---

---

# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

# Washington, D.C. 20549

# FORM 10-Q

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

For the quarterly period ended June
30, 2009

# 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 Employer      
|Incorporation or Organization)                                                     |                                                      | Identification No.)
|                                                                                   |                                                      |                    
|37 Inbar Street, Caesarea, Israel                                                  |                                                      | 30889              
|Israel                                                                             |                                                      | (Zip Code)         
|(Address of Principal Executive Offices)                                           |                                                      |                    
|                                                                                   |                                                      |                    
|                                                                                   | +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 x 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 o        
| | Non-accelerated filer o   | Smaller reporting company x

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

Yes o No x

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

As
of June 30, 2009, 67,824,268 shares of the registrants common stock were
outstanding.



---

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# Table of Contents
ACRO INC.
(The
Company)
INDEX

|                                                                                              |   
|--------------------------------------------------------------------------------------------- | --
|PART I. FINANCIAL INFORMATION                                                                 | 3 
|Item 1. Financial Statements                                                                  | 3 
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 13
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                            | 19
|Item 4T. Controls and Procedures                                                              | 19
|PART II. OTHER INFORMATION                                                                    | 20
|Item 1. Legal Proceedings                                                                     | 20
|Item 1A. Risk Factors                                                                         | 20
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           | 20
|Item 3. Defaults Upon Senior Securities                                                       | 20
|Item 4. Submission of Matters to a Vote of Security Holders                                   | 20
|Item 5. Other Information                                                                     | 20
|Item 6. Exhibits                                                                              | 20
|                                                                                             
|Signatures                                                                                    | 20
|                                                                                             
|Exhibit Index                                                                                 | 21
|                                                                                             
|Certification of CEO Pursuant to Section 302                                                 
|                                                                                             
|Certification of CFO Pursuant to Section 302                                                 
|                                                                                             
|Certification Pursuant to U.S.C. Section 1350                                                

2

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---



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

# PART I- FINANCIAL
INFORMATION

|                            
|----------------------------
|Item 1. Financial Statements
|Consolidated Balance Sheets 
|                            

|                                                               | June 30
2009 | December 31
2008
|-------------------------------------------------------------- | ------------ | ----------------
|
|
|
|
|Assets                                                         |              |                 
|                                                               |              |                 
|Current assets:                                                |              |                 
|Cash and cash equivalents                                      |              |                 
|Trade receivables                                              |              |                 
|Prepaid expenses and other current assets                      |              |                 
|                                                               |              |                 
|Total current assets                                           |              |                 
|                                                               |              |                 
|Other non-current assets                                       |              |                 
|Property and equipment, net (Note 3)                           |              |                 
|Intangible assets, net                                         |              |                 
|                                                               |              |                 
|Total assets                                                   |              |                 
|                                                               |              |                 
|                                                               |              |                 
|Liabilities and stockholders' equity (deficit)                 |              |                 
|                                                               |              |                 
|Current liabilities:                                           |              |                 
|Accounts payable and accrued liabilities                       |              |                 
|                                                               |              |                 
|Total current liabilities                                      |              |                 
|                                                               |              |                 
|Convertible Promissory Note                                    |              |                 
|                                                               |              |                 
|Total liabilities                                              |              |                 
|                                                               |              |                 
|                                                               |              |                 
|Commitments (Notes 5 and 7)                                    |              |                 
|                                                               |              |                 
|Stockholders' equity (deficiency):                             |              |                 
|Common stock; $0.001 par value; 700,000,000 shares authorized; |              |                 
|67,824,268 and 67,824,268 shares issued and outstanding as of  |              |                 
|June 30, 2009 and December 31, 2008, respectively              |              |                 
|Additional paid-in capital                                     |              |                 
|Deficit accumulated during the development stage               |              |                 
|                                                               |              |                 
|Total stockholders' equity (deficiency)                        |              |                 
|                                                               |              |                 
|Total liabilities and stockholders' equity (deficiency)        |              |                 
|                                                               |              |                 

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

3

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

|                                     
|-------------------------------------
|Consolidated Statements of Operations
|                                     

|                                          | Three months ended June 30 | Six months ended June 30 | Cumulative
From Inception
(May 22, 2002)
to June 30
2009
|----------------------------------------- | -------------------------- | ------------------------ | --------------------------------------------------------
|
|
|
|
|Revenues                                  |                            |                          |                                                         
|                                          |                            |                          |                                                         
|                                          |                            |                         
|Costs and expenses :                      |                            |                         
|                                          |                            |                         
|Research and development                  |                            |                          |                                                         
|Sales and marketing                       |                            |                          |                                                         
|General and administrative*               |                            |                          |                                                         
|                                          |                            |                          |                                                         
|                                          |                            |                         
|Total operating expenses                  |                            |                          |                                                         
|                                          |                            |                          |                                                         
|                                          |                            |                         
|Operating loss                            |                            |                          |                                                         
|                                          |                            |                          |                                                         
|                                          |                            |                         
|Interest and other income (expenses), net |                            |                          |                                                         
|                                          |                            |                          |                                                         
|                                          |                            |                         
|Loss before income tax                    |                            |                          |                                                         
|Income tax                                |                            |                          |                                                         
|                                          |                            |                          |                                                         
|                                          |                            |                         
|Net loss                                  |                            |                          |                                                         
|                                          |                            |                          |                                                         
|                                          |                            |                         
|Basic and diluted net loss per            |                            |                         
|common share                              |                            |                          |                                                         
|                                          |                            |                          |                                                         
|                                          |                            |                         
|Weighted average shares used in           |                            |                         
|computing basic and diluted net           |                            |                         
|loss per common share                     |                            |                          |                                                         
|                                          |                            |                          |                                                         

|* | Includes
$8,218, $25,743; $16,464, $28,077 and $1,080,666 in stock-based compensation to employees
and non-employees for the three months periods ended June 30, 2009, and 2008; for the six
months periods ended June 30, 2009, and 2008 and for the cumulative period from May 22,
2002 (date of inception) to June 30, 2009 respectively.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

4

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

|                                     
|-------------------------------------
|Consolidated Statements of Cash Flows
|                                     

|                                                                 | Six months ended June 30 | Cumulative
From inception
(May 22, 2002)
to June 30
2009
|---------------------------------------------------------------- | ------------------------ | --------------------------------------------------------
|
|
|
|
|Cash flows from operating activities:                            |                          |                                                         
|Net loss                                                         |                          |                                                         
|                                                                 |                          |                                                         
|Adjustments to reconcile net loss to net cash used in            |                          |                                                         
|operating activities:                                            |                          |                                                         
|Services contributed by officers                                 |                          |                                                         
|Depreciation and amortization                                    |                          |                                                         
|Stock-based compensation                                         |                          |                                                         
|                                                                 |                          |                                                         
|Changes in operating assets and liabilities:                     |                          |                                                         
|Decrease (Increase) in Trade receivables                         |                          |                                                         
|Decrease (Increase) in Prepaid expenses and other current assets |                          |                                                         
|Increase (Decrease) in Accounts payable and accrued liabilities  |                          |                                                         
|Increase in Accrued severance pay                                |                          |                                                         
|                                                                 |                          |                                                         
|Net cash used in operating activities                            |                          |                                                         
|                                                                 |                          |                                                         
|                                                                 |                          |                                                         
|Cash flows from investing activities:                            |                          |                                                         
|Decrease (increase) in long term deposit                         |                          |                                                         
|Decrease (Increase) in short term deposits                       |                          |                                                         
|Purchase of property and equipment                               |                          |                                                         
|Purchase of intangible assets                                    |                          |                                                         
|                                                                 |                          |                                                         
|Net cash used in investing activities                            |                          |                                                         
|                                                                 |                          |                                                         
|                                                                 |                          |                                                         
|Cash flows from financing activities:                            |                          |                                                         
|Increase in Convertible promissory note                          |                          |                                                         
|Proceeds from issuance of common stock                           |                          |                                                         
|Offering costs                                                   |                          |                                                         
|                                                                 |                          |                                                         
|Net cash provided by financing activities                        |                          |                                                         
|                                                                 |                          |                                                         
|Net (decrease) increase in cash and cash equivalents             |                          |                                                         
|                                                                 |                          |                                                         
|Cash and cash equivalents at beginning of period                 |                          |                                                         
|                                                                 |                          |                                                         
|Cash and cash equivalents at end of period                       |                          |                                                         
|                                                                 |                          |                                                         
|Non-cash activities                                              |                          |                                                         
|                                                                 |                          |                                                         
|Supplemental disclosures of cash flow information:               |                          |                                                         
|                                                                 |                          |                                                         
|Cash paid for taxes                                              |                          |                                                         
|                                                                 |                          |                                                         

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

5

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

|Notes
to the Consolidated Financial Statements as of June 30, 2009
|------------------------------------------------------------------

---

# 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 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 $3,839,143 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. Although, management
continues to pursue these plans, 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 we do not generate 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 scale down or perhaps even cease our 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. | Financial
Statement Preparation
| | -- | -------------------------------

| | The
unaudited condensed consolidated financial statements of ACRO Inc. (collectively referred
to in this report as the Company, we, us, or our),
of which these notes are a part, have been prepared in accordance with generally accepted
accounting principles for interim financial information and pursuant to the instructions
of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting principles for
annual financial statements. In the opinion of our management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation of the financial information as of and for the periods presented have been
included.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

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

|Notes
to the Consolidated Financial Statements as of June 30, 2009
|------------------------------------------------------------------

---

# Note 2  Summary of
Significant Accounting Policies (contd)

| | B. | Financial
Statement Preparation (Contd)
| | -- | ----------------------------------------

| | The
results for the interim periods presented are not necessarily indicative of the results
that may be expected for any future period. The unaudited condensed consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes for the year ended December 31, 2008, included in our
Annual Report on Form 10-K for the year ended December 31, 2008.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | C. | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
significant accounting policies applied in the annual financial statements of the Company
as of December 31, 2008, are applied consistently in these financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | D. | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | E. | Recently
Issued Accounting Standards
| | -- | ------------------------------------

| | SFAS
167
| | --------

| | In
June 2009 the FASB issued SFAS No. 167 Amendments to FASB Interpretation No. 46(R) (SAFS
No. 167), which change the way entities account for securitizations and
special-purpose entities. SAFS No. 167 is a revision to FASB Interpretation No. 46(R),
Consolidation of Variable Interest Entities, and changes how a company determines when an
entity that is insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. The determination of whether a company is required to
consolidate an entity is based on, among other things, an entitys purpose and
design and a companys ability to direct the activities of the entity that most
significantly impact the entitys economic performance. SFAS No. 167 will require a
company to provide additional disclosures about its involvement with variable interest
entities and any significant changes in risk exposure due to that involvement.   A
company will be required to disclose how its involvement with a variable interest entity
affects the companys financial statements. SFAS No. 167 will be effective at the
start of a companys first fiscal year beginning after November 15, 2009. The
adoption of this standard is not expected to have material impact on the Companys
consolidated financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7

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

|Notes
to the Consolidated Financial Statements as of June 30, 2009
|------------------------------------------------------------------

---

# Note 2  Summary of
Significant Accounting Policies (contd)

| | F. | Initial
Adoption of New Accounting Standards
| | -- | --------------------------------------------

| | EITF
07-5
| | ---------

| | In
June 2008, the FASB Emerging Issues Task Force reached a consensus on EITF Issue No.
07-5, Determining Whether an Instrument (or an Embedded Feature) is Indexed to an
Entitys Own Stock. The Consensus was reached on the following three issues:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 1. | How
an entity should evaluate whether an instrument (or embedded feature) is
               indexed to its own stock.
| | -- | ---------------------------------------------------------------------------------------------------------------------

| | 2. | How
the currency in which the strike price of an equity-linked financial
               instrument (or embedded equity-linked feature) is denominated affects the
               determination of whether the instrument is indexed to an entitys own
               stock.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | How
an issuer should account for market-based employee stock option valuation
               instruments. This consensus will affect entities with (1) options or
warrants on                their own shares (not within the scope of Statement 150),
including market-based                employee stock option valuation instruments; (2)
forward contracts on their own                shares, including forward contracts entered
into as part of an accelerated share                repurchase program; and (3)
convertible debt instruments and convertible                preferred stock. Also
affected are entities that issue equity-linked financial                instruments (or
financial instruments that contain embedded equity-linked                features) with a
strike price that is denominated in a foreign currency.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
adoption of EITF 07-5 did not have any impact on the consolidated results of operations
or financial position of the Company.
| | ---------------------------------------------------------------------------------------------------------------------------------

| | SFAS
No. 161
| | ------------

| | Effective
January 1, 2009, the Company adopted SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities (SFAS No. 161). SFAS No. 161
expands disclosures but does not change accounting for derivative instruments and hedging
activities. The adoption of SFAS No. 161 did not have any impact on the consolidated
results of operations or financial position of the Company.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FSP
FAS 107-1 and APB 28-1
| | --------------------------

| | In
April 2009 the FASB issued FASB staff position 107-1 and APB 28-1, Interim
Disclosures about Fair Value of Financial Instruments. This FSP applies to all
financial instruments within the scope of Statement 107 held by publicly traded
companies, as defined by Opinion 28 and are effective for interim reporting periods
ending after June 15, 2009, with early adoption permitted for periods ending after March
15, 2009.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FSP
FAS 107-1 and APB 28-1 relate to fair value disclosures for any financial instruments
that are not currently reflected on the balance sheet of companies at fair value. Prior
to issuing this FSP, fair values for these assets and liabilities were only disclosed
once a year. The FSP now requires these disclosures on a quarterly basis, providing
qualitative and quantitative information about fair value estimates for all those
financial instruments not measured on the balance sheet at fair value. The adoption of
this standard did not have any impact on the consolidated results of operations or
financial position of the Company.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

---

---



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

|Notes
to the Consolidated Financial Statements as of June 30, 2009
|------------------------------------------------------------------

---

# Note 2  Summary of
Significant Accounting Policies (contd)

| | F. | Initial
Adoption of New Accounting Standards (contd)
| | -- | -----------------------------------------------------

| | FSP
FAS 157-4
| | -------------

| | In
April 2009 the FASB issued FASB staff position 157-4, Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly. This FSP applies to all assets
and liabilities within the scope of accounting pronouncements that require or permit fair
value measurements, except as discussed in paragraphs 2 and 3 of statement 157. The
FSP is Effective for interim and annual reporting periods ending after June 15, 2009, and
shall be applied prospectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FSP
FAS 157-4 relates to determining fair values when there is no active market or where the
price inputs being used represent distressed sales. It reaffirms what Statement 157
states is the objective of fair value measurementto reflect how much an asset would
be sold for in an orderly transaction (as opposed to a distressed or forced transaction)
at the date of the financial statements under current market conditions. Specifically, it
reaffirms the need to use judgment to ascertain if a formerly active market has become
inactive and in determining fair values when markets have become inactive.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FSP
FAS 157-4 provides guidance on (1) estimating the fair value of an asset or liability
(financial and nonfinancial) when the volume and level of activity for the asset or
liability have significantly decreased and (2) identifying transactions that are not
orderly. The adoption of this standard did not have any impact on the
consolidated results of operations or financial position of the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | SFAS
165
| | --------

| | In
May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS No. 165).
SFAS No. 165 establishes general standards of accounting for, and disclosure of, events
that occur after the balance sheet date but before financial statements are issued or are
available to be issued.  In particular, this statement sets forth: (1) the
period after the balance sheet date during which management of a reporting entity should
evaluate events or transactions that may occur for potential recognition or disclosure in
the financial statements, (2) the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial statements
and (3) the disclosures that an entity should make about events or transactions that
occurred after the balance sheet date.  SFAS No. 165 is effective for the
interim or annual financial periods ending after June 15, 2009.   The adoption
of this standard did not have any impact on the consolidated results of operations
or financial position of the Company. The Company considered the provisions of this SFAS
and disclosed all material events which occurred after the balance sheets date.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

---



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

|Notes
to the Consolidated Financial Statements as of June 30, 2009
|------------------------------------------------------------------

---

# Note 3  Property
and Equipment

| | Property
and equipment consist of the following:
| | ------------------------------------------------

| |                                 | Estimated
useful life
(years) | June 30
2009 | December 31
2008
| | ------------------------------- | ----------------------------- | ------------ | ----------------
|
|
|
|
| | Computer equipment              |                               |              |                 
| | Production equipment            |                               |              |                 
| | Furniture                       |                               |              |                 
| | Leasehold improvements          |                               |              |                 
| |                                 |                               |              |                 
| |                                 |                               |              |                 
| | Less - Accumulated depreciation |                               |              |                 
| |                                 |                               |              |                 
| |                                 |                               |              |                 
| |                                 |                               |              |                 
| |                                 |                               |              |                 

| | (*)
          over the lease term
| | ---------------------------------

| | Depreciation
expense for the three months and six months periods ended June 30, 2009 and 2008, and for
the cumulative period from May 22, 2002 (date of inception), to June 30, 2009 were
$11,550, $22,994, $9,276, $18,396, and $105,650, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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 is being amortized over the life of the asset which is estimated at 10 years.
Amortization expense for each of the three months and six months periods ended June 30,
2009 and 2008 and for the cumulative period from May 22, 2002 (date of inception) to June
30, 2009 were $3,000, $3,000, $6,000, $6,000 and $39,494, respectively. The expected
annual amortization expenses for each of the next five years are $12,000. Effective
as of January 1, 2009, the Company affected a transfer of all of its intellectual
property, including patents and technology, to its wholly owned subsidiary, Acrosec Ltd,
in consideration for an amount representing the value of the intellectual property as
will be determined by an independent third-party appraiser selected by the company and
Acrosec.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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 and six months periods ended June 30, 2009, 2008 and for the cumulative
period from May 22, 2002 (date of inception) to June 30, 2009 the consultants earned
66,664, 33,332 shares, 33,332, 66,664 shares and 1,497,743 shares respectively. 99,996
shares that were earned during the last nine month period, have not yet been issued.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the three and six months period ended June 30, 2009, 2008 and for the cumulative period
from May 22, 2002 (date of inception) to June 30, 2009, compensation expense recorded in
respect of the shares earned by the consultant amounted to $0, $0, $2,000, $4,334 and
$1,006,207 respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

---

---



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

|Notes
to the Consolidated Financial Statements as of June 30, 2009
|------------------------------------------------------------------

---

# Note 5 
Stock-Based Compensation (Contd)

| | 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 entitled to earn up to an additional 47,180
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 215,232 options became vested as of
June 30, 2009
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. 900,000 of the
options became vested as of June 30, 2009, and 150,000 of the options shall vest at the
end of each subsequent quarter, following June 30, 2009, for a period of 6 quarters.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 400,000 of
the options became vested as of June 30, 2009.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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 4), whereby Prof. Keinan has agreed to provide consulting services
for duration of three years which ended on February 1, 2009, at a monthly fee of $3,000.
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 June 30, 2009, is $19,500 and is included at accounts payable. During the three months
periods ended June 30, 2009 and 2008, the Company incurred $0 and $9,000, 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 periods ended June 30, 2009 and 2008, the Company incurred an expense of
$31,680 and $32,238, respectively, for consulting services provided by the Companys
CEO and chairman of the board of directors. Starting from July 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 June 30, 2009 is $103,800 and is included at accounts payable.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

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

|Notes
to the Consolidated Financial Statements as of June 30, 2009
|------------------------------------------------------------------

---

# Note 6  Related
Party Transactions (Contd)

| | 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
February 2009, the Company received an interest-free loan in the aggregate amount of
$93,274 in the form of a convertible promissory note from BioTech Knowledge LLC, to be
repaid on February 8, 2010, unless earlier converted into its shares common stock or
prepaid, pursuant to the terms of the note. The note is convertible into up to 11,659,250
shares of its common stock, at a price per share of $0.008. In addition, the Company
issued BioTech Knowledge LLC a warrant to purchase its shares of common stock,
exercisable within three years following the conversion of the note, at the price per
share of $0.016. The warrant is exercisable into amount of shares of common stock equal
to the number of shares of common stock issued to BioTech Knowledge LLC following the
conversion of the note.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
as of January 1, 2009, the Company entered into an Intellectual Property Assignment and
Services Termination Agreement with its wholly owned subsidiary, Acrosec Ltd., pursuant
to which, among others, the Company effected a transfer of all of its 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 the company and Acrosec. The services
agreement between the Company and Acrosec, dated March 7, 2007, pursuant to which Acrosec
provided us certain research, development, manufacturing and management services was
terminated. The agreement effectively renders ACRO as a holding company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note 7  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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April, 2009, the Company signed a non-binding letter of intent (LOI) to
acquire Xurity in an all-stock transaction. Xurity develops and provides advanced X-RAY
detection systems. Completion of the proposed acquisition is subject to a number of
conditions, including completion of definitive documentation on terms satisfactory to the
parties, due diligence, and the approval of the proposed acquisition by both companies boards
of directors and raising funds.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note 8  Subsequent
Event

| | In
August 2009 the Company received additional amount of $10,000 as an interest-free loan in
the form of a convertible promissory note from BioTech Knowledge LLC, to be repaid on
February 8, 2010, unless earlier converted into its shares common stock or prepaid,
according to terms of the note from February 2009.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

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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. Factors that could cause
such differences include those described in Risk Factors in Item 1 of our
Annual Report on Form 10-KSB filed with the Securities and Exchange Commission (the
Commission) on March 13, 2008.

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 develop 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., incorporated under the laws of the State of Israel. Our principal executive
and head office is located at 37 Inbar Street, Caesarea, Israel.

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.

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. 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 agreement effectively renders ACRO a holding company.

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. As a result of these two
transactions, BioTech Knowledge LLC is our largest stockholders with approximately 30.91%
of our common stock.

13

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On February 22, 2009, we closed a
private placement for total gross proceeds of $93,274 in the form of a convertible
promissory note with BioTech Knowledge LLC, convertible to up to 11,659,250 shares of
common stock, at a price of $0.008 per share, 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. On August 2009, we increase the gross
proceeds for the private placement to total of $103,274, at the same terms and conditions.

In April, 2009, we signed a
non-binding letter of intent (LOI) to acquire Xurity in an all-stock transaction. Xurity
develops and provides advanced X-RAY detection systems. Completion of the proposed
acquisition was subject to a number of conditions, including completion of definitive
documentation on terms satisfactory to the parties, due diligence, the approval of the
proposed acquisition by both companies boards of directors and raising adequate
financing.

On October 28, 2007, our technology
agreement with LSRI, a subsidiary of IIBR  Israel Institute for Biological Research,
became effective. Under the terms of the agreement, LSRI licensed the long-proven
technology of IIBRs explosives testing kit to Acro, for incorporation into our
pen-like device. This allows our pen-like device to detect commercial and military
explosives. The agreement is subject to minimum annual revenues to be achieved by us and
royalties to be paid to LSRI.

As of June 30, 2009, we had not
realized any significant revenues from operations and experienced losses of $3,750,119.

Employees

As of May 15, 2009, we do not have
any employees. Our subsidiary, Acrosec Ltd., hired the services of Gadi Aner, who serves
as our Chairman and our Interim Chief Executive Officer, Gabby Klausner, who serves as our
Chief Financial Officer (36% time), Shai Markevitch, who serves as our Marketing and Sales
Manager. Commencing February 2009, Mr. Markevitch provides his services, as a freelance
consultant, and his fees are calculated based on sales.

Cash Requirements

Our cash requirement through June 30,
2010, 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 June 30, 2009, and
through June 30, 2010, to be as follows:

|                                         |  | 
|---------------------------------------- |  | 
|
|
|
|
|Estimated Expenses through June 30, 2010 |  | 
|                                         |  | 
|Sales and Marketing                      |  | 
|                                         |  | 
|General and Administrative               |  | 
|                                         |  | 
|                                         |  | 
|Total                                    |  | 
|                                         |  | 
|                                         |  | 

At June 30, 2009, we had a deficit in
working capital of $(189,413), out of which $137,277 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 this low volume of activity, we anticipate that we will
require additional funds of up to approximately $450,000 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

14

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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 have developed
another device called 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 five. The ETK five 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 new 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. (it is the same device) but it is using
different solutions and detects different explosives.

We see as our main product the
ACRO-SET that includes both P.E.T. and N.E.T., and covers the total range of
explosives detecting. Since the fourth quarter of 2007, we delivered samples of ACRO-SET
to several distributors and potential clients in the USA, Europe and the Far-East.
However, we have not yet had any significant sales, although we succeeded to sell few
thousands of units until today

To date, evidence of the efficacy of
ACRO-P.E.T. is derived from laboratory research and limited product sales. We had
performed independent research at the laboratories of the Technion, Israel Institute of
Technology, laboratory, which indicated that the ACRO-P.E.T. quickly and accurately
detects TATP explosives. ACRO-N.E.T. is based on the LSRI explosive detecting kit, called
ETK five. Nevertheless, we cannot assure that ACRO-P.E.T. and ACRO-N.E.T. will gain
commercial acceptance in the marketplace. We plan to follow ACRO-P.E.T. and ACRO-N.E.T.
with additional products that detect explosives.

Plan of Operation

Our
primary objectives over the 12 month period ending on June 30, 2010, are to manufacture
and commercialize our product, called the ACRO  SET, that includes both the
ACRO-P.E.T (Peroxide Explosives Tester), and ACRO-N.E.T (Nitride Explosives Tester), which
are detection devices for explosive materials using the intellectual property covered in
U.S. Patent No. 6,767,717 and the license agreement with LSRI. We started to use a new
filling machine which will allow us much more effective production. Another main business
objective is to expand our technology base by purchasing additional technologies. We
negotiate with 2 academic institutes to license new technologies that will broaden our
technology portfolio.

Furthermore,
we plan to continue to develop our headquarters as our main research and development base
in Israel, and to initiate international marketing and sales to reach a market worldwide.

On
October 28, 2007, our technology agreement with LSRI, a subsidiary of IIBR  Israel
Institute for Biological Research, became effective. Under the terms of the agreement,
LSRI licensed the long-proven technology of IIBRs explosives testing kit to Acro,
for incorporation into our pen-like device. This allows our pen-like device to detect
commercial and military explosives. The agreement is subject to minimum annual revenues to
be achieved by us and royalties to be paid to LSRI. The device complements the
ACRO-P.E.T., which detects peroxide-based explosives in improvised explosive devices.

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.

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Financial Condition,
Liquidity and Capital Resources

During the three months ended June
30, 2009, we incurred a loss of $89,025, compared to a net loss of $317,728 for the
comparative period in 2008. During the six months ended June 30, 2009, we incurred a loss
of $213,510, compared to a net loss of $560,528 for the comparative period in 2008. During
the six months ended June 30, 2009, we incurred $224,939 of operating expenses, comprised
of $32,696 for research and development costs, $16,464 for stock-based compensation
expenses, $16,543 for sales and marketing costs, $159,236 for general and administrative
cost.

During the six months ended June 30,
2008, we incurred $560,549 of operating expenses, comprised of $93,880 for research and
development costs, $28,077 for stock-based compensation expenses, $114,076 for sales and
marketing costs, $324,516 for general and administrative cost.

As of June 30, 2009, we had deficit
in working capital of $(189,413) out of which $137,277 are payable to directors, which
agreed to defer their fees until further notice.

As of June 30, 2009, our Company had
total assets of $154,747, which consisted of cash and equivalents of $8,553, fixed assets
of $40,119, intangible assets of $80,507 and prepaid expenses and other current and
non-current assets of $25,568.

From January 1, 2009 to June 30,
2009, we had no significant sales.

Going Concern

The continuation of our business is
dependent upon our raising additional financial support or on our ability to create
significant sales of our commercial products, ACRO-P.E.T. and ACRO-N.E.T. 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 June 30, 2009, we have incurred losses of $3,839,143. Because
of these historical losses, we will require additional working capital to develop our
business operations.

There are no assurances that we will
be able to either (i) achieve a level of revenues adequate to generate sufficient cash
flow for operations; or (ii) obtain additional financing through either private placement,
public offerings and/or bank financing necessary to support our working capital
requirements. To the extent that funds generated from operations and the last private
placement are insufficient to meet our ongoing capital requirements, we will have to raise
additional working capital by means of private placements, public offerings and/or bank
financing. No assurance can be given that additional financing will be available, or if
available, will be on terms acceptable to us. If adequate working capital is not
available, we may not increase our operations and, if we are unable to raise additional
funds, we may cease operations.

The viability of Acro for a
significant period of time will be dependent on its ability to generate cash flow from
future product sales or to obtain additional financing. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

Recent Private Placements

In February 2009, we received an
interest-free loan in the aggregate amount of $93,274 in the form of a convertible
promissory note from BioTech Knowledge LLC, to be repaid on February 8, 2010, unless
earlier converted into our shares common stock or prepaid, pursuant to the terms of the
note. The note is convertible into up to 11,650,250 shares of our common stock, at a price
per share of $0.008. In addition, we issued BioTech Knowledge LLC a warrant to purchase
our shares of common stock, exercisable within three years following the conversion of the
note, at the price per share of $0.016. The warrant is exercisable into amount of shares
of common stock equal to the number of shares of common stock issued to BioTech Knowledge
LLC following the conversion of the note. In August 2009, we received additional $10,000
as an increase of the interest-free loan, convertible to shares of our common stock.

On February 27, 2007, we closed a
private placement of 2,000,000 units, at a price of US$0.75 per unit, for aggregate
proceeds of US$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.

16

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Critical Accounting
Policies

Share Based Compensation

Prior to fiscal 2006, the Company
applied the intrinsic value method as prescribed in Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB No. 25), and related
interpretations, in accounting for stock options granted under the stock option plan.
Under the intrinsic value method, no compensation cost is recognized if the exercise price
of the Companys employee stock options was equal to or greater than the market price
of the underlying stock on the date of the grant. No compensation cost was recognized in
the accompanying consolidated statements of income prior to fiscal year 2006 as no options
or similar instruments have been granted during that period. As of January 1, 2006 the
Company adopted Statement No. 123 (revised 2004), Share-Based Payment
(SFAS No. 123(R)). All stock-based awards to nonemployees are accounted for at
their fair value in accordance with SFAS No. 123(R) and in accordance with Emerging Issues
Task Force Issue No. 96-18, Accounting for Equity Instruments that are Issued to
Other than Employees for Acquiring, or in Conjunction with Selling, Goods and
Services (EITF 96-18).

The Company accounts for stock-based
awards to employees in accordance with SFAS No. 123(R) 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.

Recently Issued
Accounting Standards

SFAS 167

In June 2009 the FASB issued SFAS No.
167 Amendments to FASB Interpretation No. 46(R) (SAFS No. 167),
which change the way entities account for securitizations and special-purpose entities.
SAFS No. 167 is a revision to FASB Interpretation No. 46(R), Consolidation of Variable
Interest Entities, and changes how a company determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar rights) should
be consolidated. The determination of whether a company is required to consolidate an
entity is based on, among other things, an entitys purpose and design and a
companys ability to direct the activities of the entity that most significantly
impact the entitys economic performance. SFAS No. 167 will require a company to
provide additional disclosures about its involvement with variable interest entities and
any significant changes in risk exposure due to that involvement.   A company will be
required to disclose how its involvement with a variable interest entity affects the
companys financial statements. SFAS No. 167 will be effective at the start of a
companys first fiscal year beginning after November 15, 2009. The adoption of this
standard is not expected to have material impact on the Companys consolidated
financial statements.

Initial Adoption of New
Accounting Standards

EITF 07-5

In June 2008, the FASB Emerging
Issues Task Force reached a consensus on EITF Issue No. 07-5, Determining Whether an
Instrument (or an Embedded Feature) is Indexed to an Entitys Own Stock. The
Consensus was reached on the following three issues:

|1. | How
an entity should evaluate whether an instrument (or embedded feature) is
               indexed to its own stock.
|-- | ---------------------------------------------------------------------------------------------------------------------

|2. | How
the currency in which the strike price of an equity-linked financial
               instrument (or embedded equity-linked feature) is denominated affects the
               determination of whether the instrument is indexed to an entitys own
               stock.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | How
an issuer should account for market-based employee stock option valuation
               instruments.
|-- | ---------------------------------------------------------------------------------------------------------

This consensus will affect entities
with (1) options or warrants on their own shares (not within the scope of Statement 150),
including market-based employee stock option valuation instruments; (2) forward contracts
on their own shares, including forward contracts entered into as part of an accelerated
share repurchase program; and (3) convertible debt instruments and convertible preferred
stock. Also affected are entities that issue equity-linked financial instruments (or
financial instruments that contain embedded equity-linked features) with a strike price
that is denominated in a foreign currency.

The adoption of EITF 07-5 did not
have any impact on the consolidated results of operations or financial position of the
Company.

17

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SFAS No. 161

Effective January 1, 2009, the
Company adopted SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS No. 161). SFAS No. 161 expands
disclosures but does not change accounting for derivative instruments and hedging
activities. The adoption of SFAS No. 161 did not have any impact on the consolidated
results of operations or financial position of the Company.

FSP FAS 107-1 and APB 28-1

In April 2009 the FASB issued FASB
staff position 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments. This FSP applies to all financial instruments within the scope of
Statement 107 held by publicly traded companies, as defined by Opinion 28 and are
effective for interim reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009.

FSP FAS 107-1 and APB 28-1 relate to
fair value disclosures for any financial instruments that are not currently reflected on
the balance sheet of companies at fair value. Prior to issuing this FSP, fair values for
these assets and liabilities were only disclosed once a year. The FSP now requires these
disclosures on a quarterly basis, providing qualitative and quantitative information about
fair value estimates for all those financial instruments not measured on the balance sheet
at fair value. The adoption of this standard did not have any impact on the
consolidated results of operations or financial position of the Company.

FSP FAS 157-4

In April 2009 the FASB issued FASB
staff position 157-4, Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly. This FSP applies to all assets and liabilities within the scope of
accounting pronouncements that require or permit fair value measurements, except as
discussed in paragraphs 2 and 3 of statement 157. The FSP is Effective for interim and
annual reporting periods ending after June 15, 2009, and shall be applied prospectively.

FSP FAS 157-4 relates to determining
fair values when there is no active market or where the price inputs being used represent
distressed sales. It reaffirms what Statement 157 states is the objective of fair value
measurementto reflect how much an asset would be sold for in an orderly transaction
(as opposed to a distressed or forced transaction) at the date of the financial statements
under current market conditions. Specifically, it reaffirms the need to use judgment to
ascertain if a formerly active market has become inactive and in determining fair values
when markets have become inactive.

FSP FAS 157-4 provides guidance on
(1) estimating the fair value of an asset or liability (financial and nonfinancial) when
the volume and level of activity for the asset or liability have significantly decreased
and (2) identifying transactions that are not orderly.

The adoption of this
standard did not have any impact on the consolidated results of operations or
financial position of the Company.

SFAS 165

In May 2009, the FASB issued SFAS No.
165, Subsequent Events (SFAS No. 165). SFAS No. 165 establishes
general standards of accounting for, and disclosure of, events that occur after the
balance sheet date but before financial statements are issued or are available to be
issued.  In particular, this statement sets forth: (1) the period after the
balance sheet date during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the financial
statements, (2) the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial statements and (3)
the disclosures that an entity should make about events or transactions that occurred
after the balance sheet date.  SFAS No. 165 is effective for the interim or
annual financial periods ending after June 15, 2009.   The adoption of this
standard did not have any impact on the consolidated results of operations or
financial position of the Company. The Company considered the provisions of this SFAS and
disclosed all material events which occurred after the balance sheets date.

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# Item 3.
Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

# Item 4T. Controls
and Procedures

As of the end of the period covered
by this report, being June 30, 2009, 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 15(d)  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 June 30, 2009, 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

During the period covered by this
report, there were no sales of our companys unregistered securities that have not
already been disclosed in a current report on Form 8-K prior to the filing of this report.

Item 3.
          Defaults Upon Senior Securities

None.

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

None.

Item 5.
          Other Information

None.

Item 6.
          Exhibits

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.

# 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) By:
 /s/  Gadi Aner    
Gadi Aner
President, Chief Executive Officer
& Director
Date: August 19, 2009 | /s/  Gabby Klausner  
Gabby Klausner
Treasurer and
Chief Financial Officer
Date: August 19, 2009
| | ----------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------

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# EXHIBIT INDEX

Listed
and indexed below are all Exhibits filed as part of this report.

|Exhibit No. | Description
|----------- | -----------

|Number | Description | Method of Filing
|------ | ----------- | ----------------

|(3) | Articles
of Incorporation and By-laws
|--- | -------------------------------------

|3.1  | Articles of Incorporation, as amended.                                                                                                                                         | Incorporated by reference to Exhibit 3.1 to our registration statement on Form SB-2 filed November 21, 2003       
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------
|3.2  | 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, 2005
|3.3  | 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, 2007                 
|3.4  | 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, 2007                 
|3.5  | 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 Contracts                                                                                                                                                             |                                                                                                                   
|10.1 | 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, 2009               
|10.2 | Warrant between the Registrant and BioTech Knowledge LLC, dated February 22, 2009.                                                                                             | Incorporated by reference to Exhibit 10.10 to our annual report on Form 10-K filed March 30, 2009                 
|10.3 | Intellectual Property Assignment and Services Termination Agreement, dated March 29, 2009.                                                                                     | Incorporated by reference to Exhibit 10.10 to our annual report on Form 10-K filed March 30, 2009                 
|(31) | Section 302 Certification                                                                                                                                                      |                                                                                                                   
|31.1 | Rule 13a-14(a) Certification of Principal Executive Officer                                                                                                                    | Filed herewith                                                                                                    
|31.2 | Rule 13a-14(a) Certification of Principal Financial Officer.                                                                                                                   | Filed herewith                                                                                                    
|(32) | Section 906 Certification                                                                                                                                                      |                                                                                                                   
|32.1 | 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                                                                                                    

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