidated financial statements include the accounts of BlueSky System Corp. and its wholly-owned operating subsidiary, School Street Second Corp.  All inter-company accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents—For purposes of the Statement of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents. There were no cash equivalents as of December 31, 2010 and 2009

 

Management’s Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Revenue Recognition— The Company’s revenue is derived from rental income from 2 leases. The expired leases are considered month-to-month leases. In accordance with section 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition, the cost of property held for leasing by major classes of property according to nature or function, and the amount of accumulated depreciation in total, is presented in the accompanying December 31, 2010 consolidated balance sheet. There are no contingent rentals included in income in the accompanying statements of operations. With the exception of the month-to-month leases, revenue is recognized on a straight-line basis and amortized into income on a monthly basis, over the lease term.

 

Comprehensive Income (Loss)— The Company reports Comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the financial statements.

 

 

Advertising Costs—Advertising costs are expensed as incurred. Advertising expense totaled $-0- and $-0- for the years ended December 31, 2010 and 2009, respectively.

 

 

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’)

 

Loss per Common Share— Net loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.  Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period.  There were no potentially dilutive shares outstanding as of December 31, 2010.

 

Income Taxes— The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification.  Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

 

Fair Value of Financial Instruments—The carrying amounts reported in the balance sheet for cash, accounts receivable and payable approximate fair value based on the short-term maturity of these instruments.

 

Fair Value Measurements -  On January 1, 2008, the Company adopted guidance which defines fair value, establishes a framework for using fair value to measure financial assets and liabilities on a recurring basis, and expands disclosures about fair value measurements. Beginning on January 1, 2009, the Company also applied the guidance to non-financial assets and liabilities measured at fair value on a non-recurring basis, which includes goodwill and intangible assets. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

  

Level 1 - Valuation is based upon unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.

 

Level 2 - Valuation is based upon quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable in the market.

 

Level 3 - Valuation is based on models where significant inputs are not observable. The unobservable inputs reflect the Company's own assumptions about the inputs that market participants would use.

 

Non-Recurring fair value metrics:

 

Level 1 – None

 

Level 2 – None

 

Level 3 – Derivative Liability	Fair value on grant date 09/17/2010	$149,961
	Total change in derivative liability	(15,061)
	Fair value on 12/31/2010	$134,900

 

 

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’)

 

 

Stock Based Transactions— The Company acquires nonmonetary assets including goods for its common stock. The goods are recorded at the fair value of the nonmonetary asset exchanged or at an independent quoted market price for items exchanged.

 

The Company accounts for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.

 

Accounts Receivable—Accounts deemed uncollectible are written off in the year they become uncollectible. During 2010 and 2009, Accounts Receivable in the amounts of $-0- and $-0- were deemed uncollectible and were written off to Bad Debt Expense. No accounts receivable allowance was deemed necessary. As of December 31, 2010 and 2009, the Company’s Accounts Receivable balance was $-0-.

 

Impairment of Long-Lived Assets— The Company evaluates the recoverability of its fixed assets and other assets in accordance with section 360-10-15 of the FASB Accounting Standards Codification for disclosures about Impairment or Disposal of Long-Lived Assets.  Disclosure requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. The Company adopted the statement on inception. No impairments of these types of assets were recognized during the periods ended December 31, 2010 and 2009.

 

Property and Equipment—Property and equipment are stated at cost.  Depreciation of property and equipment is computed for financial statement purposes using the straight-line method over a 27.5 year estimated useful life of the assets.

Recent Accounting Pronouncements — The Company has implemented all new accounting pronouncements that are in effect.  These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

 

In December 2010, the FASB Accounting Standards Update 2010-29 Business Combinations Topic 805, which requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. Effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption did not have an impact on the Company’s financial position and results of operations.

 

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’)

 

Recent Accounting Pronouncements (Cont.) -  

In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.”  The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010.  Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update.  The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company.

In February 2010, the FASB Accounting Standards Update 2010-10 (ASU 2010-10), “Consolidation (Topic 810): Amendments for Certain Investment Funds.”  The amendments in this Update are effective as of the beginning of a reporting entity’s first annual period that begins after November 15, 2009 and for interim periods within that first reporting period. Early application is not permitted.  The Company’s adoption of provisions of ASU 2010-10 did not have a material effect on the financial position, results of operations or cash flows.

In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (ASC Topic 855) “Amendments to Certain Recognition and Disclosure Requirements” (“ASU No. 2010-09”). ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company’s financial position and results of operations.

In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis.  This standard, for which the Company is currently assessing the impact, is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010.

In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend.  This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis.  The adoption of this standard is not expected to have a significant impact on the Company’s financial statements.   

In October 2009, the FASB issued an amendment to the accounting standards related to certain revenue arrangements that include software elements. This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product’s essential functionality, shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for each element of the arrangement. This standard will become effective on January 1, 2011.

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’)

 

Recent Accounting Pronouncements (Cont.) -  

In October 2009, FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, this standard eliminated the use of the residual method for allocating arrangement considerations and requires an entity to allocate the overall consideration to each deliverable based on an estimated selling price of each individual deliverable in the arrangement in the absence of having vendor-specific objective evidence or other third party evidence of fair value of the undelivered items. This standard also provides further guidance on how to determine a separate unit of accounting in a multiple-deliverable revenue arrangement and expands the disclosure requirements about the judgments made in applying the estimated selling price method and how those judgments affect the timing or amount of revenue recognition. This standard, for which the Company is currently assessing the impact, will become effective on January 1, 2011.

In August 2009, FASB issued an amendment to the accounting standards related to the measurement of liabilities that are recognized or disclosed at fair value on a recurring basis. This standard clarifies how a company should measure the fair value of liabilities and that restrictions preventing the transfer of a liability should not be considered as a factor in the measurement of liabilities within the scope of this standard. This standard is effective for the Company on October 1, 2009. The adoption of this amendment did not have a material effect on the Company’s financial statements.

On September 30, 2009, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the authoritative hierarchy of GAAP.  These changes establish the FASB Accounting Standards Codification (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP.  Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants.  The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates.  Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification.  These changes and the Codification itself do not change GAAP.  Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the Company’s financial statements.

 

NOTE B—PROPERTY AND EQUIPMENT

 

Property and equipment— Property and equipment are stated at cost.  Depreciation of property and equipment is computed for financial statement purposes using the straight-line method over a 27.5 year estimated useful life of the assets.

 

As of December 31, 2010, the Company had the following depreciable assets:

 

Asset	Cost	Accumulated Depreciation	Book Value	Estimated Life	Estimated Annual Depreciation
Rental Property	$          105,000	$                8,426	$             96,574	27.5	$                3,889

 

 

As of December 31, 2009, the Company had the following depreciable assets:

 

Asset	Cost	Accumulated Depreciation	Book Value	Estimated Life	Estimated Annual Depreciation
Rental Property	$          105,000	$                4,537	$             100,463	27.5	$                3,889

 

NOTE C—INCOME TAXES

 

The Company’s provision for income taxes was $0 for the years ended December 31, 2010 and 2009 respectively since the Company incurred net operating losses which have a full valuation allowance through December 31, 2010.

 

ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In the Company’s opinion, it is uncertain whether they will generate sufficient taxable income in the future to fully utilize the net deferred tax asset. Accordingly, a full valuation allowance equal to the deferred tax asset has been recorded. The total deferred tax asset is calculated by multiplying a 39% marginal tax rate by the cumulative Net Operating Loss (“NOL”) of $109,744. The total valuation allowance is equal to the total deferred tax asset. The valuation allowance decreased by $600 from $43,400 to $42,800 for the year ended December 31, 2010.

 

The tax effects of significant items comprising the Company’s net deferred taxes as of December 31, 2010 and 2009 were as follows:

	2010                            2009
Cumulative NOL	$          109,744                $      111,282
Total Deferred Tax Asset	42,800                          43,400
Valuation Allowance	(42,800)                      (43,400)
Net Deferred Tax Asset	$                   -                 $                -

 

No tax benefits have been recorded for the nondeductible (tax) expenses (stock for services) in prior years. The measurement valuation allowance increased $(600) and $2,700 in 2010 and 2009, respectively.

 

The reconciliation of income taxes computed at the federal statutory income tax rate to total income taxes for the years ended December 31, 2010 and 2009 is as follows:

 

			2010				2009
Income tax computed at the federal statutory rate			34%				34%
Valuation allowance			(34%)				(34%)
Total deferred tax asset			0%				0%

 

 

Because of the Company’s lack of earnings history, the deferred tax asset has been fully offset by a valuation allowance.

 

The Company has approximately $109,744 in carry forwards available through the year 2030.

 

NOTE D—EQUITY

 

In 2009, 50,000 common shares were issued to a party related under common ownership in exchange for a $5,000 service rendered. This amount was computed based $0.10 share price from its most recent private placement.

 

 

NOTE E—GOING CONCERN

 

As shown in the accompanying audited consolidated financial statements, the Company has suffered recurring losses from operations to date. It experienced a loss of $12,111 during 2009. The Company had a net deficiency of $1,480,403 as of December 31, 2010. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

Management’s plans in regard to this matter are to raise equity capital and seek strategic relationships and alliances in order to increase sales in an effort to generate positive cash flow. Additionally, the Company must continue to rely upon equity infusions from investors in order to improve liquidity and sustain operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

NOTE F—SEGMENT REPORTING

 

In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information.” This statement requires companies to report information about operating segments in interim and annual financial statements. It also requires segment disclosures about products and services, geographic areas and major customers. The Company determined that it did not have any separately reportable operating segments as of December 31, 2010 and 2009.

 

NOTE G—NOTES PAYABLE AND DERIVATIVE LIABILITY

 

A note payable incurred for the purchase of the rental property consists of the following at December 31, 2010:

 

Secured Commercial Mortgage to an unrelated party.

Interest bearing 6.875 % with a maturity of June 1, 2007,

 

Balance at December 31, 2010		$	102,024
Less: Short term portion of mortgage payable			(1,645)
Long term portion of mortgage payable		$	100,379

 

The aggregate amount of long-term debt at December 31, 2010 maturing during each of the succeeding five years and thereafter is as follows:

 

For the year ending		Amount
2011		$	1,645
2012		$	1,368
2013		$	1,465
2014		$	1,569
Thereafter		$	95,977
Total		$	102,024

 

 

An unsecured note payable for SEC compliance services rendered during the year and for the upcoming year end in the amount of $90,000 was incurred during 2010. Included in the accompanying consolidated balance sheets at December 31, 2010 is $26,469 in prepaid consulting services awaiting future matching as services will be performed in the upcoming year-end filings. $63,531 in expense is included in the accompanying consolidated statements of operations for the 2010 period. The promissory note carries an annual interest rate of 5% and is due on June 30, 2011 to an unrelated consulting firm. There is $2,536 in accrued interest payable at December 31, 2010. The note carries an option to the holder of converting the note into equity at a price of $.25 per share or 50% of the then bid price at the date of issuance of such stock, whichever is less.

 

ASC Topic 815 (“ASC 815”) requires that all derivative financial instruments be recorded on the balance sheet at fair value. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.

 

The Company issued convertible notes and has evaluated the terms and conditions of the conversion features contained in the notes and warrants to determine whether they represent embedded or freestanding derivative instruments under the provisions of ASC 815. The Company determined that the conversion features contained in the notes and warrants represent freestanding derivative instruments that meet the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instruments in the notes and warrants is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instruments of the convertible notes and warrants was measured at the inception date of the notes and warrants and each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date.

 

The Company valued the conversion features in its convertible notes using the Black-Scholes model. The Black-Scholes model values the embedded derivatives based on a risk-free rate of return ranging from 0.26% to 0.29%, grant dates at 9/17/2010 of stock warrants, the term of convertible note, conversion prices is lesser of 1) $0.25, or 2) 50% of stock bid price at date of note issuance, current stock prices on the measurement date ranging from $0.01 to $0.10, and the computed measure of the Company’s stock volatility, ranging from 255.00% to 266.90%.

 

Included in the December 31, 2010 financial statements is a derivative liability in the amount of $134,900 to account for this transaction. There were no balances in prior periods since this liability arose in 2010. It will be revalued quarterly henceforth and adjusted as a gain or loss to the consolidated statements of operations depending on its value at that time.

 

Included in our Consolidated Statements of Operations for the year ended December 31, 2010 are $44,900 in change of fair value of derivative and $16,218 of debt discount amortization in non-cash charges pertaining to the derivative liability as it pertains to the gain on derivative liability and debt discount, respectively.

 

 

NOTE H—CORRECTION OF ERRORS AND RESTATEMENTS

 

The Company has restated its balance sheet and statement of operations at December 31, 2009 to correct errors in its accounting. On the balance sheet, the accounts payable –related party of $5,000 was identified and included. The current portion of mortgage payable was corrected from $1,193 to $1,506, and the long term mortgage payable was changed from $102,044 to $102,294. On the statement of operations, the total revenue, selling, general and administrative expenses, and interest expense were corrected. The net effect of the adjustments was to increase the net loss for the year by $5,223.

 

 

NOTE H—CORRECTION OF ERRORS AND RESTATEMENTS (CONT.)

 

Balance Sheet

 

BLUESKY SYSTEMS, CORP.
Consolidated Balance Sheets
December 31, 2009
		December 31, 2009
Assets		Restated				Adjustments				As File
Current assets
Cash		$	53			$	—			$	53
Prepaid consulting expense			—				—				—
Total current assets			53				—				53
Fixed assets
Property and equipment			105,000				—				105,000
Accumulated depreciation			(4,537	)			—				(4,537	)
Total fixed assets			100,463				—				100,463
Total assets		$	100,516			$	—			$	100,516
Liabilities and Stockholders' (Deficit)
Current liabilities
Accounts payable and accrued expenses		$	8,500			$	—			$	8,500
Accounts payable -  related party			5,000				5,000
Accrued interest payable			—				—				—
Derivative liability			—				—				—
Current portion of notes payable			1,506				313				1,193
Total current liabilities			15,006				5,313				9,693
Long-term notes payable			102,294				250				102,044
Total liabilities			117,300				5,563				111,737
Stockholders' (Deficit)
Common stock, (50,000,000 shares authorized, 25,548,933
shares issued and outstanding, par value $.001 per share)			25,549				—				25,549
Additional paid-in capital			1,301,906				62,886				1,239,020
Retained deficit			(1,344,239	)			(68,449	)			-1,275,790
Total stockholders' (deficit)			(16,784	)			(5,563	)			(11,221	)
Total liabilities and stockholders' (deficit)		$	100,516			$	—			$	100,516
The accompanying notes are an integral part of these consolidated financial statements

 

 

 

NOTE H—CORRECTION OF ERRORS AND RESTATEMENTS (CONT.)

 

Statements of Operations

 

BLUESKY SYSTEMS, CORP.
Consolidated Statements of Operations
For the Year 2009
		For the year ended December 31, 2009
		Restated				Adjustments				As Filed
Rental income		$	10,663			$	(6,610	)		$	17,273
Total revenue			10,663				(6,610	)			17,273
Selling, general and administrative expenses			5,799				(1,950	)			7,749
Bad debts			—				—				—
Depreciation			3,889				—				3,889
Total expenses			9,688				(1,950	)			11,638
Net ordinary income			975				(4,660	)			5,635
Other income (expense):
Change in fair value of derivative liability			—				—				—
Loss on Derivative Liability			—				—				—
Interest expense			(13,086	)			(563	)			(12,523	)
Total other income (expense)			(13,086	)			(563	)			(12,523	)
Net income (loss)		$	(12,111	)		$	(5,223	)		$	(6,888	)
Net income (loss) per share, basic and fully diluted			$                       *				$                       *				$                       *
Weighted Average Common Shares Outstanding			25,523,933				—				25,523,933

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Effective September 23, 2010, we filed an 8-K noting that the client-auditor relationship between us and Traci J. Anderson, CPA (the "Former Auditor") was terminated upon the dismissal of the Former Auditor as our independent registered accounting firm. Effective September 19, 2010, we engaged  M&K, CPA’s, PLLC ("M&K") as our principal independent public accountant to audit our consolidated financial statements for the years ending December 31, 2010 and 2009. The decision to change accountants was recommended and approved by our Board of Directors, effective September 19, 2010, and was necessitated as a result of the revocation of the registration of the Former Auditors by the Public Company Accounting Oversight Board (“PCAOB”) for violations of rules and auditing standards in auditing financial statements, PCAOB rules and quality control standards.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

The chief executive officer and the chief financial officer, after evaluating the effectiveness of the Company's "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e); collectively, "Disclosure Controls") as of the end of the period covered by this annual report (the "Evaluation Date") have concluded that as of the Evaluation Date, our Disclosure Controls were not effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified by the SEC, and that material information relating to our company and any consolidated subsidiaries is made known to management, including the chief executive officer and chief financial officer, particularly during the period when our periodic reports are being prepared to allow timely decisions regarding required disclosure.

 

Management assessed the effectiveness of our internal control over financial reporting as of the Evaluation Date based on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has determined that as of the Evaluation Date, there were material weaknesses in our internal control over financial reporting. The material weaknesses identified during management’s assessment were (i) a lack of sufficient internal accounting resources; and (ii) a lack of segregation of duties to ensure adequate review of financial statement preparation. In light of these material weaknesses, management has concluded that we did not maintain effective internal control over financial reporting at the Evaluation Date.

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. As defined by the Public Company Accounting Oversight Board Auditing Standard No. 5, a material weakness is a deficiency or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected. A clear and concise segregation of duties is important to maximize checks and balances so that no single individual has control over two or more phases of a transaction or operation. A strong segregation of duty also is critical to reduce effectively the risk of mistakes and inappropriate actions preventing fraud and discourages collusion. It can be difficult for small businesses to always have a clear separation of duties because there simply are not enough personnel to cover each and every process and procedure. Ultimately, checks and balances need to be in place as a supportive measure to the business operations, but also as a fraud prevention measure as well. Because we have limited financial personnel, and limited resources, compliance with segregation of duties and proper oversight of control requirements is extremely difficult In connection with the evaluation referred to in the foregoing paragraph, we have identified no change in our internal control of financial reporting that occurred during the quarter ended December 31, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

We are a non-accelerated filer and are required to comply with the internal control reporting and disclosure requirements of Section 404 of the Sarbanes-Oxley Act for fiscal years ending December 31, 2010. Although we are working to comply with these requirements, we have limited financial personnel, making compliance with Section 404 – especially with segregation of duty control requirements – very difficult and cost ineffective, if not impossible. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

 

Directors and Executive Officers

 

Our Bylaws provide that we must have at least one director. Each director will serve until our next annual shareholder meeting, to be held sixty days after the close of the fiscal year, or until a successor is elected who accepts the position. Directors are elected for one-year terms. Our officers may be elected by our Board of Directors at any regular or special meeting of the Board of Directors.

 

Vacancies may be filled by a majority vote of the remaining directors then in office. Our directors and executive officers are as follows:

 

Name	Age	Position
Duane Bennett	48	President, Secretary and Director

 

Duane Bennett, President, Secretary and Director

 

Duane Bennett has been a Director since our inception in September 2004. Mr. Bennett will serve as a director until our next annual shareholder meeting, or until a successor is elected and accepts the position. Mr. Bennett devotes approximately 5 hours per week to our company. Mr. Bennett’s business experience over the last five years has consisted of the following:

 

Mr. Bennett was President of ABC Realty, Inc. (1997–2004), a publicly reporting company and a licensed real estate brokerage, which provided real estate brokerage services within the Charlotte, North Carolina area.  Mr. Bennett was brokering private vacant land development transactions.  During the same period, Mr. Bennett was also the President of Xenicent, Inc., a publicly reporting company that began as a real estate investment company engaged in the purchase and sale of raw land primarily in and around North Carolina.  In 2003, Xenicent along with Mr. Bennett acting as director and majority shareholder entered into a deal to obtain a 60% subsidiary interest in a Taiwanese company called Giantek Technology Corporation.  Giantek was primarily engaged in the production of light emitting diode (LED) display systems for use in the sport and transportation industries.  In 2004, the 60% subsidiary interest agreement that was entered into in 2003 was mutually rescinded as a result of an inability of the Giantek shareholders to raise the investment capital originally anticipated in the 2003 agreement.

 

On September 15, 2004 ABC Realty, Inc. entered into a Plan of Exchange with a Chinese company named Harbin Zhong He Li Da Jiao Yu Ke Ji You Xian Gong Si.  Pursuant to that plan of exchange the shareholders of the Chinese company exchanged 100% of their outstanding shares in exchange for a 95% interest in ABC Realty, Inc.  In addition, C&C Properties, Inc. (a company controlled by Mr. Bennett) received an aggregate payment of $400,000 in cash and promissory notes and retained 1,000,000 shares of the common stock of ABC Realty, Inc. as payment for surrendering the shares.

 

On June 22, 2004 Xenicent entered into a Plan of Exchange with a Chinese company named Heilongjiang Pingchuan Yi Liao Qi Xie You Xian Gong Xi.  Pursuant to that plan of exchange the shareholders of the Chinese company exchanged 100% of their outstanding shares for a 99% interest in Xenicent.  Mr. Bennett and the other founding principals of Xenicent received a payment of $400,000 in cash and notes as payment for surrendering their shares in Xenicent.

 

From 2003 to 2007 Mr. Bennett had also been a Director of Axiom III, Inc., a company with a very similar business plan to our own.  Axiom III was incorporated in Nevada in June 2004 to engage in the business of buying, selling, renovating and renting real estate. Mr. Bennett has been integral to Axiom III's development.  Currently the company owns one building in Chicopee, Massachusetts, near Springfield in western Massachusetts.  Axiom III has engaged in and Mr. Bennett has assisted with buying, selling, rentals, and improvements in real estate.

 

As of October 10, 2007 the Axiom III, Inc. entered into a Share Exchange Agreement (“Agreement”), between and among Axiom III, Inc., Eastern Concept Development Ltd., (“Eastern”) a corporation organized and existing under the laws of Hong Kong a Special Administrative Region of the Peoples’ Republic of China, Mr. Benny Lee, the shareholder of Eastern (“Eastern Shareholder”), Foshan Wanzhi Electronic Technology Co., Ltd. (“Foshan”), a corporation organized under the laws of the Peoples’ Republic of China, Jun Chen the representative of the shareholders of Foshan (“Foshan Shareholders”) and Duane Bennett, the Chief Executive Officer and Director of Registrant ("Mr. Bennett").

 

Pursuant to the Agreement Axiom III, Inc. acquired one hundred percent (100%) of all of the issued and outstanding share capital of Eastern from the Eastern Shareholder in exchange for 35,351,667 shares of common stock of the Registrant in a transaction intended to qualify as a tax-free exchange pursuant to sections 351 and 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.

 

In furtherance of the Agreement, the respective Boards of Directors of Axiom III, Inc. and Eastern, have approved the exchange, pursuant to which one hundred percent (100%) of the share capital of Eastern (the "Eastern Concept Share Capital”) issued and outstanding prior to the exchange, was exchanged by the Eastern Shareholder or their designee in the aggregate for 35,351,667 shares of common stock, $.001 par value, of the Registrant (the "AXIO Common Stock"). Subsequent to the share exchange, Eastern acquired from the Foshan Shareholders, all of the share capital of Foshan for approximately $1.3 million, and Foshan became an indirect wholly owned subsidiary of Axiom III, Inc.

 

The Eastern Shareholder also paid an amount equal to $262,500 as additional consideration to North East Nominee Trust.  The North East Nominee Trust was the majority shareholder of Axiom III, Inc., and Mr. Bennett is the trustee.  His children are beneficiaries of the North East Nominee Trust.

Other than those persons mentioned above, we have no employees.

 

From 2007 to 2009, Mr. Bennett had also been a President, Chief Executive Officer, Chief Financial Officer and Director of Montgomery Real Estate Service, Inc. (“Montgomery”), a company with a very similar business plan to our own.  Montgomery was incorporated in Nevada on February 8, 2000, and started to engage in the business of buying, selling, renovating and renting real estate since 2007. Mr. Bennett has been integral to Montgomery's development.  Montgomery had engaged in and Mr. Bennett had assisted with buying, selling, rentals, and improvements in real estate by 2009.

 

As of August 20, 2009, Montgomery entered into a Plan of Exchange with a British Virgin Islands company named Hero Capital Profits Limited (“HCP”).  Pursuant to that plan of exchange the HCP shareholders exchanged 100% of their outstanding shares in HCP in exchange for a 99.38% interest in Montgomery. Accordingly, Mr. Bennett resigned from his positions as President, Chief Executive Officer, Chief Financial Officer and Director of Montgomery.

 

Family Relationships.

 

None.

 

Legal Proceedings.

 

No officer, director, or persons nominated for such positions and no promoter or significant employee has been involved in legal proceedings that would be material to an evaluation of our management.

 

Audit Committee

 

We do not have a separately designated standing audit committee. Pursuant to Section 3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts as an audit committee for the purpose of overseeing the accounting and financial reporting processes, and audits of our financial statements. The Commission recently adopted new regulations relating to audit committee composition and functions, including disclosure requirements relating to the presence of an "audit committee financial expert" serving on its audit committee. In connection with these new requirements, our Board of Directors examined the Commission's definition of "audit committee financial expert" and concluded that we do not currently have a person that qualifies as such an expert. We have had minimal operations for the past two (2) years. Presently, there are only four (4) directors serving on our Board, and us are not in a position at this time to attract, retain and compensate additional directors in order to acquire a director who qualifies as an "audit committee financial expert", but we intend to retain an additional director who will qualify as such an expert, as soon as reasonably practicable. While neither of our current directors meets the qualifications of an "audit committee financial expert", each of our directors, by virtue of his past employment experience, has considerable knowledge of financial statements, finance, and accounting, and has significant employment experience involving financial oversight responsibilities. Accordingly, we believe that our current directors capably fulfill the duties and responsibilities of an audit committee in the absence of such an expert.

 

Code of Ethics

 

We have adopted a code of ethic (the "Code of Ethics") that applies to our principal chief executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Ethics is being designed with the intent to deter wrongdoing, and to promote the following:

 

•	Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships
•	Full, fair, accurate, timely and understandable disclosure in reports and documents that a small business issuer files with, or submits to, the Commission and in other public communications made by the small business issuer
•	Compliance with applicable governmental laws, rules and regulations
The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code
•	Accountability for adherence to the code

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash-only rights) and any changes in that ownership with the Commission. Specific due dates for these reports have been established, and we are required to report, in this Form 10-K, any failure to comply therewith during the fiscal year ended December 2009.

 

 ITEM 11. EXECUTIVE COMPENSATION

 

No compensation in excess of $100,000 was awarded to, earned by, or paid to any executive officer of Bluesky Systems, Corp. during the years 2010, 2009, and 2008. The following table and the accompanying notes provide summary information for each of the last three fiscal years concerning cash and non-cash compensation paid or accrued by Duane Bennett, our President, Secretary and Director.

 

SUMMARY COMPENSATION TABLE

 

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Non- Equity Incentive Plan Compen- sation ($)	Nonquali- fied Deferred Compensa- tion Earnings ($)	All Other Compensa- tion ($)	Total ($)
Duane Bennett President, Secretary and Director	2010 2009 2008	- - -	- - -	- - -	- - -	- - -	- - -	- - -	- - -

 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCK HOLDER MATTERS.

 

The following tables set forth the ownership, as of March 29, 2011, of our common stock (a) by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, and (b) by each of our directors, by all executive officers and our directors as a group. To the best of our knowledge, all persons named have sole voting and investment power with respect to such shares, except as otherwise noted.

 

 

Security Ownership of Certain Beneficial Owners ⁽¹⁾⁽²⁾

 

Name and Address of Beneficial Owner	Amount and Nature of Ownership	Percentage of Class
Duane Bennett President, Secretary and Director 191 Chestnut Street, Springfield, MA  01103	100,000 (3) Direct	Less than 1%
Duane Bennett Trustee of North East Nominee Trust 191 Chestnut Street, Springfield, MA  01103	15,500,000 (3) Indirect	60.67%
Dominican Land Trust Corp 191 Chestnut Street, Springfield, MA  01103	2,400,000	9.39%
Greentree Financial Group Inc. 7951 SW 6th Street, Suite 216 Plantation, FL  33324	1,300,000	5.09%

 

Security Ownership of Directors and Officers ⁽¹⁾⁽²⁾

 

Name and Address of Beneficial Owner	Amount and Nature of Ownership	Percentage of Class
Duane Bennett President, Secretary and Director 191 Chestnut Street, Springfield, MA  01103	100,000 (3) Direct	Less than 1%
Duane Bennett Trustee of North East Nominee Trust 191 Chestnut Street, Springfield, MA  01103	15,500,000 (3) Indirect	60.67%
All directors and officers as a group	15,600,000	62%
Total Outstanding	25,548,933	100.0%

 

Notes to the table:

 

(1)

Pursuant to Rule 13-d-3 under the Securities Exchange Act of 1934, as amended, beneficial ownership of a security consists of sole or shared voting power (including the power to vote or direct the voting) and/or sole or shared investment power (including the power to dispose or direct the disposition) with respect to a security whether through a contract, arrangement, understanding, relationship or otherwise. Unless otherwise indicated, each person indicated above has sole power to vote, or dispose or direct the disposition of all shares beneficially owned.

 

(2)	This table is based upon information obtained from our stock records. We believe that each shareholder named in the above table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned.

 

(3)	Mr. Bennett owns 100,000 of these shares in his own name. The remaining 15,500,000 shares are owned in the name of the Northeast Nominee Trust, of which he is the sole trustee.

  

 

Changes in Control.

 

None.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

 

On April 6, 2009, 50,000 common shares were issued to a party related under common ownership in exchange for a $5,000 in service rendered.

On January 12, 2010, we entered a Plan of Exchange between and among us, Duane Bennett, our President, China Folk Tourism Co., Ltd., a company organized and existing under the laws of the British Virgin Islands (including its successors and assigns “CFT”), and the shareholders of CFT (the “CFT Shareholders”), pursuant to which we would acquire 100% of the capital stock of CFT equal to 50,000 shares in exchange for an issuance by us of 35,000,000 new post-split shares of our Common Stock to CFT shareholders. In addition, CFT and/or the CFT Shareholders would acquire 200,000 post-split shares of our Common Stock from Mr. Bennett, or his assignees, in exchange for a cash payment by CFT and/or the CFT Shareholders of an amount equal to $210,000 to Mr. Bennett, less any expenses incurred and a secured promissory note in the amount of $260,000.

 

The above purchase and issuance will give CFT a total of 35,200,000 shares of the Common Stock, or a 'controlling interest' in the Company representing approximately 97.7% of the then issued and outstanding shares of Common Stock. The transaction will not immediately close but shall be conditioned upon: (1) Elimination of all liabilities in the Company as of the closing date and an acknowledgement from the Company and Mr. Bennett that we will be fully responsible for any unknown or undisclosed liabilities that may have arisen while Mr. Bennett was in control of the Company.  (2)  Before closing, the Company shall provide a comfort letter prepared by a third party law firm confirming that to the best of their knowledge after reasonable due diligence, the Company has no pending or threatened litigation.  (3) There shall be a deposit of 200,000 post-split shares of the Company’s Common Stock deposited into the escrow account of Greentree Financial Group, Inc. ("Escrow Agent") and cash deposit of $210,000 along with a secured promissory note in the amount of $260,000 and a loan guaranty package.  (4) There shall be an issuance of 35,000,000 new post-split shares of Common Stock issued in the name of the CFT shareholders and held in escrow until closing, which should take no longer than 71 days. (5) Mr. Bennett shall tender his resignation from the board of directors and as officer of the Company and appoint his successor(s) as designated by CFT and/or the CFT Shareholders.  (6) CFT shall be fully reorganized as set forth in Schedule A of the Plan of Exchange attached as Exhibit 10.1 of the current report on Form 8-K filed on February 3, 2010, all of the necessary irrevocable PRC contractual arrangements shall have been executed in accordance with PRC law to make Yongding Hakka Earthen building Folklore Integrated Tourism Development Co. Ltd. a wholly owned indirect subsidiary of CFT, and all other relevant PRC regulatory approvals required for this transaction shall have been acquired.  (7) the Company shall have completed up to a 25:1 reverse stock split.

 

The transaction has not been closed as of the date of this annual report.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Fees Billed For Audit and Non-Audit Services

 

The following table represents the aggregate fees billed for professional audit services rendered to the independent auditor, M&K, CPA’s, PLLC ("M&K ") for our audit of the annual financial statements for the years ended December 31, 2010 and 2009. Audit fees and other fees of auditors are listed as follows:

 

Year Ended December 31		2010			2009
		M&K			M&K
Audit Fees (1)		$	2,500	(2)		$	2,500
Audit-Related Fees (3)							--
Tax Fees (4)							--
All Other Fees (5)							--
Total Accounting Fees and Services		$	2,500			$	2,500

 

 

 

	(1)	Audit Fees. These are fees for professional services for the audit of our annual financial statements, and for the review of the financial statements included in our filings on Form 10-Q, and for services that are normally provided in connection with statutory and regulatory filings or engagements.
	(2)	The amounts shown for M&K relate to services in connection with consents and assistance with and review of documents filed with the Securities and Exchange Commission.

 

	(3)	Audit-Related Fees. These are fees for the assurance and related services reasonably related to the performance of the audit or the review of our financial statements.

 

	(4)	Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning.
	(5)	All Other Fees. These are fees for permissible work that does not fall within any of the other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax Fees.

 

 

Pre-Approval Policy for Audit and Non-Audit Services

 

We do not have a standing audit committee, and the full Board performs all functions of an audit committee, including the pre-approval of all audit and non-audit services before we engage an accountant. All of the services rendered to us by M&K were pre-approved by our Board of Directors.

 

We are presently working with its legal counsel to establish formal pre-approval policies and procedures for future engagements of our accountants. The new policies and procedures will be detailed as to the particular service, will require that the Board or an audit committee thereof be informed of each service, and will prohibit the delegation of pre-approval responsibilities to management. It is currently anticipated that our new policy will provide (i) for an annual pre-approval, by the Board or audit committee, of all audit, audit-related and non-audit services proposed to be rendered by the independent auditor for the fiscal year, as specifically described in the auditor's engagement letter, and (ii) that additional engagements of the auditor, which were not approved in the annual pre-approval process, and engagements that are anticipated to exceed previously approved thresholds, will be presented on a case-by-case basis, by the President or Controller, for pre-approval by the Board or audit committee, before management engages the auditors for any such purposes. The new policy and procedures may authorize the Board or audit committee to delegate, to one or more of its members, the authority to pre-approve certain permitted services, provided that the estimated fee for any such service does not exceed a specified dollar amount (to be determined). All pre-approvals shall be contingent on a finding, by the Board, audit committee, or delegate, as the case may be, that the provision of the proposed services is compatible with the maintenance of the auditor's independence in the conduct of its auditing functions. In no event shall any non-audit related service be approved that would result in the independent auditor no longer being considered independent under the applicable rules and regulations of the Securities and Exchange Commission.

 

    (a) On December 31, 2010, our Chief Executive Officer and Chief Financial Officer made an evaluation of our disclosure controls and procedures. In our opinion, the disclosure controls and procedures are adequate because the systems of controls and procedures are designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows for the respective periods being presented. Moreover, the evaluation did not reveal any significant deficiencies or material weaknesses in our disclosure controls and procedures.

 

    (b) There have been no significant changes in our internal controls or in other factors that could significantly affect these controls since the last evaluation.

 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)	Financial Statements

 

1. The following financial statements of BlueSky Systems, Corp. are included in Part II, Item 8:

 

Balance Sheets at December 31, 2010 and 2009

Statements of Operations - for the years ended December 31, 2010 and 2009

Statements of Cash Flows - for the years ended December 31, 2010 and 2009

Statements of Stockholders’ Deficit - for the years ended December 31, 2010 and 2009

Notes to Financial Statements 

 

2. Exhibits

 

14.1 Code of Ethics *

31.1. Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief Financial Officer

32.1. Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer

 

* Filed previously.

 

(b)	Reports on Form 8-K

 

On February 3, 2010, we filed a current report in Form 8-K to announce a Plan of Exchange entered between and among us, Duane Bennett, our President, China Folk Tourism Co., Ltd., a company organized and existing under the laws of the British Virgin Islands (including its successors and assigns “CFT”), and the shareholders of CFT (the “CFT Shareholders”).

 

On July 30, 2010, we filed a current report in Form 8-k to announce the termination of the the Plan of Exchange Agreement, dated January 12, 2010, between Bluesky Systems Corp., a Pennsylvania corporation (including its successors and assigns, “BSKS” or “Registrant” or “Company”); Duane Bennett, the President of BSKS (“Mr. Bennett”), China Folk Tourism Co., Ltd., a company organized and existing under the laws of the British Virgin Islands (including its successors and assigns “CFT”), and the shareholders of CFT (the “CFT Shareholders”).

 

Effective September 23, 2010, we filed an 8-K noting that the client-auditor relationship between us and Traci J. Anderson, CPA (the "Former Auditor") was terminated upon the dismissal of the Former Auditor as our independent registered accounting firm. Effective September 19, 2010, we engaged  M&K, CPA’s, PLLC ("M&K") as another principal independent public accountant to audit our consolidated financial statements for the years ending December 31, 2010 and 2009. The decision to change accountants was recommended and approved by our Board of Directors, effective September 19, 2010, and was necessitated as a result of the revocation of the registration of the Former Auditors by the Public Company Accounting Oversight Board (“PCAOB”) for violations of rules and auditing standards in auditing financial statements, PCAOB rules and quality control standards.

 

 

 

 SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned majority of the Board of Directors, thereunto duly authorized.

 

	BLUESKY SYSTEMS, CORP.
Date: April 11, 2011	By:	/s/  Duane Bennett
		Duane Bennett
		President