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 August 31, 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: 000-52062





GRACE
2, INC.


(Exact
Name of Registrant as Specified in Its Charter)




Delaware
              
              20-3708500(State of Other Jurisdiction of Incorporation or
                Organization)
              
              (I.R.S. Employer Identification Number)735
      Broad Street, Suite 400
                Chattanooga,
      TN
              
              37402(Address
      of Principal Executive Offices)
              
              (Zip
      Code)





(423) 265-5062


(Registrant’s
Telephone Number, Including Area Code)





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





Copies
to:


The
Sourlis Law Firm


Virginia
K. Sourlis, Esq.


214 Broad
Street


Red Bank,
New Jersey 07701


T: (732)
530-9007


F: (732)
530-9008


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 xNoo





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 xNoo





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





As of
December 1, 2009, there were 100,000 shares of common stock outstanding and no
shares of preferred stock outstanding.





GRACE 2,
INC.


A
DEVELOPMENT STAGE COMPANY


INDEX


August
31, 2009





TABLE
OF CONTENTS





PagePART
      I – FINANCIAL INFORMATIONItem
      1.
                Financial
      Statements
                3Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Plan
      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
      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. Financial Statements.


GRACE 2,
INC.
 A
DEVELOPMENT STATE COMPANY
 BALANCE
SHEETS
 
 August 31 ,2009
                            
                            
                            5/31/2009(Unaudited)
                            
                            
                            (Audited)AssetsTotal
      assets
                            
                            
                            
                            
                            $
                            -Liabilities and Stockholders'
      Equity/(Deficit)Current LiabilitiesAccounts
      payable
                            
                            
                            7,400
                            
                            
                            
                            4,500Due
      to shareholder
                            
                            
                            24,038
                            
                            
                            
                            16,075Total
      liabilities
                            
                            
                            31,438
                            
                            
                            
                            20,575Commitment
      and contingencies
                            
                            
                            -
                            
                            
                            
                            -Stockholders'
      equity (deficit)Preferred
      stock, $.0001 par value, authorized 10,000,000 shares, none
      issued
                            
                            
                            
                            
                            
                            
                            -Common
      stock, $.0001 par value, authorized 100,000,000 shares 100,000 issued and
      outstanding
                            
                            
                            10
                            
                            
                            
                            10Additional
      paid-in capital
                            
                            
                            9,784
                            
                            
                            
                            9,784Deficit
      accumulated during the development stage
                            
                            
                            (41,232
                            )
                            
                            
                            (30,369
                            )Total
      stockholders' equity (deficit)
                            
                            
                            (31,438
                            )
                            
                            
                            (20,575
                            )Total
      liabilities and stockholders' equity (deficit)
                            
                            $
                            -
                            
                            
                            $
                            -
 
 The
financial information presented herein has been prepared by managaement without
audit by independent certified public accountants.
 
 The
accompanying notes should be read in conjuction with the financial
statements.
  3
 
 GRACE 2,
INC.
 A
DEVELOPMENT STATE COMPANY
 STATEMENTS OF
  OPERATIONS
 
 For the periodFor the three
                              
                              
                              For the three
                              
                              
                              October 27, 2005months ended
                              
                              
                              months ended
                              
                              
                              (Inception) toAugust 31, 2009
                              
                              
                              August 31, 2008
                              
                              
                              August 31, 2009(Unaudited)
                              
                              
                              (Unaudited)
                              
                              
                              (Unaudited)Net
      sales
                              
                              $
                              -
                              
                              
                              $
                              -
                              
                              
                              $
                              -Cost
      of salesGross
      profitGeneral
      and administrative expenses
                              
                              
                              10,863
                              
                              
                              
                              8,500
                              
                              
                              
                              41,232Net
      loss
                              
                              $
                              (10,863
                              )
                              
                              $
                              (8,500
                              )
                              
                              
                              (41,232
                              )Weighted
      average number of common shares outstanding (basic and fully
      diluted)
                              
                              
                              100,000
                              
                              
                              
                              100,000
                              
                              
                              
                              100,000Basic
      and diulted (loss) per common share
                              
                              $
                              (0.11
                              )
                              
                              $
                              (0.09
                              )
                              
                              $
                              (0.41
                              )
 
 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 2,
INC.
 A
DEVELOPMENT STATE COMPANY
 STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
 FOR THE
PERIOD OCTOBER 27, 2005 (INCEPTION) TO AUGUST 31, 2009
 (Unaudited)
 
 DeficitAccumulatedAdditional
                      
                      
                      During the
                      
                      
                      Stockholders'Common 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
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,000
                      
                      
                      
                      
                      
                      
                      
                      2,000Net(loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (20,575
                      )
                      
                      
                      (20,575
                      )Balance,
      May 31, 2009
                      
                      
                      100,000
                      
                      
                      
                      10
                      
                      
                      
                      9,784
                      
                      
                      
                      (30,369
                      )
                      
                      
                      (20,575
                      )Capital
      contributions-shareholderNet(loss)
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (10,863
                      )
                      
                      
                      (10,863
                      )Balance,
      August 31, 2009
                      
                      
                      100,000
                      
                      
                      
                      10
                      
                      
                      
                      9,784
                      
                      
                      
                      (41,232
                      )
                      
                      
                      (31,438
                      )
 
 (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 2,
INC.
 A
DEVELOPMENT STATE COMPANY
 STATEMENTS OF CASH
  FLOWS
 
 For the periodFor the three
                    
                    
                    For the three
                    
                    
                    October 27,2005months ended
                    
                    
                    months ended
                    
                    
                    (Inception) toAugust 31, 2009
                    
                    
                    August 31, 2008
                    
                    
                    August 31, 2009(Unaudited)
                    
                    
                    (Unaudited)
                    
                    
                    (Unaudited)Cash
      flows from operating activitiesNet
      (loss)
                    
                    $
                    (10,863
                    )
                    
                    $
                    (8,500
                    )
                    
                    $
                    (41,232
                    )Adjustments
      to reconcile net (loss) to net cash used in operating
      activities:(Increase)
      decrease in prepaid expensesIncrease
      (decrease) in accounts payable/due to shareholder
                    
                    
                    10,863
                    
                    
                    
                    6,500
                    
                    
                    
                    31,438Net
      cash (used in) operating activities
                    
                    
                    -
                    
                    
                    
                    (2,000
                    )
                    
                    
                    (9,794
                    )Cash
      flows from financing activitiesProceeds
      from issuance of common stock
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    10Proceeds
      from additional captial contributions
                    
                    
                    -
                    
                    
                    
                    2,000
                    
                    
                    
                    9,784Net
      cash provided by financing activities
                    
                    
                    -
                    
                    
                    
                    2,000
                    
                    
                    
                    9,794Net
      increase in cash and cash equivalents
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -Cash-beginning
      of period
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Cash-end
      of period
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Supplemental
      disclosure of cash flow informatin: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




NOTE 1.
 DEVELOPMENT
STAGE COMPANY
 
 Grace 2,
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 August 31, 2009, the Company did not
      maintain any bank accounts.
 
 c.
              Income Taxes - The
      Company utilizes the liability method of accounting for income taxes.
      Under the liability method, deferred tax assets and liabilities are
      determined based on the differences between financial reporting basis and
      tax basis of the assets and liabilities and are measured using enacted tax
      rates that will be in effect when the differences are expected to reverse.
      An allowance against deferred tax assets is recognized, when it is more
      likely than not, that such tax benefits will not be
    realized.
 
 d.
              Loss per Common Share -
      Basic loss per share is calculated using the weighted-average number of
      common shares outstanding during each period as required by the Financial
      Accounting Standards Board (FASB) under Statement of Financial Accounting
      Standards (SFAS) No. 128. Diluted loss per share includes potentially
      dilutive securities such as outstanding options and warrants, using
      various methods such as the treasury stock or modified treasury stock
      method in the determination of dilutive shares outstanding during each
      period. The Company does not have any potentially dilutive
      instruments.
 
 e.
              Fair Value of Financial
      Instruments - The carrying value of cash equivalents and accrued
      expenses approximates fair value due to their short term
      nature.
 
 NOTE
3.  PREFERRED
STOCK
 
 The
Company is authorized to issue 10,000,000 shares of preferred stock. The
Preferred Stock of the Company shall be issued by the Board of Directors of the
Company in one or more classes or one or more series within any class and such
classes or series shall have such voting powers, full or limited, or no voting
powers, and such designations, preferences, limitations or restrictions as the
Board of Directors of the Company may determine, from time to time.
  NOTE
4.  COMMON
STOCK
 
 The
Company is authorized to issue 100,000,000 shares of common stock. On October
27, 2005, the Company issued 100,000 shares of common stock for total
consideration of $100 to the sole shareholder of the Company.
  7
 
 Holders
of shares of common stock shall be entitled to cast one vote for each share held
at all stockholders’ meetings for all purposes, including the election of
directors. The common stock does not have cumulative voting rights. No holder of
shares of stock of any class shall be entitled as a matter of right to subscribe
for or purchase or receive any part of any new or additional issue of shares of
stock of any class, or of securities convertible into shares of stock of any
class, whether now hereafter authorized or whether issued for money, for
consideration other than money, or by way of dividend.
 
 NOTE
5.  RELATED PARTY
TRANSACTION
 
 The
Company utilizes the office space and equipment of its sole stockholder at no
cost. Management estimates such amounts to be immaterial.
 
 NOTE
6.  INCOME
TAXES
 
 The
Company has approximately $16,080 in gross deferred tax assets at August 31,
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 August 31, 2009.   At August 31, 2009, the
Company has federal net operating loss carry forwards of approximately $41,232
available to offset future taxable income through 2027.
  For the
period October 27, 2005 (inception) to August 31, 2009, the difference between
the tax provision at the statutory federal income tax rate and the tax provision
attributable to loss before income taxes is as follows (in
percentages):
  Statutory
      federal income tax rate
                
                
                -34
                %State
      taxes - net of federal benefits
                
                
                -5
                %Valuation
      allowance
                
                
                39
                %Income
      tax rate – net
                
                
                0
                %
 
 Net
change in valuation was $2,400.
 
 NOTE
7.  GOING
CONCERN
 
 The
Company’s financial statements have been presented on the basis that it is a
going concern in the development stage, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of the date of these financial statements, the Company has made no efforts to
identify a possible business combination.
 
 The
Company’s shareholder shall fund the Company’s activities while the Company
takes steps to locate and negotiate with a business entity through acquisition,
or merger with, an existing company; however, there can be no assurance these
activities will be successful.
 
 NOTE
8.  CAPITAL
STOCK
 
 On July
7, 2008 (the “Effective Date”), pursuant to the terms of a Stock Purchase
Agreement (the “Agreement”), Broad Street Ventures, LLC, a limited liability
company formed in the State of Colorado (“BSV”) purchased a total of 96,000
shares of the issued and outstanding common stock of Grace 2, Inc., a Delaware
corporation (the “Company”), from Getting You There, LLC, the sole shareholder
of the Company (“GYT”). The total of 96,000 shares represents 96% of the shares
of outstanding common stock of the Company (the “Acquisition”).
 
 Also, as
part of the Acquisition and pursuant to the Agreement, the following changes to
the Company’s directors and officers occurred:
  o
              Virginia
      K. Sourlis resigned as the Company’s President, Chief Executive Officer,
      Chief Financial Officer and Secretary and Sole Director effective July 18,
      2008.o
              As
      of July 18 2008, Douglas Dyer was appointed as the Company’s President and
      Sole Director


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. The Company may need
additional cash advances from its stockholder or loans from other parties to pay
for operating expenses until the Company consummates a merger or business
combination with a privately-held operating company. Although it is currently
anticipated that the Company can satisfy its cash requirements with additional
cash advances or loans from other parties, if needed, for at least the next
twelve months, the Company can provide no assurance that it can continue to
satisfy its cash requirements for such period.





Since our
formation on October 27, 2005 through the date of this filing, our purpose has
been to effect a business combination with an operating business which we
believe has significant growth potential. We are currently considered to be a
“blank check” company in as much as we have no specific business plans, no
operations, revenues or employees. We currently have no definitive agreements or
understanding with any prospective business combination candidates and have not
targeted any business for investigation and evaluation nor are there any
assurances that we will find a suitable business with which to combine. The
implementation of our business objectives is wholly contingent upon a business
combination and/or the successful sale of securities in the
company.





Management
anticipates seeking out a target company through solicitation. Such solicitation
may include newspaper or magazine advertisements, mailings and other
distributions to law firms, accounting firms, investment bankers, financial
advisors and similar persons, the use of one or more Internet websites and
similar methods. No estimate can be made as to the number of persons who will be
contacted or solicited. Management may engage in such solicitation directly or
may employ one or more other entities to conduct or assist in such solicitation.
Management and its affiliates will pay referral fees to consultants and others
who refer target businesses for mergers into public companies in which
management and its affiliates have an interest. Payments are made if a business
combination occurs, and may consist of cash or a portion of the stock in the
Company retained by management and its affiliates, or both.




The
Company’s management will supervise the search for target companies as potential
candidates for a business combination. The Company may enter into agreements
with other consultants to assist in locating a target company and may share
stock received by it or cash resulting from the sale of its securities with such
other consultants.




As a
result of our limited resources, we expect to effect only a single business
combination. Accordingly, the prospects for our success will be entirely
dependent upon the future performance of a single business. Unlike certain
entities that have the resources to consummate several business combinations or
entities operating in multiple industries or multiple segments of a single
industry, we will not have the resources to diversify our operations or benefit
from the possible spreading of risks or offsetting of losses. A target business
may be dependent upon the development or market acceptance of a single or
limited number of products, processes or services, in which case there will be
an even higher risk that the target business will not prove to be commercially
viable.





Our
officers and directors are only required to devote a very limited portion of
their time to our affairs on a part-time or as-needed basis. We expect to use
outside consultants, advisors, attorneys and accountants as necessary, none of
which will be hired on a retainer basis. We do not anticipate hiring any
full-time employees so long as we are seeking and evaluating business
opportunities.


9


We expect
our present management to play no managerial role in the Company following a
merger or business combination. Although we intend to scrutinize closely the
management of a prospective target business in connection with our evaluation of
a business combination with a target business, our assessment of management may
be incorrect. We cannot assure you that we will find a suitable business with
which to combine.





Changes
in Control of Registrant




On July
7, 2008 (the “Effective Date”), pursuant to the terms of a Stock Purchase
Agreement (the “Agreement”), Broad Street Ventures, LLC, a limited liability
company formed in the State of Colorado (“BSV”) purchased a total of 96,000
shares of the issued and outstanding common stock of Grace 2, Inc., a Delaware
corporation (the “Company”), from Getting You There, LLC, the sole shareholder
of the Company (“GYT”). The total of 96,000 shares represents 96% of the shares
of outstanding common stock of the Company (the “Acquisition”).





Also, as
part of the Acquisition and pursuant to the Agreement, the following changes to
the Company’s directors and officers occurred:




·
            Virginia
      K. Sourlis resigned as the Company’s President, Chief Executive Officer,
      Chief Financial Officer and Secretary and Sole Director effective July 18,
      2008




·
            As
      of July 18, 2008, Douglas Dyer was appointed as the Company’s President
      and Sole Director.




Results
of Operations





Comparison
of Three Months Ended August 31, 2009 to August 31, 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 August 31, 2009,
the Company had $0 in assets, compared to $0 at May 31, 2009.





Liabilities.At August
31, 2009, the Company had $31,438 in total liabilities. At May 31, 2009, the
Company had total liabilities of $20,575. Total liabilities consisted of
Accounts Payable and Amounts due to a Shareholder. 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.
Accounts Payable increased from $4,500 at May 31, 2009 to $7,400 at August 31,
2009.  Amounts due to a Shareholder increased from $16,075 at May 31,
2009 to $24,038 at August 31, 2009.





Revenues. For the three
months ended August 31, 2009 and August 31, 2008 and for the period from October
27, 2005 (Inception) to August 31, 2009, the Company had no activities that
produced revenues from operations.





Net Loss.  For the
three month periods ended August 31, 2009 and August 31, 2008, the Company had a
net loss of $10,863 and $8,500, respectively. From the Company’s date of
inception (October 27, 2005) to August 31, 2009, the Company had net losses of
$41,232. 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 August 31, 2009 and August 31, 2008,
the Company had general and administrative expenses of $10,863 and $8,500,
respectively. From the Company’s date of inception (October 27, 2005) to August
31, 2009, the Company had general and administrative expenses of $41,232. 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 August
31, 2009, the Company had $0 in total assets. At May 31, 2009, the Company had
$0 in total assets. The Company’s current liabilities at August 31, 2009 and at
May 31, 2009, totaled $31,438 and $20,575, respectively, comprised of accounts
payable.


10


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





For the
Three Months Ended August 31, 2009 and August 31, 2008 and


The
Period from (October 27, 2005) Date of Inception to August 31, 2009




For the Three Months Ended
                        August 31,
                      
                      
                      Period from
                        October 27,
                        2005 to
                        August
      31,2009
                      
                      
                      2008
                      
                      
                      2009Net
      Cash (Used In) Operating  Activities
                      
                      $
                      0
                      
                      
                      $
                      (2,000)
                      
                      
                      $
                      (9,794)Investing
      Activities
                      
                      $
                      0
                      
                      
                      $
                      0
                      
                      
                      $
                      0Net
      Cash Provided from Financing Activities
                      
                      $
                      0
                      
                      
                      $
                      2,000
                      
                      
                      $
                      9,794Net
      Effect on Cash
                      
                      $
                      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 August
31, 2009, the Company had no capital resources to fund administrative expenses
pending acquisition of an operating company. The Company has not realized any
revenues from operations since inception, and its plan of operation for the next
twelve months is to locate a suitable acquisition or merger candidate and
consummate a business combination. There is substantial doubt that we will
continue as a going concern. The Company may need additional cash advances from
its stockholder or loans from other parties to pay for operating expenses until
the Company consummates a merger or business combination with a privately-held
operating company. Although it is currently anticipated that the Company can
satisfy its cash requirements with additional cash advances or loans from other
parties, if needed, for at least the next twelve months, the Company can provide
no assurance that it can continue to satisfy its cash requirements for such
period.





Off-Balance
Sheet Arrangements





The
Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company’s financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.





Going
Concern





The
Company’s financial statements have been presented on the basis that it is a
going concern in the development stage, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. As
of the date of these financial statements, the Company has made no efforts to
identify a possible business combination.





The
Company’s shareholder shall fund the Company’s activities while the Company
takes steps to locate and negotiate with a business entity through acquisition,
or merger with, an existing company; however, there can be no assurance these
activities will be successful. These matters raise substantial doubt about
the Company’s ability to continue as a going concern.





Item 3.  Quantitative and Qualitative
Disclosures about Market Risk





N/A.





Item
4T. Controls and Procedures.





Evaluation
of Controls and Procedures.





In
accordance with Exchange Act Rules 13a-15 and 15d-15, our management is required
to perform an evaluation under the supervision and with the participation of the
Company’s management, including the Company’s principal executive officer and
principal financial officer, of the effectiveness of the design and operation of
the Company’s disclosure controls and procedures as of the end of the
period.




Evaluation
of Disclosure Controls and Procedures




Based on
their evaluation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of August 31, 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.


11


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
August 31, 2009 that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.





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 due to the fact that the issuance did not involve a public
offering  of securities.





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 Douglas A. Dyer, the Principal Executive Officer and Principal
      Financial Officer of Grace 2, 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 Douglas A. Dyer, the Principal Executive Officer and Principal
      Financial Officer of Grace 2, Inc., pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002




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


12


SIGNATURES





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





Dated:  December
      1, 2009
                GRACE
      2, INC.By: /s/ DOUGLAS A.
      DYERDouglas
      A. Dyer
                  President
                  (Principal
      Executive Officer)
                  (Principal
      Financial Officer)


13