UNITED STATES SECURITIES AND EXCHANGE COMMISSION




Washington, D.C. 20549




FORM 10-Q




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





For the quarterly period ended March 31, 2011




OR




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





For the transition period from  to




Commission File Number 000-50482




ACRO Inc.


(Exact name of registrant as specified in its charter)





Nevada

98-0377767(State or Other Jurisdiction of

(IRS EmployerIncorporation or Organization)

Identification No.)




18 Halivne street, Timrat

Israel

23840(Address of Principal Executive Offices)

(Zip Code)





+972-4-636-0297
 (Registrant’s Telephone Number, Including Area Code)





N/A


(Former Name, Former Address and Former Fiscal year, if changed since last report)


Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:


Yes þ No o


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 (§ 232.405 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  o No o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company:





Large accelerated filer o

Accelerated filer oNon-accelerated filer o

Smaller reporting company þ


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):


Yes o No þ


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




As of May 23, 2011, 68,824,268 shares of the registrant’s common stock were outstanding.









Table of Contents


ACRO INC.


(“The Company”)


INDEX





PART I. FINANCIAL INFORMATION

2Item 1. Financial Statements

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

11Item 3. Quantitative and Qualitative Disclosures about Market Risk

15Item 4T. Controls and Procedures

16PART II. OTHER INFORMATION

17Item 1. Legal Proceedings

17Item 1A. Risk Factors

17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

17Item 3. Defaults Upon Senior Securities

17Item 4. [Removed and Reserved]

17Item 5. Other Information

17Item 6. Exhibits

17Signatures

18Exhibit Index

19Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to U.S.C. Section 1350




1


ACRO Inc. (A Development Stage Company)


Consolidated Financial Statements






PART I- FINANCIAL INFORMATION




Item 1. Financial Statements


Consolidated Balance Sheets




March 31


December 312011


2010Assets

$


$Current assets:Cash and cash equivalents


534



7,429Trade receivables


-



1,067Prepaid expenses and other current assets


22,403



27,259Total current assets


22,937



35,755Property and equipment, net (Note 3)


13,394



15,980Total assets


36,331



51,735Liabilities and stockholders' equity (deficit)Current liabilities:Accounts payable and accrued liabilities


471,578



418,109Total current liabilities


471,578



418,109Convertible Promissory Note (Note 7)


165,535



183,178Total liabilities


637,113



601,287Commitments (Notes 5 and 8)Stockholders' deficiency:Common stock; $0.001 par value; 700,000,000 shares authorized; 68,824,268  and 68,824,268  shares issued and outstanding as of  March 31, 2011 and December 31, 2010, respectively


68,823



68,823Additional paid-in capital


3,851,968



3,846,133Deficit accumulated during the development stage


(4,521,573
)


(4,464,508
)Total stockholders' deficiency


(600,782
)


(549,552
)Total liabilities and stockholders' deficiency


36,331



51,735





The accompanying notes are an integral part of the consolidated financial statements


2


ACRO Inc. (A Development Stage Company)


Consolidated Financial Statements


Consolidated Statements of Operations




Three months ended March 31


Cumulative

from Inception

(May 22, 2002)2011


2010


2011$


$


$Revenues


3,300



20,374



227,803Costs and expenses :Research and development


2,949



17,110



588,518Sales and marketing


-



4,202



324,350General and administrative *


77,472



73,881



3,634,864Impairment of Intangible assets


-



-



62,507Total operating expenses


80,421



95,193



4,610,239Operating loss


(77,121
)


(74,819
)


(4,382,436
)Interest and other income (expenses), net


(14,944
)


(5,429
)


(106,111
)Income from settlement of liability


35,000



-



35,000Loss before income tax


(57,065
)


(80,248
)


(4,453,547
)Income tax


-



-



68,026Net loss


(57,065
)


(80,248
)


(4,521,573
)Basic and diluted net loss per common share


(0.00
)


(0.00
)


(0.08
)Weighted average shares used in computing basic and diluted net loss per common share


68,824,268



67,823,725



53,288,316





*
Includes $5,835, $5,836 and $1,112,427 in stock-based compensation to employees and non-employees for the three months periods ended March 31, 2011, and 2010 and for the cumulative period from May 22, 2002 (date of inception) to March 31, 2011 respectively.




The accompanying notes are an integral part of the consolidated financial statements


3




ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements


Consolidated Statements of Cash Flows
  Cumulativefrom inception(May 22, 2002)Three months ended March 31


to March 312011


2010


2011$


$


$Cash flows from operating activities:Net loss


(57,065
)


(80,248
)


(4,521,573
)Adjustments to reconcile net loss to net cash used inoperating activities:Services contributed by officers


-



-



3,500Depreciation and amortization


2,586



6,854



253,597Expenses for Beneficial conversion feature (note 7)


14,857



-



161,879Stock-based compensation


5,835



5,836



1,112,427Income from settlement of liability


(35,000
)


-



(35,000
)Changes in operating assets and liabilities:Decrease in Trade receivables


1,067



566



-Decrease (Increase) in Prepaid expenses and other current assets


4,856



1,148



(22,403
)Increase in Accounts payable and accrued liabilities


53,469



27,837



471,578Net cash used in operating activities


(9,395
)


(38,007
)


(2,575,995
)Cash flows from investing activities:Decrease (increase) in long term deposit


-



(663
)


-Purchase of property and equipment


-



(1,222
)


(146,991
)Purchase of intangible assets


-



-



(120,000
)Net cash used in investing activities


-



(1,885
)


(266,991
)Cash flows from financing activities:Decrease in short term bank credit


-



(795
)


-Increase in Convertible promissory note


2,500



10,000



220,774Proceeds from Subscription for units


-



25,000



-Proceeds from issuance of common stock


-



-



2,861,286Offering costs


-



-



(238,540
)Net cash provided by financing activities


2,500



34,205



2,843,520Net  (decrease) increase in cash and cash equivalents


(6,895
)


(5,687
)


534Cash and cash equivalents at beginning of period


7,429



25,812



-Cash and cash equivalents at end of period


534



20,125



534Non-cash activitiesSupplemental disclosures of cash flow information:Cash paid for taxes


-



-


The accompanying notes are an integral part of the consolidated financial statements




4


ACRO Inc. (A Development Stage Company)


Consolidated Financial Statements


Notes to the Consolidated Financial Statements as of March 31, 2011





Note 1 - Business





A.           General





ACRO Inc. (A Development Stage Company) (the “Company”) was incorporated on May 22, 2002, under the laws of the State of Nevada, as Medina International Corp. On May 4, 2006, the Company changed its name to ACRO Inc. The Company was originally an oil and gas consulting company in Canada and in the United States. However, during 2006, following a change of control and a private placement financing, the Company ceased to engage in the oil and gas consulting business and engaged in development of products for the detection of military and commercial explosives for the homeland security market.





Since its inception, the Company has no significant revenues and in accordance with ASC 915 codified from Statement of Financial Accounting Standard (“SFAS”) No. 7 “Accounting and Reporting by Development Stage Enterprises”, the Company is considered a development stage company.





B.           Going concern





The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.  The Company has a limited operating history, and has incurred losses of $4,521,573 from operations since its inception.  These circumstances raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans with regard to these matters include continued development, marketing and licensing of its products as well as seeking additional financing arrangements.  There is no assurance that the Company will be successful in obtaining sufficient revenues from its products or financing on terms acceptable to the Company.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.




In the event that the company does not generate revenues or raise sufficient additional funds by a public offering or a private placement, the management will consider alternative financing options, if any, or be forced to scale down or perhaps even cease its operations.





Note 2 - Summary of Significant Accounting Policies





A.           Basis of Presentation





The accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).





B.           Use of Estimates in the Preparation of Financial Statements





The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the financial statement date and the reported expenses during the reporting periods. Actual results could differ from those estimates.




5




ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of March 31, 2011
 Note 2 - Summary of Significant Accounting Policies (cont’d)





C.           Principles of Consolidation





The consolidated financial statements include the accounts of the Company and its wholly-owned Israeli subsidiary, Acrosec Ltd. All material intercompany transactions and balances have been eliminated in consolidation.





D.         Convertible debt with beneficial conversion feature





The Company accounts for convertible debt with beneficial conversion feature in accordance with ASC 470-20 which requires the Company to recognize separately, at issuance, the embedded beneficial conversion feature in additional paid-in capital. The recognition is done by allocating a portion of the proceeds equal to the intrinsic value of that feature in additional paid-in capital. The intrinsic value is calculated as the difference between the effective conversion price of the convertible debt and the fair value of the shares at issuance date.





E.           Intangible Assets





The Company accounts for intangible assets in accordance with ASC 360-10 under which recoverability of assets are tested whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.




Note 3 - Property and Equipment





Property and equipment consist of the following:




Estimated 
useful life
(years)


March 31 2011


December 31
2010$


$Computer equipment


3



14,709



14,709Production equipment


3



122,341



122,341Furniture


7-15



7,924



7,924Leasehold improvements


(*
)


2,017



2,017146,991



146,991Less - Accumulated depreciation and amortization






133,597



131,01113,394



15,980





(*)
over the lease term





Depreciation expense for the three month period ended March 31, 2011 and 2010, and for the cumulative period from May 22, 2002 (date of inception), to March 31, 2011 were $2,586, $3,854, and $133,597, respectively.




6


ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of March 31, 2011




Note 4 - Intangible Assets




In March 2006, the Company purchased a patent from Prof. Ehud Keinan (“Keinan”), a stockholder who holds 30.91% of the Company’s shares of common stock, for $120,000. The patent was being amortized over the life of the asset which was estimated at 10 years. Amortization expense for each of the three months periods ended March 31, 2011 and 2010 and for the cumulative period from May 22, 2002 (date of inception) to March 31, 2011 was $-, $3,000 and $57,493, respectively. As a result of the financial hardship, the Company determined that these intangible assets are not recoverable and therefore wrote it off in 2010.





Note 5 - Stock-Based Compensation





During 2006, the Company engaged three consultants to serve as members of its advisory board. The consultants are entitled to receive shares of common stock each quarter that they serve on the Company’s advisory board. One of the consultants resigned during 2007. During the three month period ended March 31, 2011, 2010 and for the cumulative period from May 22, 2002 (date of inception) to March 31, 2011, the consultants earned 0 shares, 80,512 shares and 11,264,407 shares respectively. 113,844 shares out of the total shares that were earned have not yet been issued. During the three months period ended March 31, 2011, 2010 and for the cumulative period from May 22, 2002 (date of inception) to March 31, 2011, compensation expense recorded in respect of the shares earned by the consultant amounted to $0, $0 and $1,006,207 respectively.





Compensation expense was calculated by multiplying the amount of shares earned by their fair market value on the last day of the service period completed by the consultants.


Under the agreements with the consultants they are not entitled to earn any more shares of common stock for future services to be performed.





In August 2006, the Company entered into an agreement with a director for his services as a member of the Company’s Board of Directors. As compensation, the director received a signing bonus of $5,000, and a quarterly fee of $1,500 until October 2007, and $3,000 per quarter thereafter. Starting from July 2008, the director agreed that the Company may defer the payment of 100% of his quarterly fee until further notice.





In addition, following the adoption of a Stock Option Plan, on April 28, 2008, the Company’s board of directors approved the grant of an option to the director to purchase 215,232 shares of common stock of the Company at an exercise price per share that is equal to the par value of the Company’s common stock. All options became vested as of September 30, 2010.





On April 28, 2008, the Company’s board of directors approved the grant of options to purchase 1,800,000 shares of common stock of the Company to the trustee in trust for the Company’s executives, at an exercise price of $0.075 per share. 1,350,000 of the options became vested as of December 31, 2010, 450,000 of the options were cancelled, due to work termination of one of the executives. An additional option to purchase 215,232 shares of common stock of the Company was granted to a director at an exercise price per share that is equal to the par value of the Company’s common stock (as described above).





On April 28, 2008, the Company’s board of directors further approved the issuance of 147,665 shares of common stock to two of the Company’s directors at a price per share that is equal to the par value of the Company’s common stock and other valuable consideration.




7




ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of March 31, 2011




Note 5 - Stock-Based Compensation (cont'd)





On July 8, 2008, the Company’s board of directors approved the grant of options to purchase 400,000 shares of common stock of the Company to the trustee in trust for two of the Company’s executives, at an exercise price of $0.06 per share. All options became vested as of December 31, 2010.





Note 6 - Related Party Transactions





In February 2006, the Company entered into a consulting services agreement (the “Consulting Agreement”) with BioTech Knowledge LLC, a limited liability company wholly-owned by Prof. Keinan (see Note 5), whereby Prof. Keinan has agreed to provide consulting services for duration of three years at a monthly fee of $3,000. The agreement was terminated on February 1, 2009. Starting from July 2008, Prof. Keinan agreed that the Company may defer the payment of 100% of his monthly fee until further notice. The total amount of the deferred payment as of March 31, 2011, is $19,500 and is included at accounts payable. During the three months period ended March 31, 2011 and 2010, the Company incurred $0 and $0 respectively, for the consulting services provided by Prof. Keinan. In addition to the Consulting Agreement, the Company purchased a patent from Prof. Keinan in March 2006 (see Note 4).





During the three months period ended March 31, 2011 and 2010, the Company incurred an expense of $31,680 and $31,680, respectively, for consulting services provided by the Company’s CEO and chairman of the board of directors.





Starting from October 2008, the Company’s CEO and chairman of the board of directors agreed that the Company may defer the payment of 100% of his monthly fee until further notice





The total amount of the deferred payment as of March 31, 2011, is $311,520 and is included at accounts payable.





On April 28, 2008, the Company’s board of directors approved the issuance of 147,665 shares of common stock to two of the Company’s directors. The Company’s board of directors further approved that future payments to Biotech Knowledge LLC, to M.G.-Net Ltd., a company wholly owned by the Company’s CEO and chairman of the board and his wife and to Mr. Dan Elnathan, one of our directors, shall be paid based on a minimum exchange rate of$1=4 New Israeli Shekels.




8





ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of March 31, 2011




Note 7 – Convertible Promissory Notes and other




On February 22, 2009, the Company received an interest free loan in the amount of $93,274 in the form of a convertible promissory note with BioTech Knowledge LLC, convertible to up to 11,659,250 shares of the Company's common stock, at a price of $0.008 per share, within 12 months from the closing date, with each share of common stock such converted awarding a warrant to purchase one share of the Company’s common stock at the price per share of $0.016 exercisable within three years. During years 2009, 2010 and 2011, the Company received from Bio Tech Knowledge LLC additional interest free loans, with the same terms, in an aggregate amount of $92,500. The loans are convertible to up to 11,562,500 shares of the Company's common stock, at a price of $0.008 per share, within 12 months from the date of the grant, with each share of common stock such converted awarding a warrant to purchase one share of the Company’s common stock at the price per share of $0.016 exercisable within three years. The company did not repay the loans and BioTech Knowledge LLC did not convert the note into shares.




Consistent with provisions of ASC 470-20, the Company evaluated whether the notes contain a beneficial conversion feature ("BCF") and determined that in most cases the BCF amount exceeded the amount of notes, and as a result the notes initially recorded at nil and are to be amortized over the term of notes, which is one year (although as discussed below repayment or conversion did not occurred although the one year period had passed).





As of March 31, 2011 the Company recorded in the financial reports convertible promissory notes of $165,535, representing the carrying values of the Notes net of unamortized discount.




On April 1, 2010, the Company received a loan from Lindon Group Inc., Rhode Island Corporation (which is a related party of one of the company's major customers) in the amount of $35,000, bearing a yearly interest of 6%, in the form of a promissory note. This loan was forgiven by Lindon group on March 8, 2011, along with terminating its distribution agreement with the Company.





Note 8 – Commitments





On October 28, 2007, the Company’s technology agreement with LSRI – Life Science Research Israel Ltd., a subsidiary of IIBR – Israel Institute for Biological Research, became effective. Under the terms of the agreement, LSRI will license the technology of IIBR’s explosives testing kit (ETK) to the Company, for incorporation into the Company’s pen-like device, allowing the detection of commercial and military explosives. The agreement is subject to minimum annual revenues to be achieved by the Company and royalties to be paid to LSRI. The new device complements the ACRO-P.E.T., the Company’s peroxide explosive tester for the detection of improvised explosives.





Note 9 - Stock Transactions




On March 15, 2010, the Company closed a private placement of 500,000 units, at a price of $0.05 per unit, for aggregate proceeds of $25,000.  Each unit is comprised one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at the price per share of $0.025, exercisable within twelve months from closing date (i.e. March 15, 2011). In connection with this private placement, the Company issued the finder a warrant to purchase 40,000 shares of the Company’s common stock at a price per share of $0.025, exercisable within twelve months of the closing date.




On February 27, 2007, the Company consummated a private placement of 2,000,000 units, at a price of $0.75 per unit, for aggregate proceeds of $1,500,000, each unit comprising one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at an exercise price per share of $1.25 exercisable within five years (“Unit”). In connection with the private placement, the Company paid a finder’s fee of $120,000 in cash and issued a warrant to purchase 160,000 Units to the finder.





On February 6, 2006, the Company affected a seven-for-one stock split of its authorized and outstanding shares of common stock. As a result, the authorized capital was changed from 50,000,000 to 350,000,000 shares of common stock. The stock split did not vary the aggregate par value of the common stock. All stock figures and per share data have been retroactively restated to reflect the stock split.





9




ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of March 31, 2011
  Note 9 – Stock Transactions (Cont’d)





On January 19, 2006, the Company consummated a private placement (“the January 2006 Private Placement”) pursuant to which the Company issued to certain investors 20,200,012 shares of common stock in consideration of a promissory note payable upon demand issued by such investors to the Company, in an aggregate gross proceeds of $43,286. The promissory note was paid in full by such investors in March 2006. In addition, pursuant to a share purchase agreement, two of the Company’s existing stockholders sold their entire interests in the Company to a new stockholder who also participated in the January 2006 Private Placement, resulting in a change of control in the Company. On March 15, 2006, the Company consummated a second private placement (“the March 2006 Private Placement”) pursuant to which the Company issued to certain investors 2,376,000 shares of common stock, together with warrants to purchase 2,376,000 shares of common stock at an exercise price of $0.75 per share, exercisable until March 15, 2008, in consideration of aggregate gross proceeds of $1,188,000, less offering costs of $99,031.





On October 30, 2006, the Company affected a 2:1 stock split. As a result, the authorized capital was changed from 350,000,000 to 700,000,000 shares of common stock. The stock split did not vary the aggregate par value of the common stock. All stock figures and per share data have been retroactively restated to reflect the stock split.





Note 10 – Subsequent Event





On April 14, 2011 a loan agreement was signed with Oren Fuerst and Noam Yellin (the lenders), according to which  the company was supposed to receive a loan of an aggregated amount of $53,000. ($26,500 from each), in a form of convertible promissory note. As of May 23, 2011 the company received only $19,000 of the agreed amount. The lenders decided to withdraw from the agreement and not to lend the rest of the money to the company. Therefore the company board of directors decided to cancel the agreement with the lenders. The company will negotiate with the lenders regarding the loan of $19,000 that was actually received.




* * * * * * * *


10




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


You should read the following discussion in conjunction with our consolidated financial statements and related notes thereto. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Our actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors




This quarterly report contains forward-looking statements as that term is defined in the Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  These statements relate to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.




Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.




Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.  In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars.  All references to “common stock” refer to our shares of common stock.




As used in this quarterly report, the terms “we”, “us”, “our”, and “ACRO” means ACRO Inc., unless otherwise indicated.




General




We developed and market products for the detection of military and commercial explosives for the homeland security market. We were incorporated under the laws of the State of Nevada on May 22, 2002, under the name of Medina International Corp. On May 4, 2006, we changed our name to ACRO Inc. We effected this change of name by merging our company with a wholly-owned subsidiary of our company that we had formed specifically for this purpose. We have a wholly-owned subsidiary, Acrosec Ltd. (Acrosec), incorporated under the laws of the State of Israel. Effective January 1, 2009, we entered into an Intellectual Property Assignment and Services Termination Agreement with our wholly owned subsidiary, Acrosec Ltd., pursuant to which, among others, we effected a transfer of all of our intellectual property, including patents and technology, to Acrosec,in consideration for an amount representing the value of the intellectual property as will be determined by an independent third-party appraiser selected by us and Acrosec. Concurrently, the services agreement between us and Acrosec, dated March 7, 2007, pursuant to which Acrosec provided us certain research, development, manufacturing and management services, was terminated. The Intellectual Property Assignment and Services Termination Agreement effectively render ACRO as a holding company.




Initially, our business had been to provide professional consulting services for the technical and economic evaluation of petroleum and natural gas resources.




However, since we were not successful in implementing our initial business plan for consulting services, we decided to no longer offer consulting services to oil and gas companies.  Accordingly, on March 15, 2006, we completed our acquisition of a patent for $120,000 pursuant to a patent purchase agreement with Prof. Ehud Keinan, which we refer here as the Patent Purchase Agreement. The patent, U.S. Patent No. 6,767,717, describes a method of detection of peroxide-based explosives. Through a consulting services agreement that we signed at the same time, Prof. Keinan, the inventor of the method described in the patent, has agreed to provide consulting services to us in order to develop the patent into a commercially viable product.  We are a development stage company with little history of research and development of explosives detection equipment. We are currently contemplating to cease our current operations and purchase new technologies.




On January 19, 2006, we closed a private placement consisting of 20,200,012 shares of common stock for total gross proceeds of $43,286 in the form of a promissory note payable upon demand, in which two of our current directors, Gadi Aner and Prof. Ehud Keinan, who were not directors at that time, and Zeev Bronfeld, beneficial owner of more than 5% of our common stock, participated. Pursuant to the private placement, we issued, among others: (i) 2,300,004 shares of common stock to Mr. Aner for a total consideration of $4,929; (ii) 2,800,000 Shares to M.G-Net Ltd., a private company, wholly-owned by Mr. Aner and his wife, for a total consideration of $6,000; (iii) 5,999,994 shares of common stock to Mr. Bronfeld for a total consideration of $12,857.13; and (iv) 6,400,002 shares of common stock to BioTech Knowledge LLC, a private company wholly-owned by Prof. Keinan, for a total consideration of $13,714. In addition, pursuant to a share purchase agreement dated January 10, 2006, two of our former directors, Nick DeMare and Brad Colby, sold their entire interests in us, 14,000,000 shares of common stock, to BioTech Knowledge LLC.




11




On March 15, 2006, we consummated a second private placement, pursuant to which, we issued to certain investors 2,376,000 shares of common stock, together with warrants to purchase 2,376,000 shares of common stock at an exercise price of $ 0.75 per share, exercisable until March 15, 2008, in consideration of an aggregate gross proceeds of $1,188,000, less transaction cost of $ 99,031.




On February 27, 2007, the Company consummated a private placement of 2,000,000 units, at a price of $0.75 per unit, for aggregate proceeds of $1,500,000, each unit comprising one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at an exercise price per share of $1.25 exercisable within five years (“Unit”). In connection with the private placement, the Company paid a finder’s fee of $120,000 in cash and issued a warrant to purchase 160,000 Units to the finder.




On February 22, 2009, we received from BioTech Knowledge LLC an interest-free loan in the aggregate amount of $93,274 in the form of a convertible promissory note, convertible into up to 11,659,250 shares of our  common stock, at a price of $0.008 per share, within 12 months from February 22, 2009, with each share of common stock such converted awarding a warrant to purchase one share of our common stock at the price per share of $0.016 exercisable within three years. As of April 10, 2011, BioTech Knowledge LLC is our largest stockholder, holding approximately 30.91% of our common stock. As of April 10, 2011, we did not repay the loan and BioTech Knowledge LLC did not convert the note into shares.




On March 15, 2010, we closed a private placement of 500,000 units, at a price of $0.05 per unit, for aggregate proceeds of $25,000.  Each unit is comprised two shares of our common stock and one warrant to purchase one share of our common stock at the price per share of $0.025, exercisable within twelve months from March 15, 2010. In connection with this private placement, we issued the finder a warrant to purchase 40,000 shares of our common stock at a price per share of $0.025, exercisable within twelve months of the closing date.




During years 2009,2010 and 2011, we received from BioTech Knowledge LLC additional interest-free loan in the aggregate amount of $92,500 in the form of a convertible promissory note, convertible into up to 11,562,500 shares of our common stock, at a price of $0.008 per share, within 12 months from March 24, 2010, with each share of common stock such converted awarding a warrant to purchase one share of our common stock at the price per share of $0.016 exercisable within three years. As of May 23, 2011, we did not repay the loan and BioTech Knowledge LLC did not convert the note into shares.





On April 14, 2011 a loan agreement was signed with Oren Fuerst and Noam Yellin (the lenders), according to which  we were supposed to receive a loan of an aggregated amount of $53,000. ($26,500 from each), in a form of convertible promissory note. As of May 23, 2011 we received only $19,000 of the agreed amount. The lenders decided to withdraw from the agreement and not to lend us the rest of the money. Therefore our board of directors decided to cancel the agreement with the lenders. We company will negotiate with the lenders regarding the loan of $19,000 that was actually received.




As of March 31, 2011, we had not realized any significant revenues from operations and experienced losses of $4,521,573.




Employees


As of May 23 2011 we do not have any employees. Our subsidiary, Acrosec, hired the services of Gadi Aner, who serves as our Chairman and our Chief Executive Officer, Gabby Klausner, who serves as our Chief Financial Officer. Commencing on September 2009, Ms. Klausner provides her services as a freelance consultant.
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Cash Requirements




Our cash requirement through March 31, 2011, is approximately $300,000 which we need for implementation of our plan of operation and developing and commercializing our potential explosive detection device.  We estimate our operating expenses and working capital requirements beginning March 31, 2010, and through March 31, 2011, to be as follows:





Estimated Expenses through March 31, 2011Product Research and Development

$
-Sales and Marketing

$
50,000General and Administrative

$
250,000Capital Expenditures

$
-Tax Expenses

$
-Total

$
300,000




At March 31, 2011 we had a deficit in working capital of $(448,641), out of which $364,020 are payable to directors, which agreed to defer their fees until further notice.We are now operating under minimal activity note, until we successfully raise additional funds or receive a significant order to our products, according to thislow volume of activity, we anticipate that we will require additional funds of up to approximately $760,000 to keep activating our business for the next twelve-month period. In such event that we do not generate sufficient revenues or raise sufficient additional funds by a public offering or a private placement, we will consider alternative financing options, if any, or be forced to cease our operations.




Our Products




Our first product is called the Peroxide Explosives Tester (ACRO-P.E.T.). ACRO-P.E.T. is a small, disposable, pen-like probe which detects the presence of peroxide-based explosives using three chemical solutions and relies on direct contact with the suspicious substance. ACRO-P.E.T. has been designed for rapid, on-site detection of peroxide-based explosives. Its main advantages are high sensitivity, high selectivity, fast response, simple operation, high mobility, small size and cost effectiveness. In November 2006, we completed the first production of the ACRO-P.E.T. for evaluation by potential customers. In 2007, we developed a new version of ACRO-P.E.T. which enables easier verification of peroxide-based explosives, such as triacetone triperoxide (TATP). In addition, in the new version we improved the sampling device to enable easy and immediate sampling of suspicious liquids, in addition to all other forms of explosives, such as powder. The new version has been available for sale since mid 2007.




In addition, we developed the ACRO-N.E.T. (Nitride Explosives Tester), which detects the presence of commercial and military explosives. ACRO-N.E.T. incorporates into our pen-like device the explosive testing kit of the Israel Institute for Biological Research (IIBR), licensed to us under an agreement dated October 28, 2007, with a subsidiary of IIBR called Life Science Research Israel Ltd. (LSRI). ACRO-N.E.T. is based on the LSRI explosive detecting kit, called ETK. The ETK is capable of identifying the full range of well known types of military and commercially available explosives, and also of homemade explosives based on nitrate and chlorate salts. This device, ACRO-N.E.T., complements ACRO-P.E.T. by providing the possibility to detect explosives other than TATP. Its operation system and advantages are the same as the ACRO-P.E.T.; however, it uses different solutions and detects different explosives. We also signed several agreements with LSRI pursuant to which we may distribute the ETK and ETK 5, exclusively, in several countries. The ETK’s kits complete our products.




The ACRO-SET is a sensitive, rapid and reliable kit for field detection and identification of trace explosives. Weighing about one-quarter of a pound, this kit contains the ACRO-PET, which detects improvised explosives such as TATP, and the ACRO-NET, which detects the entire range of the nitro explosives including all conventional explosives, the improvised ammonium nitrate, ANFO, and urea nitrate. Conveniently packed in a belt pouch, the Acro-SET is, in effect, a portable, inexpensive micro-laboratory for identification of all explosives by any law enforcement personnel.




Since the fourth quarter of 2007, we delivered samples of ACRO-SET to several distributors and potential clients in many countries including the USA, UK, China, Canada, Spain, Singapore, Japan, South Africa, Australia, Serbia, Italy, Germany, Luxemburg, South Korea, India, New Zealand and Russia. During 2009, we had sales in the aggregate amount of $73,358. During 2010, we had sales in the aggregate amount of $79,227




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ACRO-N.E.T. is based on the LSRI explosive detecting kit, called ETK Nevertheless, we cannot assure that ACRO-P.E.T. and ACRO-N.E.T. will gain commercial acceptance in the marketplace.




During 2008, we developed a product called “TATP Simulant”. The TATP Simulant is a hands-on tool of practicing detection and identification of peroxide based explosives such as TATP and HMTD. We delivered samples of TATP Simulant to several clients, but at this stage we cannot estimate the commercial value of this product, if any.




During 2009, we developed the ACRO-CH.E.T. (Chlorates Explosives Tester) which detects chlorate based explosives traces and the ACRO-U.E.T (Urea nitrate Explosives Tester) which detects the presence urea nitrate traces. Both products have low false positive and negative alarm rates.




During the first quarter of 2010, we completed the development, Acro-ANET, a specific tester and a trace-detector of ammonium nitrate. The white crystals of ammonium nitrate are commonly used in agriculture as high-nitrogen fertilizer and are the main component of ammonium nitrate fuel oil (ANFO), an increasingly popular component of improvised explosive devices.




We are currently contemplating to cease our current operations and purchase new technologies.




Financial Condition, Liquidity and Capital Resources





During the three months ended March 31, 2011, we incurred a loss of $57,065, compared to a net loss of $80,248 for the comparative period in 2010.





During the three months ended March 31, 2011, we incurred $80,421 of operating expenses, comprised of $2,949 for research and development costs, $5,836 for stock-based compensation expenses and $71,636 for general and administrative cost.





During the three months ended March 31, 2010, we incurred $95,193 of operating expenses, comprised of $17,110 for research and development costs, $5,836 for stock-based compensation expenses, $4,202 for sales and marketing costs, $68,045 for general and administrative cost.





As of March 31, 2011, we had deficit in working capital of $(448,641) out of which $364,020 are payable to directors, which agreed to defer their fees until further notice.





As of March 31, 2011, we had total assets of $36,331, which consisted of cash and equivalents of $534, fixed assets of $13,394, prepaid expenses and other current, non-current assets of $22,403.





From January 1, 2011 to March 31, 2011, we had sales of $3,300.




Going Concern




The continuation of our business is dependent upon our raising additional financial support or on our ability to purchase new technologies. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial or other loans, assuming those loans would be available, would increase our liabilities and future cash commitments.




We have historically incurred losses, and from inception through March 31, 2011, we have incurred losses of $4,521,573. Because of these historical losses, we will require additional working capital to develop our business operations.




There can be no assurance that additional funds will be available on terms acceptable to us, or at all. These conditions raise substantial doubt about our ability to continue to operate as a going concern. The audited financial statements attached to this annual report do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. We are also currently committed to loans repayment of approximately $204,774, as described in detail in under “General”.




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Recent Private Placements




On February 27, 2007, we closed a private placement of 2,000,000 units, at a price of $0.75 per unit, for aggregate proceeds of $1,500,000. Each unit comprised one share of our common stock and one warrant to purchase one share of our common stock at the price per share of $1.25 exercisable within five years. In connection with the private placement, we paid a finder’s fee of $120,000 in cash and issued a warrant to purchase 160,000 units to the finder.




On March 15, 2010, we closed a private placement of 500,000 units, at a price of $0.05 per unit, for aggregate proceeds of $25,000.  Each unit is comprised two shares of our common stock and one warrant to purchase one share of our common stock at the price per share of $0.025, exercisable within twelve months from closing date (i.e. March 15, 2011). In connection with this private placement, we issued the finder a warrant to purchase 40,000 shares of our common stock at a price per share of $0.025, exercisable within twelve months of the closing date.




Critical Accounting Policies




Share Based Compensation




The Company accounts for stock-based awards to employees in accordance with (ASC) 718-10 and related interpretations, which requires all share-based payments to employees to be recognized based on their fair values.  The Company recorded the stock based compensation granted to a consultant on the date the consultant earned the awarded shares in the same manner as if the Company paid cash to the consultant for his services.





The Company accounts for convertible debt with beneficial conversion feature in accordance with ASC 470-20 which requires the Company to recognize separately, at issuance, the embedded beneficial conversion feature in additional paid-in capital. The recognition is done by allocating a portion of the proceeds equal to the intrinsic value of that feature in additional paid-in capital. The intrinsic value is calculated as the difference between the effective conversion price of the convertible debt and the fair value of the shares at issuance date.





The Company accounts for intangible assets in accordance with ASC 360-10 under which recoverability of assets are tested whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.





The financial hardship of the Company together with the difficulties in sales experienced in the recent year and lack of forecasted improvement, led the Company to evaluate the recoverability of its intangible assets. The result of the evaluation was the decision that the intangible assets are not recoverable and should be written off entirely.




Item 3. Quantitative and Qualitative Disclosures about Market Risk


Not applicable.
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Item 4T. Controls and Procedures




As of the end of the period covered by this report, being March 31, 2011, we performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure that the material financial and non-financial information required to be disclosed in our annual report and filed with the Securities and Exchange Commission is recorded, processed, summarized and reported timely within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Act, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on our evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d – 15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report are effective at such reasonable assurance level.




There can be no assurance that our disclosure controls and procedures will detect or uncover all failures of persons within our company to disclose material information otherwise required to be set forth in our reports. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the desired control objectives.




There were no changes in our internal controls over financial reporting identified with the evaluation thereof that occurred during the quarter ended March 31, 2011, that have materially affected, or are reasonable likely to materially affect our internal control over financial reporting.




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Part II — OTHER INFORMATION




Item 1. Legal Proceedings




There are no material legal proceedings to which we are a party, other than ordinary routine litigation incidental toour business.




Item 1A. Risk Factors


Not applicable.




Item 2. Unregistered Sales of Equity Securities and Use of Proceeds




On March 15, 2010, we closed a private placement of 500,000 units, at a price of $0.05 per unit, for aggregate proceeds of $25,000.  Each unit is comprised two shares of our common stock and one warrant to purchase one share of our common stock at the price per share of $0.025, exercisable within twelve months from closing date (i.e. March 15, 2011). In connection with this private placement, we issued the finder a warrant to purchase 40,000 shares of our common stock at a price per share of $0.025, exercisable within twelve months of the closing date.We issued the securities to a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.




Item 3. Defaults Upon Senior Securities


None.




Item 4. [Removed and Reserved]




Item 5. Other Information


None.




Item 6. Exhibits


The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part of this quarterly report on Form 10-Q and such Exhibit Index is incorporated herein by reference.




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SIGNATURES


Pursuant to the requirements 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.




ACRO INC.(Registrant)Date: May 23, 2011
By:
/s/ Gadi AnerGadi AnerPresident, Chief Executive Officer& DirectorDate: May 23, 2011

/s/ Gabby KlausnerGabby KlausnerTreasurer andChief Financial Officer


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Exhibit Index





Number

Description

Method of Filing(3)

Articles of Incorporation and By-laws3.1

Articles of Incorporation, as amended.

Incorporated by reference to Exhibit 3.1 to our registration statement on Form SB-2 filed November 21, 20033.2

Bylaws, dated February 25, 2005.

Incorporated by reference to Exhibit 3.1 to our current report on Form 8-K filed March 17, 2005 and March 21, 20053.3

Certificate of Change Pursuant to NRS 78.209 filed with the State of Nevada effective as of January 25, 2006.

Incorporated by reference to Exhibit 3.3 to our annual report on Form 10-KSB filed March 28, 20073.4

Certificate of Change Pursuant to NRS 78.209 filed with the State of Nevada effective as of October 25, 2006.

Incorporated by reference to Exhibit 3.4 to our annual report on Form 10-KSB filed March 28, 20073.5

Certificate of Change Pursuant to NRS 78.209 filed with the State of Nevada effective as of October 30, 2006.

Incorporated by reference to Exhibit 3.5 to our annual report on Form 10-KSB filed March 28, 2007(10)

Material Contracts10.1

Agreement and Plan of Merger for the Merger of ACRO Inc. with and into Medina International Corp., dated April 25, 2006.

Incorporated by reference to Exhibit 10.2 to our current report on Form 8-K filed May 4, 200610.2

Patent Purchase Agreement between the Registrant and Prof. Ehud Keinan, dated February 1, 2006.

Incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed February 3, 200610.3

Consulting Agreement between the Registrant and BioTech Knowledge LLC, dated February 1, 2006.

Incorporated by reference to Exhibit 10.2 to our current report on Form 8-K filed February 3, 200610.4

Letter of Agreement between the Registrant and BioTech Knowledge LLC, dated February 1, 2006.

Incorporated by reference to Exhibit 10.3 to our current report on Form 8-K filed February 3, 200610.5

Advisory Board Agreement between the Registrant and Prof. Richard E. Lerner, dated May 31, 2006.

Incorporated by reference to Exhibit 99.2 to our current report on Form 8-K filed June 5, 200610.6

Advisory Board Agreement between the Registrant and Prof. K. Barry Sharpless, dated September 28, 2006.

Incorporated by reference to Exhibit 10.8 to our annual report on Form 10-KSB filed March 28, 200710.7

Consulting Agreement between Acrosec Ltd. and M.G NET Ltd., dated March 26, 2007

Incorporated by reference to Exhibit 10.10 to our annual report on Form 10-KSB filed March 28, 200710.8

Cooperation and Licensing Agreement between the Registrant and Life Science Research Israel Ltd., dated October 28, 2007.

Incorporated by reference to Exhibit 10.11 to our annual report on Form 10-KSB filed March 13, 200810.9

Intellectual Property Assignment and Services Termination Agreement, dated March 30, 2009.

Incorporated by reference to Exhibit 10.12 to our annual report on Form 10-K filed March 30, 200910.10

Convertible Promissory Note between the Registrant and BioTech Knowledge LLC, dated February 22, 2009.

Incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed February 23, 200910.11

Warrant between the Registrant and BioTech Knowledge LLC, dated February 22, 2009.

Incorporated by reference to Exhibit 10.14 to our annual report on Form 10-K filed March 30, 2009




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10.12

Convertible Promissory Note between the Registrant and BioTech Knowledge LLC, dated March 24, 2010.

Incorporated by reference to Exhibit 10.12 to our annual report on Form 10-K filed March 29, 201010.13

Warrant between the Registrant and BioTech Knowledge LLC, dated March 24, 2010.

Incorporated by reference to Exhibit 10.13 to our annual report on Form 10-K filed March 29, 201010.14

The Registrant’s 2008 Israeli Share Option Plan

Incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed May 1, 200810.15

Finders Agreement between the Registrant and Siden Investment Inc. dated March 13, 2010.

Incorporated by reference to Exhibit 10.15 to our annual report on Form 10-K filed March 29, 201010.16

Promissory Note between the Registrant and Lindon Group, dated April 1, 2010.

Incorporated by reference to Exhibit 10.16 to our quarterly report on Form 10-Q filed May 20, 2010(31)

Section 302 Certification31.1

Rule 13a-14(a) Certification of Principal Executive Officer

Filed herewith31.2

Rule 13a-14(a) Certification of Principal Financial Officer.

Filed herewith(32)

Section 906 Certification32.1

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Filed herewith





20