10-K 1 form10-k.htm BLUESKY 10-K 12/31/2008 form10-k.htm
U.S. Securities and Exchange Commission
Washington, D.C. 20549
 
 
FORM 10-K
 
 
[X]
Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Fiscal Year Ended December 31, 2008

[  ]
Transition Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Transition Period from _______ to _______
 
 
BLUESKY SYSTEMS, CORP.
 (Exact name of small business issuer as specified in its charter) 
 
 
Pennsylvania
05-6141009
(State or other jurisdiction of
(IRS Employer Identification No.)
incorporation or organization)
  

191 Chestnut Street, Springfield, MA. 01103
 (Address of principal executive offices)

(413) 734-3116
(Issuer's telephone number, including area code)
 
 
Securities to be registered pursuant to Section 12(b) of the Act:

Title of each class
Name of each exchange on
To be so registered
which each class is to be
 
registered
None.
N/A
 
Securities to be registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value
(Title of Class)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [x]                                No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 if Regulation S-K (229.405 of this Chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.
Yes [  ]                                No [x]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer 
 
Non-accelerated filer 

Accelerated filer 
Smaller reporting company 
X

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the exchange act).
Yes [  ]                                No [X]

The Registrant’s revenues for its fiscal year ended December 31, 2008 were $25,654.

The aggregate market value of the voting stock on March 16, 2009 (consisting of Common Stock, $0.001 par value per share) held by non-affiliates can not be determined because BlueSky Systems Corp is currently not listed or traded on any stock exchange. Non affiliates own 9,623,933 shares of the common stock outstanding.

Number of shares of common stock, par value $.001, outstanding as of March 16, 2009: 25,498,933
 

DOCUMENTS INCORPORATED BY REFERENCE

None

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
 
The discussion contained in this 10-K under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Financial Statements" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-K. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. Statements contained in this Form 10-K that are not historical facts are forward-looking statements that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.
 
 
2
 
TABLE OF CONTENTS
     
PART I:
    
     
Item 1.
Business
    4
Item 1A.
Risk Factors
   12
Item 1B.
Unresolved Staff Comments
   14
Item 2.
Properties
   14
Item 3.
Legal Proceedings
   16
Item 4.
Submission of Matters to a Vote of Security Holders
   16
     
PART II:
    
     
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
   16
Item 6.
Selected Financial Data
   20
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
   20
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
   23
Item 8.
Financial Statements and Supplementary Data
   23
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
Item 9A.
Controls and Procedures
   36
Item 9A(T).
Controls and Procedures
   36
Item 9B.
Other Information
   37
     
PART III:
    
     
Item 10.
Directors, Executive Officers and Corporate Governance
   37
Item 11.
Executive Compensation
   38
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
   40
Item 13.
Certain Relationships and Related Transactions, and Director Independence
   42
Item 14.
Principal Accounting Fees and Services
   42
     
PART IV:
    
     
Item 15.
Exhibits, Financial Statement Schedules
   43
     
SIGNATURES:
    
 
 
ITEM 1. BUSINESS

We were incorporated on September 21, 2004 under the laws of the State of Pennsylvania to engage in the business of buying, selling, renting, and improving real estate. We are an early stage company and 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. We had four leases, of which three expired in May 2006. The expired leases were then considered month-to-month leases. We plan to continue in this line of business for the foreseeable future.

On October 29, 2008, the Registrant sold the property at 192 School Street, Chicopee, Massachusetts to Serena Cieplinski of 5126 Castle Harbor Way, Centreville, VA 20120 in the amount of $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 traded 20,000,000 shares (twenty million) of Oswego Real Estate Services, Inc. (“Oswego”) in exchange for 250,000 shares (two hundred fifty thousand) of Bluesky Systems Corporation and $5,000 so that such property located at 12-14 Osgood Street in Springfield, Massachusetts (“Property”) is owned by the Buyer. The Buyer and Seller agreed and Philips become a wholly owned subsidiary of the Buyer.

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

Our executive offices are located at 191 Chestnut Street in Springfield, Massachusetts 01103. Our telephone number is (413) 734-3116. We are currently authorized to issue 50,000,000 shares of common stock. We currently have 25,498,933 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 $974,269 and $18,729 during 2008 and 2007, respectively. We also had a total accumulated deficit of $1,306,428 as of December 31, 2008. These factors raise substantial doubt about our ability to continue as a going concern.

It should be noted that there is a relationship between our company, Axiom III, Inc. and Moixa III, Inc., such as similarities between business plans and in the individuals operating these organizations. As a result, our business operations and the business operations of Axiom III and Moixa III will not just interact but will greatly affect each other. To some degree, these three companies are competing against each other, and as such could be forced out of business. Since all real estate is unique, these three businesses will compete for the opportunity to select and purchase property. In addition, the three entities will compete for investment capital and skilled management. As an investor, you should be acutely aware of these issues and carefully consider all of the conflicts prior to investing in our company.
 

Duane Bennett, our Secretary and Director and trustee of our majority shareholder has been heavily involved with Axiom, III in the past. From 2003 to 2007 Mr. Bennett had been a Director of Axiom III, Inc., a company with a very similar business plan to our own. Axiom III was incorporated in Nevada in June 2004 to engage in the business of buying, selling, renovating and renting real estate. As of October 10, 2007 the Axiom III, Inc. entered into a Share Exchange Agreement (“Agreement”), between and among Axiom III, Inc., Eastern Concept Development Ltd., (“Eastern”) a corporation organized and existing under the laws of Hong Kong a Special Administrative Region of the Peoples’ Republic of China, Mr. Benny Lee, the shareholder of Eastern (“Eastern Shareholder”), Foshan Wanzhi Electronic Technology Co., Ltd. (“Foshan”), a corporation organized under the laws of the Peoples’ Republic of China, Jun Chen the representative of the shareholders of Foshan (“Foshan Shareholders”) and Duane Bennett, the Chief Executive Officer and Director of Registrant ("Mr. Bennett"). Pursuant to the Agreement Axiom III, Inc. acquired one hundred percent (100%) of all of the issued and outstanding share capital of Eastern from the Eastern Shareholder in exchange for 35,351,667 shares of common stock of the Registrant. 

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

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

Mr. Bennett currently has no relationship with Axiom III, Inc. other than as trustee of one of the major shareholders of Axiom III, Inc. but his past relationship should be cautiously noted.

Please be advised that:

·
Our President, Karol Kapinos and our only other officer Duane Bennett, also control Moixa III.  Additionally, our 79% controlling shareholder, the Northeast Nominee Trust to which Duane Bennett is the sole trustee and to which Mr. Bennett’s children are the sole beneficiaries, also holds a controlling majority position in Moixa III.
·
Axiom III and Moixa III have the same business plan as us and operate in the same city

·
Axiom III and Moixa III are managed by the same property management company, Lessard Property Management Services, Inc.
·
Mr. Bennett has previously established three reporting companies in the real estate industry and caused all three of those companies to merge with private companies in unrelated businesses. Although Mr. Bennett and Mr. Kapinos have no intention to seek a business combination transaction for Bluesky Systems at this time, there is no guarantee that they will not change their mind and seek such a business combination transaction in the future.

While we note that there are many risks and conflicts regarding our commingled relationships, we also believe that we can effectively mitigate these risks through independent voting and compartmentalization of assets and opportunity.  However, since we do not have these procedures in place at this time, we cannot guarantee that these risks will be effectively mitigated.  We will not know whether we can mitigate these risks until our procedures to do so are formulated, but we have made a business decision not to begin this process until we obtain an effective registration statement.

At this point in time we have not formally documented our procedure for compartmentalization of assets between ourselves and our sister companies since all companies are still in the development stage. Presently, we feel it might be wasted effort to fully outline and document these procedures since they will likely change as the market develops and as the companies mature. Once we obtain an effective registration statement we plan to initiate the development of these formal rules and procedures.
 

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.  Their contract fee for doing so is 8% of the collected rent, or $150 per project, whichever is greater.  Mr. Bennett originally arranged the management agreement with Lessard when he owned the property, and that agreement was renewed from time to time with Lessard.  The agreement between Lessard and Bennett is a month to month agreement which is automatically renewed but can be terminated by either party with one months notice. The agreement with Lessard remains in Mr. Bennett’s name, as Lessard required his personal guarantee. Mr. Bennett has assigned the rights in this agreement to us, and since Mr. Bennett owns roughly 80% of our company, we believe the assignment will continue. There is no relationship between us and Lessard and between Mr. Bennett and Lessard.

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 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.

The building at 12-14 Osgood Street consists of 2 family rental units. All 2 units are currently leased and yielding approximately $1,200 rental income per month. The mortgage payable on this property as of December 31, 2008 is $105,000.

OVERVIEW OF OUR MARKET AREA

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

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

Respected national economists have given mixed opinions about the market for multi-family rentals in 2006.  However, according to Moody's, Economy.com and Fiserv Lending Solutions, Springfield MA is expected to see slight gains of 0.8%, while the rest of the state is expected to see significant losses as high as -3.0%.

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

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

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

OUR PLAN TO ACQUIRE OTHER RENTAL PROPERTIES

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

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

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

PROPERTY LOCATION PROCEDURES

We plan to conduct a preliminary analysis that consists of:

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

The information that we may obtain that would weigh against our proceeding with a property acquisition would be:
o  
Hazardous waste in the area
o  
Crime rates in the area that are higher than the national average (per 100,000 people, based on 2005 FBI Uniform Crime Reports, released Sept. 2006)
o  
Vacancy rates of 10% or more in the area
 
 
The data that we analyze to determine whether to purchase properties are:

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

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

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

We will also rely on statistics provided by the U.S. Census Bureau to obtain information pertaining to population shifts and number of total people in a specific area. In addition, we plan to utilize economic, housing and population data available from such sources as the Massachusetts Office of Economic Development and Massachusetts Institute for Social and Economic Research to further assess the best areas in which to purchase property.
 
DETAILED MARKET AND FINANCIAL ANALYSIS
 
Our Secretary will perform detailed market and financial analysis regarding each property we decide to review for purchase to determine whether the specific location is appropriate for acquisition and development. That detailed information will include the following:

-  
Number of properties on the market.
-  
Number of properties sold in the past 12 months.
-  
Sales prices asked per property.
-  
Sales price sold per property.
-  
Total square footage and acreage per property
-  
Total number of units per property.
-  
Total number of pending closings per property.

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

The activities that our secretary engaged in with both of the above noted companies prior to their business combinations with unrelated businesses in unrelated industries are identifying perceived under valued properties, developing such properties by trying to add value in making the properties more valuable, and subsequently reselling such properties to individual customers.
 
 
PURCHASE PROCEDURES
 
Once we have located a property that we may want to purchase, if it is not currently listed for sale, we will ascertain whether the owner is willing to sell the property*. We then negotiate a purchase price and ask the following questions of the prospective seller and/or obtain answers from third parties:

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

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

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

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

We will obtain the following documents from the seller during our due diligence on the property:
 
-  
General maps;
-  
Environmental reports
-  
Copies of existing zoning maps and regulations;
-  
Conduct land inspection procedures;
-  
Proposed zoning regulations;
-  
Deeds;
-  
Title insurance; and
-  
Tax bills.

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

 
* We plan to evaluate properties not listed for sale because of the potential benefit of acquiring a property in a particular location at a lower cost by not having to pay realtor commissions or other costs and fees associated with purchasing properties only listed for sale with realtors. Since, in this case, there would not be a seller’s agent, there is a chance that we can get a better price on the property since a seller would not have to pay a realtor a commission. Therefore, the seller would not have to absorb the realtor’s commission in to his or hers selling price, which there is a chance a seller would do in order to obtain his or her needed price on a property.
 
 
OUR FINANCING PROCEDURES
 
We will attempt to obtain financing from local banks doing business within the area where we are attempting to purchase property. In the past, our director, Mr. Bennett, has personally guaranteed repayment of debt for property purchases along with necessary corporate guarantees for us as well as for two other companies, Axiom III, Inc. and Moixa III, Inc. We do not have any written agreements now or in the past with Mr. Bennett, obligating him to guarantee repayment of future debt or any of our other obligations. Mr. Bennett is not otherwise under any legal obligation to provide us with capital.

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

Our credit status was sufficient enough for us to acquire our current building at 192 School Street so long as we had a personal guarantee of Mr. Bennett. We believe we can use this same approach for future purchases.

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

The procedures for obtaining our financing are as follows:

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

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

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

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

COMPETITIVE BUSINESS CONDITIONS
 
We face significant competition both in acquiring rental properties and in attracting renters. Our primary market area of residential multi-family unit rentals is highly competitive, and we face direct competition from a significant number of multi-family unit landlords, many with a local, state-wide or regional presence and, in some cases, a national presence. Many of these landlords are significantly larger and have greater financial resources than us. Our competition for renters comes from newer built apartment complexes as well as older apartment buildings.
 
In addition, we face significant competition from home builders and land developers, because many renters have moved out of the rental market into single-family homes due to recent mortgage interest rates, which have reached 40-year lows in some cases. Nationally, there are over one hundred major land developers. Approximately 10% of these developers capture approximately 50% of the market for such developments. These developers have greater financial resources than we do and are better poised for market retention and expansion than we are. Specifically, our competition with national homebuilders is as follows: 

-  
Pulte Homes;
-  
Ryan Homes;
-  
Ryland Homes;
-  
John Weiland Homes;
-  
Crescent Resources; and
-  
Harris Group

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

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

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

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

INTELLECTUAL PROPERTY

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

GOVERNMENT REGULATION ISSUES

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

We have spent no funds on research and development.

EMPLOYEES

Presently, we have no employees. We have no employment agreements with any of our management. We do not anticipate hiring any additional employees in the next 12 months.
 
ITEM 1A. RISK FACTORS

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

While our competitors have operated real estate businesses for a significant period of time, we have only had limited operations and a near absence of revenues since our inception in September 2004. As a result, we have a limited operating history upon which you can evaluate us and our prospects. In addition, we have an accumulated deficit of $1,306,428 since inception through December 31, 2008. These uncertainties increase the risk that you may lose your investment.
 
WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK, THUS YOU MAY NEVER RECEIVE A RETURN ON YOUR INVESTMENT IN OUR COMMON STOCK.

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

THERE IS NO TRADING MARKET FOR OUR SHARES OF COMMON STOCK, AND YOU MAY BE UNABLE TO SELL YOUR SHARES.
 
There is not, and has never has been, a trading market for our securities. There is no established public trading market or market maker for our securities. There can be no assurance that a trading market for our common stock will be established or that, if established, can be sustained. Thus, there is a risk that you may never be able to sell your shares.
 
OUR LACK OF AN ESTABLISHED BRAND NAME AND RELATIVE LACK OF RESOURCES COULD DECREASE OUR ABILITY TO COMPETE IN THE REAL ESTATE MARKET EFFECTIVELY.
 
We do not have an established brand name or reputation in the residential real estate business. We also have a relative lack of resources to conduct our business operations. Thus, we may have difficulty effectively competing with companies that have greater name recognition and resources than we do. Presently, we have no patents, copyrights, trademarks and/or service marks that would protect our brand name or our proprietary information, nor do we have any current plans to file applications for such rights. Our inability to promote and/or protect our brand name may decrease our ability to compete effectively in the residential real estate market.
 

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

We will need additional funding over the next twelve months to develop our business. The estimated need for funds could be as little as $45,000 or as high as $1,000,000, depending on the properties we plan to acquire and the maintenance of current facilities. Please note that the $45,000 amount above consists of $25,000 in cash to purchase such properties as discussed in more detail in this paragraph plus $20,000 which covers additional expense related to our newly acquired reporting obligation. For instance, if we can purchase a property with as little money down, such as low as 5% for illustrative purposes, then we would only require the low end of the above range, or about $25,000 in cash, exclusive of the $20,000 which covers the expense of our newly acquired reporting obligation, to purchase such property costing $500,000 for illustrative purposes. On the other hand, if we purchase a property with only cash and without borrowing, then we would spend as much as $500,000 on the same purchase in the illustration above. If two of these properties are purchased with no borrowings, then we would spend $1,000,000 as an example. In addition, much depends of the quality of the property. For example, the property may require significant expenditures to obtain a certificate of occupancy for it. As of December 31, 2008, we had no liquid assets with which to pay our expenses. Accordingly, we will seek outside sources of capital such as conventional bank financing; however, there can be no assurance that we will be able to obtain favorable terms for such financing. If adequate funds are not available, we may be required to curtail operations or shut down completely.
  
WE MAY NEED TO ISSUE MORE STOCK, WHICH COULD DILUTE YOUR STOCK

If we do not have enough capital to meet our future capital requirements, we may need to conduct additional capital-raising in order to continue our operations. To the extent that additional capital is raised through the sale of equity and/or convertible debt securities, the issuance of such securities could result in dilution to our shareholders and/or increased debt service commitments. Accordingly, if we issue additional stock, it could reduce the value of your stock.
 
OUR PRINCIPAL STOCKHOLDER CONTROLS OUR BUSINESS AFFAIRS, SO YOU WILL HAVE LITTLE OR NO PARTICIPATION IN OUR BUSINESS AFFAIRS.

Currently, our principal stockholder, Duane Bennett, owns approximately 61.18% of our common stock. Most of this stock is held by the Northeast Nominee Trust. Duane Bennett is the sole trustee of this trust. As a result, he will have control over all matters requiring approval by our stockholders and can outvote all minority stockholders. In addition, he will be able to elect all of the members of our Board of Directors, which will allow him to significantly control our affairs and management. He will also be able to affect most corporate matters requiring stockholder approval by written consent, without the need for a duly noticed and duly-held meeting of stockholders. Accordingly, you will be limited in your ability to effect change in how we conduct our business.

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

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

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

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

OUR MANAGEMENT MAY HAVE POSSIBLE CONFLICTS OF INTEREST THAT MAY REDUCE THE LEVEL OF BUSINESS WE CONDUCT OR EXPANSION WE PURSUE.

Our officers and directors are involved in other business activities (such as other investments in the real estate market) and may, in the future become involved in other business opportunities that may reduce the level of business we conduct or expansion we pursue. If another business opportunity becomes available, our officers and directors may face a conflict in selecting between us and their other business interests. We have not formulated a policy for the resolution of such conflicts. We have no current plans to engage in further transactions with Mr. Bennett or our other officers, directors, or owners. However, future transactions or arrangements between or among our officers, directors and shareholders, and companies they control, may occur, and may result in conflicts of interest, which may reduce the level of business we conduct or the level of expansion we pursue.  Duane Bennett and Karol Kapinos are large shareholders in our company; in addition these individuals are also involved with Axiom III and Moixa III.  Axiom III is a publicly held company with a very similar business plan to our own.  Information about this company can be found in the Edgar filing system.  Moixa III is a privately held company; however it is currently in the process of registering its stock for public sale.  Moixa III also has a very similar business plan to our own.  Further information on Moixa III can be found in the Edgar filing system. These two companies also compete in our market area and own properties of a similar nature in the same vicinity as ours.  Since our shareholders and management have an interest in Axiom III and Moixa III and given the similarities between all three companies there is an inherent conflict of interest between our company, Moixa III and Axiom III.  We have taken steps to minimize these risks through our property selection procedures discussed in detail below and the companies have different presidents and management, however we cannot guarantee that these steps will be effective in minimizing possible conflicts of interest.

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

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

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

As of December 31, 2008, our accumulated deficit was $1,306,428. Our cash flows provided by (used in) operations were $7,723 and $(3,942) for the years ended December 31, 2008 and December 31, 2007, respectively. We have incurred losses from operations and limited cash that raises substantial doubt as to whether we can continue as a going concern.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS 

None.

ITEM 2. PROPERTIES


Location and Description

We owned a two-story building that consists of four units in central downtown Chicopee, Massachusetts at 192 School Street. We had four leases, of which two expired in May 2006, a third expired on September 30, 2007 and the fourth lease was valid through June 30, 2008. The lease term for all leases is 12 months. The expired leases are now considered month-to-month leases. Aggregate gross rental income from these tenants is $2,500 per month or $30,000 per year.

We currently own a three-story building located at 12-14 Osgood Street, Springfield, Massachusetts. The building consists of two family units each with a combined monthly rental rate of $1200.00.
 

Investment Policies

Our policy is to actively pursue the acquisition of real estate for investment income and appreciation in property value. We intend to place an emphasis on acquiring residential rental property which management feels is undervalued. Our policy is to focus primarily on favorable terms of financing (i.e., competitive interest rates and loan to equity ratios) and potential return on capital. We intend to look for residential rental properties that can be purchased for less than market value.

We have no present intention to invest in first or second mortgages, securities of companies primarily engaged in real estate activities, or interests in real estate investment trusts or real estate limited partnerships. However, our board of directors is not precluded in the future from participating in such investments.

We currently have no limitations on the percentage of assets which may be invested in any one investment or the type of securities or investments we may buy. However, the board of directors in its discretion may set policies without a vote of our securities holders regarding the percentage of assets which may be invested in any one investment, or type of investment. Our current policy is to evaluate each investment based on its potential capital return to us on a relatively short term basis. Furthermore, we do not plan to enter into the business of originating, servicing or warehousing mortgages or deeds of trust, except as may be incidental to its primary purpose of acquiring and renting real estate.
 
Description of Real Estate and Operating Data

Our primary asset for the majority of 2008 was the two-story building consisting of four units located at 192 School Street in Chicopee, Massachusetts and now it is the three-story building located at 12-14 Osgood Street in Springfield, Massachusetts. We are obligated to a secured commercial mortgage to an unrelated party for $185,000 in order to obtain the School Street property. No prepayment penalty provisions exist in the mortgage. The commercial mortgage matures on April, 2021, and should be paid in full with no balance owing on that date. The building is divided into four rentable spaces, all of which are currently rented.
 
We had four leases in place for the building, two expired in May 2006, a third expired on September 30, 2007 and the fourth lease was valid through June 30, 2008. The lease term for all leases is 12 months. The expired leases are now considered month-to-month leases. There are no plans to make renovations or improvements to the property at this time.

The leases are managed by Lessard Property Management, Inc. on our behalf. The average effective annual rental per unit is $7,500 per unit, per year. The two leases on the property cover a combined total area of 2,592 square feet, representing a combined annual rental of $15,000, which represents 50% of the property's gross annual rentals. None of the individual leases are with related parties, all are unrelated third parties. We have not reported the details of the individual leases because they are in the names of private individuals.

Our contract with Lessard to manage these leases was assigned to us by Duane Bennett in an Assignment of Contract Rights and Obligations, dated November 29, 2004. Under the terms of the Lessard Property Management Services, Inc. Residential Property Management Agreement, dated August 27, 2003, Lessard agreed to provide property management services including, but not limited to, the following:

·
Rental of dwelling units;
·
Collection of rents and other receipts;
·
Enforcement of leases or rental agreements;
·
Maintain a 24-hour emergency answering service; and
·
Handle emergency maintenance situations and after hours calls.

Lessard's fee for providing these services is 8% of the collected rent, or $150 per project (which, in this case, we have construed to mean the apartment building as a whole), whichever is greater.

Additional emergency repair services and security for the property are provided by Pablo Torres, who lives within 50 feet of the building at 192 School Street.  Mr. Torres' close proximity to our property allows him to be readily available when tenants have need of emergency repairs and to keep watch over our building.  

In connection with our decision to explore the possibility of acquiring properties in North Carolina, we received advice on purchasing investment properties and the rehabilitation and repair of such properties from Cecil Medlin, who has been in the real estate business for the past 50 years. Mr. Medlin was compensated with 25,000 shares of our common stock for his services.

Of the existing four tenants, all occupy more than 10% of the available space in the building. The nature of the business of each of these tenants and the principal provisions of their leases are outlined as follows: all are residential leases for individuals or families, for monthly rent, according to the usual terms for residential lease agreements.
 

The building, which is zoned as residential property, is located in the city of Chicopee, which 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.

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

Our primary asset is the two-story building consisting of four units located at 12-14 Osgood Street, in Springfield, Massachusetts. Pablo Torres is obligated to a secured commercial mortgage to an unrelated party for $105,000 in order to obtain the Osgood Street property. The building is divided into four rentable spaces, all of which are currently rented. There are no plans to make renovations or improvements to the property at this time.

The leases are managed by Pablo Torres on our behalf. The average effective rent per unit is $600 per unit, per month. The two leases on the property cover a combined total area of 2,500 square feet, representing a combined annual rental of $14,400. None of the individual leases are with related parties, all are unrelated third parties. We have not reported the details of the individual leases because they are in the names of private individuals.

In connection with our decision to explore the possibility of acquiring properties in North Carolina, we received advice on purchasing investment properties and the rehabilitation and repair of such properties from Cecil Medlin, who has been in the real estate business for the past 50 years. Mr. Medlin was compensated with 25,000 shares of our common stock for his services.

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

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

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

ITEM 3. LEGAL PROCEEDINGS
 

 
None.

 

Trading Market for Common Equity
 
Our common stock is not traded on any exchange. We plan to have our shares of common stock quoted on the Over-The-Counter Bulletin Board. The Over-The-Counter Bulletin Board is a quotation medium for subscribing members only. And only market makers can apply to quote securities on the Over-The-Counter Bulletin Board. We cannot guarantee that we will obtain a market maker or such a quotation. Although we will seek a market maker for our securities, our management has no agreements, understandings or other arrangements with market makers to begin making a market for our shares. There is no trading activity in our securities, and there can be no assurance that a regular trading market for our common stock will ever be developed, or if developed, will be sustained.
 
A shareholder in all likelihood, therefore, will not be able to resell their securities should he or she desire to do when eligible for public resale. Furthermore, it is unlikely that a lending institution will accept our securities as pledged collateral for loans unless a regular trading market develops. We have no plans, proposals, arrangements or understandings with any person with regard to the development of a trading market in any of our securities.
 

HOLDERS.
 
As of March 16, 2009 there were 68 holders of record of our common stock.

SHARES ELIGIBLE FOR FUTURE SALE.
 
In general, under Rule 144 as currently in effect, any of our affiliates and any person or persons whose sales are aggregated with our affiliates, who has beneficially owned his or her restricted shares for at least one year, may be entitled to sell in the open market within any three-month period a number of shares of common stock that does not exceed the greater of (i) 1% of the then outstanding shares of our common stock, or (ii) the average weekly trading volume in the common stock during the four calendar weeks preceding such sale. Sales under Rule 144 are also affected by limitations on manner of sale, notice requirements, and availability of current public information about us. Non-affiliates who have held their restricted shares for two years may be entitled to sell their shares under Rule 144 without regard to any of the above limitations, provided they have not been affiliates for the three months preceding such sale.

Further, Rule 144A as currently in effect, in general, permits unlimited resales of restricted securities of any issuer provided that the purchaser is an institution that owns and invests on a discretionary basis at least $100 million in securities or is a registered broker-dealer that owns and invests $10 million in securities. Rule 144A allows our existing stockholders to sell their shares of common stock to such institutions and registered broker-dealers without regard to any volume or other restrictions. Unlike under Rule 144, restricted securities sold under Rule 144A to non-affiliates do not lose their status as restricted securities.

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

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

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

Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or "accredited investor" must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, unless the broker-dealer or the transaction is otherwise exempt, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the Registered Representative and current bid and offer quotations for the securities. In addition a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account, the account’s value and information regarding the limited market in penny stocks. As a result of these regulations, the ability of broker-dealers to sell our stock may affect the ability of Selling Security Holders or other holders to sell their shares in the secondary market. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction.
 
 
These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. These additional sales practice and disclosure requirements could impede the sale of Information Systems Associate's securities, if our securities become publicly traded. In addition, the liquidity for Information Systems Associate's securities may be adversely affected, with concomitant adverse affects on the price of Information Systems Associate's securities. Our shares may someday be subject to such penny stock rules and our shareholders will, in all likelihood, find it difficult to sell their securities.

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

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

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

DEBT SECURITIES.
 
We have not issued any debt securities.

DIVIDEND RIGHTS.

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

RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES
 
During the past three years the Registrant has issued the following securities without registration under the Securities Act of 1933, as amended:
 
In 2008, we issued 580,000 common shares to various shareholders for consulting services rendered. These shares were valued at $.10 as of the date of issuance, yielding an aggregate expense of $58,000. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.
 

In 2008, we issued 250,000 common shares to Pablo Torres in connection with the Stock Purchase Agreement between the Company and Pablo Torres. These shares were valued at $.10 as of the date of issuance, yielding an aggregate expense of $25,000. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

During 2008, we issued 50,000 common shares to Guardian Registrar and Transfer, Inc. for its services to the Company as registrar and transfer agent.  These shares were valued at $.10 as of the date of issuance, yielding an aggregate expense of $5,000. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

In 2008, we issued 100,000 common shares to Wibraham Rotary Memorial Foundation, Inc. as a donation. These shares were valued at $.10 as of the date of issuance, yielding an aggregate expense of $10,000. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

In 2008, we issued 5,750,000 common shares to various individuals through the shareholder Northeast Nominee Trust as donations. These shares were valued at $.10 as of the date of issuance, yielding an aggregate expense of $575,000. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

In 2008, we issued 3,000,000 common shares to Northeast Nominee Trust, Duane Bennett trustee, for his services to the Company as President. These shares were valued at $.10 as of the date of issuance, yielding an aggregate expense of $300,000. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.

In 2008, we issued 75,000 common shares to Karol Kapinos for her services to the Company as President. These shares were valued at $.10 as of the date of issuance, yielding an aggregate expense of $75,000. We relied on exemptions provided by Section 4(2) of the Securities Act of 1933, as amended. We made this offering based on the following facts: (1) the issuance was an isolated private transaction which did not involve a public offering; (2) there was only one offeree, (3) the offeree has agreed to the imposition of a restrictive legend on the face of the stock certificate representing its shares, to the effect that it will not resell the stock unless its shares are registered or an exemption from registration is available; (4) the offeree was a sophisticated investor very familiar with our company and stock-based transactions; (5) there were no subsequent or contemporaneous public offerings of the stock; (6) the stock was not broken down into smaller denominations; and (7) the negotiations for the sale of the stock took place directly between the offeree and our management.
 

ITEM 6. SELECTED FINANCIAL DATA
 
 

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

Revenue recognition

Our revenue is derived from rental income from leases. The expired leases are considered month-to-month leases.  In accordance with SFAS 13, paragraph 23, the cost of property held for leasing by major classes of property according to nature or function, and the amount of accumulated depreciation in total, is presented in the accompanying December 31, 2008 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.

Property, Plant, and Equipment

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

The Company recognizes an impairment loss on property and equipment when evidence, such as the sum of expected future cash flows (undiscounted and without interest charges), indicates that future operations will not produce sufficient revenue to cover the related future costs, including depreciation, and when the carrying amount of the asset cannot be realized through sale. Measurement of the impairment loss is based on the fair value of the assets.
 
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008 and 2007

Revenues (for the years ended December 31, 2008 and 2007).

Revenues decreased $1,243 or 11% to $25,654 for the year ended December 31, 2008, respectively, as compared with $28,650 for the year ended December 31, 2007. 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.

All sales transactions were with unrelated parties.
 
 
Cost of Sales (for the years ended December 31, 2008 and 2007).

None.

Expenses (for the years ended December 31, 2008 and 2007).

Operating expenses for the year ended December 31, 2008 increased 1,006,063 or 2801.7% to $1,014,972 from $35,909 in 2007. The increase in expenses through the year 2008 was due to us moving toward developing our business plan and registering our common stock. In addition, we experience an increase in professional fees to around $20,000 per year for compliance with the reporting requirements of the Securities and Exchange Commission. We issued $970,500 in common stock for services rendered.

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

Income Taxes (for the years ended December 31, 2008 and 2007).
 
We had no provision for income taxes for the year ended December 31, 2008 and 2007, respectively, due to our net loss.

If we incur losses, we may have a deferred tax asset. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that, some portion or all of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment. We do not currently have any net deferred tax assets.
 
Income/Losses (for the years ended December 31, 2008 and 2007).

We had a net loss of $936,743, or less than $.01 per common share for the year ended December 31, 2008. This compares to a net loss of $18,729, or less than $.01 per common share for the year ended December 31, 2007. The decreases in net losses are attributable to the increase in general and administrative expenses as mentioned above as well as the cost of going public.
 
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 years ended December 31, 2008 and 2007).

Cash flows provided by (used in) operations were $(43,162) and $(3,942) for the year ended December 31, 2008 and 2007, respectively. These were mainly attributable to decrease in accounts receivable, a decrease in accounts payable, and non-cash depreciation charges in both periods, a gain on the sale of property in the amount of $88,411 in 2008 and the $970,500 worth of shares issued for services rendered.


Cash flows provided by investing activities were $212,500 and $0 for the year ended December 31, 2008 and 2007, respectively. Cash flows provided in these periods were due primarily to the proceeds from the sale of property in the amount of $215,500/

Cash flows provided by (used in) financing activities were $(169,338) and $3,899 for the year ended December 31, 2008 and 2007, respectively. Cash flows used in these periods were due primarily to repayments on notes payable on our income producing rental property offset by the capital contributions from a shareholder in 2007 only.
 
 
Overall, we have funded our cash needs from inception through December 31, 2008 with a series of equity and debt transactions, including those with related parties as described above. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on our operations and financial condition. This could include an inability to do sufficient advertising for the homes that we sell, which would make us less competitive in the marketplace. We could also find it more difficult to enter into strategic joint venture relationships with third parties. Finally, it would most likely delay the implementation of our business plan. An alternative plan of operation in the event of a failure to obtain financing would be to continue operations as currently configured, with the result being little, if any, projected growth. Another alternative would be to enter into a joint venture with another company that has working capital available, albeit on less favorable terms than had we obtained financing, for the development of our business plan.

We had cash on hand of only $-0- and a working capital deficit of $13,500 as of December 31, 2008. Our current amount of cash in the bank is insufficient to fund our operations for the next twelve months. We will rely on the existence of revenue from our business, if any, and funding from outside sources; however, we have no current or projected capital reserves that will sustain our business for the next 12 months. Also, if the projected revenues fall short of needed capital we will not be able to sustain our capital needs for the next twelve months. We will then need to obtain additional capital through equity or debt financing to sustain operations for an additional year. A lack of significant revenues during 2009 will significantly affect our cash position and make it necessary to raise additional funds through equity or debt financing. Our current level of operations would require capital of approximately $10,000 to sustain operations through year 2009 and approximately $35,000 per year thereafter. Modifications to our business plans or additional property acquisitions may require additional capital for us to operate. There can be no assurance that additional capital will be available to us when needed or available on terms favorable to us.
 
On a long-term basis, liquidity depends on continuation and expansion of operations, receipt of revenues, and additional infusions of capital and debt financing. We are considering launching a local advertising campaign. Our current capital and revenues are insufficient to fund such marketing. If we choose to launch such a campaign, we will require substantially more capital. If necessary, we will raise this capital through an additional stock offering. However, there can be no assurance that we will be able to obtain additional equity or debt financing in the future, if at all. If we are unable to raise additional capital, our growth potential will be adversely affected and we will have to significantly modify our plans. For example, if we unable to raise sufficient capital to develop our business plan, we may need to:

- Seek projects of lesser value or that may be less profitable
- Seek smaller projects, which are less capital intensive, in lieu of larger projects; or
- Seek projects that are outside our geographical area to generate some revenue for us.
 
Demand for our rental services will be dependent on, among other things, market acceptance of our services, the real estate market in general and general economic conditions, which are cyclical in nature. Inasmuch as a major portion of our activities is the receipt of rents from residential properties, our business operations may be adversely affected by our competitors and prolonged recession periods.

Our success will depend upon implementing our plan of operations and the risks associated with our business plans. We operate a small real estate rental business in the Springfield, Massachusetts area. We plan to strengthen our position in this market. We also plan to expand our operations in the Springfield area, as well as identify possible investment properties in China through our strategic alliance with China World Trade.
 
Going concern

As shown in the accompanying consolidated financial statements, we have suffered recurring losses from operation to date. We have a net deficiency of $1,268,902 as of December 31, 2008. 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.


Financial Summary Information

Because this is only a financial summary, it does not contain all the financial information that may be important to you. It should be read in conjunction with the financial statements and related notes presented in this section.

Audited Financial Summary Information for the Years Ended December 31, 2008 and 2007

Statements of Operations
  
For the year ended December 31, 2008
    
For the year ended December 31, 2007
  
             
Revenues
  
$
25,654
    
$ 
28,650
  
Interest expense
  
$
(8,836)
    
$
(11,470)
  
Net (loss)
  
$
(936,743)
    
$
(18,729)
  
Net loss per common share
    
**
      
**
  

** Less than $.01


Balance Sheet
  
As of December 31, 2008
  
       
Cash
  
$
0
  
Total current assets 
  
$
0
  
Other assets
  
$
104,352
  
Total Assets
  
$
104,352
  
Current liabilities
  
$
13,500
  
Long term liabilities
  
$
100,185
  
Stockholders’ equity
  
$
(9,333)
  
Total liabilities and stockholders’ equity
  
$
104,352
  

 
CONTENTS
 
INDEPENDENT AUDITOR’S REPORT
25
   
   
CONSOLIDATED BALANCE SHEET
26
   
CONSOLIDATED STATEMENTS OF OPERATIONS
27
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
28
   
CONSOLDIATED STATEMENT OF STOCKHOLDERS’ DEFICIT
29
   
NOTES TO FINANCIAL STATEMENTS
30-35
 



 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 


To the Board of Directors and Stockholders
BlueSky Systems, Corp and Subsidiary

I have audited the accompanying consolidated balance sheets of BlueSky System, Corp. and Subsidiary (“The Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income, stockholders’ deficit and comprehensive income, and cash flows for the years ended December 31, 2008 and 2007.  These consolidated financial statements are the responsibility of the company’s management. My responsibility is to express an opinion on these consolidated financial statements based on my audits.
 
I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting.  Accordingly, I express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
 
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BlueSky Systems, Corp. and Subsidiary as of December 31, 2008, and the results of its operations and its cash flows for the years ended December 31, 2008 and 2007 in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  The Company has suffered recurring losses and has yet to generate an internal cash flow that raises substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are described in Note D.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.




/s/ Traci J. Anderson
Traci J. Anderson, CPA
Huntersville, NC
April 15, 2009


 
Consolidated Balance Sheet
December 31, 2008

Assets:
  
12/31/2008
    
12/31/2007
  
Current assets
            
 Cash - unrestricted
   $ -     $ -  
Cash - restricted for security deposits
     -       -  
                 
Total current assets
     -       -  
                 
Fixed assets
                
Property and equipment
     105,000       161,513  
Accumulated depreciation
     (648 )     (28,180 )
                 
Total fixed assets
     104,352       133,333  
                 
Total assets
   $ 104,352     $ 133,333  
                 
Liabilities and Stockholders' Deficit
                
Current liabilities
                
Accounts payable and other current liabilities
   $ 8,500     $ 6,252  
Current portion of mortgage payable
     5,000       8,447  
                 
Total current liabilities
     13,500       14,699  
                 
Long-term mortgage payable
     100,185       162,449  
                 
Total liabilities
     113,685       177,148  
                 
Stockholders' Deficit
                
Common stock, (50,000,000 shares authorized, 25,498,933 shares issued
                
     and outstanding, par value $.001 per share)
     25,499       15,794  
Additional paid-in capital
     1,234,070       272,550  
Retained deficit
     (1,268,902 )     (332,159 )
                 
Total stockholders' deficit
     (9,333 )     (43,815 )
                 
Total liabilities and stockholders' deficit
   $ 104,352     $ 133,333  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
BlueSky Systems, Corp.
Consolidated Statement of Operations
For the years ended December 31, 2008 and 2007

   
Year Ended
    
Year Ended
  
   
12/31/2008
    
12/31/2007
  
             
Rental income
   $ 25,654     $ 28,650  
                 
Total revenue
     25,654       28,650  
                 
Selling, general and administrative expenses
     58,294       10,205  
Common stock issued for services received
     970,500       -  
Bad debt expense
     -       511  
Consulting
     -       12,813  
Repairs and maintenance
     3,934       3,137  
Depreciation
     9,244       9,243  
Total expenses
     1,041,972       35,909  
                 
Net ordinary (loss)
     (1,016,318 )     (7,259 )
                 
Other income (expense):
                
Gain on sale of property
     88,411       -  
Interest expense
     (8,836 )     (11,470 )
Total other income (expense)
     79,575       (11,470 )
                 
Net (loss)
   $ (936,743 )   $ (18,729 )
                 
Net (loss) per share, basic and fully diluted
   $ (0.05 )   $   *
                 
Weighted Average Common Shares Outstanding
     20,646,433       15,793,933  
                 
* = Less than $.01 per share.
                
 
The accompanying notes are an integral part of these consolidated financial statements.
 


Consolidated Statements of Cash Flows
For the years ended December 31, 2008 and 2007

   
Year Ended
    
Year Ended
  
   
12/31/2008
    
12/31/2007
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net (loss)
   $ (936,743 )   $ (18,729 )
Adjustments to reconcile net (loss) to net cash
                
(used in) operating activities:
                
Depreciation
     9,244       9,243  
Gain on sale of property
     (88,411 )     -  
Common stock issued for services received
     970,500       -  
(Increase) decrease in operating assets:
                
Accounts receivable
     -       1,267  
Increase (decrease) in operating liabilities:
                
Accounts payable and other current liabilities
     2,248       4,277  
NET CASH (USED IN) OPERATING ACTIVITIES
     (43,162 )     (3,942 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Proceeds from sale of property
     212,500       -  
NET CASH PROVIDED BY INVESTING ACTIVITIES
     212,500       -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Contribution of capital from majority shareholder
     725       10,800  
Principal repayments of long term debt
     (170,063 )     (6,901 )
NET CASH  PROVIDED BY (USED IN) FINANCING ACTIVITIES
     (169,338 )     3,899  
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
     -       (43 )
                 
CASH AND CASH EQUIVALENTS:
                
Beginning of year
     -       43  
                 
End of year
   $ -     $ -  
                 
OTHER SUPPLEMENTAL CASH FLOW DISCLOSURES:
                
                 
Cash paid during the period for interest
   $ 8,836     $ 11,470  
                 
Cash paid during the period for income taxes
   $ -     $ -  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
BlueSky Systems, Corp.
Consolidated Statements of Stockholders' Deficit
For the years ended December 31, 2008 and 2007

                       
   
Common
          
Additional
        
   
Stock
    
Common
    
Paid in
    
Retained
  
   
(Par Value .001)
    
Shares
    
Capital
    
(Deficit)
  
                           
Balances, January 1, 2007
   $ 15,794       15,793,933     $ 261,750     $ (313,431 )
                                 
Capital contributions
   $ -       -     $ 10,800     $ -  
                                 
Net loss for the year
   $ -       -     $ -     $ (18,728 )
                                 
Balances, January 1, 2008
   $ 15,794       15,793,933     $ 272,550     $ (332,159 )
                                 
Contribution of capital from majority shareholder
   $ -       -     $ 725     $ -  
                                 
Common stock issued for services received
   $ 9,705       9,705,000     $ 960,795     $ -  
                                 
Net loss for the year
   $ -       -     $ -     $ (936,743 )
                                 
Balances, December 31, 2008
   $ 25,499       25,498,933     $ 1,234,070     $ (1,268,902 )
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
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 Springfield, Massachusetts.

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 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 SFAS 13, paragraph 23, the cost of property held for leasing by major classes of property according to nature or function, and the amount of accumulated depreciation in total, is presented in the accompanying December 31, 2008 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 adopted Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income”, 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 periods covered in the financial statements.

Advertising Costs—Advertising costs are expensed as incurred.  The Advertising expense totaled $0 and $0 for the years ended December 31, 2008 and 2007, respectively.

Loss per Common Share—Statement of Financial Accounting Standard (SFAS) No. 128 requires dual presentation of basic and diluted earnings per share (EPS) with a reconciliation of the numerator and denominator of the EPS computations.  Basic earnings per share amounts are based on the weighted average shares of common stock outstanding.  If applicable, diluted earnings per share would assume the conversion, exercise or issuance of all potential common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share.  Accordingly, this presentation has been adopted for
 

NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’)
 
the period presented.  There were no adjustments required to net loss for the period presented in the computation of diluted earnings per share.

Income Taxes—Income taxes are provided in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.”  A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss-carryforwards.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that, and some portion or the entire 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.

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.

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 of Financial Accounting Standard No. 123 (revised, 2004), “Accounting for Stock-Based Compensation”.  Shares issued for services rendered by a third party are recorded at the fair value of the shares issued or services rendered, whichever is more readily determinable.  The Company accounts for options and warrants under the same authoritative guidance using the Black-Scholes Option Pricing Model.

Accounts Receivable—Accounts deemed uncollectible are written off in the year they become uncollectible.  During 2008 and 2007, Accounts Receivable in the amount of $0 and $0 were deemed uncollectible and were written off to Bad Debt Expense.  As of December 31, 2008, the Company’s Accounts Receivable balance was $0.

Impairment of Long-Lived Assets—In accordance with SFAS No. 144, the Company reviews and evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that their net book value may not be recoverable.  When such factors and circumstances exist, including those noted above, the Company compares the assets’ carrying amounts against the estimated undiscounted cash flows to be generated by those assets over their estimated useful lives.  If the carrying amounts are greater than the undiscounted cash flows, the fair values of those assets are estimated by discounting the projected cash flows.  Any excess of the carrying amounts over the fair values are recorded as impairments in that fiscal period.
 
 
NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’)

Property and equipment—Depreciable assets are stated at cost.  As of December 31, 2008, the Company had the following depreciable assets:
 
Asset
  
Cost
    
Accumulated Depreciation
    
Book Value
    
Estimated Life
    
Estimated Annual Depreciation
  
Rental Property
   $ 65,499     $ 10,123     $ 55,376       27.5     $ 2,382  
Capital Improvements
     66,514       6,210       60,304       27.5       2,418  
HVAC System
     11,500       4,381       7,119       7       1,643  
Sprinkler System
     14,000       5,333       8,667       7       2,000  
Equipment
     4,000       2,133       1,867       5       800  
    $ 161,513     $ 28,180     $ 133,333             $ 9,244  

 
Recent Accounting Pronouncements — In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. However, in February 2008 the FASB Staff Position No. 157-2 was issued, which delays the effective date of the requirements of SFAS 157 as to nonfinancial assets and nonfinancial liabilities except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. The effective date has been deferred to fiscal years beginning after November 15, 2008 for these nonfinancial assets and liabilities. The Company’s adoption of SFAS 157 on January 1, 2008 did not have a material impact on its consolidated financial position, results of operations or cash flows during the year ended December 31, 2008. The Company does not expect the deferred portion of the adoption of SFAS 157 to have a material impact on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”).  SFAS 141R establishes principles and requirements for how the acquirer in a business combination recognizes and measures in its financial statements the fair value of identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at the acquisition date.  SFAS 141R determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.  SFAS 141R is effective for fiscal years beginning after December 15, 2008. The

Recent Accounting Pronouncements (cont.) - Company is currently evaluating the impact of adopting SFAS 141R on its consolidated results of operations and financial condition and plans to adopt it as required in the first quarter of fiscal 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”), an amendment of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” (“ARB 51”).  SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in
 
 
NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’)

consolidated net income on the face of the income statement and upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. This pronouncement is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact of adopting SFAS 160 on its consolidated results of operations and financial condition and plans to adopt it as required in the first quarter of fiscal 2009.
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment to FASB Statement No. 133.” SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The adoption of this statement, which is expected to occur in the first quarter of 2009, is not expected to have a material effect on the Company’s consolidated financial statements.
 
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The adoption of this statement is not expected to have a material effect on the Company’s consolidated financial statements.
 
Recent Accounting Pronouncements (cont.) - In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts — An interpretation of FASB Statement No. 60.” SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. It also clarifies how Statement No. 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities, and requires expanded disclosures about financial guarantee insurance contracts. It is effective for financial statements issued for fiscal years beginning after December 15, 2008, except for some disclosures about the insurance enterprise’s risk-management activities. SFAS No. 163 requires that disclosures about the risk-management activities of the insurance enterprise be effective for the first period beginning after issuance. Except for those disclosures, earlier application is not permitted. The adoption of this statement is not expected to have a material effect on the Company’s consolidated financial statements.
 
NOTE B—SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of cash flow information for the years ended December 31, 2008 and 2007 is summarized as follows:

Cash paid during the period for interest and income taxes:
                                       2008               2007
Income Taxes                                                    $   ---              $   ---
Interest                                                             $8,836              $ 11,470


Non-cash financing activities:
                                                                                                  2008              2007
    Common stock issued for services prepaid and rendered       $ 970,500             $ 0
 

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 years ended December 31, 2008 and 2007.
 
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 December 31, 2008 is as follows:
 
Total Deferred Tax Asset
   $ 90,000  
Valuation Allowance
     (90,000 )
Net Deferred Tax Asset
   $ -  
 
No tax benefits have been recorded for the nondeductible (tax) expenses (stock for services) totaling $970,500.
 
 
The reconciliation of income taxes computed at the federal statutory income tax rate to total income taxes for the years ended December 31, 2008 and 2007 is as follows:
 
                                                                                      2008          2007   
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 $225,000 in carry forwards available through the year 2028.
 

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 $936,743 and $18,729 during 2008 and 2007, respectively.  The Company had a net deficiency of $1,268,902 as of December 31, 2008.  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 December 31, 2006.

NOTE F—EQUITY

In 2007, no shares of the Company stock were issued.

In 2008, 9,705,000 shares of the Company’s 50,000,000 authorized, $.001 par common stock were issued. The shares were issued as follows:

9,705,000 common shares were issued during 2008 to various business consultants for services rendered in 2008. The shares were recorded using a price of ten cents per share which approximates the value assigned to the stock from a prior private placement of the stock.

NOTE G—NOTES PAYABLE

Mortgages incurred for the purchase of the rental property consist of the following:

Mortgages incurred for the purchase of the rental property consist of the following:

Secured Commercial Mortgage to an unrelated party. 
Current Balance of          $ 105,184.88

The aggregate amount of long-term debt maturing during each of the succeeding five years and thereafter  is as follows:
 
For the year ending
  
Amount
  
       
2009
   $ 15,000  
2010
   $ 16,500  
2011
   $ 18,150  
2012
   $ 19,965  
Thereafter
   $ 35,569  
     Total
   $ 105,184  

 

None

ITEM 9A. 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 our 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.
 
To evaluate the effectiveness of our internal controls over financial reporting, we have adopted the framework prescribed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  We believe that this framework will assist in the provision of reasonable assurance of the effectiveness and efficiency of operations, the reliability of financial reporting, and compliance with applicable laws and regulations.  In adopting the COSO framework, we maintain a control environment, perform risk assessments, carry out control activities, emphasize quality information and effective communication, and perform monitoring.  In the maintenance of a control environment, we are committed to integrity and ethical values as well as to competence.  We strive to assign authority and responsibility in a manner that supports our internal controls, and we also maintain human resources policies and procedures designed to support our internal controls.  Our risk assessments are designed to ensure the achievement of company-wide and process-level objectives as well as to identify and analyze risks while managing change.  We believe that all of these components together form a foundation for sound internal control through directed leadership, shared values and a culture that emphasizes accountability for control.

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 effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.
 
The Certifying Officers have also concluded, based on our evaluation of our controls and procedures that as of December 31, 2008, our internal controls over financial reporting are effective and provide a reasonable assurance of achieving their objective.
 
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements under all potential conditions. Therefore, effective internal control over financial reporting provides only reasonable, and not absolute, assurance that a restatement of our financial statements would be prevented or detected.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.

Changes in Internal Control Over Financial Reporting
 
There were no changes in the our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.
 

ITEM 9A(T). CONTROLS AND PROCEDURES
 
(a) Conclusions regarding disclosure controls and procedures. Disclosure controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Management is responsible for establishing and maintaining adequate internal control over financial reporting.
 
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Exchange Act as of December 31, 2008, and, based on their evaluation, as of the end of such period, the our disclosure controls and procedures were effective as of the end of the period covered by the Annual Report,
 
(b) Management’s Report On Internal Control Over Financial Reporting. It is management’s responsibilities to establish and maintain adequate internal controls over the Company’s financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers and effected by the issuer’s management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•           Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and

•           Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management of the issuer; and

•           Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.
  
As of the end of the period covered by the Annual Report, an evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal control over financial reporting.
 
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.
 
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, internal controls over financial reporting were effective as of the end of the period covered by the Report.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
 
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.
 
(c) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.
 
 
PART III

 
Directors and Executive Officers
 

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

Name
Age
Position
Karol Kapinos
42
President and Director
Duane Bennett
47
Secretary and Director
 
Karol Kapinos, President and Director
 
For the past five years, Mr. Karol Kapinos has been a self-employed entrepreneur as a wholesaler of domestic and foreign automobiles through his wholly owned company, Midway Motors, Inc.  During this time, Mr. Kapinos has become familiar with sales marketing strategies as well as overall economic trends in and around the Massachusetts area. Mr. Kapinos has not been an affiliate of any other company for the past five years. Mr. Kapinos is also on the Board of Directors of the Metro League. He conducts charity softball programs preparing and coaching kids for college sports.

Other than Mr. Kapinos, we have no significant employees.

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

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

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

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

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

As of October 10, 2007 the Axiom III, Inc. entered into a Share Exchange Agreement (“Agreement”), between and among Axiom III, Inc., Eastern Concept Development Ltd., (“Eastern”) a corporation organized and existing under the laws of Hong Kong a Special Administrative Region of the Peoples’ Republic of China, Mr. Benny Lee, the shareholder of Eastern (“Eastern Shareholder”), Foshan Wanzhi Electronic Technology Co., Ltd. (“Foshan”), a corporation organized under the laws of the Peoples’ Republic of China, Jun Chen the representative of the shareholders of Foshan (“Foshan Shareholders”) and Duane Bennett, the Chief Executive Officer and Director of Registrant ("Mr. Bennett").
 
Pursuant to the Agreement Axiom III, Inc. acquired one hundred percent (100%) of all of the issued and outstanding share capital of Eastern from the Eastern Shareholder in exchange for 35,351,667 shares of common stock of the Registrant in a transaction intended to qualify as a tax-free exchange pursuant to sections 351 and 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.
 
In furtherance of the Agreement, the respective Boards of Directors of Axiom III, Inc. and Eastern, have approved the exchange, pursuant to which one hundred percent (100%) of the share capital of Eastern (the "Eastern Concept Share Capital”) issued and outstanding prior to the exchange, was exchanged by the Eastern Shareholder or their designee in the aggregate for 35,351,667 shares of common stock, $.001 par value, of the Registrant (the "AXIO Common Stock"). Subsequent to the share exchange, Eastern acquired from the Foshan Shareholders, all of the share capital of Foshan for approximately $1.3 million, and Foshan became an indirect wholly owned subsidiary of Axiom III, Inc.

The Eastern Shareholder also paid an amount equal to $262,500 as additional consideration to North East Nominee Trust.  The North East Nominee Trust was the majority shareholder of Axiom III, Inc., and Mr. Bennett is the trustee.  His children are beneficiaries of the North East Nominee Trust.
Other than those persons mentioned above, we have no employees.

Family Relationships.
 
None.

Legal Proceedings.

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

Audit Committee

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

Code of Ethics

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

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

Section 16(a) Beneficial Ownership Reporting Compliance
    
Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash-only rights) and any changes in that ownership with the Commission. Specific due dates for these reports have been established, and we are required to report, in this Form 10-K, any failure to comply therewith during the fiscal year ended December 2008. We believe that all of these filing requirements were satisfied by our executive officers, directors and by the beneficial owners of more than 10% of our common stock. In making this statement, hawse have relied solely on copies of any reporting forms received by it, and upon any written representations received from reporting persons that no Form 5 (Annual Statement of Changes in Beneficial Ownership) was required to be filed under applicable rules of the Commission.
 
ITEM 11. EXECUTIVE COMPENSATION

No compensation in excess of $100,000 was awarded to, earned by, or paid to any executive officer of Bluesky Systems, Corp. during the years 2008, 2007, and 2006. The following table and the accompanying notes provide summary information for each of the last three fiscal years concerning cash and non-cash compensation paid or accrued by Karol Kapinos, our President and Director, and Duane Bennett, our Secretary and Director.

SUMMARY COMPENSATION TABLE

Name
and
Principal
Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
Non-
Equity
Incentive
Plan
Compen-
sation
($)
Nonquali-
fied
Deferred
Compensa-
tion
Earnings
($)
All
Other
Compensa-
tion
($)
Total
($)
Karol Kapinos
President and Director
2008
2007
2006
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Duane Bennett
Secretary and Director
2008
2007
2006
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

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

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

Name and Address of Beneficial Owner
Amount and Nature of Ownership
Percentage of Class
Karol Kapinos
President and Director
191 Chestnut Street, Springfield, MA  01103
275,000
Direct
1.07%
Duane Bennett
Secretary and Director
191 Chestnut Street, Springfield, MA  01103
100,000 (3)
Direct
Less than 1%
Duane Bennett
Trustee of North East Nominee Trust
191 Chestnut Street, Springfield, MA  01103
12,500,000 (3)
Indirect
60.78%
A-Z Consulting, Inc.
7951 SW 6th Street, Suite 216
Plantation, FL  33324
1,300,000 (4)
5.01%

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

Name and Address of Beneficial Owner
Amount and Nature of Ownership
Percentage of Class
  
Karol Kapinos
President and Director
191 Chestnut Street, Springfield, MA  01103
200,000
Direct
1.07%
  
Duane Bennett
Secretary and Director
191 Chestnut Street, Springfield, MA  01103
100,000 (3)
Direct
Less than 1%
  
Duane Bennett
Trustee of North East Nominee Trust
191 Chestnut Street, Springfield, MA  01103
15,500,000 (3)
Indirect
60.78%
  
All directors and officers as a group
15,800,000
62%
Total Outstanding
25,498,933
100.0%

Notes to the table:

(1)  
Pursuant to Rule 13-d-3 under the Securities Exchange Act of 1934, as amended, beneficial ownership of a security consists of sole or shared voting power (including the power to vote or direct the voting) and/or sole or shared investment power (including the power to dispose or direct the disposition) with respect to a security whether through a contract, arrangement, understanding, relationship or otherwise. Unless otherwise indicated, each person indicated above has sole power to vote, or dispose or direct the disposition of all shares beneficially owned.

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

(3)  
Mr. Bennett owns 100,000 of these shares in his own name. The remaining 15,500,000 shares are owned in the name of the Northeast Nominee Trust, of which he is the sole trustee.
  
(4)  
A-Z Consulting, Inc. received the 1,500,000 shares of common stock for consulting services rendered. Our agreement with A-Z Consulting, Inc. is attached as an exhibit to this registration statement. A-Z Consulting is equally owned by Michael J. Bongiovanni and Robert C. Cottone.

 Changes in Control.

None.
 

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

In 2007, no shares of our common stock were issued.

In 2008, 9,805,000 shares of our common stock were issued. Please refer to Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for additional disclosure on these transactions.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Fees Billed For Audit and Non-Audit Services

The following table represents the aggregate fees billed for professional audit services rendered to the independent auditor, Traci J. Anderson, CPA ("Anderson") for our audit of the annual financial statements for the years ended December 31, 2008 and 2007. Audit fees and other fees of auditors are listed as follows:

Year Ended December 31
  
2008
  
2007
  
   
Anderson
  
Anderson
  
           
Audit Fees (1)
   $ 2,500 (1)   $ 2,500
(3)
Audit-Related Fees (4)
             --  
Tax Fees (5)
             --  
All Other Fees (6)
             --  
Total Accounting Fees and Services
   $ 2,500     $ 2,500  
 
 
(1)
Audit Fees. These are fees for professional services for the audit of our annual financial statements, and for the review of the financial statements included in our filings on Form 10-QSB, and for services that are normally provided in connection with statutory and regulatory filings or engagements.
 
(2)
The amounts shown for Anderson in 2008 relate to (i) the audit of our annual financial statements for the fiscal year ended December 31, 2008, and (ii) the review of the financial statements included in our filings on Form 10-Q for the second and third quarters of 2008.
 
(3)
The amounts shown for Anderson in 2007 relate to (i) the audit of our annual financial statements for the fiscal year ended December 31, 2007, and (ii) the review of the financial statements included in our filings on Form 10-Q for the second and third quarters of 2007.
 
(4) 
Audit-Related Fees. These are fees for the assurance and related services reasonably related to the performance of the audit or the review of our financial statements.
 
(5)
Tax Fees. These are fees for professional services with respect to tax compliance, tax advice, and tax planning.
 
(6)
All Other Fees. These are fees for permissible work that does not fall within any of the other fee categories, i.e., Audit Fees, Audit-Related Fees, or Tax Fees.

 
Pre-Approval Policy for Audit and Non-Audit Services

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

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

    (a) On December 31, 2008, our Chief Executive Officer and Chief Financial Officer made an evaluation of our disclosure controls and procedures. In our opinion, the disclosure controls and procedures are adequate because the systems of controls and procedures are designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows for the respective periods being presented. Moreover, the evaluation did not reveal any significant deficiencies or material weaknesses in our disclosure controls and procedures.

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

PART IV


(a)  
Financial Statements
 
1. The following financial statements of BlueSky Systems, Corp. are included in Part II, Item 8:

Report of Independent Registered Public Accounting Firm Balance Sheet at December 31, 2008
Statements of Operations - for the years ended December 31, 2008 and 2007
Statements of Cash Flows - for the years ended December 31, 2008 and 2007
Statements of Stockholders’ Equity - for the years ended December 31, 2008 and 2007
Notes to Financial Statements 
 
2. Exhibits
 
10.1 Stock Purchase Agreement between Pablo Torres and Bluesky Systems Corporation
14.1 Code of Ethics *
31.1. Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief Financial Officer
32.1. Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer
 
* Filed previously.
 
(b)  
Reports on Form 8-K

None
 

 SIGNATURES
 
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned majority of the Board of Directors, thereunto duly authorized.
 
 
Bluesky Systems, Corp.
  
       
Date: April 15, 2009
By:
/s/ Karol Kapinos  
    Karol Kapinos  
   
President
  
       
 
 
 
 
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