UNITED STATES


SECURITIESANDEXCHANGE COMMISSION


WASHINGTON,DC20549


_______





FORM10-Q




(Mark One)





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





For the quarterly period
endedFebruary 28,
2009


OR


o
            TRANSACTION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the transition period
from ___________________________ to ___________________________





Commission file
number:000-52063





GRACE 3, INC.


(Exact Name of Registrant as Specified
in Its Charter)





Delaware
              
              20-3708559(State of Other Jurisdiction of Incorporation or
                Organization)
              
              (I.R.S. Employer Identification Number)735 Broad Street, Suite
      400
                Chattanooga,TN
              
              37402(Address of Principal Executive
      Offices)
              
              (Zip
  Code)





(423) 265-5062


(Registrant’s Telephone Number,
Including Area Code)





N/A


(Former Name, Former Address and Former
Fiscal Year, If Changed Since Last Report)





Copies
to:


The
Sourlis Law Firm


Virginia
K. Sourlis, Esq.


The
Galleria


2 Bridge
Avenue


Red Bank,
New Jersey 07701


(732)
530-9007


www.SourlisLaw.com





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No o





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
the definitions of “large accelerated filer,” “accelerated filer,”
"non-accelerated filer" and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):




Large
      accelerated filer
                    o
                    Accelerated
      filer
                    oNon-accelerated
      filer
                    o
                    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 x No o





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.





As of
March 25, 2009, there were 100,000 shares of common stock outstanding and no
shares of preferred stock outstanding.









GRACE 3,
INC.


A
DEVELOPMENT STAGE COMPANY


INDEX


February
28, 2009







TABLE OFCONTENTS





PagePART I – FINANCIAL
      INFORMATIONItem 1.
                                            Financial
      Statements
                                            3Item 2.
                                            Management’s Discussion and
      Analysis of Financial Condition and Plan
      of  Operations
                                            8Item
    3.
                                            Quantitative and Qualitative
      Disclosures About Market Risk
                                            10Item 4T.
                                            Controls and
      Procedures
                                            10PART II – OTHER
      INFORMATIONItem 1.
                                            Legal
      Proceedings
                                            12Item
    1A.
                                            Risk
      Factors
                                            12Item 2.
                                            UnregisteredSaleof Equity Securities and Use of
      Proceeds
                                            12Item 3.
                                            Defaults Upon Senior
      Securities
                                            12Item 4.
                                            Submission of Matters to a Vote of
      Security Holders
                                            12Item 5.
                                            Other
      Information
                                            12Item 6.
                                            Exhibits
                                            12SIGNATURES
                                            
                                            13




2




PART I





Item 1. Financial
Statements.





GRACE 3, INC.A
      DEVELOPMENT STAGE COMPANYBALANCE
      SHEETS
  February
      28, 2009
                      
                      
                      May
      31, 2008(Unaudited)
                      
                      
                      (Audited)AssetsPrepaid
      expenses
                      
                      $
                      -
                      
                      
                      $
                      -Total
      assets
                      
                      
                      -
                      
                      
                      
                      -LIABILITIES AND
      STOCKHOLDER'S EQUITYCurrent
      liabilitiesAccounts
      payable
                      
                      
                      6,000
                      
                      
                      
                      2,000Shareholders
      advances
                      
                      
                      10,500
                      
                      
                      
                      -Total
      liabilities
                      
                      
                      16,500
                      
                      
                      
                      2,000Commitment
      and contingencies
                      
                      
                      -
                      
                      
                      
                      -Stockholder's equity
      (deficit)Preferred
      stock, $.0001 par value, authorized 10,000,000 shares, none
      issued
                      
                      
                      -
                      
                      
                      
                      -Common
      stock, $.0001 par value, authorized 100,000,000 shares 100,000 issued and
      outstanding
                      
                      
                      10
                      
                      
                      
                      10Additional
      paid-in capital
                      
                      
                      9,784
                      
                      
                      
                      7,784Deficit
      accumulated during the development stage
                      
                      
                      (26,294
                      )
                      
                      
                      (9,794
                      )Total
      stockholder's equity (deficit)
                      
                      
                      (16,500
                      )
                      
                      
                      (2,000
                      )Total
      liabilities and stockholder's equity (deficit)
                      
                      $
                      -
                      
                      
                      $
                      -


The
financial information presented herein has been prepared by management without
audit by independent
certified public accountants.




The
accompanying notes should be read in conjunction with the financial
statements.




3




GRACE
      3, INC.A
      DEVELOPMENT STAGE COMPANYSTATEMENTS
      OF
OPERATIONS
  For
      the periodFor
      the three
                          
                          
                          For
      the three
                          
                          
                          For
      the nine
                          
                          
                          For
      the nine
                          
                          
                          October
      27, 2005months
      ended
                          
                          
                          months
      ended
                          
                          
                          months
      ended
                          
                          
                          months
      ended
                          
                          
                          (Inception)
      toFebruary
      28, 2009
                          
                          
                          February
      29, 2008
                          
                          
                          February
      28, 2009
                          
                          
                          February
      29, 2008
                          
                          
                          February
      28, 2009(Unaudited)
                          
                          
                          (Unaudited)
                          
                          
                          (Unaudited)
                          
                          
                          (Unaudited)
                          
                          
                          (Unaudited)Net
      sales
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Cost
      of sales
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Gross
      profit
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -General
      and administrative expenses
                          
                          
                          6,000
                          
                          
                          
                          1,250
                          
                          
                          
                          16,500
                          
                          
                          
                          2,500
                          
                          
                          
                          26,294Net
      loss
                          
                          $
                          (6,000
                          )
                          
                          $
                          (1,250
                          )
                          
                          $
                          (16,500
                          )
                          
                          $
                          (2,500
                          )
                          
                          $
                          (26,294
                          )Weighted
      average number of common shares outstanding (basic and fully
      diluted)
                          
                          
                          100,000
                          
                          
                          
                          100,000
                          
                          
                          
                          100,000
                          
                          
                          
                          100,000
                          
                          
                          
                          100,000Basic
      and diluted (loss) per common share
                          
                          $
                          (0.060
                          )
                          
                          $
                          (0.013
                          )
                          
                          $
                          (0.165
                          )
                          
                          $
                          (0.025
                          )
                          
                          $
                          (0.263
                          )
  The
financial information presented herein has been prepared by management without
audit by independent
certified public accountants.
  The
accompanying notes should be read in conjunction with the financial
statements.
  4




GRACE 3, INC.A
      DEVELOPMENT STAGE COMPANYSTATEMENTS
      OF CASH
FLOWS
  Period
      fromFor
      the three
                  
                  
                  For
      the three
                  
                  
                  For
      the nine
                  
                  
                  For
      the nine
                  
                  
                  October
      27, 2005months
      ended
                  
                  
                  months
      ended
                  
                  
                  months
      ended
                  
                  
                  months
      ended
                  
                  
                  (inception
      ) toFebruary
      28, 2009
                  
                  
                  February
      29, 2008
                  
                  
                  February
      28, 2009
                  
                  
                  February
      29, 2008
                  
                  
                  February
      28, 2009(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Cash
      flows from operating activitiesNet
      (loss)
                  
                  $
                  (6,000
                  )
                  
                  $
                  (1,250
                  )
                  
                  $
                  (16,500
                  )
                  
                  $
                  (2,500
                  )
                  
                  $
                  (26,294
                  )Adjustments
      to reconcile net (loss) to netcash
      used in operating activities:(Increase)
      decrease in prepaid expenses
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  500
                  
                  
                  
                  -Increase
      (decrease) in accounts payable
                  
                  
                  3,250
                  
                  
                  
                  (714
                  )
                  
                  
                  4,000
                  
                  
                  
                  (2,500
                  )
                  
                  
                  6,000Net
      cash (used in) operating activities
                  
                  
                  (2,750
                  )
                  
                  
                  (1,964
                  )
                  
                  
                  (12,500
                  )
                  
                  
                  (4,500
                  )
                  
                  
                  (20,294
                  )Cash
      flows from financing activitiesProceeds
      from shareholders loan
                  
                  
                  2,750
                  
                  
                  
                  -
                  
                  
                  
                  10,500
                  
                  
                  
                  
                  
                  
                  
                  10,500Proceeds
      from issuance of common stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10Proceeds
      from additional capital contributions
                  
                  
                  -
                  
                  
                  
                  1,964
                  
                  
                  
                  2,000
                  
                  
                  
                  4,500
                  
                  
                  
                  9,784Net
      cash provided by financing activities
                  
                  
                  2,750
                  
                  
                  
                  1,964
                  
                  
                  
                  12,500
                  
                  
                  
                  4,500
                  
                  
                  
                  20,294Net
      increase in cash and cash equivalents
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Cash
      - beginning of period
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Cash
      - end of period
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Supplemental
      disclosure of cash flow information:Taxes
      paid
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Interest
      paid
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
 The
financial information presented herein has been prepared by management without
audit by independent
certified public accountants.
  The
accompanying notes should be read in conjunction with the financial
statements.


5





GRACE 3,
INC.


A
DEVELOPMENT STAGE COMPANY


NOTES TO
FINANCIAL STATEMENTS


February
28, 2009




NOTE 1.DEVELOPMENT
STAGE COMPANY
 
 Grace 3,
Inc. (“the Company”) was incorporated in the State of Delaware on October 27,
2005 and is currently in its development stage.
 
 As a
blank check company, the Company’s business is to pursue a business combination
through acquisition, or merger with, an existing company. As of the date of the
financial statements, the Company has made no efforts to identify a possible
business combination. As a result, the Company has not conducted negotiations or
entered into a letter of intent concerning any target business. No assurances
can be given that the Company will be successful in locating or negotiating with
any target company. Since inception, the Company has been engaged in
organizational efforts.
 
 NOTE 2.SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
 
 The
Company’s accompanying financial statements are prepared in accordance with U.S.
generally accepted accounting principles in the United States. Significant
accounting policies are as follows:
 
 a.
              Use of Estimates-
      The preparation of the statement of financial condition in conformity with
      accounting principles generally accepted in the United States requires
      management to make estimates and assumptions that affect the amounts of
      assets and liabilities and disclosure of contingent assets and liabilities
      at the date of the statement of financial condition and reported amounts
      of revenues and expenses during the reporting period. Actual results could
      differ from those estimates.
 
 b.
              Cash and Cash
      Equivalents - For purposes of the statement of cash flows, the
      Company considers highly liquid financial instruments purchased with a
      maturity of three months or less to be cash equivalents. For the period
      October 27, 2005 (inception) through February 28, 2009, the Company did
      not maintain any bank accounts.
 
 c.
              Income Taxes - The
      Company utilizes the liability method of accounting for income taxes.
      Under the liability method, deferred tax assets and liabilities are
      determined based on the differences between financial reporting basis and
      tax basis of the assets and liabilities and are measured using enacted tax
      rates that will be in effect when the differences are expected to reverse.
      An allowance against deferred tax assets is recognized, when it is more
      likely than not, that such tax benefits will not be
    realized.
 
 d.
              Loss per Common Share -
      Basic loss per share is calculated using the weighted-average number of
      common shares outstanding during each period as required by the Financial
      Accounting Standards Board (FASB) under Statement of Financial Accounting
      Standards (SFAS) No. 128. Diluted loss per share includes potentially
      dilutive securities such as outstanding options and warrants, using
      various methods such as the treasury stock or modified treasury stock
      method in the determination of dilutive shares outstanding during each
      period. The Company does not have any potentially dilutive
      instruments.
 
 e.
              Fair Value of Financial
      Instruments - The carrying value of cash equivalents and accrued
      expenses approximates fair value due to their short term
      nature.
 
 NOTE 3.PREFERRED
STOCK
 
 The
Company is authorized to issue 10,000,000 shares of preferred stock. The
Preferred Stock of the Company shall be issued by the Board of Directors of the
Company in one or more classes or one or more series within any class and such
classes or series shall have such voting powers, full or limited, or no voting
powers, and such designations, preferences, limitations or restrictions as the
Board of Directors of the Company may determine, from time to time.
 
 NOTE 4.COMMON
STOCK
 
 The
Company is authorized to issue 100,000,000 shares of common stock. On October
27, 2005, the Company issued 100,000 shares of common stock for total
consideration of $100 to the sole shareholder of the Company.


6




Holders
of shares of common stock shall be entitled to cast one vote for each share held
at all stockholders’ meetings for all purposes, including the election of
directors. The common stock does not have cumulative voting rights. No holder of
shares of stock of any class shall be entitled as a matter of right to subscribe
for or purchase or receive any part of any new or additional issue of shares of
stock of any class, or of securities convertible into shares of stock of any
class, whether now hereafter authorized or whether issued for money, for
consideration other than money, or by way of dividend.
 
 NOTE
5.  RELATED PARTY
TRANSACTION
 
 The
Company utilizes the office space and equipment of its sole stockholder at no
cost. Management estimates such amounts to be immaterial.
 
 NOTE 6.INCOME
TAXES
 
 The
Company has approximately $10,518 in gross deferred tax assets at February 28,
2009, resulting from net operating loss carry forwards. A valuation allowance
has been recorded to fully offset these deferred tax assets because the future
realization of the related income tax benefits is uncertain. Accordingly, the
net provision for income taxes is zero for the period October 27, 2005
(inception) to February 28, 2009. At February 28, 2009, the Company has federal
net operating loss carry forwards of approximately $26,294 available to offset
future taxable income through 2026.
 
 For the
period October 27, 2005 (inception) to February 28, 2009, the difference between
the tax provision at the statutory federal income tax rate and the tax provision
attributable to loss before income taxes is as follows (in
percentages):
  Statutory
      federal income tax rate
                
                
                -34
                %State
      taxes - net of federal benefits
                
                
                -5
                %Valuation
      allowance
                
                
                39
                %Income
      tax rate – net
                
                
                0
                %
 
 Net
change in valuation was $2,400.
 
 NOTE 7.GOING
CONCERN
 
 The
Company’s financial statements have been presented on the basis that it is a
going concern in the development stage, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of the date of these financial statements, the Company has made no efforts to
identify a possible business combination.
 
 The
Company’s shareholder shall fund the Company’s activities while the Company
takes steps to locate and negotiate with a business entity through acquisition,
or merger with, an existing company; however, there can be no assurance these
activities will be successful.
 
 NOTE
8.  CAPITAL
STOCK
 
 On July
7, 2008 (the “Effective Date”), pursuant to the terms of a Stock Purchase
Agreement (the “Agreement”), Broad Street Ventures, LLC, a limited liability
company formed in the State of Colorado (“BSV”) purchased a total of 96,000
shares of the issued and outstanding common stock of Grace 3, Inc., a Delaware
corporation (the “Company”), from Getting You There, LLC, the sole shareholder
of the Company (“GYT”). The total of 96,000 shares represents 96% of the shares
of outstanding common stock of the Company (the “Acquisition”).
 
 Also, as
part of the Acquisition and pursuant to the Agreement, the following changes to
the Company’s directors and officers occurred:
  o
                Virginia
      K. Sourlis resigned as the Company’s President, Chief Executive Officer,
      Chief Financial Officer and Secretary and Sole Director effective July 18,
      2008.o
                As
      of July 18 2008, Douglas Dyer was appointed as the Company’s President and
      Sole Director.


7


Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
 
 Forward-Looking
Statements
 
 This Report contains statements that we
believe are, or may be considered to be, “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. All statements
other than statements of historical fact included in this Report regarding the
prospects of our industry or our prospects, plans, financial position or
business strategy, may constitute forward-looking statements. In addition,
forward-looking statements generally can be identified by the use of
forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,”
“foresee,” “project,” “anticipate,” “believe,” “plans,” “forecasts,” “continue”
or “could” or the negatives of these terms or variations of them or similar
terms. Furthermore, such forward-looking statements may be included in various
filings that we make with theSECor press releases or oral statements
made by or with the approval of one of our authorized executive officers.
Although we believe that the expectations reflected in these forward-looking
statements are reasonable, we cannot assure you that these expectations will
prove to be correct. These forward-looking statements are subject to certain
known and unknown risks and uncertainties, as well as assumptions that could
cause actual results to differ materially from those reflected in these
forward-looking statements. Readers are cautioned not to place undue reliance on
any forward-looking statements contained herein, which reflect management’s
opinions only as of the date hereof. Except as required by law, we undertake no
obligation to revise or publicly release the results of any revision to any
forward-looking statements. You are advised, however, to consult any additional
disclosures we make in our reports to theSEC. All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary statements contained
in this Report.
 
 Plan
of Operation; Going Concern
 
 The
Company has not realized any revenues from operations since inception, and its
plan of operation for the next twelve months is to locate a suitable acquisition
or merger candidate and consummate a business combination. The Company may need
additional cash advances from its stockholder or loans from other parties to pay
for operating expenses until the Company consummates a merger or business
combination with a privately-held operating company. Although it is currently
anticipated that the Company can satisfy its cash requirements with additional
cash advances or loans from other parties, if needed, for at least the next
twelve months, the Company can provide no assurance that it can continue to
satisfy its cash requirements for such period.
 
 Since our
formation on October 27, 2005 through the date of this filing, our purpose has
been to effect a business combination with an operating business which we
believe has significant growth potential. We are currently considered to be a
“blank check” company in as much as we have no specific business plans, no
operations, revenues or employees. We currently have no definitive agreements or
understanding with any prospective business combination candidates and have not
targeted any business for investigation and evaluation nor are there any
assurances that we will find a suitable business with which to combine. The
implementation of our business objectives is wholly contingent upon a business
combination and/or the successful sale of securities in the
company.
 
 Management
anticipates seeking out a target company through solicitation. Such solicitation
may include newspaper or magazine advertisements, mailings and other
distributions to law firms, accounting firms, investment bankers, financial
advisors and similar persons, the use of one or more Internet websites and
similar methods. No estimate can be made as to the number of persons who will be
contacted or solicited. Management may engage in such solicitation directly or
may employ one or more other entities to conduct or assist in such solicitation.
Management and its affiliates will pay referral fees to consultants and others
who refer target businesses for mergers into public companies in which
management and its affiliates have an interest. Payments are made if a business
combination occurs, and may consist of cash or a portion of the stock in the
Company retained by management and its affiliates, or both.
  The
Company’s management will supervise the search for target companies as potential
candidates for a business combination. The Company may enter into agreements
with other consultants to assist in locating a target company and may share
stock received by it or cash resulting from the sale of its securities with such
other consultants.
  As a
result of our limited resources, we expect to effect only a single business
combination. Accordingly, the prospects for our success will be entirely
dependent upon the future performance of a single business. Unlike certain
entities that have the resources to consummate several business combinations or
entities operating in multiple industries or multiple segments of a single
industry, we will not have the resources to diversify our operations or benefit
from the possible spreading of risks or offsetting of losses. A target business
may be dependent upon the development or market acceptance of a single or
limited number of products, processes or services, in which case there will be
an even higher risk that the target business will not prove to be commercially
viable.
 
 Our
officers and directors are only required to devote a very limited portion of
their time to our affairs on a part-time or as-needed basis. We expect to use
outside consultants, advisors, attorneys and accountants as necessary, none of
which will be hired on a retainer basis. We do not anticipate hiring any
full-time employees so long as we are seeking and evaluating business
opportunities.


8


We expect
our present management to play no managerial role in the Company following a
merger or business combination. Although we intend to scrutinize closely the
management of a prospective target business in connection with our evaluation of
a business combination with a target business, our assessment of management may
be incorrect. We cannot assure you that we will find a suitable business with
which to combine.
 
 Changes
in Control of Registrant
  On July
7, 2008 (the “Effective Date”), pursuant to the terms of a Stock Purchase
Agreement (the “Agreement”), Broad Street Ventures, LLC, a limited liability
company formed in the State of Colorado (“BSV”) purchased a total of 96,000
shares of the issued and outstanding common stock of Grace 3, Inc., a Delaware
corporation (the “Company”), from Getting You There, LLC, the sole shareholder
of the Company (“GYT”). The total of 96,000 shares represents 96% of the shares
of outstanding common stock of the Company (the “Acquisition”).
 
 Also, as
part of the Acquisition and pursuant to the Agreement, the following changes to
the Company’s directors and officers occurred:
 ·
                  Virginia
      K. Sourlis resigned as the Company’s President, Chief Executive Officer,
      Chief Financial Officer and Secretary and Sole Director effective July 18,
      2008
 
 ·
                  As
      of July 18, 2008, Douglas Dyer was appointed as the Company’s President
      and Sole Director.
 Results
of Operations
 
 Comparison of Three and Nine
Months Ended February 28, 2009 to February 29, 2008
 
 General.The Company has not conducted any active operations since inception,
except for its efforts to locate a suitable acquisition or merger transaction.
No revenue has been generated by the Company during such period, and it is
unlikely the Company will have any revenues unless it is able to effect an
acquisition of or merger with another operating company, of which there can be
no assurance.
 
 Assets.
At February 28, 2009, the Company had $0 in assets, compared to $0 at May 31,
2008.
 
 Liabilities.At February 28, 2009,
the Company had $16,500 in total liabilities. At May 31, 2008, the Company had
total liabilities of $2,000. Total liabilities consisted of Accounts Payable.
The Accounts Payable consists of legal and accounting fees accrued for the
preparation and filing the Registration Statement on Form 10-SB filed on June
19, 2006 and annual and quarterly reports filed since the effectiveness of such
registration statement.
 
 Revenues.
For the three and nine month periods ended February 28, 2009 and February 29,
2008 and for the period from October 27, 2005 (Inception) to February 28, 2009,
the Company had no activities that produced revenues from
operations.
 
 Net
Loss. For the three month period ended February 28, 2009 and February 29,
2008, the Company had a net loss of $6,000 and $1,250, respectively. For the
nine month period ended February 28, 2009 and February 29, 2008, the Company had
a net loss of $16,500 and $2,500, respectively. From the Company’s date of
inception (October 27, 2005) to February 28, 2009, the Company had net losses of
$26,294. These losses were mostly due to legal, accounting, audit and other
professional service fees incurred in relation to the filing of the Company’s
Registration Statement on Form 10-SB filed on June 19, 2006 and annual and
quarterly reports filed since the effectiveness of such registration
statement.
 
 General
and Administrative Expenses. For the three months ended February 28, 2009
and February 29, 2008, the Company had general and administrative expenses of
$6,000 and $1,250, respectively. For the nine months ended February 28, 2009 and
February 29, 2008, the Company had general and administrative expenses of
$16,500 and $2,500, respectively. From the Company’s date of inception (October
27, 2005) to February 28, 2009, the Company had general and administrative
expenses of $26,294. These expenses were due to legal, accounting, audit and
other professional service fees incurred in relation to the filing of the
Company’s Registration Statement on Form 10-SB filed on June 19, 2006 and annual
and quarterly reports filed since the effectiveness of such registration
statement.
 
 Liquidity
and Capital Resources
 
 At
February 28, 2009, the Company had $0 in total assets. At May 31, 2008, the
Company had $0 in total assets. The Company’s current liabilities at February
28, 2009 and at May 31, 2008, totaled $16,500 and $2,000, respectively,
comprised of accounts payable.


9


The
following is a summary of the Company's cash flows from operating, investing,
and financing activities:
 
 For the
Three and Nine Months Ended February 28, 2009 and February 29, 2008
and
 The Period from (October 27,
2005) Date of Inception to February 28, 2009
  For the Three Months Ended
                          February
      28,
                        
                        
                        For the Nine Months Ended
                          February
      28,
                        
                        
                        Period from
                          October 27,
                          2005 to
                          February
      28,
                          20092009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Cash
      Used in Operating  Activities
                        
                        $
                        (2,750)
                        
                        
                        $
                        (1,964
                        )
                        
                        $
                        (12,500
                        )
                        
                        $
                        (4,500
                        )
                        
                        $
                        (20,294
                        )Investing
      Activities
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0Cash
      Provided from Financing Activities
                        
                        $
                        2,750
                        
                        
                        $
                        1,964
                        
                        
                        $
                        12,500
                        
                        
                        $
                        4,500
                        
                        
                        $
                        20,294Net
      Effect on Cash
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0
                        
                        
                        $
                        0
 The
Company has no assets and has generated no revenues since inception. The Company
is also dependent upon the receipt of capital investment or other financing to
fund its ongoing operations and to execute its business plan of seeking a
combination with a private operating company. If continued funding and capital
resources are unavailable at reasonable terms, the Company may not be able to
implement its plan of operations.
 
 At
February 28, 2009, the Company had no capital resources to fund administrative
expenses pending acquisition of an operating company. The Company has not
realized any revenues from operations since inception, and its plan of operation
for the next twelve months is to locate a suitable acquisition or merger
candidate and consummate a business combination. There is substantial doubt that
we will continue as a going concern. The Company may need additional cash
advances from its stockholder or loans from other parties to pay for operating
expenses until the Company consummates a merger or business combination with a
privately-held operating company. Although it is currently anticipated that the
Company can satisfy its cash requirements with additional cash advances or loans
from other parties, if needed, for at least the next twelve months, the Company
can provide no assurance that it can continue to satisfy its cash requirements
for such period.
 
 Off-Balance
Sheet Arrangements
 
 The
Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company’s financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.
 
 Going
Concern
 
 The Company’s financial statements have
been presented on the basis that it is a going concern in the development stage,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As of the date of these financial statements,
the Company has made no efforts to identify a possible business
combination.
 
 The Company’s shareholder shall fund the
Company’s activities while the Company takes steps to locate and negotiate with
a business entity through acquisition, or merger with, an existing company;
however, there can be no assurance these activities will be
successful.These matters raise substantial doubt
about the Company’s ability to continue as a going concern.
 
 Item 3.Quantitative and
Qualitative Disclosures about Market Risk
 
 N/A.
 
 Item 4T. Controls and
Procedures.
 
 Evaluation of Controls and
Procedures.
 
 In accordance with Exchange Act Rules
13a-15 and 15d-15, our management is required to perform an evaluation under the
supervision and with the participation of the Company’s management, including
the Company’s principal executive officer and principal financial officer, of
the effectiveness of the design and operation of the Company’s disclosure
controls and procedures as of the end of the period.
  Evaluation of Disclosure Controls and
Procedures
  Based on their evaluation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) as ofFebruary 28, 2009, ourPrincipalExecutive Officer andPrincipalFinancial Officer have concluded that
our disclosure controls and procedures werenoteffective to ensure that the
information required to be disclosed by us in this Report was (i) recorded,
processed, summarized and reported within the time periods specified in theSEC’s rules and instructions for Form
10-Q.




10




OurPrincipalExecutive Officer andPrincipalFinancial Officerhave concluded
that our disclosure controls and
procedureshad the following deficiency:
  ●
              We
      were unable to maintain any segregation of duties within our business
      operations due to our reliance on a single individual fulfilling the role
      of sole officer and director. While this control deficiency did not result
      in any audit adjustments to our 2007 through 2009 interim or annual
      financial statements, it could have resulted in a material misstatement
      that might have been prevented or detected by a segregation of duties.
      Accordingly we have determined that this control deficiency constitutes a
      material weakness.
 
 To the
extent reasonably possible, given our limited resources, our goal is, upon
consummation of a merger with a private operating company, to separate the
responsibilities of principal executive officer and principal financial officer,
intending to rely on two or more individuals. We will also seek to expand our
current board of directors to include additional individuals willing to perform
directorial functions. Since the recited remedial actions will require that we
hire or engage additional personnel, this material weakness may not be overcome
in the near term due to our limited financial resources. Until such remedial
actions can be realized, we will continue to rely on the advice of outside
professionals and consultants.
 
 Changes in Internal
Controls.
 
 No change in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) occurred during the fiscal quarter endedFebruary 28, 2009that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.




11





PART II


OTHER INFORMATION





Item 1. Legal
Proceedings.





The
Company is currently not a party to any pending legal proceedings and no such
action by or to the best of its knowledge, against the Company has been
threatened.





Item 1A. Risk
Factors.





N/A.




Item 2. UnregisteredSaleof Equity Securities and Use of
Proceeds.





On
October 27, 2005, the Company issued 100,000 shares of common stock for total
consideration of $100 to the sole shareholder of the Company under the exemption
from registration afforded the Company under Section 4(2) of the Securities Act
of 1933, as amended.





Item 3. Defaults Upon Senior
Securities.





None.





Item 4. Submission of Matters to a Vote
of Security Holders.





None.





Item 5. Other
Information.





None




Item 6. Exhibits.




Exhibit No.
                          
                          Description*3.1
                          
                          Certificate
      of Incorporation, as filed with the Delaware Secretary of State on October
      27, 2005.*3.2
                          
                          Bylaws31.1
                          
                          Certification byDouglas A. Dyer, the Principal Executive Officerand Principal
      Financial OfficerofGrace 3,
      Inc., pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
                          
                          Certification byDouglas A. Dyer, the Principal Executive Officer
      and Principal Financial Officer ofGrace 3, Inc., pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002


* Filed
as an exhibit to the Company’s Registration Statement on Form 10-SB (File No.
000-52061), as filed with the Securities and Exchange Commission on June 19,
2006, and incorporated herein by this reference.


12




SIGNATURES





In accordance with the requirements of
the Exchange Act, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.









Dated:  March
      24, 2009
              Grace
      3, Inc.
                
                By:
      /s/ DOUGLAS A.
      DYER
                Douglas
      A. Dyer
                President
                (Principal
      Executive Officer)
                (Principal
      Financial Officer)




13