UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549








FORM
10-Q





(Mark
One)





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





For the
quarterly period ended February 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: 000-52065





GRACE
5, INC.





(Exact
Name of Registrant as Specified in Its Charter)





Delaware
              
              20-3708668(State of Other Jurisdiction of Incorporation or
                Organization)
              
              (I.R.S. Employer Identification Number)2
      Bridge Avenue
                Red
      Bank, New Jersey 07701
              
              07701(Address
      of Principal Executive Offices)
              
              (Zip
      Code)





(732)
530-9007





(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
___





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  ̈





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 18, 2009, there were 100,000 shares of common stock outstanding and no
shares of preferred stock outstanding.





GRACE 5,
INC.


A
DEVELOPMENT STAGE COMPANY


INDEX


February
28, 2009







TABLE OFCONTENTS





PagePART
      I – FINANCIAL INFORMATION
                          
                          3Item
      1.
                          Financial
      Statements
                          
                          3Item
      2.
                          Management’s
      Discussion and Analysis of Financial Condition and Plan
      of  Operations
                          
                          10Item
      3.
                          Quantitative
      and Qualitative Disclosures About Market Risk
                          
                          11Item
      4T.
                          Controls
      and Procedures
                          
                          11PART
      II – OTHER INFORMATION
                          
                          12Item
      1.
                          Legal
      Proceedings
                          
                          12Item
      1A.
                          Risk
      Factors
                          
                          12Item
      2.
                          Unregistered
      Sale of 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. FinancialStatements.




GRACE 5, INC.
 A
DEVELOPMENT STAGE COMPANY
 BALANCE
SHEETS
 February
      28, 2009
                              
                              
                              May
      31, 2008(Unaudited)
                              
                              
                              (Audited)AssetsPrepaid
      expenses
                              
                              $
                              -
                              
                              
                              $
                              -Total
      assets
                              
                              
                              -
                              
                              
                              
                              -LIABILITIES AND STOCKHOLDER'S
      EQUITYCurrent liabilitiesAccounts
      payable
                              
                              
                              750
                              
                              
                              
                              2,000Total
      liabilities
                              
                              
                              750
                              
                              
                              
                              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
                              
                              
                              11,284
                              
                              
                              
                              7,784Deficit
      accumulated during the development stage
                              
                              
                              (12,044
                              )
                              
                              
                              (9,794
                              )Total
      stockholder's equity (deficit)
                              
                              
                              (750
                              )
                              
                              
                              (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 5, INC.
 A
DEVELOPMENT STAGE COMPANY
 STATEMENTS
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
                  
                  
                  750
                  
                  
                  
                  1,250
                  
                  
                  
                  2,250
                  
                  
                  
                  2,500
                  
                  
                  
                  12,044Net
      loss
                  
                  $
                  (750
                  )
                  
                  $
                  (1,250
                  )
                  
                  $
                  (2,250
                  )
                  
                  $
                  (2,500
                  )
                  
                  $
                  (12,044
                  )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
                  
                  $
                  (0.008
                  )
                  
                  $
                  (0.013
                  )
                  
                  $
                  (0.023
                  )
                  
                  $
                  (0.025
                  )
                  
                  $
                  (0.120
                  )
 
 The
financial information presented herein has been prepared by management without
audit by independent certified public accountants.
 
 The
accompanying notes shoud be read in conjunction with the financial
statements
  4
  
 GRACE 5, INC.
 A
DEVELOPMENT STAGE COMPANY
 STATEMENTS
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)
                  
                  $
                  (750
                  )
                  
                  $
                  (1,250
                  )
                  
                  $
                  (2,250
                  )
                  
                  $
                  (2,500
                  )
                  
                  $
                  (12,044
                  )Adjustments
      to reconcile net (loss) to net cash used in operating
      activities:(Increase)
      decrease in prepaid expenses
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  500
                  
                  
                  
                  -Increase
      (decrease) in accounts payable
                  
                  
                  750
                  
                  
                  
                  -
                  
                  
                  
                  (1,250
                  )
                  
                  
                  (2,500
                  )
                  
                  
                  750Net
      cash (used in) operating activities
                  
                  
                  -
                  
                  
                  
                  (1,250
                  )
                  
                  
                  (3,500
                  )
                  
                  
                  (4,500
                  )
                  
                  
                  (11,294
                  )Cash
      flows from financing activitiesProceeds
      from issuance of common stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10Proceeds
      from additional capital contributions
                  
                  
                  -
                  
                  
                  
                  1,250
                  
                  
                  
                  3,500
                  
                  
                  
                  4,500
                  
                  
                  
                  11,284Net
      cash provided by financing activities
                  
                  
                  -
                  
                  
                  
                  1,250
                  
                  
                  
                  3,500
                  
                  
                  
                  4,500
                  
                  
                  
                  11,294Net
      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 5,
INC.


A
Development Stage Company


NOTES TO
UNAUDITED FINANCIAL STATEMENTS


February
28, 2009





NOTE
1.              DEVELOPMENT STAGE
COMPANY





Grace 5,
Inc. (“the Company”) was incorporated in the State of Delaware on October 27,
2005 and is currently in its development stage.





On June
19, 2006, the Company filed a Registration Statement on Form 10SB to have its
common stock, par value $0.0001 registered under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”).  In accordance
with the provisions of the Exchange Act such Registration Statement became
effective on August 18, 2006.





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 the short term
    nature.


6


GRACE 5,
INC.


A
Development Stage Company


NOTES TO
UNAUDITED FINANCIAL STATEMENTS


February
28, 2009








NOTE
2.              SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES, (continued)





f.
            New Accounting Pronouncement
      - In September 2006, the Financial Accounting Standards Board
      issued Statement of Financial Accounting Standards No. 157 (“FAS 157”),
      Fair Value
      Measurements, which defines fair value, establishes a framework for
      measuring fair value in generally accepted accounting principles (“GAAP”),
      and expands disclosures about fair value measurements. FAS 157 applies
      under other accounting pronouncements that require or permit fair value
      measurements. Prior to FAS 157, there were different definitions of fair
      value and limited guidance for applying those definitions in GAAP.
      Moreover, that guidance was dispersed among the many accounting
      pronouncements that require fair value measurements. Differences in that
      guidance created inconsistencies that added to the complexity in applying
      GAAP. The changes to current practice resulting from the application of
      FAS 157 relate to the definition of fair value, the methods used to
      measure fair value, and the expanded disclosures about fair value
      measurements. FAS 157 is effective for financial statements issued for
      fiscal years beginning after November 15, 2007, and interim periods within
      those fiscal years. The Company does not expect the adoption of FAS 157 to
      have an effect on its financial
statements.





NOTE
3.              PREFERRED
STOCK





The
Company is authorized to issue 10,000,000 shares of preferred
stock.  The Preferred Stock of the Company may 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 Company
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.





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
TRANSACTIONS





The
Company utilizes the office space and equipment of sole shareholder, at no cost.
Management estimates such amounts to be immaterial.




NOTE 6.            INCOME
TAXES





The
Company has approximately $4,818 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 $12,044 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 $300.




7


GRACE 5,
INC.


A
Development Stage Company


NOTES TO
UNAUDITED FINANCIAL STATEMENTS


February
28, 2009








NOTE
7.              
INTERIM FINANCIAL
STATEMENTS
 
 The
accompanying interim financial statements of the Company for the three and nine
months ended February 28, 2009 and  February 29, 2008 and for the
period October 27, 2005 (inception) through February 28, 2009 have been prepared
in accordance with accounting principles generally accepted for interim
unaudited financial statement presentation and in accordance with the
instructions to Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statement presentation. In the
opinion of management, all adjustments for a fair statement of the results of
operations and financial position for the interim period presented have been
included.


All such
adjustments are of a normal recurring nature. This financial information should
be read in conjunction with the Financial Statements and notes thereto included
in the Company’s Form 10-SB12G filed with the Securities and Exchange Commission
on June 19, 2006, which contained audited financial statements as of June 2,
2006 and for the period October 27, 2005 (inception) to June 2,
2006.





NOTE
8.              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.


8





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 the SEC or 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 the
SEC. 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. 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.
 
 Since our
formation on October 27, 2005, 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 and/or its sole shareholder will supervise the search for target
companies as potential candidates for a business combination. The Company and/or
its sole shareholder may pay as their own expenses any costs incurred in
supervising the search for a target company. The Company and/or its shareholder
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.
 
 9
 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.
 
 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.
 
 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 $750 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 $750 and $1,250, respectively. For the nine
month period ended February 28, 2009 and February 29, 2008, the Company had a
net loss of $2,250 and $2,500, respectively. From the Company’s date of
inception (October 27, 2005) to February 28, 2009, the Company had net losses of
$12,044. 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
$750 and $1,250, respectively. For the nine months ended February 28, 2009 and
February 29, 2008, the Company had general and administrative expenses of $2,250
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 $12,044. 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 $750 and $2,000, respectively, comprised
of accounts payable.
 
 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 toFebruary 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
                    
                    $
                    0
                    
                    
                    $
                    (1,250
                    )
                    
                    $
                    (3,500
                    )
                    
                    $
                    (4,500
                    )
                    
                    $
                    (11,294
                    )Investing
      Activities
                    
                    $
                    0
                    
                    
                    $
                    0
                    
                    
                    $
                    0
                    
                    
                    $
                    0
                    
                    
                    $
                    0Cash
      Provided from Financing Activities
                    
                    $
                    0
                    
                    
                    $
                    1,250
                    
                    
                    $
                    3,500
                    
                    
                    $
                    4,500
                    
                    
                    $
                    11,294Net
      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


10





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 of February 28, 2009, our
Principal Executive Officer and Principal Financial Officer have concluded that
our disclosure controls and procedures were not effective 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 the SEC’s rules and instructions for Form 10-Q.





Our
Principal Executive Officer and Principal Financial Officer have concluded that
our disclosure controls and procedures had 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 ended
February 28, 2009 that 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. Unregistered Sale of 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
      by Virginia K. Sourlis, the Principal Executive Officer and Principal
      Financial Officer of Grace 5, Inc., pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      200232.1
                            
                            Certification
      by Virginia K. Sourlis, the Principal Executive Officer and Principal
      Financial Officer of Grace 5, 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.
000-52065), 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
18, 2009





Grace
      5, Inc.By:
                /s/ VIRGINIA K. SOURLISVirginia
      K. SourlisPresident(Principal
      Executive Officer)(Principal
      Financial Officer)


13