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 March 31,
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 May 17, 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.





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Table of Contents








INDEX TO FORM 10-Q





|PART I                                                                                        |   
|--------------------------------------------------------------------------------------------- | --
|                                                                                              |   
|Item 1. Consolidated Financial Statements                                                     | 3 
|                                                                                              |   
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 13
|                                                                                              |   
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            | 20
|                                                                                              |   
|Item 4. Controls and Procedures                                                               | 20
|                                                                                              |   
|Item 4T. Controls and Procedures                                                              | 21
|                                                                                              |   
|PART II                                                                                       |   
|                                                                                              |   
|Item 1. Legal Proceedings                                                                     | 22
|                                                                                              |   
|Item 1A. Risk Factors                                                                         | 22
|                                                                                              |   
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           | 22
|                                                                                              |   
|Item 3. Defaults Upon Senior Securities                                                       | 22
|                                                                                              |   
|Item 4. Submission of Matters to a Vote of Security Holders                                   | 22
|                                                                                              |   
|Item 5. Other Information                                                                     | 22
|                                                                                              |   
|Item 6. Exhibits                                                                              | 22
|                                                                                              |   
|                                                                                              |   











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Table of Contents






ITEM 1. FINANCIAL STATEMENTS



INDEX TOBLUESKY SYSTEMS CORP. CONSOLIDATED FINANCIAL STATEMENTS



BLUESKY SYSTEMS CORPORATION		PAGE



Consolidated Balance Sheets4



Consolidated Statements of Operations	5



Consolidated Statement of Stockholders’ Deficit	6



Consolidated Statements of Cash Flows	7



Notes to Consolidated Financial Statements	8





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|
|



|BLUESKY SYSTEMS, CORP.                                                                
|--------------------------------------------------------------------------------------
|Consolidated Balance Sheets                                                           
|At March 31, 2011 and December
    31, 2010                                           
|                                                                                      
|                                                                                      
|                                                                                      
|Assets:                                                                               
|Current assets                                                                        
|Cash                                                                                  
|Prepaid consulting expense                                                            
|                                                                                      
|Total current assets                                                                  
|                                                                                      
|Fixed assets                                                                          
|Property and equipment                                                                
|Accumulated depreciation                                                              
|                                                                                      
|Total fixed assets                                                                    
|                                                                                      
|Total assets                                                                          
|                                                                                      
|Liabilities and Stockholders' (Deficit)                                               
|Current liabilities                                                                   
|Accounts payable and accrued expenses                                                 
|Accounts payable - related party                                                      
|Accrued interest payable                                                              
|Derivative liability                                                                  
|Current portion of notes payable - related party                                      
|Convertible note, net of discounts of $52,236 and $73,782, respectively               
|                                                                                      
|Total current liabilities                                                             
|                                                                                      
|Long-term notes payable - related party                                               
|                                                                                      
|Total liabilities                                                                     
|                                                                                      
|Stockholders' (Deficit)                                                               
|Common stock, (50,000,000 shares authorized, 25,548,933 shares issued                 
|and outstanding, par value $.001 per share)                                           
|Additional paid-in capital                                                            
|Retained deficit                                                                      
|                                                                                      
|Total stockholders' (deficit)                                                         
|                                                                                      
|Total liabilities and stockholders' (deficit)                                         
|                                                                                      
|The accompanying notes are an integral part of these consolidated financial statements











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|BLUESKY SYSTEMS, CORP.                                                                
|--------------------------------------------------------------------------------------
|Consolidated Statements of Operations                                                 
|For the Three Months Ended March 31, 2011 and 2010                                    
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Rental income                                                                         
|                                                                                      
|Total revenue                                                                         
|                                                                                      
|Selling, general and administrative expenses                                          
|Depreciation                                                                          
|Total expenses                                                                        
|                                                                                      
|Net ordinary income                                                                   
|                                                                                      
|Other income (expense):                                                               
|Change in fair value of derivative liability                                          
|Interest expense                                                                      
|Total other income (expense)                                                          
|                                                                                      
|Net income (loss)                                                                     
|                                                                                      
|Net income (loss) per share, basic and fully diluted                                  
|                                                                                      
|Weighted Average Common Shares Outstanding                                            
|                                                                                      
|* = Less than $.01 per share                                                          
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|The accompanying notes are an integral part of these consolidated financial statements









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|BLUESKY SYSTEMS, CORP.                                                                
|--------------------------------------------------------------------------------------
|Consolidated Statement of Stockholders' Deficit                                       
|For the Three Months Ended March 31, 2011                                             
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Balances, December 31, 2010                                                           
|                                                                                      
|Net loss for the three months ended March 31, 2011 (unaudited)                        
|                                                                                      
|Balances, March 31, 2011 (unaudited)                                                  
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|The accompanying notes are an integral part of these consolidated financial statements
|                                                                                      









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|BLUESKY SYSTEMS, CORP.                                                                
|--------------------------------------------------------------------------------------
|Consolidated Statements of Cash Flows                                                 
|For the Three Months Ended March 31, 2011 and 2010                                    
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                 
|Net income (loss)                                                                     
|Adjustments to reconcile net income (loss) to net cash provided by                    
|operating activities:                                                                 
|Change in fair value of derivative liability                                          
|Depreciation                                                                          
|Amortization of debt discount                                                         
|Changes in operating assets and liabilities                                           
|Prepaid expense                                                                       
|Accounts payable and accrued expenses                                                 
|Accrued interest payable                                                              
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                             
|                                                                                      
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                 
|Principal repayments of long term debt                                                
|NET CASH (USED IN) FINANCING ACTIVITIES                                               
|                                                                                      
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  
|                                                                                      
|CASH AND CASH EQUIVALENTS:                                                            
|Beginning of period                                                                   
|                                                                                      
|End of period                                                                         
|                                                                                      
|SUPPLEMENTAL CASH FLOW DISCLOSURES:                                                   
|                                                                                      
|Cash paid during the period for interest                                              
|                                                                                      
|Cash paid during the period for income taxes                                          
|                                                                                      
|                                                                                      
|The accompanying notes are an integral part of these consolidated financial statements







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BLUESKY SYSTEMS, CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 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 March 31, 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 three months ended March 31, 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 March 31, 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 Financial Instruments—The
carrying amounts reported in the balance sheet for cash, accounts receivable and payable approximate fair value based on the short-term
maturity of these instruments.



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



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



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



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



Recurring fair value metrics:



Level 1 – None



Level 2 – None



Level 3 – Derivative Liability - $141,685



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 March 31, 2011, the Company’s
accounts receivable balance was $-0-.



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BLUESKY SYSTEMS, CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2011(unaudited)



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



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



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 March 31, 2011.



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.

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



Recent Accounting Pronouncements (cont.)



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 three months ended March 31, 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.



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.





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BLUESKY SYSTEMS, CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2011(unaudited)



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



Recent Accounting Pronouncements (cont.)



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 adopted SFAS No. 167 in fiscal 2010 and there was no material impact on the Company’s financial
statements.



NOTE B—SUPPLEMENTAL CASH FLOW INFORMATION



Supplemental disclosures of cash flow information
for the three months ended March 31, 2011 and 2010 are summarized as follows:



Cash paid during the period for interest and
income taxes:





|             |  | 2011 |       | 2010
|------------ |  | ---- | ----- | ----
|Income Taxes |  | $    | —     |     
|Interest     |  | $    | 1,751 |     









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 months ended March 31, 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 March 31, 2011 and December 31, 2010 is as follows:



|                         |  | March 31, 2011 |         | December 31, 2010
|------------------------ |  | -------------- | ------- | -----------------
|Total Deferred Tax Asset |  | $              | 56,400  |                  
|Valuation Allowance      |  |                | (56,400 | )                
|Net Deferred Tax Asset   |  | $              | —       |                  





The reconciliation of income taxes computed
at the federal statutory income tax rate to total income taxes for the three months ended March 31, 2011 and 2010 is as follows:





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BLUESKY SYSTEMS, CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2011(unaudited)



NOTE C—INCOME TAXES (CONT’)





|                                                  |  |  | 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 $166,000 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 $60,443 during the three
months ended March 31, 2011. The Company had a net working capital deficiency and a net deficiency of $209,037 and $1,540,846,
respectively, as of March 31, 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 March 31, 2011 and 2010.





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BLUESKY SYSTEMS, CORP. AND SUBSIDIARY

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2011(unaudited)





NOTE F—NOTES PAYABLE AND DERIVATIVE
LIABILITY



A note payable incurred for the purchase of
the rental property consists of the following at March 31, 2011:



Secured Commercial Mortgage to an unrelated
party.



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





|Balance at March 31, 2011                    |  | $ | 101,601 |  
|-------------------------------------------- |  | - | ------- | -
|Less: Short term portion of mortgage payable |  |   | (1,645  | )
|Long term portion of mortgage payable        |  | $ | 99,956  |  
|                                             |  |   |         |  







The aggregate amount of long-term debt at March
31, 2011 maturing during each of the succeeding five years and thereafter is as follows:



|For the year ending |  | Amount
|------------------- |  | ------
|                    |  |       
|2011                |  | $     
|2012                |  | $     
|2013                |  | $     
|2014                |  | $     
|2015                |  | $     
|Thereafter          |  | $     
|Total               |  | $     



An unsecured convertible 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 2010.
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 three months ended March 31, 2011. Accordingly, $26,469 in expense
is included in the accompanying statements of operations for the three months ended March 31, 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 $3,661 in accrued interest
payable at March 31, 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 0.26% to 0.30%, grant dates of stock warrants, the term of the stock warrants, conversion prices ranging
from $0.0005 to $0.05, current stock prices on the measurement date ranging from $0.01 to $0.1, and the computed measure of the
Company’s stock volatility, ranging from 254.77% to 405.59%.



Included in the March 31, 2011 is a derivative
liability in the amount of $141,685 to account for this transaction. This liability arose in the third quarter of 2010 and the
balance was $ 134,900 as of December 31, 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 three months ended March 31, 2011 are $6,785 and $21,546 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—
Property and equipment are stated at cost.  Depreciation of property and equipment is computed for financial statement
purposes using the straight-line method over a 27.5 year estimated useful life of the assets.



As of March 31, 2011, the Company had the following
depreciable assets:



|Asset           | Cost               | Accumulated Depreciation | Book Value           | Estimated Life | Estimated Annual Depreciation
|--------------- | ------------------ | ------------------------ | -------------------- | -------------- | -----------------------------
|Rental Property | $          105,000 | $                9,398   | $             95,602 | 27.5           | $                3,889       









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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



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



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



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



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.



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



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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.





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DETAILED MARKET AND FINANCIAL ANALYSIS



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



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



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



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



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



PURCHASE PROCEDURES



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



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



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



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



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



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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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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           





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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 andPablo Torreswe have no employees. We have no employment agreements with
any of our management. We do not anticipate hiring any additional employees in the next 12 months.



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RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 2011 AND 2010



Revenues (for the Three Months Ended March
31, 2011 and 2010).



Revenues decreased $740 to $4,019 for the three
months ended March 31, 2011, as compared with $4,759 for the three months ended March 31, 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
March 31, 2011 and 2010).



None.



Expenses (for the Three Months Ended March
31, 2011 and 2010).



Operating expenses for the three months ended
March 31, 2011 increased $31,867 to $33,255 from $1,388 for the three months ended March 31, 2010. The increase in expenses through
the three months ended March 31, 2011 was due to increased selling, general and administrative expenses in the amount of $32,283
attributable to the new consulting contract for accounting service we received.



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
March 31, 2011 and 2010).



We had no provision for income taxes for the
three months ended March 31, 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 and Nine Months
Ended March 31, 2011 and 2009).



We had a net loss of $60,443, or less than
$0.01 per common share for the three months ended March 31, 2011. This compares to a net income of $330, or less than $.01 per
common share for the three months ended March 31, 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
Three Months Ended March 31, 2011 and 2010).



Cash flows provided by operations were $254
and $1,302 for the three months ended March 31, 2011 and 2010, respectively. The positive cash flow in 2010 is attributable to
non-cash charges exceeding net loss.



We had no cash flows provided by investing
activities for the three months ended March 31, 2011 and 2010.



Cash flows used in financing activities were
$(423) and $(298) for the three months ended March 31, 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.



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We had cash on hand of $128 and a working capital
deficit of $209,037 as of March 31, 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 net deficiency of $1,540,846 as of March 31, 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 MARKETRISK



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 March 31, 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.



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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 ExecutiveOfficer 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 March 31, 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.



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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



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.



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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: May 17, 2011 | By:                                                                                           | Duane Bennett
|                   | Duane Bennett
        President, Chief Executive Officer, and
        Chief Financial Officer