---

 

 

U.S. Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-Q

 

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

   

For the Quarterly Period Ended June 30, 2011

 

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

       For the Transition Period From ____to _____

 

Commission File Number

000-52548

 

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)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. [x]

 

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

 

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	þ

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [  ]

 

Number of shares of common stock outstanding as of August 12, 2011: 25,548,933

 

 

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

 

    The discussion contained in this 10-Q 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-Q. 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-Q 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.

 

 

 

 

  

 

INDEX TO FORM 10-Q

  

PART I		Page No.
Item 1	Consolidated Financial Statements	3
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4	Controls and Procedures	20
Item 4T	Controls and Procedures	20
PART II
Item 1	Legal Proceedings	21
Item 1A	Risk Factors	21
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3	Defaults Upon Senior Securities	21
Item 4	Submission of Matters to a Vote of Security Holders	21
Item 5	Other Information	21
Item 6	Exhibits	21
	Signatures

 

ITEM 1. FINANCIAL STATEMENTS

 

INDEX TO BLUESKY SYSTEMS CORP. CONSOLIDATED FINANCIAL STATEMENTS

  

 

BLUESKY SYSTEMS CORPORATION	PAGE
Consolidated Balance Sheets	3
Consolidated Statements of Operations	4
Consolidated Statement of Cash Flows	5
Consolidated Statement of Stockholders’ Deficit	6
Notes to Consolidated Financial Statements	7

 

 

 

 

BLUESKY SYSTEMS, CORP.

Consolidated Balance Sheets

At June 30, 2011 and December 31, 2010

 

		(Unaudited)				(Audited)
Assets:		6/30/2011				12/31/2010
Current assets
Cash		$	—			$	297
Prepaid consulting expense			—				26,469
Total current assets			—				26,766
Fixed assets
Property and equipment			105,000				105,000
Accumulated depreciation			(10,370	)			(8,426	)
Total fixed assets			94,630				96,574
Total assets		$	94,630			$	123,340
Liabilities and Stockholders' (Deficit)
Current liabilities
Accounts payable and accrued expenses		$	22,160			$	15,610
Accounts payable - related party			5,000				5,000
Accrued interest payable			4,786				2,536
Derivative liability			142,029				134,900
Current portion of notes payable - related party			1,645				1,645
Convertible note, net of discounts of $-0- and $73,782, respectively			90,000				16,218
Total current liabilities			265,620				175,909
Long-term notes payable - related party			99,669				100,379
Total liabilities			365,289				276,288
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			(1,598,114	)			(1,480,403	)
Total stockholders' (deficit)			(270,659	)			(152,948	)
Total liabilities and stockholders' (deficit)		$	94,630			$	123,340

 

 The accompanying notes are in intergral part of these consolidated financial statements 

 

 

 

 

 

BLUESKY SYSTEMS, CORP.

Consolidated Statement of Operations

For Three and Six Months Ended June 30, 2011 and 2010

(Unaudited)

 

		Three Months Ended				Three Months Ended				Six Months Ended				Six Months Ended
		06/30/2011				06/30/2010				06/30/2011				06/30/2010
Rental income		$	4,127			$	4,993			$	8,146			$	9,752
Total revenue			4,127				4,993				8,146				9,752
Selling, general and administrative expenses			5,555				2,782				37,838				3,198
Depreciation			972				972				1,944				1,944
Total expenses			6,527				3,754				39,782				5,142
Net ordinary income			(2,400	)			1,239				(31,636	)			4,610
Other income (expense):
Change in fair value of derivative liability			(344	)			—				(7,129	)			—
Interest expense			(54,524	)			(2,973	)			(78,946	)			(6,014	)
Total other income (expense)			(54,868	)			(2,973	)			(86,075	)			(6,014	)
Net (loss)		$	(57,268	)		$	(1,734	)		$	(117,711	)		$	(1,404	)
Net (loss) per share, basic and fully diluted			$                       *				$                       *				$                       *				$                       *
Weighted Average Common Shares Outstanding			25,548,933				25,548,933				25,548,933				25,548,933
* = Less than $.01 per share

 

The accompanying notes are in intergral part of these consolidated financial statements

 

 

 

 

BLUESKY SYSTEMS, CORP.

Consolidated Statement of Cash Flows

For the Six Months Ended June 30, 2011 and 2010

(Unaudited)

 

		Six Months Ended				Six Months Ended
		06/30/2011				06/30/2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)		$	(117,711	)		$	(1,404	)
Adjustments to reconcile net (loss) to net cash provided by
operating activities:
Change in fair value of derivative liability			7,129				—
Depreciation			1,944				1,944
Amortization of debt discount			73,782				—
Prepaid expense			26,469				—
Accounts payable and accrued expenses			6,550				3
Accrued interest payable			2,250				—
NET CASH PROVIDED BY OPERATING ACTIVITIES			413				543
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments of long term notes payable - related party			(710	)			(596	)
NET CASH (USED IN) FINANCING ACTIVITIES			(710	)			(596	)
NET (DECREASE) IN CASH AND CASH EQUIVALENTS			(297	)			(53	)
CASH AND CASH EQUIVALENTS:
Beginning of period			297				53
End of period		$	—			$	—
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for interest		$	2,914			$	6,014
Cash paid during the period for income taxes		$	—			$	—

 

The accompanying notes are in intergral part of these consolidated financial statements

 

 

 

BLUESKY SYSTEMS, CORP.

Consolidated Statement of Stockholders’ Deficit

For the Six Months Ended June 30, 2011

 

		Common																Total
		Stock								Additional								Stockholders'
		(Par Value				Common				Paid in				Retained				Equity
		$	.001	)			Shares				Capital				(Deficit)				(Deficit)
Balances, January 1, 2011, audited		$	25,549				25,498,933			$	1,301,906			$	(1,480,403	)		$	(152,948	)
Net loss for the six months ended June 30, 2011			—				—				—				(117,711	)			(117,711	)
Balances, June 30, 2011, unaudited		$	25,549				25,498,933			$	1,301,906			$	(1,598,114	)		$	(270,659	)

 

The accompanying notes are in intergral part of these consolidated financial statements 

 

 

 

 

BLUESKY SYSTEMS, CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2011

(Unaudited)

 

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.

 

Interim Financial Statements

These interim unaudited financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.

 

Basis of Presentation—The financial statements included herein include the accounts of the Company prepared under the accrual basis of accounting.

 

Cash and Cash Equivalents—For purposes of the Consolidated Statement of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents.

 

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 4 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 June 30, 2011 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 three and six months ended June 30, 2011 and 2010, respectively.

 

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 June 30, 2011.

 

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 derivative liability —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

 

 

 

 

 

 

 

BLUESKY SYSTEMS, CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2011

 (Unaudited)

 

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

 

Fair Value of derivative liability (Cont.)--

 

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 - $ 142,029

 

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 2011 and 2010 interim periods, Accounts Receivable in the amounts of $-0- and $-0- were deemed uncollectible and were written off to Bad Debt Expense. As of June 30, 2011, 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 period ended June 30, 2011.

 

Recent Accounting Pronouncements Subsequent Events through Consolidation of Variable Interest Entities — The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

  

FASB Accounting Standards Codification

(Accounting Standards Update (“ASU”) 2009-01)

 

In June 2009, FASB approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts the Company’s consolidated financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification during the six months ended June 30, 2010.

 

As a result of the Company’s implementation of the Codification during the six months ended June 30, 2011, previous references to new accounting standards and literature are no longer applicable. In the current annual consolidated financial statements, the Company will provide reference to both new and old guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

 

 

 

BLUESKY SYSTEMS, CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2011

(Unaudited)

 

 

Recent Accounting Pronouncements (cont.)

 

Subsequent Events

(Included in Accounting Standards Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165 “Subsequent Events”)

 

ASC 855 established general standards of accounting for and disclosure of events that occur after the balance sheet date, but before the consolidated financial statements are issued or available to be issued (“subsequent events”). An entity is required to disclose the date through which subsequent events have been evaluated and the basis for that date. For public entities, this is the date the consolidated financial statements are issued. ASC 855 does not apply to subsequent events or transactions that are within the scope of other GAAP and did not result in significant changes in the subsequent events reported by the Company. ASC 855 became effective for interim or annual periods ending after June 15, 2009 and did not impact the Company’s consolidated financial statements. The Company evaluated for subsequent events through the issuance date of the Company’s consolidated financial statements. No recognized or non-recognized subsequent events were noted.

 

Determination of the Useful Life of Intangible Assets

(Included in ASC 350 “Intangibles — Goodwill and Other”, previously FSP SFAS No. 142-3 “Determination of the Useful Lives of Intangible Assets”)

 

ASC 350 amended the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under previously issued goodwill and intangible assets topics. This change was intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset under topics related to business combinations and other GAAP. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. ASC 350 became effective for consolidated financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of ASC 350 did not impact the Company’s consolidated financial statements.

 

Noncontrolling Interests

(Included in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51”)

 

ASC 810 changed the accounting and reporting for minority interests such that they will be recharacterized as noncontrolling interests and classified as a component of equity. ASC 810 became effective for fiscal years beginning after December 15, 2008 with early application prohibited. The Company implemented ASC 810 at the start of fiscal 2009 and no longer records an intangible asset when the purchase price of a noncontrolling interest exceeds the book value at the time of buyout. The adoption of ASC 810 did not have any other material impact on the Company’s financial statements.

 

Consolidation of Variable Interest Entities — Amended

(To be included in ASC 810 “Consolidation”, SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”)

 

ASC 810 amends FASB Interpretation No. 46(R) “Consolidation of Variable Interest Entities regarding certain guidance for determining whether an entity is a variable interest entity and modifies the methods allowed for determining the primary beneficiary of a variable interest entity. The amendments include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. ASC 810 is effective for the first annual reporting period beginning after November 15, 2009, with earlier adoption prohibited. The Company adopted ASC 810 in fiscal 2010 and there was no material impact on the Company’s financial statements.

 

 

BLUESKY SYSTEMS, CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements

For the Six Months Ended June 30, 2011

(Unaudited)

 

NOTE B—SUPPLEMENTAL CASH FLOW INFORMATION

 

Supplemental disclosures of cash flow information for the six months ended June 30, 2011 and 2010 are summarized as follows:

 

Cash paid during the period for interest and income taxes:

	2011			2010
Income Taxes		$			$
Interest	$	2,914		$	6,014

 

NOTE C—INCOME TAXES

 

Due to the operating loss and the inability to recognize an income tax benefit there from, there is no provision for current or deferred federal or state income taxes for the three and six months ended June 30, 2011 and 2010.

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for federal and state income tax purposes.

 

The Company’s total deferred tax asset, calculated using federal and state effective tax rates, as of June 30, 2011 is as follows:

 

 

 

Total Deferred Tax Asset		$	73,400
Valuation Allowance			(73,400	)
Net Deferred Tax Asset		$	—

 

The measurement valuation allowance increased $17,000 during the six months ended June 30, 2011.

 

The reconciliation of income taxes computed at the federal statutory income tax rate to total income taxes for the six months ended June 30, 2011 and 2010 is as follows:

 

	2011			2010
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 $216,000 in carry forwards available through the year 2030.

 

NOTE D—GOING CONCERN

 

As shown in the accompanying audited financial statements, the Company has suffered recurring losses from operations to date. It experienced losses of $117,711 during the six months ended June 30, 2011. The Company had a net working capital deficiency and a net deficiency of $265,620 and $1,598,114, respectively, as of June 30, 2011. 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 E—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 June 30, 2011 and 2010.

 

NOTE F—NOTES PAYABLE AND DERIVATIVE LIABILITY

 

A note payable incurred for the purchase of the rental property consists of the following at June 30, 2011:

 

Secured Commercial Mortgage to an unrelated party.

Interest bearing 6.875 % with a maturity of June 1, 2037,

Balance at June 30, 2011 $101,314

 

Less: Short term portion of mortgage payable (1,645)

 

Long term portion of mortgage payable $99,669

 

 

  

NOTE F—NOTES PAYABLE AND DERIVATIVE LIABILITY (CONT.)

 

The aggregate amount of long-term debt at June 30, 2011 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
2015		$	1,680
Thereafter		$	93,587
Total		$	101,314

 

An unsecured note payable for SEC compliance services rendered during the quarter and for the upcoming year end in the amount of $90,000 was incurred during the prior year. Included in the accompanying consolidated balance sheets at December 31, 2010 is $26,469 in prepaid consulting services which were matched with services performed in the year-end filings during the six months ended June 30, 2011. Accordingly, $26,469 in expense is included in the accompanying statements of operations for the six months ended June 30, 2011. The promissory note carries an annual interest rate of 5% and is due on June 30, 2011 to an unrelated consulting firm. There is $4,786 in accrued interest payable at June 30, 2011. 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 0.03% to 0.30%, grant dates of stock warrants, the term of the stock warrants, conversion prices ranging from $0.005 to $0.008, current stock prices on the measurement date ranging from $0.01 to $0.02, and the computed measure of the Company’s stock volatility, ranging from 254.77% to 385.34%.

 

Included in the June 30, 2011 is a derivative liability in the amount of $142,029 to account for this transaction. There were no balances in prior periods since this liability arose in the third quarter of 2010. It will be revalued quarterly henceforth and adjusted as a gain or loss to the statements of operations depending on its value at that time.

 

Included in our Statements of Operations for the six months ended June 30, 2011 are $7,129 and $73,782 in non-cash charges pertaining to the derivative liability as it pertains to change in derivative liability and amortization of debt discount, respectively.

  

NOTE G—PROPERTY AND EQUIPMENT

 

Property and equipment—Depreciable assets are stated at cost. As of June 30, 2011, the Company had the following depreciable assets:

 

 

Asset	Cost	Accumulated Depreciation	Book Value	Estimated Life	Estimated Annual Depreciation
Rental Property	$          105,000	$                10,370	$             94,630	27.5	$                3,889

  

 

 

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

Management’s Discussion and Analysis contains various “forward looking statements” within regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets (i.e. SBDC). The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.

 

Management’s Discussion and Analysis of Results of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the financial statements included herein.

 

BUSINESS DESCRIPTION

 

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 and $5,000 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 Philips become a wholly owned subsidiary of the Buyer.

 

As per the terms of the Stock Purchase Agreement, the mortgage will continue to be the personal liability of the Seller until paid in full by him. 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 our audited financial statements, we have suffered recurring losses from operations since our inception. We experienced losses of $117,711 and $1,404 during 2011 and 2010, respectively. We also had a total accumulated deficit of $1,598,114 as of June 30, 2011. These factors raise substantial doubt about our ability to continue as a going concern.

 

 

THE BUILDING AT 192 SCHOOL STREET

 

On September 21, 2004, we acquired 100% of the common stock of School Second Corp., which in turn, owns 100% of a two-story apartment house, with four units in central downtown Chicopee, Massachusetts located at 192 School Street, which the board of directors had identified as an acceptable business opportunity.

 

We contracted with Lessard Property Management, Inc. to manage the lease on our behalf however all contracts were terminated when the property was sold.

 

On October 29, 2008, we sold the property at 192 School Street in the amount of $212,500.

 

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 $1,200 rental income per month. The mortgage payable on this property as of December 31, 2008 is $105,000.

 

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 2006.  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.

 

The City of Chicopee Assessor's Office reported 2,579 multi-family units in 2006 and the Pioneer Valley Planning Commission's SOCDS Building Permits Database shows an increase of 120% in permits for multi-family structures in Springfield from 2002 to 2006.

 

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.

 

 

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.

 

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.

 

  

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 192 School 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.

 

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.

  

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010

 

Revenues (for the Three Months Ended June 30, 2011 and 2010).

 

Revenues decreased $866 to $4,127 for the three months ended June 30, 2011, as compared with $4,993 for the three months ended June 30, 2010. Revenues consisted of rentals on residential rental properties. We had four leases, of which three expired in May 2006. The expired leases are now considered month-to-month leases. The increase in revenues is attributable to the rental rates and vacancy rates of the School Street property which was sold and the acquisition of the Osgood Street property.

 

All sales transactions were with unrelated parties.

 

Revenues (for the Six Months Ended June 30, 2011 and 2010).

 

Revenues decreased $1,606 to $8,146 for the six months ended June 30, 2011, as compared with $9,752 for the six months ended June 30, 2010. Revenues consisted of rentals on residential rental properties. We had four leases, of which three expired in May 2006. The expired leases are now considered month-to-month leases. The increase in revenues is attributable to the rental rates and vacancy rates of the School Street property which was sold and the acquisition of the Osgood Street property.

 

All sales transactions were with unrelated parties.

 

Cost of Sales (for the Three Months Ended June 30, 2011 and 2010).

 

None.

 

Cost of Sales (for the Six Months Ended June 30, 2011 and 2010).

 

None.

 

Expenses (for the Three Months Ended June 30, 2011 and 2010).

 

Operating expenses for the three months ended June 30, 2011 increased $2,773 to $6,527 from $3,754 for the three months ended June 30, 2010. The increase in expenses through the three months ended June 30, 2011 was due to increased selling, general and administrative expenses attributable to higher accounting fees for accounting service we received.

 

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

 

 

Expenses (for the Six Months Ended June 30, 2011 and 2010).

 

Operating expenses for the six months ended June 30, 2011 increased $34,640 to $39,782 from $5,142 for the three months ended June 30, 2010. The increase in expenses through the six months ended June 30, 2011 was due to increased selling, general and administrative expenses attributable to higher accounting fees for accounting service we received and expiration of a prior period prepaid expense item in 2011.

 

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

 

Income Taxes (for the Three Months Ended June 30, 2011 and 2010).

 

We had no provision for income taxes for the three months ended June 30, 2011 and 2010, 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 Taxes (for the Six Months Ended June 30, 2011 and 2010).

 

We had no provision for income taxes for the six months ended June 30, 2011 and 2010, 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 Three Months Ended June 30, 2011 and 2010).

 

We had a net loss of $57,268, or less than $0.01 per common share for the three months ended June 30, 2011. This compares to a net loss of $1,734, or less than $.01 per common share for the three months ended June 30, 2010. The net loss is attributable to the increase in general and administrative expenses as mentioned above, the increase in interest expense and a change in fair value of derivative liability.

 

Income/Losses (for the Six Months Ended June 30, 2011 and 2010).

 

We had a net loss of $117,197, or less than $0.01 per common share for the six months ended June 30, 2011. This compares to a net loss of $1,404, or less than $.01 per common share for the three months ended June 30, 2010. The net loss is attributable to the increase in general and administrative expenses as mentioned above, the increase in interest expense and a 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.

 

Liquidity and Capital Resources (for the Six Months Ended June 30, 2011 and 2010).

 

Cash flows provided by operations were $413 and $543 for the six months ended June 30, 2011 and 2010, respectively. The positive cash flow in 2011 and 2010 is attributable to non-cash charges exceeding net loss.

 

We had no cash flows provided by investing activities for the six months ended June 30, 2011 and 2010.

 

Cash flows used in financing activities were $(710) and $(596) for the six months ended June 30, 2011 and 2010, respectively. Cash flows used in these periods were due primarily to repayments on notes payable on our income producing rental property.

 

We may need to rely on financing from outside sources through debt or equity transactions. 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.

 

 

 Liquidity and Capital Resources (for the Six Months Ended June 30, 2011 and 2010) -- Con’t

 

We had cash on hand of $-0- and a working capital deficit of $265,620 as of June 30, 2011. 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.

 

Going concern

 

As shown in the accompanying financial statements, we have suffered recurring losses from operation to date. We have a retained deficit of $1,598,114 as of June 30, 2011. These factors raise substantial doubt about our 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 revenues in an effort to generate positive cash flow. Additionally, we 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.

 

 

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The information to be reported under this item is not required of smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and reported within the specified time periods. Our Chief Executive Officer and its Chief Financial Officer (collectively, the “Certifying Officers”) are responsible for maintaining our disclosure controls and procedures. The controls and procedures established by us are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

 

In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

As of the end of the period covered by this report, the Certifying Officers evaluated the effectiveness of our disclosure controls and procedures. Based on the evaluation, the Certifying Officers concluded that our disclosure controls and procedures were not effective as of June 30, 2011. Management is in the process of identifying deficiencies with respect to the Company's disclosure controls and procedures in order to implement corrective measures.

 

The Certifying Officers have also concluded that there was no change in our internal controls over financial reporting identified in connection with the evaluation that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

  

ITEM 4T. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

The management of the Company is required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (one individual) as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer (one individual), of the Company's disclosure controls and procedures. Based on this evaluation, Duane Bennett, the Company's Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were not were not effective as of June 30, 2011. Management is in the process of identifying deficiencies with respect to the Company's disclosure controls and procedures in order to implement corrective measures.

PART II.  OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

 

As of the date of this report, we are not a party to any pending legal proceeding and are not aware of any threatened legal proceeding.

 

ITEM 1A. RISK FACTORS

 

The information to be reported under this item has not changed since the previously filed 10K, for the year ended December 31, 2010.

 

ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

We have not had any unregistered sales of equity securities.

 

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

 

We have not had any default upon senior securities.

 

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

 

We have not had any submission of matters to a vote of security holders.

 

ITEM 5.      OTHER INFORMATION

 

None.

 

ITEM 6.      EXHIBITS

 

31.1 CEO Certification Pursuant to Section 302

31.2 CFO Certification Pursuant to Section 302 (included in Exhibit 31.1)

32.1 CEO Certification Pursuant to Section 906

32.2 CFO Certification Pursuant to Section 906 (included in Exhibit 32.1)

 

Reports on Form 8-K

 

We and successor by merger to ourselves, entered into a Share Purchase Agreement, dated as of July 27, 2011 (the “Share Purchase Agreement”), with Mr. Duane Bennett and the Northeast Nominee Trust, together being our majority shareholders (the “Shareholders”), and Supera Solutions Corp., a Nevada corporation (the “Purchaser”), pursuant to which the Shareholders agreed to sell, and the Purchasers agreed to buy, 15,600,000 of our common shares, representing 61.06% of our issued and outstanding capital stock. The Purchaser agreed to pay an aggregate $310,000 for our shares.

 

The Closing will occur not later than 45 days from the effective date of a 1:30 reverse stock split which we agreed to consummate as a condition of the Purchaser’s obligation to close the purchase and sale of the shares. Both the Shareholders and the Purchaser have the benefit of several conditions of closing which are set forth in the Share Purchase Agreement.

 

We engaged in a recapitalization pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended, on July 12, 2011. We exchanged $90,000 in a new convertible promissory note bearing interest at 5% for its outstanding $90,000 promissory note, dated September 17, 2010, with the new note providing substantially more protection to the holder against dilution in the event of a reverse stock split.

 

On July 27, 2011, we entered into an agreement (the “Debt Purchase Agreement”), by and among Galileo Partners, LLC, a California limited liability company (the “Assignee”), and Greentree Financial Group, Inc., a Florida corporation (the “Assignor”), pursuant to which the Assignor agreed to sell, assign, transfer and convey unto Assignee its partial rights and interests of $15,000 in principal of the new note in exchange for a payment in the amount of $15,000 from the Assignee. The remaining rights and interests in the balance of the new Promissory Note (if any) will remain with the Assignor. The Assignee is not an affiliate of the Assignor or the Purchaser within the meaning of Rule 405 under the Securities Act of 1933, as amended.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

   

 

BLUESKY SYSTEMS, CORP.
(Registrant)
Date: August 12, 2011
By: Duane Bennett
President, Chief Executive Officer, and
Chief Financial Officer