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EX-31.1 - EXHIBIT 31.1 - Q Therapeutics, Inc.v236534_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - Q Therapeutics, Inc.v236534_ex32-1.htm
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K

(Mark One)

x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: May 31, 2011

¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File No. 000-52062

GRACE 2, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
20-3708500
(State or other jurisdiction of
 
(I.R.S. employer
incorporation or formation)
 
identification number)

735 Broad Street, Suite 400
Chattanooga, TN 37402
(Address of principal executive offices) 
 
Issuer’s telephone number:
(423) 265-5062
Issuer’s facsimile number:
N/A

N/A
(Former name, former address and former
fiscal year, if changed since last report)

Copies to:
The Sourlis Law Firm
Joseph M. Patricola, Esq.
The Courts of Red Bank
130 Maple Avenue, Suite 9B2
Red Bank, New Jersey 07701
Direct: (732) 618-2843
Office: (732) 530-9007
Fax: (732) 530-9008 
JoePatricola@sourlislaw.com
www.SourlisLaw.com

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, Par Value $0.0001 per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x   

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No x   

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the 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 ¨ Nox   

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ¨ No ¨   

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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). Yes x No¨

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed fiscal quarter.

As of August 31, 2011, no public market has been developed for the Company’s securities.

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

As of October 6, 2011, there were 2,600,000 shares of Common Stock, $0.0001 par value per share, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:
None
 
 
 

 

Table of Contents

     
PAGE
PART I
     
 
Item 1.
Description of Business.
3
 
Item 1A.
Risk Factors
6
 
Item 1B
Unresolved Staff Comments
10
 
Item 2.
Description of Property.
10
 
Item 3.
Legal Proceedings.
10
 
Item 4.
Submission of Matters to a Vote of Security Holders.
10
       
PART II
     
 
Item 5.
Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities.
10
 
Item 6
Selected Financial Data
12
 
Item 7.
Management’s Discussion and Analysis or Plan of Operation.
12
 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
15
 
Item 8.
Financial Statements.
16
 
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
25
 
Item 9AT.
Controls and Procedures.
25
 
Item 9B.
Other Information.
26
       
PART III
     
 
Item 10.
Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act.
27
 
Item 11.
Executive Compensation.
28
 
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
28
 
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
29
 
Item 14.
Principal Accountant Fees and Services.
30
 
Item 15.
Exhibits and Reports on Form 8-K
32
       
SIGNATURES
    33
CERTIFICATIONS
 
 
2

 

PART I

FORWARD-LOOKING STATEMENTS

Certain statements made in this Annual Report on Form 10-K are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Registrant to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Registrant’s plans and objectives are based, in part, on assumptions involving the continued expansion of business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Registrant. Although the Registrant believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Registrant or any other person that the objectives and plans of the Registrant will be achieved.

Item 1. Description of Business

(a) Business Development

Grace 2, Inc. (the “Company” or the “Registrant”) was incorporated in the State of Delaware on October 27, 2005. Since its inception, the Company has been engaged in organizational efforts and efforts to obtain initial financing. The Company was formed as a “blank check” company as defined in Rule 419(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) to pursue a business combination. The business purpose of the Company is to seek the acquisition of or merger with an existing company.

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, 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.

(b) Business of Issuer

The Company, based on proposed business activities, is a “blank check” company as defined in Rule 419(a)(2) of the Securities Act. The SEC defines those companies as “any development stage company that has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person and that is issuing a penny stock, within the meaning of Section 3 (a)(51) of the Securities Exchange Act of 1934.” Many states have enacted statutes, rules and regulations limiting the sale of securities of “blank check” companies in their respective jurisdictions. Management does not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business combination. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long as we are subject to those requirements.

The Company was organized as a vehicle to investigate and, if such investigation warrants, acquire a target company or business seeking the perceived advantages of being a publicly held corporation. The Company’s principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. The Company will not restrict its potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.

The analysis of new business opportunities has and will be undertaken by or under the supervision of the officers and directors of the Registrant. The Registrant has considered potential acquisition transactions with several companies, but as of this date has not entered into any definitive agreement with any party. The Registrant has unrestricted flexibility in seeking, analyzing and participating in potential business opportunities. In its efforts to analyze potential acquisition targets, the Registrant will consider the following kinds of factors:

 
3

 
 
a)
Potential for growth, indicated by new technology, anticipated market expansion or new products;

 
b)
Competitive position as compared to other firms of similar size and experience within the industry segment as well as within the industry as a whole;

 
c)
Strength and diversity of management, either in place or scheduled for recruitment;

 
d)
Capital requirements and anticipated availability of required funds, to be provided by the Registrant or from operations, through the sale of additional securities, through joint ventures or similar arrangements or from other sources;

 
e)
The cost of participation by the Registrant as compared to the perceived tangible and intangible values and potentials;

 
f)
The extent to which the business opportunity can be advanced;

 
g)
The accessibility of required management expertise, personnel, raw materials, services, professional assistance and other required items; and

 
h)
Other relevant factors.

In applying the foregoing criteria, no one of which will be controlling, management will attempt to analyze all factors and circumstances and make a determination based upon reasonable investigative measures and available data. Potentially available business opportunities may occur in many different industries, and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Due to the Registrant’s limited capital available for investigation, the Registrant may not discover or adequately evaluate adverse facts about the opportunity to be acquired.

FORM OF ACQUISITION

The manner in which the Registrant participates in an opportunity will depend upon the nature of the opportunity, the respective needs and desires of the Registrant and the promoters of the opportunity, and the relative negotiating strength of the Registrant and such promoters.

It is likely that the Registrant will acquire its participation in a business opportunity through the issuance of common stock or other securities of the Registrant. Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances the criteria for determining whether or not an acquisition is a so-called “tax free” reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the “Code”), depends upon whether the owners of the acquired business own 80% or more of the voting stock of the surviving entity. If a transaction were structured to take advantage of these provisions rather than other “tax free” provisions provided under the Code, all prior stockholders would in such circumstances retain 20% or less of the total issued and outstanding shares of the surviving entity. Under other circumstances, depending upon the relative negotiating strength of the parties, prior stockholders may retain substantially less than 20% of the total issued and outstanding shares of the surviving entity. This could result in substantial additional dilution to the equity of those who were stockholders of the Registrant prior to such reorganization.

The present stockholders of the Registrant will likely not have control of a majority of the voting shares of the Registrant following a reorganization transaction. As part of such a transaction, all or a majority of the Registrant’s directors may resign and new directors may be appointed without any vote by stockholders.

In the case of an acquisition, the transaction may be accomplished upon the sole determination of management without any vote or approval by stockholders. In the case of a statutory merger or consolidation directly involving the Company, it will likely be necessary to call a stockholders’ meeting and obtain the approval of the holders of a majority of the outstanding shares. The necessity to obtain such stockholder approval may result in delay and additional expense in the consummation of any proposed transaction and will also give rise to certain appraisal rights to dissenting stockholders. Most likely, management will seek to structure any such transaction so as not to require stockholder approval.

It is anticipated that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial cost for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity, the costs theretofore incurred in the related investigation would not be recoverable. Furthermore, even if an agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result in the loss to the Registrant of the related costs incurred.

 
4

 

 
We presently have no employees apart from our management. Both of our officers and directors are engaged in outside business activities and anticipate that they will devote to our business only several hours per week until the acquisition of a successful business opportunity has been consummated. We expect no significant changes in the number of our employees other than such changes, if any, incident to a business combination.

(c) Reports to security holders.

 
1)
The Company is not required to deliver an annual report to security holders and at this time does not anticipate the distribution of such a report.

 
2)
The Company will file reports with the SEC. The Company will be a reporting company and will comply with the requirements of the Securities Exchange Act of 1934, as amended.

 
3)
The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, which can be found at http://www.sec.gov.

Employees

The Company currently has no employees.

Patents and Trademarks
 
At the present we do not have any patents or trademarks.
 
Need for any Government Approval of Products or Services
 
We do not require any government approval for our services.
 
Government and Industry Regulation
 
We will be subject to federal laws and regulations that relate directly or indirectly to our operations including securities laws. We will also be subject to common business and tax rules and regulations pertaining to the operation of our business.
 
Research and Development Activities
 
Other than time spent researching our proposed business, the Company has not spent any funds on research and development activities to date. The Company plans to spend funds on Services Development as detailed in sections titled “Description of Business” and “Management’s Discussion and Analysis or Plan of Operation.”
 
Environmental Laws
 
Our operations are not subject to any Environmental Laws.
 
Penny Stock Rules

The Securities and Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).

A purchaser is purchasing penny stock which limits the ability to sell the stock. The shares offered by this Report constitute penny stock under the Securities and Exchange Act. The shares will remain penny stocks for the foreseeable future. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Securities and Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.

 
5

 
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document, which:

Contains a description of the nature and level of risk in the market for penny stock in both Public offerings and secondary trading;

Contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the Securities Act of 1934, as amended;

 
-
Contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” price for the penny stock and the significance of the spread between the bid and ask price;

 
-
Contains a toll-free number for inquiries on disciplinary actions;

 
-
Defines significant terms in the disclosure document or in the conduct of trading penny stocks; and

 
-
Contains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation.

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the customer:

 
-
The bid and offer quotations for the penny stock;

 
-
The compensation of the broker-dealer and its salesperson in the transaction;

 
-
The number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and

 
-
Monthly account statements showing the market value of each penny stock held in the customer’s account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules. Therefore, stockholders may have difficulty selling their securities.

Item 1A. Risk Factors

An investment in our securities is highly speculative and subject to numerous and substantial risks. These risks include those set forth below and elsewhere in this Form 10-K. Readers are encouraged to review these risks carefully before making any investment decision.

AN INVESTMENT IN THE COMPANY IS HIGHLY SPECULATIVE IN NATURE AND INVOLVES AN EXTREMELY HIGH DEGREE OF RISK.

There may be conflicts of interest between our management and our non-management stockholders.

Conflicts of interest create the risk that management may have an incentive to act adversely to the interests of other investors. A conflict of interest may arise between our management’s personal pecuniary interest and its fiduciary duty to our stockholders. Further, our management’s own pecuniary interest may at some point compromise its fiduciary duty to our stockholders. In addition, our officers and directors are currently involved with other blank check companies and conflicts in the pursuit of business combinations with such other blank check companies with which they and other members of our management are, and may be the future be, affiliated with may arise. If we and the other blank check companies that our officers and directors are affiliated with desire to take advantage of the same opportunity, then those officers and directors that are affiliated with both companies would abstain from voting upon the opportunity. In the event of identical officers and directors, the officers and directors will arbitrarily determine the company that will be entitled to proceed with the proposed transaction.

 
6

 

 
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE NO OPERATING HISTORY.

As we have no operating history or revenue and only minimal assets, there is a risk that we will be unable to continue as a going concern and consummate a business combination. We have had no recent operating history nor any revenues or earnings from operations since inception. We have no significant assets or financial resources. We will, in all likelihood, sustain operating expenses without corresponding revenues, at least until the consummation of a business combination. This may result in our incurring a net operating loss that will increase continuously until we can consummate a business combination with a profitable business opportunity. We cannot assure you that we can identify a suitable business opportunity and consummate a business combination.

THERE IS COMPETITION FOR THOSE PRIVATE COMPANIES SUITABLE FOR A MERGER TRANSACTION OF THE TYPE CONTEMPLATED BY MANAGEMENT.

We are in a highly competitive market for a small number of business opportunities which could reduce the likelihood of consummating a successful business combination. We are and will continue to be an insignificant participant in the business of seeking mergers with, joint ventures with and acquisitions of small private and public entities. A large number of established and well-financed entities, including small public companies and venture capital firms, are active in mergers and acquisitions of companies that may be desirable target candidates for us. Nearly all these entities have significantly greater financial resources, technical expertise and managerial capabilities than we do; consequently, we will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. These competitive factors may reduce the likelihood of our identifying and consummating a successful business combination.

FUTURE SUCCESS IS HIGHLY DEPENDENT ON THE ABILITY OF MANAGEMENT TO LOCATE AND ATTRACT A SUITABLE ACQUISITION.

The nature of our operations is highly speculative and there is a consequent risk of loss of your investment. The success of our plan of operation will depend to a great extent on the operations, financial condition and management of the identified business opportunity. While management intends to seek business combination(s) with entities having established operating histories, we cannot assure you that we will be successful in locating candidates meeting that criterion. In the event we complete a business combination, the success of our operations may be dependent upon management of the successor firm or venture partner firm and numerous other factors beyond our control.

THE COMPANY HAS NO EXISTING AGREEMENT FOR A BUSINESS COMBINATION OR OTHER TRANSACTION.

We have no arrangement, agreement or understanding with respect to engaging in a merger with, joint venture with or acquisition of, a private or public entity. No assurances can be given that we will successfully identify and evaluate suitable business opportunities or that we will conclude a business combination. Management has not identified any particular industry or specific business within an industry for evaluation. We cannot guarantee that we will be able to negotiate a business combination on favorable terms, and there is consequently a risk that funds allocated to the purchase of our shares will not be invested in a company with active business operations.

MANAGEMENT INTENDS TO DEVOTE ONLY A LIMITED AMOUNT OF TIME TO SEEKING A TARGET COMPANY WHICH MAY ADVERSELY IMPACT OUR ABILITY TO IDENTIFY A SUITABLE ACQUISITION CANDIDATE.

While seeking a business combination, management anticipates devoting no more than a few hours per week to the Company’s affairs. Our officers have not entered into written employment agreements with us and are not expected to do so in the foreseeable future. This limited commitment may adversely impact our ability to identify and consummate a successful business combination.

THE TIME AND COST OF PREPARING A PRIVATE COMPANY TO BECOME A PUBLIC REPORTING COMPANY MAY PRECLUDE US FROM ENTERING INTO A MERGER OR ACQUISITION WITH THE MOST ATTRACTIVE PRIVATE COMPANIES.

Target companies that fail to comply with SEC reporting requirements may delay or preclude acquisition. Sections 13 and 15(d) of the Exchange Act require reporting companies to provide certain information about significant acquisitions, including certified financial statements for the company acquired, covering one, two, or three years, depending on the relative size of the acquisition. The time and additional costs that may be incurred by some target entities to prepare these statements may significantly delay or essentially preclude consummation of an acquisition. Otherwise suitable acquisition prospects that do not have or are unable to obtain the required audited statements may be inappropriate for acquisition so long as the reporting requirements of the Exchange Act are applicable.
 
 
7

 

THE COMPANY MAY BE SUBJECT TO FURTHER GOVERNMENT REGULATION WHICH WOULD ADVERSELY AFFECT OUR OPERATIONS.

Although we will be subject to the reporting requirements under the Exchange Act, management believes we will not be subject to regulation under the Investment Company Act of 1940, as amended (the “Investment Company Act”), since we will not be engaged in the business of investing or trading in securities. If we engage in business combinations which result in our holding passive investment interests in a number of entities, we could be subject to regulation under the Investment Company Act. If so, we would be required to register as an investment company and could be expected to incur significant registration and compliance costs. We have obtained no formal determination from the Securities and Exchange Commission as to our status under the Investment Company Act and, consequently, violation of the Act could subject us to material adverse consequences.

ANY POTENTIAL ACQUISITION OR MERGER WITH A FOREIGN COMPANY MAY SUBJECT US TO ADDITIONAL RISKS.

If we enter into a business combination with a foreign concern, we will be subject to risks inherent in business operations outside of the United States. These risks include, for example, currency fluctuations, regulatory problems, punitive tariffs, unstable local tax policies, trade embargoes, risks related to shipment of raw materials and finished goods across national borders and cultural and language differences. Foreign economies may differ favorably or unfavorably from the United States economy in growth of gross national product, rate of inflation, market development, rate of savings, and capital investment, resource self-sufficiency and balance of payments positions, and in other respects.

THERE IS CURRENTLY NO TRADING MARKET FOR OUR COMMON STOCK.

Outstanding shares of our Common Stock cannot be offered, sold, pledged or otherwise transferred unless subsequently registered pursuant to, or exempt from registration under, the Securities Act and any other applicable federal or state securities laws or regulations. These restrictions will limit the ability of our stockholders to liquidate their investment.

OUR BUSINESS WILL HAVE NO REVENUES UNLESS AND UNTIL WE MERGE WITH OR ACQUIRE AN OPERATING BUSINESS.

We are a development stage company and have had no revenues from operations. We may not realize any revenues unless and until we successfully merge with or acquire an operating business.

THE COMPANY INTENDS TO ISSUE MORE SHARES IN A MERGER OR ACQUISITION, WHICH WILL RESULT IN SUBSTANTIAL DILUTION.

Our certificate of incorporation authorizes the issuance of a maximum of 100,000,000 shares of common stock and a maximum of 10,000,000 shares of preferred stock. Any merger or acquisition effected by us may result in the issuance of additional securities without stockholder approval and may result in substantial dilution in the percentage of our common stock held by our then existing stockholders. Moreover, the common stock issued in any such merger or acquisition transaction may be valued on an arbitrary or non-arm’s-length basis by our management, resulting in an additional reduction in the percentage of common stock held by our then existing stockholders. Our Board of Directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of Common Stock or Preferred Stock are issued in connection with a business combination or otherwise, dilution to the interests of our stockholders will occur and the rights of the holders of Common Stock might be materially adversely affected.

OUR STOCKHOLDER MAY ENGAGE IN A TRANSACTION TO CAUSE THE COMPANY TO REPURCHASE ITS SHARES OF COMMON STOCK.

In order to provide an interest in the Company to a third party, our stockholder may choose to cause us to sell our securities to third parties, with the proceeds of such sale being utilized by us to repurchase shares of common stock held by our sole stockholder. As a result of such transaction, our management, sole stockholder and Board of Directors may change.

THE COMPANY HAS CONDUCTED NO MARKET RESEARCH OR IDENTIFICATION OF BUSINESS OPPORTUNITIES, WHICH MAY AFFECT OUR ABILITY TO IDENTIFY A BUSINESS TO MERGE WITH OR ACQUIRE.

We have neither conducted nor have others made available to us results of market research concerning prospective business opportunities. Therefore, we have no assurances that market demand exists for a merger or acquisition as contemplated by us. Our management has not identified any specific business combination or other transactions for formal evaluation by us, such that it may be expected that any such target business or transaction will present such a level of risk that conventional private or public offerings of securities or conventional bank financing will not be available. There is no assurance that we will be able to acquire a business opportunity on terms favorable to us. Decisions as to which business opportunity to participate in will be unilaterally made by our management, which may act without the consent, vote or approval of our stockholders.

 
8

 
 
BECAUSE WE MAY SEEK TO COMPLETE A BUSINESS COMBINATION THROUGH A “REVERSE MERGER”, FOLLOWING SUCH A TRANSACTION WE MAY NOT BE ABLE TO ATTRACT THE ATTENTION OF MAJOR BROKERAGE FIRMS.

Additional risks may exist since we will assist a privately held business to become public through a “reverse merger.” Securities analysts of major brokerage firms may not provide coverage of our Company since there is no incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of our post-merger company in the future.

WE CANNOT ASSURE YOU THAT FOLLOWING A BUSINESS COMBINATION WITH AN OPERATING BUSINESS; OUR COMMON STOCK WILL BE LISTED ON NASDAQ OR ANY OTHER SECURITIES EXCHANGE.

Following a business combination, we may seek the listing of our common stock on NASDAQ or the American Stock Exchange. However, we cannot assure you that following such a transaction, we will be able to meet the initial listing standards of either of those or any other stock exchange, or that we will be able to maintain a listing of our common stock on either of those or any other stock exchange. After completing a business combination, until our common stock is listed on the NASDAQ or another stock exchange, we expect that our common stock would be eligible to trade on the OTC Bulletin Board, another over-the-counter quotation system, or on the “pink sheets,” where our stockholders may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, we would be subject to an SEC rule that, if it failed to meet the criteria set forth in such rule, imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. Consequently, such rule may deter broker-dealers from recommending or selling our common stock, which may further affect its liquidity. This would also make it more difficult for us to raise additional capital following a business combination.

THERE IS NO PUBLIC MARKET FOR OUR COMMON STOCK, NOR HAVE WE EVER PAID DIVIDENDS ON OUR COMMON STOCK.

There is no public trading market for our common stock and none is expected to develop in the foreseeable future unless and until we complete a business combination with an operating business and such business files a registration statement under the Securities Act of 1933, as amended. Additionally, we have never paid dividends on our Common Stock and do not presently intend to pay any dividends in the foreseeable future. We anticipate that any funds available for payment of dividends will be re-invested into the Company to further its business strategy.

AUTHORIZATION OF PREFERRED STOCK.

Our Certificate of Incorporation authorizes the issuance of up to 10,000,000 shares of preferred stock with designations, rights and preferences determined from time to time by its Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the common stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Although we have no present intention to issue any shares of its authorized preferred stock, there can be no assurance that the Company will not do so in the future.

CONTROL BY MANAGEMENT.

Management currently owns approximately 100% of all the issued and outstanding capital stock of the Company. Consequently, management has the ability to influence control of our operations and, acting together, will have the ability to influence or control substantially all matters submitted to stockholders for approval, including:

 
·
Election of the board of directors;

 
·
Removal of any directors;

 
·
Amendment of our certificate of incorporation or bylaws; and

 
·
Adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination.
 
 
9

 

These stockholders will thus have substantial influence over our management and affairs and other stockholders of the Company possess no practical ability to remove management or effect the operations of the business of the Company. Accordingly, this concentration of ownership by itself may have the effect of impeding a merger, consolidation, takeover or other business consolidation, or discouraging a potential acquirer from making a tender offer for the common stock.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Description of Properties

The Company neither rents nor owns any properties. The Company currently has no policy with respect to investments or interests in real estate, real estate mortgages or securities of, or interests in, persons primarily engaged in real estate activities.

Item 3. Legal Proceedings

The Company is not party to any legal proceedings nor is it aware of any investigation, claim or demand made on the Company that may reasonably result in any legal proceedings.

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

None.
 
PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

There is no active market for our Common Stock.

Currently, there is no active trading market for our Common Stock. Upon entering into a merger with a private operating company, we will then immediately seek to engage a broker-dealer/market maker in order for them to submit an application, on behalf of the Company, to make a market for our Common Stock shares on the OTC Bulletin Board. There can be no assurance, however, that the application will be accepted or that any trading market will ever develop or be maintained on the OTC Bulletin Board. Any trading market that may develop in the future for our Common Stock will most likely be very volatile and numerous factors beyond our control may have a significant effect on the market. Only companies that report their current financial information to the SEC may have their securities included on the OTC Bulletin Board. Therefore, only upon the effective date of this Report will our Common Stock become eligible to be quoted on the OTC Bulletin Board. In the event that we lose our status as a "reporting issuer," any future quotation of our Common Stock on the OTC Bulletin Board may be jeopardized.

The Securities and Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system.

The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities' laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type, size and format, as the Securities and Exchange Commission shall require by rule or regulation. The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a suitably written statement.

 
10

 
 
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock if it becomes subject to these penny stock rules. Therefore, if our common stock becomes subject to the penny stock rules, stockholders may have difficulty selling those securities.

Common Stock

The Company is authorized by its Certificate of Incorporation to issue an aggregate of 110,000,000 shares of capital stock, of which 100,000,000 are shares of Common Stock, par value $0.0001 per share (the “Common Stock”). As of the date hereof, 2,600,000 shares of Common Stock are issued and outstanding, and there are two holders of record of the Common Stock.

The Common Stock is not listed on a publicly-traded market or exchange.

Preferred Stock

Our Certificate of Incorporation authorizes the issuance of up to 10,000,000 shares of preferred stock, par value $0.0001 per share (the “Preferred Stock”). The Company has not yet issued any of its preferred stock.

Dividend Policy

The Company has not declared or paid any cash dividends on its common stock and does not intend to declare or pay any cash dividend in the foreseeable future. The payment of dividends, if any, is within the discretion of the Board of Directors and will depend on the Company’s earnings, if any, its capital requirements and financial condition and such other factors as the Board of Directors may consider.

Recent Sales of Unregistered Securities

The Company issued a total of 100,000 shares of Common Stock on October 27, 2005, to Getting You There, LLC, an entity owned by Virginia K. Sourlis, then the sole officer and director of the Company, for aggregate cash consideration of $100. The Company sold these shares of Common Stock under the exemption from registration provided by Section 4(2) of the Securities Act.

The purchaser represented in writing that it acquired the securities for its own account. A legend was placed on the stock certificate stating that the securities have not been registered under the Securities Act and cannot be sold or otherwise transferred without an effective registration or an exemption therefrom, but may not be sold pursuant to the exemptions provided by Section 4(1) of the Securities Act or Rule 144 under the Securities Act, in accordance with the letter from Richard K. Wulff, Chief of the Office of Small Business Policy of the Securities and Exchange Commission’s Division of Corporation Finance, to Ken Worm of NASD Regulation, Inc., dated January 21, 2000.
 
On June 9, 2011, the Company issued 1,000,000 shares of common stock pursuant to a stock purchase agreement for consideration of $100. On August 8, 2011, the Company issued 1,500,000 shares of common stock pursuant to a stock purchase agreement for consideration of $150. The Company issued these shares of Common Stock under the exemption from registration provided by Section 4(2) of the Securities Act, as the issuance did not involve a public sale of securities.
 
Dividend Policy

We have never declared or paid any cash dividends on our Common Stock. We currently intend to retain future earnings, if any, to finance the expansion of our business. As a result, we do not anticipate paying any cash dividends in the foreseeable future.
 
Share Purchase Warrants

We have not issued and do not have outstanding any warrants to purchase shares of our common stock.

Options

We have not issued and do not have outstanding any options to purchase shares of our Common Stock

Convertible Securities

We have not issued and do not have outstanding any securities convertible into shares of our Common Stock or any rights convertible or exchangeable into shares of our Common Stock.
 
 
11

 

EXPERTS
 
Joseph M. Patricola, Esq. of The Sourlis Law Firm has assisted us in the preparation of this Report and will provide counsel with respect to other legal matters concerning the registration and offering of the Common Stock.
 
W.T. Uniack & Co. CPA’s P.C., the Company’s independent registered accounting firm, has audited our financial statements included in this Report and report to the extent and for the periods set forth in their audit report. W.T. Uniack & Co. CPA’s P.C. has presented its report with respect to our audited financial statements.

DISCLOSURE OF COMMISSION POSITION OF
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
 
Our Articles of Incorporation and Bylaws provide no director shall be liable to the corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except with respect to (1) a breach of the director’s duty of loyalty to the corporation or its stockholders, (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) liability which may be specifically defined by law or (4) a transaction from which the director derived an improper personal benefit, it being the intention of the foregoing provision to eliminate the liability of the corporation’s directors to the corporation or its stockholders to the fullest extent permitted by law. The corporation shall indemnify to the fullest extent permitted by law each person that such law grants the corporation the power to indemnify.

We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities is asserted by one of our directors, officers, or controlling persons in connection with the securities being registered, we will, unless in the opinion of our legal counsel, submit the question of whether such indemnification is against public policy to a court of appropriate jurisdiction.

Item 6. Selected Financial Data

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion together with "Selected Historical Financial Data" and our consolidated financial statements and the related notes included elsewhere in this report. This discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ materially from those we currently anticipate as a result of many factors, including the factors we describe under "Risk Factors," "Special Note Regarding Forward-Looking Statements" and elsewhere in this report.

Forward Looking Statements

Some of the information in this section contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. You should read statements that contain these words carefully because they:

 
·
discuss our future expectations;

 
·
contain projections of our future results of operations or of our financial condition; and

 
·
state other "forward-looking" information.

We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors," "Business" and elsewhere in this Report. See "Risk Factors."

Unless stated otherwise, the words “we,” “us,” “our,” “the Company” or “Grace” in this Report collectively refers to the Company, Grace 2, Inc.
 
 
12

 

Status as a Shell Company

As of June 20, 2010, because we have nominal operations and minimal assets, we are considered to be a shell company under the Securities Exchange Act of 1934, as amended. Because the Company is considered a shell company, the securities sold in previous offerings can only be resold through registration under the Securities Act of 1933, as amended (the “Securities Act”); Section 4(1) of the Securities Act, if available, for non-affiliates; or by meeting the conditions of Rule 144(i) of the Securities Act.

Therefore, an investment in our Company should be considered extremely risky and an investment suitable only for those who can afford to lose the entirety of their investment.

Plan of Operation

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, 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.
 
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.

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, 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.

On October 10, 2008, Broad Street Ventures, LLC, (“BSV”) the majority shareholder of the Company entered into a convertible promissory note (“the Note”) with Getting You There, LLC, (“GYT”) the former sole stockholder of the Company for the remaining balance of $10,000 that is owed on the purchase of the 96,000 common shares of the Company that was fully disclosed in the Form 8-K filed on July 7, 2008.
 
 
13

 

The Note provides for a term of six (6) months at an interest rate of 8% per annum. The maturity date of the Note was April 10, 2009. At any time on or prior to the maturity date, each dollar amount of the unpaid principal amount may be converted into one (1) duly authorized, validly-issued, fully-paid and non-assessable share of common stock of the Company. Any interest owed with respect thereto shall be paid in cash.
 
As of May 31, 2011, all amounts owed on the convertible promissory note have been paid in full satisfaction.
  
Results of Operations

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.

Revenues. For the fiscal year ended May 31, 2011 and 2010 and for the period from October 27, 2005 (Inception) to May 31, 2011, the Company had no activities that produced revenues from operations.
 
Assets. At May 31, 2011, the Company had $0 in assets, compared to $0 at May 31, 2010.
 
Net Loss. For the fiscal year ended May 31, 2011 and 2010, the Company had a net loss of $83,650 and $18,200, respectively. From the Company’s date of inception (October 27, 2005) to May 31, 2011, the Company had net losses of $132,219. 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.

Liabilities. At May 31, 2011, the Company had $122,425 in liabilities, consisting of Accounts Payable, Accrued Expenses and amounts Due Shareholder, compared to $38,775 at May 31, 2010. 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.

General and Administrative Expenses. For the fiscal years ended May 31, 2011 and 2010, the Company had general and administrative expenses of $83,650 and $18,200 respectively. From the Company’s date of inception (October 27, 2005) to May 31, 2011, the Company had general and administrative expenses of $132,219. 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 May 31, 2011 and 2010, the Company had total assets equal to $0 and $0, respectively. The Company’s current liabilities at May 31, 2011 and 2010 totaled $122,425 and $38,775, respectively, comprised accounts payable.
 
The following is a summary of the Company's cash flows from operating, investing, and financing activities:
 
For the Cumulative Period from October 27, 2005 (Inception) to May 31, 2011
 
Operating activities
  $ (132,219 )
Investing activities
    -  
Financing activities
  $ 44,219  
 
       
Net effect on cash
  $ -  
 
The Company has nominal 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.

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.
 
 
14

 

CONTRACTUAL OBLIGATIONS AS OF May 31, 2011

There are no contractual obligations on the Company’s Balance sheet as of May 31, 2011.

   
Payment due by period
 
Contractual Obligations
 
Total
   
Less than 1
Year
   
1-3 Years
   
3-5 Years
   
More than 5
Years
 
Long-Term Debt Obligations
 
$
0
 
 
$
0
 
 
$
0
 
 
$
    0
 
 
$
0
 
Capital Lease Obligations
 
$
0
 
 
$
0
 
 
$
0
 
 
$
0
 
 
$
0
 
Operating Lease Obligations
 
$
0
 
 
$
0
 
 
$
0
 
 
$
0
 
 
$
0
 
Purchase Obligations
 
$
0
 
 
$
0
 
 
$
0
 
 
$
0
 
 
$
0
 
Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet under GAAP
 
$
0
 
 
$
0
 
 
$
0
 
 
$
0
 
 
$
0
 
Total
 
$
0
 
 
$
0
 
 
$
0
 
 
$
0
 
 
$
0
 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.
 
 
15

 

 Item 8. Financial Statements and Supplementary Data


18                 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 BALANCE SHEET
19   STATEMENT OF OPERATIONS
20   STATEMENT OF CHANGES IN DEFICIENCY IN ASSETS
21   STATEMENT OF CASH FLOWS
22          NOTES TO THE FINANCIAL STATEMENTS
 
 
16

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Grace 2, Inc.
A Development Stage Company

We have audited the accompanying balance sheets of Grace 2, Inc. (“the Company”), a development stage company, as of May 31, 2011 and 2010 and the related statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended and the period October 27, 2005 (inception) through May 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company, a development stage company, as of May 31, 2011 and 2010, and the results of its operations and its cash flows for the period October 27, 2005 (inception) through May 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 1 & 8 to the financial statements, the Company is in the development stage and has not commenced operations. Its ability to continue as a going concern is dependent upon its ability to develop additional sources of capital, locate and complete a merger with another company and ultimately achieve profitable operations. These conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ W.T. Uniack & Co. CPA’s P.C.

W.T. Uniack & Co. CPA’s P.C.

October 3, 2011
 
 
17

 
 
GRACE 2, INC.
A DEVELOPMENT STAGE COMPANY
BALANCE SHEET

 
   
05/31/2011
   
05/31/2010
 
             
ASSETS
           
             
Total assets
 
$
-
   
$
-
 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current Liabilities
               
Accrued Expenses
   
20,000 
     
9,000 
 
Accounts payable
   
68,000
     
4,725
 
Due to shareholder
   
34,425
     
25,050
 
                 
Total liabilities
   
122,425
     
38,775
 
                 
Commitment 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
     
10
 
Additional paid-in capital
   
9,784
     
9,784
 
Deficit accumulated during the development stage
   
(132,219
)
   
(48,569
)
                 
Total stockholders' equity (deficit)
   
(122,425
)
   
(38,775
)
                 
Total liabilities and stockholders' equity (deficit)
 
$
-
   
$
-
 
 
The accompanying notes are an integral part of these financial statements.
 
 
18

 
 
GRACE 2, INC.
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF OPERATIONS
 
  
             
For the period
 
  
 
For the year
   
For the year
   
October 27, 2005
 
  
 
ended
   
ended
   
(Inception) to
 
  
 
May 31, 2011
   
May 31, 2010
   
May 31, 2011
 
                   
Net sales
 
$
-
   
$
-
   
$
-
 
                         
Cost of sales
   
-
     
-
     
-
 
                         
Gross profit
   
-
     
-
     
-
 
                         
General and administrative expenses
   
83,650
     
18,200
     
132,219
 
                         
Net loss
 
$
(83,650
)
 
$
      (18,200)
   
$
(132,219
)
                         
Weighted average number of common shares outstanding (basic and fully diluted)
   
100,000
     
100,000
     
100,000
 
                         
Basic and diluted (loss) per common share
 
$
(0.837
)
 
$
          (0.18)
   
$
(1.322
)
 
The accompanying notes are an integral part of these financial statements.

 
19

 

 
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

                     
Accumulated
Loss
       
  
             
Additional
   
During the
   
Stockholders'
 
  
 
Common Stock
   
Paid-In
   
Development
   
Equity
 
  
 
Shares
   
Amount
   
Capital
   
Stage
   
(Deficit)
 
                               
Balance-October 27, 2005
    -       -       -       -       -  
                                         
Issuance of common shares
    100,000     $ 10     $ 90       -     $ 100  
                                         
Net loss
    -       -       -     $ (100 )   $ (100 )
                                         
Balance, June 02, 2006
    100,000     $ 10     $ 90     $ (100 )     -  
                                         
Capital contributions-shareholder
    -       -     $ 2,694       -     $ 2,694  
                                         
Net(loss)
    -       -       -     $ (5,194 )   $ (5,194 )
                                         
Balance, May 31, 2007
    100,000     $ 10     $ 2,784     $ (5,294 )   $ (2,500 )
                                         
Capital contributions-shareholder
            -     $ 5,000       -     $ 5,000  
                                         
Net(loss)
                          $ (4,500 )   $ (4,500 )
                                         
Balance, May 31, 2008
    100,000     $ 10     $ 7,784     $ (9,794 )   $ (2,000 )
                                         
Capital contributions-shareholder
                  $ 2,000             $ 2,000  
                                         
Net(loss)
                          $ (20,575 )   $ (20,575 )
                                         
Balance, May 31, 2009
    100,000     $ 10     $ 9,784     $ (30,369 )   $ (20,575 )
                                         
Capital contributions-shareholder
                                       
                                         
Net(loss)
                          $ (18,200 )   $ (18,200 )
                                         
Balance, May 31, 2010
    100,000     $ 10     $ 9,784     $ (48,569 )   $ (38,775 )
                                         
Capital contributions-shareholder
                                       
                                         
Net(loss)
                          $ (83,650 )   $ (83,650 )
                                         
Balance May 31, 2011
    100,000     $ 10     $ 9,784     $ (132,219 )   $ (122,425 )

The accompanying notes are an integral part of these financial statements.

 
20

 

 
GRACE 2, INC.
A DEVELOPMENT STAGE COMPANY
STATEMENTS OF CASH FLOWS

 
  
             
Period from
 
  
 
For the year
   
For the year
   
October 27, 2005
 
  
 
ended
   
ended
   
(inception ) to
 
   
May 31, 2011
   
May 31, 2010
   
May 31, 2011
 
Cash flows from operating activities
                 
Net (loss)
 
$
 (83,650
)
 
$
 (18,200
)
 
$
 (132,219
)
                         
Adjustments to reconcile net (loss) to net cash used in operating activities:
                       
Increase (decrease) in accrued expenses
   
11,000
     
9,000
     
               20,000
 
Increase (decrease) in accounts payable
   
63,275
     
225
     
               68,000
 
                         
Net cash (used in) operating activities
   
(9,375
)
   
(8,975
)
   
(44,219
)
                         
Cash flows from financing activities
                       
Advances - due to shareholders, (no repayments)
   
9,375
     
8,975
     
34,425
 
Proceeds from issuance of common stock
   
-
     
-
     
10
 
Proceeds from additional capital contributions
   
-
     
-
     
9,784
 
                         
Net cash provided by financing activities
   
9,375
     
8,975
     
44,219
 
                         
Net 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 accompanying notes are an integral part of these financial statements.

 
21

 

NOTE 1.  DEVELOPMENT STAGE COMPANY

Grace 2, Inc., - A Developmental Stage Entity
The company is considered to be a development stage company and as such the financial statements presented herein are presented in accordance to FASB Accounting Standards Codification (“ASC”) 915 “Development Stage Entities.” The company is subject to the risks associated with activities of development stage companies.

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 an effort to identify a possible business combination, see Subsequent event (unaudited). As a result, the Company has conducted negotiations and entered into a letter of intent concerning target business. No assurances can be given that the Company will be successful in finalizing 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 May 31, 2011, 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 accounts payable approximates fair value due to their short term nature.

f.
Recently Issued Accounting Pronouncements – as of May 31, 2011 and 2010, the Company does not expect any of the recently issued accounting pronouncements to have a material impact on its financial condition or results of operations.
 
NOTE 3. PREFERRED STOCK

As of May 31, 2011 and 2010, the Company was authorized to issue 10,000,000 shares of preferred stock; zero preferred shares were outstanding.

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.
  
 
22

 

 
NOTE 4. COMMON STOCK

As of May 31, 2011 and 2010, the Company is authorized to issue 100,000,000 shares of common stock; 100,000 shares of common stock were outstanding.
 
Holders of shares of common stock shall be entitled to cast one vote for each share held at all stockholders’ meetings for all purposes, including the election of directors. The common stock does not have cumulative voting rights. No holder of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class, or of securities convertible into shares of stock of any class, whether now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend.

NOTE 5. RELATED PARTY TRANSACTIONS

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

As of May 31, 2011 and 2010, the majority shareholder advanced the Company $34,425 and $25,050 respectively for working capital purposes. The advances are not documented and do not bear any specific repayment terms.

NOTE 6. INCOME TAXES AND CHANGE IN CONTROL

As of May 31, 2011, the Company had approximately $44,954 in gross deferred tax assets 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 May 31, 2011.

As of May 31, 2011, the Company could have federal net operating loss carry forwards of approximately $133,000 available to offset future taxable income through 2031.

For the period October 27, 2005 (inception) to May 31, 2011, 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):

The Company is in the process of finalizing its income tax returns.

Statutory federal income tax rate
   
-34
%
State taxes - net of federal benefits
   
-5
%
Valuation allowance
   
39
%
         
Income tax rate – net
   
0
%

The stock purchase transaction that took place in July 2008 affects a change in control of the Company, and as such the federal net operating loss carry forwards as of the date of the transaction are limited under Section 382 of the Internal Revenue Code. At the present time there have been no tax returns filed for this company since inception. The company is a C Corporation and is domiciled within the State of Delaware.

NOTE 7. 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 purchased a total of 96,000 shares of the issued and outstanding common stock of the Company from Getting You There, LLC, then the sole shareholder of the Company. The total of 96,000 shares represents 96% of the shares of outstanding common stock of the Company (the “Acquisition”). 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.
 
 
23

 

NOTE 8. GOING CONCERN

As of May 31, 2011 and 2010, the Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.

As May 31, 2011 and 2010, the Company’s current business is to pursue a business combination through acquisition, or merger with, an existing company. The Company’s ability to continue as a going concern is dependent upon its ability to develop additional sources of capital, locate and complete a merger with another company and ultimately achieve profitable operations. No assurances can be given that the Company will be successful in locating or negotiating with any target company.

NOTE 9. Subsequent Events (Unaudited)

Subsequent to year end Grace 2, Inc., [the Company] has executed a term sheet to have a private operating company reverse merge with and into the Company.  Negotiations are ongoing and it is management’s opinion that it will culminate into an executed merger agreement soon.  Terms are non-binding, but do contain an exclusivity provision to the Company through December 31, 2011.
 
On June 9, 2011, the Company, the Company issued 1,000,000 shares of common stock to CPI pursuant to a stock purchase agreement for consideration of $100, and 1,500,000 shares of common stock to several consultants for services rendered. The Company issued these shares of Common Stock under the exemption from registration provided by Section 4(2) of the Securities Act, as the issuance did not involve a public sale of securities.
 
 
24

 

 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.
 
Item 9AT. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our sole officer, sole director, Principal Executive Officer and Principal Financial Officer, Mr. Douglas Dyer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act as of a date (the "Evaluation Date") within ninety (90) days prior to the filing of our May 31, 2011 Form 10-K.

Based upon that evaluation, our Management has concluded that, as of May 31, 2011, our disclosure controls and procedures were not effective in timely alerting management to the material information relating to us required to be included in our periodic filings with the SEC.

Our Principal Executive Officer/Principal Financial Officer has concluded that our disclosure controls and procedures had the following material weaknesses:

 
·
We were unable to maintain any segregation of duties within our financial operations due to our reliance on limited personnel in the finance function. While this control deficiency did not result in any audit adjustments to our 2011 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.

 
·
The Company lacks sufficient resources to perform the internal audit function and does not have an Audit Committee;

 
·
We do not have an independent Board of Directors, nor do we have a board member designated as an independent financial expert for the Company. The Board of Directors is comprised of one (1) member of management. As a result, there may be lack of independent oversight of the management team, lack of independent review of our operating and financial results, and lack of independent review of disclosures made by the Company; and

 
·
Documentation of all proper accounting procedures is not yet complete.

To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned material weaknesses, including, but not limited to, the following:

 
·
Considering the engagement of consultants to assist in ensuring that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures;

 
·
Hiring additional qualified financial personnel including a Chief Financial Officer on a full-time basis;

 
·
Expanding our current board of directors to include additional independent individuals willing to perform directorial functions; and

 
·
Increasing our workforce in preparation for exiting the development stage and commencing revenue producing operations.

Since the recited remedial actions will require that we hire or engage additional personnel, these material weaknesses 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.

We anticipate that these initiatives will be at least partially, if not fully, implemented by December 31, 2011, subject to our ability to obtain sufficient future financing and subject to our ability to produce revenue in the short term.

Internal Control over Financial Reporting

(a) Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 
25

 
 
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis.
 
Our management, with the participation of our sole officer, sole director, Principal Executive Officer and Principal Financial Officer, Mr. Douglas Dyer assessed the effectiveness of our internal control over financial reporting as of May 31, 2011. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of The Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment under such criteria, management concluded that our internal controls over financial reporting were not effective as of May 31, 2011 due to control deficiencies that constituted material weaknesses.
  
Management has identified a lack of sufficient personnel in the accounting function due to the limited resources of the Company with appropriate skills, training and experience to perform the review processes to ensure the complete and proper application of generally accepted accounting principles.
  
We are in the process of developing and implementing remediation plans to address our material weaknesses in the Company’s internal controls.

Management has identified specific remedial actions to address the material weaknesses described above:
 
 
·
Improve the effectiveness of the accounting group by augmenting our existing resources with additional consultants or employees to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions and preparation of tax disclosures. We plan to mitigate the segregation of duties issues by hiring additional personnel in the accounting department once we have achieved positive cash flow from operations, and/or have raised significant additional working capital.

 
·
Improve segregation procedures by strengthening cross approval of various functions including cash disbursements and quarterly internal audit procedures where appropriate.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Changes in Controls and Procedures

There were no significant changes made in our internal controls over financial reporting during the year ended May 31, 2011 that have materially affected or are reasonably likely to materially affect these controls. Thus, no corrective actions with regard to significant deficiencies or material weaknesses were necessary.

Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report. We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Commission that permit us to provide only management’s report in this annual report.

Item 9B. Other Information

None
  
 
26

 
 
PART III

Item 10. Directors, Executive Officers and Corporate Governance

(a) Identification of Directors, Executive Officers, Promoters, and Control Persons for the fiscal year ended May 31, 2011:

Name
 
Age
 
Position
 
Term
 
 
 
 
 
 
 
Douglas A. Dyer
 
50
 
President and Sole Director
 
July 18, 2008 - present

Douglas A. Dyer, Director and President. Mr. Dyer has been a co-founder and owner of Broad Street Ventures, LLC, an investment banking and venture capital firm which invests in businesses and assists businesses with locating sources of debt and equity financing. Prior to joining Broad Street, Mr. Dyer was a licensed representative, holding a Series 7 license, with several securities firms, including First Allied Securities, Inc. (1994-1996); Keogler Morgan, Inc. (1992-1994); Mid Atlantic Securities, Inc. (1991-1992); and Raymond James and Associates, Inc. (1986-1991).Mr. Dyer has a Bachelor of Science degree in Finance from the University of Tennessee at Chattanooga.

No transactions occurred in the last two years other than the aforementioned to which the Company was a party in which any director or officer had or is to have a direct or indirect material interest.

The term of office of each director expires at the Company’s annual meeting of stockholders or until their successors are duly elected and qualified. Directors are not compensated for serving as such. Officers serve at the discretion of the Board of Directors.

(b) Significant Employees. None

(c) Family Relationships. None

(d) Involvement in Certain Legal Proceedings. There have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any director, executive officer, promoter or control person of Registrant during the past five years.

(e) The Board of Directors acts as the Audit Committee and the Board has no separate committees. The Company does not have a qualified financial expert at this time because it has not been able to hire a qualified candidate. Further, the Company believes that it has inadequate financial resources at this time to hire such an expert. The Company intends to continue to search for a qualified individual for hire.

Involvement in Certain Legal Proceedings
 
None of the executive officers of the Company (i) has been involved as a general partner or executive officer of any business which has filed a bankruptcy petition; (ii) has been convicted in any criminal proceeding nor is subject to any pending criminal proceeding; (iii) has been subjected to any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (iv) has been found by a court, the United States Securities and Exchange Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law.
 
 Information Concerning Non-Director Executive Officers
 
We currently have no executive officers serving who are non-directors.

Compliance with Section 16(A) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers and directors and persons who own more than 10% of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission (hereinafter referred to as the "Commission") initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership, of Common Stock and other equity securities of the Company on Forms 3, 4, and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by Commission regulations to furnish the Company with copies of all Section 16(a) reports they file. To the Company's knowledge, all of the Company's executive officers, directors and greater than 10% beneficial owners of its Common Stock have complied with Section 16(a) filing requirements applicable to them during the Company's most recent fiscal year.

 
27

 
 
Item 11. Executive Compensation

The following table sets forth the cash compensation paid by the Company to its President and all other executive officers for services rendered during the fiscal year ended May 31, 2011.

Name and Position
 
Year
 
Annual Compensation
 
 
 
 
 
Douglas A. Dyer, President & Sole Director
 
2011
 
None

Officer Compensation
  
We have not paid any salary, bonus or other compensation to our officers and directors since our inception. We presently have no compensation arrangements with our officers and directors. We do not anticipate paying our officers in the next 12 months.

Director Compensation

We do not currently pay any cash fees to our directors, but we pay directors’ expenses in attending board meetings.

Stock Option Grants

The Company has never issued any stock options to officers, employees or otherwise.

Employment Agreements

We currently have no employment agreements with any personnel, executive officers or directors.

Significant Employees

We have no significant employees other than our executive officer and director named in this Report. We intend to conduct our business through agreements with consultants and arms-length third parties. As of the date of this Report, we have not contracted with any party.
  
Committees of the Board of Directors
  
At this time, we have not formed any committees due to the limited personnel at the director and officer level.

Code of Ethics

We have adopted a Code of Ethics and Code of Business Conduct that applies to our officers and directors, and critical employees.
 
Term of Office
 
Our director is appointed for a one-year term to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our bylaws.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth certain information, as of the date of this Report with respect to any person (including any “group,” as that term is used in Section 13(d)(3) of the Exchange Act who is known us to be the beneficial owner of more than five percent (5%) of any class of our voting securities, and as to those shares of our equity securities beneficially owned by each of our directors, our executive officers and all of our directors and executive officers and all of our directors and executive officers as a group. In general, “beneficial ownership” includes those shares a shareholder has the power to vote or the power to transfer, and stock options and other rights to acquire Common Stock that are exercisable currently or become exercisable within 60 days. Except as indicated otherwise, the persons named in the table below have sole voting and investment power with respect to all shares shown as beneficially owned by them. Unless otherwise indicated, the address for each person is c/o Grace 2, Inc., 735 Broad Street, Suite 400, Chattanooga, TN 37402. As of the Record Date, there were 2,600,000 shares of Common Stock issued and outstanding.

 
28

 
Name of
Beneficial Owner
 
 
Class of Voting Stock
 
Number of Shares of Voting
Stock Beneficially Owned
   
Percentage of Class (1)
 
                 
Douglas A. Dyer and James H. Brennan, III (2)
 
Common Stock
    303,481       11.6 %
Christmas Cove Corp., Inc.
 
Common Stock
    500,000       19.2 %
Lanterns, LLC
 
Common Stock
    450,000       17.3 %
Fremont Street Partners, LLC
 
Common Stock
    550,000       21.2 %
                     
All Officers & Directors As a Group (1 Persons)
 
Common Stock
    303,481       11.6 %
                     
(1) 
 
Based on 2,600,000 shares of Common Stock issued and outstanding as of October 5, 2011.
(2) 
 
The shareholder of record to these securities is Broad Street Ventures, LLC, a Tennessee limited liability company (“BSV”). Messrs. Dyer and Brennan are the principal owners and managing members of BSV, and therefore are deemed to beneficially own these 303,481 shares of Grace 2 common stock, approximately 11.6% of the current issued and outstanding. These shares are jointly and beneficially held by Messrs. Dyer and Brennan.

Item 13. Certain Relationships and Related Transactions, and Director Independence

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

As of May 31, 2011, the majority shareholder advanced the Company $16,075 for working capital purposes. The advances are not documented and do not bear any specific repayment terms.

As of May 31, 2011, the former sole shareholder of the Company advanced the Company $9,694 for working capital purposes. These advances were classified as capital contributions and reflected as such in additional paid in capital.

Except as otherwise indicated herein, there have been no related party transactions, or any other transactions or relationships required to be disclosed pursuant to Item 404 of Regulation S-K.

Indemnification
 
Pursuant to the Articles of Incorporation and By-Laws of the Company, we may indemnify an officer or director who is made a party to any proceeding, including a law suit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. In certain cases, we may advance expenses incurred in defending any such proceeding. To the extent that the officer or director is successful on the merits in any such proceeding as to which such person is to be indemnified, we must indemnify him against all expenses incurred, including attorney’s fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Delaware.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions above, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.

In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed in the Securities Act, and we will be governed by the final adjudication of such issue.

 
29

 
 
Director Independence

The OTCBB on which we plan to have our shares of common stock quoted does not have any director independence requirements. In determining whether our directors are independent, we refer to NASDAQ Stock Market Rule 4200(a)(15). Based on those widely-accepted criteria, we have determined that our Directors are not independent at this time.

No member of management is or will be required by us to work on a full time basis, although our president currently devotes fulltime to us. Accordingly, certain conflicts of interest may arise between us and our officer(s) and director(s) in that they may have other business interests in the future to which they devote their attention, and they may be expected to continue to do so although management time must also be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through their exercise of such judgment as is consistent with each officer's understanding of his/her fiduciary duties to us.

The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the Nasdaq Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.

Because none of our directors are independent directors, we do not currently have independent audit or compensation committees. As a result, these directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.

We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.

Item 14. Principal Accountant Fees and Services
 
(1) Audit Fees
 
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements and review of financial statements included in our quarterly reports or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were:
 
 
2011 
$ 10,050
W.T. Uniack & Co. CPA’s P.C.
 
2010 
$  9,500 
W.T. Uniack & Co. CPA’s P.C
 
(2) Audit-Related Fees
 
The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the preceding paragraph:
 
 
2011 
0
W.T. Uniack & Co. CPA’s P.C.
 
2010 
0
W.T. Uniack & Co. CPA’s P.C
 
(3) Tax Fees
 
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were:
  
 
30

 

 
 
2011 
0
W.T. Uniack & Co. CPA’s P.C.
 
2010 
0
W.T. Uniack & Co. CPA’s P.C

 (4) All Other Fees
 
The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was:
 
 
2011 
$ 0
W.T. Uniack & Co. CPA’s P.C.
 
2010 
0
W.T. Uniack & Co. CPA’s P.C
 
 
31

 

PART IV.
Item 15. Exhibits and Reports on Form 8-K
 
Exhibit
 
Description
*3.1
 
Certificate of Incorporation, as filed with the Delaware Secretary of State on October 27, 2005.
 
 
 
*3.2
 
By-Laws
 
 
 
31.1
 
Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to 15d-15(e), under the Securities and Exchange Act of 1934, as amended, with respect to the registrant’s Annual Report on Form 10-K for the year ended May 31, 2011.
 
 
 
32.1
 
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Office and Chief Financial Officer). 
  

*
Filed as an exhibit to the Company’s Registration Statement on Form 10-SB, as filed with the Securities and Exchange Commission on June 19, 2006, and incorporated herein by this reference.

(b)
Reports on Form 8-K. None
 
 
32

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Date: October 6, 2011
By: /s/ DOUGLAS DYER
 
Name: Mr. Douglas Dyer
 
Title: President and Sole Director
 
(Principal Executive Officer,
 
Principal Financial Officer
 
and Principal Accounting Officer)

Signature
 
Title
 
Date
 
 
 
 
 
/s/ DOUGLAS DYER
 
President and Sole Director
 
October 6, 2011
   
(Principal Executive Officer,
   
   
Principal Financial Officer
   
   
and Principal Accounting Officer)
   
Mr. Douglas Dyer
 
 
 
 
 
 
33