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 SECURITIESEXCHANGE ACT OF 1934
 
 For the Quarterly Period Ended September 30, 2010
 
 
 [ ]            TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE 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 November 22, 2010:      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
3Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
12Item 3.  Quantitative and Qualitative Disclosures About Market Risk
18Item 4. Controls and Procedures
19PART IIItem 1.  Legal Proceedings
20Item 1A. Risk Factors
20Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
20Item 3.  Defaults Upon Senior Securities
20Item 4.  Submission of Matters to a Vote of Security Holders
20Item 5.  Other Information
20Item 6.  Exhibits
20
  2
  ITEM 1.FINANCIAL STATEMENTS
 
 INDEX TOBLUESKY SYSTEMS CORP.  CONSOLIDATED FINANCIAL STATEMENTS
 BLUESKY SYSTEMS CORPORATION
PAGEConsolidated Balance Sheets
4Consolidated Statements of Operations
5Consolidated Statement of Stockholders’ Deficit
6Consolidated Statements of Cash Flows
7Notes to Consolidated Financial Statements
8
 3
  BLUESKY SYSTEMS CORP.
 CONSOLIDATED BALANCE SHEETS
 AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009
 
 (Unaudited)


(Audited)Assets:


9/30/2010


12/31/2009Current assetsCash

$
262


$
53Prepaid consulting expense


54,332



-Total current assets


54,594



53Fixed assetsProperty and equipment


105,000



105,000Accumulated depreciation


(7,454
)


(4,537
)Total fixed assets


97,546



100,463Total assets


$
152,140


$
100,516Liabilities and Stockholders' DeficitCurrent liabilitiesAccounts payable and accrued expenses

$
9,693


$
8,500Accrued interest payable


1,411



-Derivative liability


149,295



-Current portion of notes payables, net of discount of $85,263


4,737



1,193Total current liabilities


165,136



9,693Long-term note payable


101,149



102,044Total liabilities


266,285



111,737Stockholders' DeficitCommon stock, (50,000,000 shares authorized, 25,548,933 shares issuedand outstanding, par value $.001 per share)


25,549



25,549Additional paid-in capital


1,239,020



1,239,020Retained deficit


(1,378,714
)


(1,275,790
)Total stockholders' deficit


(114,145
)


(11,221
)Total liabilities and stockholders' deficit

$
152,140


$
100,516
 The accompanying notes are an integral part of these financial statements.
 
 4
 
 BLUESKY SYSTEMS CORP.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
 
 Three Months


Three Months


Nine Months


Nine MonthsEnded


Ended


Ended


Ended9/30/2010


9/30/2009


9/30/2010


9/30/2009Rental income

$
4,264


$
3,336


$
14,016


$
13,536Total revenue


4,264



3,336



14,016



13,536Selling, general and administrative expenses


36,415



1,180



39,613



12,748Depreciation


972



972



2,916



2,916Total expenses


37,387



2,152



42,529



15,664Net ordinary income (loss)


(33,123
)


1,184



(28,513
)


(2,128
)Other income (expense):Loss on derivative liability


(59,295
)


-



(59,295
)


-Interest expense


(9,102
)


(1,642
)


(15,116
)


(4,664
)Total other (expense)


(68,397
)


(1,642
)


(74,411
)


(4,664
)Net (loss)

$
(101,520
)

$
(458
)

$
(102,924
)

$
(6,792
)Net income (loss) per share, basic and fully diluted

$
*


$
*


$
*


$
*Weighted Average Common Shares Outstanding


25,548,933



25,548,933



25,548,933



25,523,933* = Less than $.01 per share.
 
 The accompanying notes are an integral part of these financial statements.
 
 5
 
 BLUESKY SYSTEMS CORP.
 CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010
  CommonStock





Additional(Par Value


Common


Paid in


Retained$
.001
)

Shares


Capital


(Deficit)


TotalBalances, December 31, 2009

$
25,549



25,548,933


$
1,239,020


$
(1,275,790
)

$
(11,221
)Net loss for the nine months ended September 30, 2010

$
-



-


$
-


$
(102,924
)

$
(102,924
)Balances, September 30, 2010

$
25,549



25,548,933


$
1,239,020


$
(1,378,714
)

$
(114,145
)
 The accompanying notes are an integral part of these financial statements.
 
 6
 
 BLUESKY SYSTEMS CORP.
 CONSOLIDATED STATEMENT OF CASH FLOWS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
 
 Nine Months


Nine MonthsEnded


Ended9/30/2010


9/30/2009CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss)

$
(102,924
)

$
(6,792
)Adjustments to reconcile net (loss) to net cash provided by (used in)operating activities:Depreciation


2,916



2,917Prepaid expense and consulting expense paid with non-cash note payable


3,018



-Loss on derivative liability, non cash expense


59,295



-Amortization of debt discount


4,737



0Increase (decrease) in operating liabilities:Accounts payable and accrued expenses


1,193



-Accrued interest payable


1,411



-NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES


(30,353)



(3,875
)CASH FLOWS FROM FINANCING ACTIVITIES:Contributions of capital


-



5,000Borrowing on debt


32,650



0Principal repayments of long term debt


(2,088
)


(834
)NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES


(895
)


4,166NET INCREASE IN CASH AND CASH EQUIVALENTS


209



291CASH AND CASH EQUIVALENTS:Beginning of period


53



-End of period

$
262


$
291OTHER SUPPLEMENTAL CASH FLOW DISCLOSURES:Cash paid during the period for interest

$
9,128


$
4,664Cash paid during the period for income taxes

$
-


$
-Derivative liability

$
90,000


$
-
 The accompanying notes are an integral part of these financial statements.
 
 7
 
 BLUESKY SYSTEMS CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (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 September 30, 2010 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 nine months ended September 30, 2010 and 2009, 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, 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 for Financial Assets and Financial Liabilities- The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments.  Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.  The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
 
 Level 1
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.Level 2
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.Level 3
Pricing inputs that are generally observable inputs and not corroborated by market data.
 
 The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company’s note payable approximates the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangement at September 30, 2010.
 
 The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at September 30, 2010, nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the interim period ended September 30, 2010.
  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 - $149,295
 8
 
 BLUESKY SYSTEMS CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
 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 interim periods, Accounts Receivable in the amounts of    $-0- and $-0- were deemed uncollectible and were written off to Bad Debt Expense. As of September 30, 2010, 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 September 30, 2010.
 
 Property and equipment—Depreciable assets are stated at cost. As of September 30, 2010, the Company had the following depreciable assets:
  Asset

Cost


Accumulated Depreciation


Book Value


Estimated Life


Estimated Annual DepreciationRental Property

$
105,000


$
7,454


$
97,546



27.5


$
3,889$
105,000


$
7,454


$
97,546






$
3,889
  
 Recent Accounting Pronouncements— 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.
  Recent Accounting Pronouncements (cont.)- 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 nine months ended September 30, 2010, 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.
 
 Subsequent Events
 (Included in Accounting Standards Codification (“ASC”) 855 “Subsequent Events”, previously SFAS No. 165 “Subsequent Events”)
 
 SFAS No. 165 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. SFAS No. 165 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. SFAS No. 165 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”)
 
 FSP SFAS No. 142-3 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. FSP SFAS No. 142-3 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 FSP SFAS No. 142-3 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”)
 
 SFAS No. 160 changed the accounting and reporting for minority interests such that they will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS No. 160 became effective for fiscal years beginning after December 15, 2008 with early application prohibited. The Company implemented SFAS No. 160 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 SFAS No. 160 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)”)
 
 SFAS No. 167 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. SFAS No. 167 is effective for the first annual reporting period beginning after November 15, 2009, with earlier adoption prohibited. The Company will adopt SFAS No. 167 in fiscal 2010 and does not anticipate any material impact on the Company’s financial statements.
 9
 BLUESKY SYSTEMS CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
 NOTE B—SUPPLEMENTAL CASH FLOW INFORMATION
 
 Supplemental disclosures of cash flow information for the nine months ended September 30, 2010 and 2009 is summarized as follows:
 
 Cash paid during the period for interest and income taxes:
 2010             2009
 Income Taxes                                                              $   ---                     $   ---
 Interest                                                                         $9,128                  $ 4,664
 
 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 nine months ended September 30, 2010 and 2009.
 
 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 September 30, 2010 is as follows:
 
 Total Deferred Tax Asset

$
44,400Valuation Allowance


(44,400
)Net Deferred Tax Asset

$
-
 
 No tax benefits have been recorded for the nondeductible (tax) expenses (stock for services) totaling $970,500 in the year 2008. The measurement valuation allowance increased $1,000 during the nine months ended September 30, 2010.
 
 The reconciliation of income taxes computed at the federal statutory income tax rate to total income taxes for the nine months ended September 30, 2010 and 2009 is as follows:
 
 2009              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 $127,000 in carry forwards available through the year 2029.
  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 $188,187 during the nine months ended September 30, 2010. The Company had a net working deficiency and a net deficiency of $195,805 and $1,463,977, respectively, as of September 30, 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 E—SEGMENT REPORTING
 
 The Company follows the guidance set forth by section 280-10 of the FASB Accounting Standards Codification for reporting and disclosure on operating segments of the Company. 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 September 30, 2010.
 NOTE F—NOTES PAYABLE AND DERIVATIVE LIABILITY
 
 A note payable incurred for the purchase of the rental property consists of the following at September 30, 2010:
 
 Secured Commercial Mortgage to an unrelated party.
 Interest bearing 6.875 % with a maturity of June 1, 2037,
 Balance at September 30, 2010       $102,342
 10
 BLUESKY SYSTEMS CORP.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)
 NOTE F—NOTES PAYABLE AND DERIVATIVE LIABILITY (CONT.)
 
 The aggregate amount of long-term debt at September 30, 2010 maturing during each of the succeeding five years and thereafter is as follows:
 
 For the year ending

Amount2010

$
2982011

$
1,2772012

$
1,3682013

$
1,4652014

$
1,569Thereafter

$
96,365Total

$
102,342
 
 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 three months ended September 30, 2010. Included in the accompanying consolidated balance sheets at September 30, 2010 is $57,350 in prepaid consulting services awaiting future matching as services will be performed in the upcoming year-end filings. $32,650 in expense is included in the accompanying 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 $160 in accrued interest payable at September 30, 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 0.27%, grant dates of stock warrants, the term of the stock warrants, conversion prices ranging from $0.00008 to $0.33, current stock prices on the measurement date ranging from $0.05 to $2.00, and the computed measure of the Company’s stock volatility, ranging from 262.81% to 266.90%.
 
 Included in the September 30, 2010 is a derivative liability in the amount of $149,295 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 nine months ended are $59,961 and $85,263 in non-cash charges pertaining to the derivative liability as it pertains to loss on derivative liability and debt discount, respectively.
  Derivative Liability, September 17, 2010              $-0-
 
 Additional Discount                                                  $90,000
 
 Loss on Derivative                                                    $59,961
 
 Mark to Market Gain                                                $(666)
 
 Derivative Liability, September 30, 2010              $149,295
 11
 
 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 the accompanying audited financial statements, we have suffered recurring losses from operations since our inception. We experienced losses of $936,743 and $6,888 during 2008 and 2009, respectively. We also had a total accumulated deficit of $1,275,790 as of December 31, 2009. These factors raise substantial doubt about our ability to continue as a going concern.
 
 12
 
 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 areao
New schools and major commercial developments in the areao
Improved state and city roads in the area
 
 13
 
 The information that we may obtain that would weigh against our proceeding with a property acquisition would be:
  o
Hazardous waste in the areao
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 levelso
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.
 
 14
 
 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.
 
 15
 
 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.
 
 16
 
 RESEARCH AND DEVELOPMENT
 
 We have spent no funds on research and development.
 
 EMPLOYEES
 
 With the exception of Duane Bennett 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 NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
 
 Revenues (for the Three and Nine Months Ended September 30, 2010 and 2009).
 
 Revenues increased $928 to $4,264 for the three months ended September 30, 2010, as compared with $3,336 for the three months ended September 30, 2009. 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.
 
 Revenues increased $480 to $14,016 for the nine months ended September 30, 2010, as compared with $13,536 for the nine months ended September 30, 2009. 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 and Nine Months Ended September 30, 2010 and 2009).
 
 None.
 
 Expenses (for the Three and Nine Months Ended September 30, 2010 and 2009).
 
 Operating expenses for the three months ended September 30, 2010 increased $35,235 to $37,387 from $2,152 in 2009. The increase in expenses through the three months ended September 30, 2010 was due to increased selling, general and administrative expenses in the amount of $35,668 attributable to the new consulting contract for service we received.
 
 Operating expenses for the nine months ended September 30, 2010 increased $26,865 to $42,529 from $15,664 in 2009. The decrease in expenses through the nine months ended September 30, 2010 was due to an increase in selling, general and administrative expenses in the amount of $35,668 as mentioned in the previous paragraph.
 
 We do not have any lease agreements for our principal office and do not currently have any employment agreements.
 
 Income Taxes (for the Three and Nine Months Ended September 30, 2010 and 2009).
 
 We had no provision for income taxes for the three and nine months ended September 30, 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 Three and Nine Months Ended September 30, 2010 and 2009).
 
 We had a net loss of $(101,520), or less than $.01 per common share for the three months ended September 30, 2010. This compares to a net loss of $(458), or less than $.01 per common share for the three months ended September 30, 2009. The increase in net loss is attributable to the increase in general and administrative expenses as mentioned above along with $59,961 in loss on derivative liability.
 
 We had a net loss of $(102,924), or less than $.01 per common share for the nine months ended September 30, 2010. This compares to a net loss of $(6,792), or less than $.01 per common share for the nine months ended September 30, 2009. The increase in net loss is attributable to the increase in general and administrative expenses as mentioned above along with $59,961.


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.
 17
 Liquidity and Capital Resources (for the Three and Nine Months Ended September 30, 2010 and 2009).
 
 Cash flows provided by (used in) operations were $1,104 and $(3,875) for the nine months ended September 30, 2010 and 2009, respectively. The positive cash flow in 2010 is attributable to non-cash charges exceeding net loss along with $59,961 in loss on derivative liability.
  We had no cash flows provided by investing activities for the nine months ended September 30, 2009.
 
 Cash flows provided by (used in) financing activities were $(895) and $4,166 for the nine months ended September 30, 2010 and 2009, respectively. Cash flows used in these periods were due primarily to repayments on notes payable on our income producing rental property offset by the capital contributions of $5,000 from a company related through common ownership 2009 only.
 
 Overall, we have funded our cash needs from inception through September 30, 2009 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 $262 and a working capital deficit of $195,805 as of September 30, 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 2009 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 2009 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 net deficiency of $1,463,977 as of September 30, 2010. 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 MARKETRISK
 
 The information to be reported under this item is not required of smaller reporting companies.
 18
 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 andoperated, can provide only reasonable, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact thatthere are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, noevaluation 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 succeedin 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 September 30, 2010. Management is in the process of identifying deficiencies with respect to the Company's disclosure controls and procedures in order toimplement 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.
 
 19
 
 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, 2009.
 
 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
 
 During the third quarter, we incurred a promissory note payable to a consulting firm and enter into an advisory agreement with the consulting firm. We also applied for a redomicile to the state of Nevada for a 200 for one reverse split of our stock.
 
 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 Form8-K
 
 On July 29, 2010, we engaged in certain financing activities that have resulted in the creation of a direct financial obligation of us under an off-balance sheet arrangement. These transactions were entered into because we lacked adequate capital resources to pay for certain professional fees associated with our ongoing reporting requirements.
 
 Effective September 19, 2010, 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, the we engaged M&K, CPA’s, PLLC ("M&K") as its principal independent public accountant to audit our financial statements for the year ending December 31, 2010.  The decision to change accountants was recommended and approved by the Company's 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.
 
 The Plan of Exchange Agreement, dated January 12, 2010, between us; Duane Bennett, the President of us (“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”) has been terminated. Pursuant to the Plan of Exchange Agreement (the “POE”), we would have acquired 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 Common Stock of BSKS to CFT shareholders. In addition, CFT and/or the CFT Shareholders would have acquired 200,000 post-split shares of us 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.
 
 20
 
 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: November 22, 2010
By:
/s/ Duane BennettDuane Bennett

President, Chief Executive Officer, and

Chief Financial Officer