UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
10-Q





x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934





For the
quarterly period ended November
30, 2008





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




For the
transition period from ______ to ________





Commission
File No. 000-52065








Grace 5, Inc.


(Name of
small business issuer in its charter)










Delaware
                
                20-3708668(State
      or other jurisdiction of incorporation or
                  organization)
                
                (I.R.S.
      Employer Identification
No.)




2
Bridge Avenue


Red Bank, New Jersey
07701


(Address
of principal executive offices) (Zip Code)





Issuer’s
telephone number: (732) 530-9007





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 such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. x Yes  ̈ 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     ̈
                
                Accelerated
      filer                      ̈Non-accelerated
      filer       ̈
                
                Smaller
      reporting company    x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). x Yes  ̈No





State the
number of shares outstanding of each of the issuer's classes of common equity,
as of December 10, 2008: 100,000 shares of common stock, par value $.0001 per
share.





Transitional
Small Business Disclosure Format (check one):  ̈ Yes x No








GRACE 5,
INC.


A
DEVELOPMENT STAGE COMPANY


INDEX


November
30, 2008





TABLE OF
CONTENTS





ITEM 1. FINANCIAL
    INFORMATIONItem
      1. Financial Statements.
                    
                    3Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                    
                    9Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                    
                    11Item
      4T. Controls and Procedures
                    
                    11PART II - OTHER INFORMATIONItem
      1. Legal Proceedings
                    
                    12Item
      1A. Risk Factors
                    
                    12Item
      2. Unregistered Sales 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
                    
                    12




2




PART I - FINANCIAL
INFORMATION




Item
1. Financial Statements.





GRACE 5,
INC.


A
DEVELOPMENT STAGE COMPANY


BALANCE
SHEETS





November 30, 2008
                                
                                
                                May 31, 2008(Unaudited)
                                
                                
                                (Audited)AssetsPrepaid
      expenses
                                
                                $
                                -
                                
                                
                                $
                                -Total
      assets
                                
                                
                                -
                                
                                
                                
                                -LIABILITIES AND STOCKHOLDER'S
      EQUITYCurrent liabilitiesAccounts
      payable
                                
                                
                                -
                                
                                
                                
                                2,000Total
      liabilities
                                
                                
                                -
                                
                                
                                
                                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
                                
                                
                                (11,294
                                )
                                
                                
                                (9,794
                                )Total
      stockholder's equity (deficit)
                                
                                
                                -
                                
                                
                                
                                (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 six
                                          
                                          
                                          For the six
                                          
                                          
                                          October 27, 2005months ended
                                          
                                          
                                          months ended
                                          
                                          
                                          months ended
                                          
                                          
                                          months ended
                                          
                                          
                                          (Inception) toNovember 30,
                                            2008
                                          
                                          
                                          November 30,
                                            2007
                                          
                                          
                                          November 30,
                                            2008
                                          
                                          
                                          November 30,
                                            2007
                                          
                                          
                                          November 30,
                                            2008(Unaudited)
                                          
                                          
                                          (Unaudited)
                                          
                                          
                                          (Unaudited)
                                          
                                          
                                          (Unaudited)
                                          
                                          
                                          (Unaudited)Net
      sales
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -Cost
      of sales
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Gross
      profit
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -General
      and administrative expenses
                                          
                                          
                                          750
                                          
                                          
                                          
                                          500
                                          
                                          
                                          
                                          1,500
                                          
                                          
                                          
                                          1,250
                                          
                                          
                                          
                                          11,294Net
      loss
                                          
                                          $
                                          (750
                                          )
                                          
                                          $
                                          (500
                                          )
                                          
                                          $
                                          (1,500
                                          )
                                          
                                          $
                                          (1,250
                                          )
                                          
                                          $
                                          (11,294
                                          )Weighted
      average number  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
                                          )
                                          
                                          $
                                          (0.005
                                          )
                                          
                                          $
                                          (0.015
                                          )
                                          
                                          $
                                          (0.013
                                          )
                                          
                                          $
                                          (0.113
                                          )





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 5,
INC.


A
DEVELOPMENT STAGE COMPANY


STATEMENTS
OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)







DeficitAccumulatedAdditional
                                    
                                    
                                    During the
                                    
                                    
                                    Stockholder'sCommon Stock
                                    
                                    
                                    Paid-In
                                    
                                    
                                    Development
                                    
                                    
                                    EquityShares
                                    
                                    
                                    Amount
                                    
                                    
                                    Capital
                                    
                                    
                                    Stage
                                    
                                    
                                    (Deficit)Balance
      - October 27, 2005
                                    
                                    
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -Issuance
      of common shares
                                    
                                    
                                    100,000
                                    
                                    
                                    
                                    10
                                    
                                    
                                    
                                    90
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    100Net
      loss
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (100
                                    )
                                    
                                    
                                    (100
                                    )Balance,
      June 02, 2006 (1)
                                    
                                    
                                    100,000
                                    
                                    
                                    $
                                    10
                                    
                                    
                                    $
                                    90
                                    
                                    
                                    $
                                    (100
                                    )
                                    
                                    $
                                    -Capital
      contributions - shareholder
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,694
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,694Net
      (loss)
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (5,194
                                    )
                                    
                                    
                                    (5,194
                                    )Balance,
      May 31, 2007
                                    
                                    
                                    100,000
                                    
                                    
                                    $
                                    10
                                    
                                    
                                    $
                                    2,784
                                    
                                    
                                    $
                                    (5,294
                                    )
                                    
                                    $
                                    (2,500
                                    )Capital
      contributions - shareholder
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    5,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    5,000Net
      loss
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (4,500
                                    )
                                    
                                    
                                    (4,500
                                    )Balance,
      May 31, 2008
                                    
                                    
                                    100,000
                                    
                                    
                                    $
                                    10
                                    
                                    
                                    $
                                    7,784
                                    
                                    
                                    $
                                    (9,794
                                    )
                                    
                                    $
                                    (2,000
                                    )Capital
      contributions - shareholder
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    3,500
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    3,500Net
      loss
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (1,500
                                    )
                                    
                                    
                                    (1,500
                                    )Balance,
      November 30, 2008
                                    
                                    
                                    100,000
                                    
                                    
                                    $
                                    10
                                    
                                    
                                    $
                                    11,284
                                    
                                    
                                    $
                                    (11,294
                                    )
                                    
                                    $
                                    -





(1)
restated for comparison purposes





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


STATEMENTS
OF CASH FLOWS




For the three
                                              
                                              
                                              For the three
                                              
                                              
                                              For the six
                                              
                                              
                                              For the six
                                              
                                              
                                              October 27,
                                                2005months ended
                                              
                                              
                                              months ended
                                              
                                              
                                              months ended
                                              
                                              
                                              months ended
                                              
                                              
                                              (inception ) toNovember 30,
                                                2008
                                              
                                              
                                              November 30,
                                                2007
                                              
                                              
                                              November 30,
                                                2008
                                              
                                              
                                              November 30,
                                                2007
                                              
                                              
                                              November 30,
                                                2008(Unaudited)
                                              
                                              
                                              (Unaudited)
                                              
                                              
                                              (Unaudited)
                                              
                                              
                                              (Unaudited)
                                              
                                              
                                              (Unaudited)Cash
      flows from operating activitiesNet
      (loss)
                                              
                                              $
                                              (750
                                              )
                                              
                                              $
                                              (500
                                              )
                                              
                                              $
                                              (1,500
                                              )
                                              
                                              $
                                              (1,250
                                              )
                                              
                                              $
                                              (11,294
                                              )Adjustments
      to reconcile net (loss) to net cash
      used in operating activities:(Increase)
      decrease in prepaid expenses
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,500
                                              
                                              
                                              
                                              -Increase
      (decrease) in accounts payable
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (2,000
                                              )
                                              
                                              
                                              (2,786
                                              )
                                              
                                              
                                              (2,000
                                              )Net
      cash used in operating activities
                                              
                                              
                                              (750
                                              )
                                              
                                              
                                              (500
                                              )
                                              
                                              
                                              (3,500
                                              )
                                              
                                              
                                              (2,536
                                              )
                                              
                                              
                                              (13,294
                                              )Cash
      flows from financing activitiesProceeds
      from issuance of common stock
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              10Proceeds
      from additional capital contributions
                                              
                                              
                                              750
                                              
                                              
                                              
                                              500
                                              
                                              
                                              
                                              3,500
                                              
                                              
                                              
                                              2,536
                                              
                                              
                                              
                                              13,284Net
      cash provided by financing activities
                                              
                                              
                                              750
                                              
                                              
                                              
                                              500
                                              
                                              
                                              
                                              3,500
                                              
                                              
                                              
                                              2,536
                                              
                                              
                                              
                                              13,294Net
      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.


6





GRACE 5,
INC.


A
DEVELOPMENT STAGE COMPANY


NOTES TO
FINANCIAL STATEMENTS


November
30, 2008





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.





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 November 30, 2008, 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.





7


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 $10 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 5RELATED
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 $4,518 in gross deferred tax assets at November 30,
2008, 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 November 30, 2008. At November 30, 2008, the Company has federal
net operating loss carry forwards of approximately $11,294 available to offset
future taxable income through 2026.





For the
period October 27, 2005 (inception) to November 30, 2008, 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.





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.


8


Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.





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.





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.


9


Results
of Operations





Comparison of Three and Six
Months Ended November 30, 2008 to November 30, 2007





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 November 30, 2008, the Company had $0 in assets, compared to $0 at May 31,
2008.





Liabilities.At November 30, 2008,
the Company had $0 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 six month periods ended November 30, 2008 and 2007 and for the
period from October 27, 2005 (Inception) to November 30, 2008, the Company had
no activities that produced revenues from operations.




Net
Loss. For the three month period ended November 30, 2008 and 2007, the
Company had a net loss of $750 and $500, respectively. For the six month period
ended November 30, 2008 and 2007, the Company had a net loss of $1,500 and
$1,250, respectively. From the Company’s date of inception (October 27, 2005) to
November 30, 2008, the Company had net losses of $11,294. 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 November 30, 2008
and 2007, the Company had general and administrative expenses of $750 and $500,
respectively. For the six months ended November 30, 2008 and 2007, the Company
had general and administrative expenses of $1,500 and $1,250, respectively. From
the Company’s date of inception (October 27, 2005) to November 30, 2008, the
Company had general and administrative expenses of $11,294. 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
November 30, 2008, the Company had $0 in total assets. At May 31, 2008, the
Company had $0 in total assets. The Company’s current liabilities at November
30, 2008 and at May 31, 2008, totaled $0 and $2,000, respectively, comprised
accounts payable.




The
following is a summary of the Company's cash flows from operating, investing,
and financing activities:





For the
Three and Six Months Ended November 30, 2008 and 2007 and


The Period from (October 27,
2005) Date of Inception to November 30, 2008





For the Three Months Ended
                            November 30,
                          
                          
                          For the Six Months Ended
                            November 30,
                          
                          
                          Period from2008
                          
                          
                          2007
                          
                          
                          2008
                          
                          
                          2007
                          
                          
                          October 27,
                            2005 to
                            November 30,
                            2008Cash Used
      in Operating  Activities
                          
                          $
                          (750
                          )
                          
                          $
                          (500
                          )
                          
                          $
                          (3,500
                          )
                          
                          $
                          (2,536
                          )
                          
                          $
                          (13,294
                          )Investing
      Activities
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0Cash
      Provided from Financing Activities
                          
                          $
                          750
                          
                          
                          $
                          500
                          
                          
                          $
                          3,500
                          
                          
                          $
                          2,536
                          
                          
                          $
                          13,294Net
      Effect on Cash
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0
                          
                          
                          $
                          0




10





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
November 30, 2008, 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.




Item
3. Quantitative and Qualitative Disclosure About Market Risk.





N/A





Item
4T. Controls and Procedures.





Evaluation of disclosure
controls and procedures.





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed pursuant to the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules, regulations and related forms, and
that such information is accumulated and communicated to our principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.





As of
November 30, 2008, we carried out an evaluation, under the supervision and with
the participation of our management, including our principal executive officer
and principal financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based on this evaluation,
our principal executive officer and principal financial officer concluded that
our disclosure controls and procedures were effective.




Changes in internal
controls.





There
have been no changes in our internal controls or in other factors that could
significantly affect these controls and procedures during the quarter ended
November 30, 2008.


11





Limitations on the
Effectiveness of Controls





The
Company's management does not expect that their disclosure controls or their
internal controls over financial reporting will prevent all error and fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, but not absolute, assurance that the objectives of a control system
are met. Further, any control system reflects limitations on resources, and the
benefits of a control system must be considered relative to its costs. These
limitations also include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or
mistake.




Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of a control. A design
of a control system is also based upon certain assumptions about potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and may not be
detected.





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 Sales 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.





No matter
was submitted during the quarter ending November 30, 2008, covered by this
report to a vote of the Company's shareholders, through the solicitation of
proxies or otherwise.





Item
5. Other Information.





None




Item
6. Exhibits.





Exhibit
Index





31.1
            
            Certification
      pursuant to Section 302 of Sarbanes Oxley Act of 200232.1
            
            Certification
      pursuant to Section 906 of Sarbanes Oxley Act of
  2002




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, there unto duly
authorized.





Dated:
      December 10, 2008GRACE
      5, INC.By:
                /s/
      Virginia K. SourlisVirginia
      K. Sourlis
                  Chief
      Executive Officer and
                  Chief
      Financial Officer
                  (Principal
      Executive Officer)
                  (Principal
      Financial Officer)




13