UNITED STATES SECURITIES AND EXCHANGE COMMISSION




Washington, D.C. 20549




FORM 10-Q/A


(AMENDMENT NO. 2)




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


For the quarterly period ended September 30, 2010




OR




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


For the transition period from _________ to _________




Commission File Number 000-50482




ACRO Inc.


(Exact name of registrant as specified in its charter)





Nevada
98-0377767(State or Other Jurisdiction of
(IRS EmployerIncorporation or Organization)
Identification No.)





18 Halivne street, Timrat IsraelIsrael
23840(Address of Principal Executive Offices)
(Zip Code)


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





N/A


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


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


Yes þ No  ̈


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes  ̈ No  ̈


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


Large accelerated filer o
Accelerated filer oNon-accelerated filer o
Smaller reporting company þ


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


Yes  ̈ No þ


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




As of October 13, 2010, 68,824,268 shares of the registrant’s common stock were outstanding.





EXPLANATORY NOTE


This Amendment No. 2 to our quarterly report on Form 10-Q/A (the “Amendment”) speaks as of the filing date of our Form 10-Q for the period ending September 30, 2010, as filed with the Securities and Exchange Commission (the “Commission”) on November 22, 2010 (the “Form 10-Q”), except for the certifications which speak as of the filing date of the Amendment.


This Amendment is being filed to correct typographical errors in the certifications


Other than as described above, this Amendment does not, and does not purport to, amend, update or restate any other information or disclosure included in the Form 10-Q and does not, and does not purport to, reflect any events that have occurred after the date of the initial filing of the Form 10-Q. As a result, our Quarterly Report on Form 10-Q for the period ending September 30, 2010, as amended by this Amendment, continues to speak as of the initial filing date of the Form 10-Q.


2




Table of Contents


ACRO INC.


(“The Company”)


INDEX





PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
4Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
12Item 3. Quantitative and Qualitative Disclosures about Market Risk
17Item 4T. Controls and Procedures
17PART II. OTHER INFORMATIONItem 1. Legal Proceedings
18Item 1A. Risk Factors
18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
18Item 3. Defaults Upon Senior Securities
18Item 4. [Removed and Reserved]
18Item 5. Other Information
18Item 6. Exhibits
18Signatures
18Exhibit Index
19Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification Pursuant to U.S.C. Section 1350




3


ACRO Inc. (A Development Stage Company)


Consolidated Financial Statements




PART I- FINANCIAL INFORMATION





Item 1. Financial StatementsConsolidated Balance Sheets





September 30


December 312010


2009$


$AssetsCurrent assets:Cash and cash equivalents


5,081



25,812Trade receivables


19,370



3,359Prepaid expenses and other current assets


24,559



9,332Total current assets


49,010



38,503Other non-current assets


6,163



2,762Property and equipment, net (Note 3)


18,767



28,555Intangible assets, net (Note 4)


65,507



74,507Total assets


139,447



144,327Liabilities and stockholders' deficitCurrent liabilities:Shot term bank credit


-



795Accounts payable and accrued liabilities


378,806



285,693Total current liabilities


378,806



286,488Convertible Promissory Note (Note 7)


200,774



123,274Total liabilities


579,580



409,762Commitments (Notes 5 and 8)Stockholders' deficiency:Common stock; $0.001 par value; 700,000,000 shares authorized;68,824,268 and 67,824,268 shares issued and outstanding as ofSeptember 30, 2010 and December 31, 2009, respectively


68,823



67,823Additional paid-in capital


3,658,178



3,616,670Deficit accumulated during the development stage


(4,167,134
)


(3,949,928
)Total stockholders' deficiency


(440,133
)


(265,435
)Total liabilities and stockholders' deficiency


139,447



144,327





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


4


ACRO Inc. (A Development Stage Company)


Consolidated Financial Statements





Consolidated Statements of Operations





Cumulativefrom

Inception(May 22,

2002)Three months ended

September 30


Nine months ended

September 30


to September

302010


2009


2010


2009


2010$


$


$


$


$Revenues


14,639



6,901



74,015



20,886



219,291Costs and expenses :Research and development


4,737



16,638



64,856



49,334



591,687Sales and marketing


-



5,349



4,215



21,892



328,565General and administrative*


76,624



59,368



214,175



235,068



3,455,098Total operating expenses


81,361



81,355



283,246



306,294



4,375,350Operating loss


(66,722
)


(74,454
)


(209,231
)


(285,408
)


(4,156,059
)Interest and other income (expenses), net


(12,473
)


(663
)


(7,975
)


(3,220
)


32,841Loss before income tax


(79,195
)


(75,117
)


(217,206
)


(288,628
)


(4,123,218
)Income tax


-



-







-



43,916Net loss


(79,195
)


(75,117
)


(217,206
)


(288,628
)


(4,167,134
)Basic and diluted net loss per common share


(0.00
)


(0.00
)


(0.00
)


(0.00
)


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


68,823,725



67,823,725



68,108,991



67,823,725



51,362,196





*
Includes $5,836, $17,188; $17,508, $45,265 and $1,100,755 in stock-based compensation to employees and non-employees for the three months periods, for the nine months periods ended September 30, 2010, and 2009 and for the cumulative period from May 22, 2002 (date of inception) to September 30, 2010 respectively.





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


5




ACRO Inc. (A Development Stage Company)


Consolidated Financial Statements





Consolidated Statements of Cash Flows





Cumulativefrom inceptionNine months ended


(May 22, 2002)September 30


to September 302010


2009


2010$


$


$Cash flows from operating activities:Net loss


(217,206
)


(288,628
)


(4,167,134
)Adjustments to reconcile net loss to net cash used inoperating activities:Services contributed by officers






-



3,500Depreciation and amortization


20,010



43,772



182,717Stock-based compensation


17,508



16,464



1,100,755Changes in operating assets and liabilities:Decrease (Increase) in Trade receivables


(16,011
)


8,803



(19,370
)Increase in Prepaid expenses and other current assets


(15,227
)


(6,203
)


(24,559
)Increase in Accounts payable and accrued liabilities


93,113



82,355



378,806-Net cash used in operating activities


(117,813
)


(143,437
)


(2,545,285
)Cash flows from investing activities:Decrease (increase) in long term deposit


(3,401
)


(213
)


(6,163
)Purchase of property and equipment


(1,222
)


-



(146,991
)Purchase of intangible assets


-



-



(120,000
)-Net cash used in investing activities


(4,623
)


(213
)


(273,154
)Cash flows from financing activities:Decrease in short term bank credit


(795
)






-Increase in Convertible promissory note


77,500



113,274



200,774Proceeds from issuance of common stock


25,000



-



2,861,286Offering costs


-







(238,540
)Net cash provided by financing activities


101,705



113,274



2,823,520Net (decrease) increase in cash and cash equivalents


(20,731
)


(30,376
)


5,081Cash and cash equivalents at beginning of period


25,812



36,943



-Cash and cash equivalents at end of period


5,081



6,567



5,081Non-cash activitiesSupplemental disclosures of cash flow information:





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


6





ACRO Inc. (A Development Stage Company)Consolidated Financial StatementsNotes to the Consolidated Financial Statements as of March 31, 2010





Note 1 - Business





A.          General





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





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





B.           Going concern





The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has a limited operating history, and has incurred losses of 4,167,134 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.           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.


7




ACRO Inc. (A Development Stage Company)Consolidated Financial StatementsNotes to the Consolidated Financial Statements as of March 31, 2010





Note 2 - Summary of Significant Accounting Policies (cont’d)





C.           Principles of Consolidation





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





D.
Accounting Standards Codification




Effective July 1, 2009, the FASB Accounting Standards Codification ("FASB ASC" or "the Codification") is the single source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with GAAP. The adoption of the FASB ASC does not impact the Company’s consolidated financial statements, however, the Company’s references to accounting literature within its notes to the condensed consolidated financial statements have been revised to conform to the Codification.





E.           Initial Adoption of New Standards





Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.




Note 3 - Property and Equipment





Property and equipment consist of the following:





Estimateduseful life


September 30


December 31(years)


2010


2009$


$Computer equipment


3



14,709



13,487Production equipment


3



122,341



122,341Furniture


7-15



7,924



7,924Leasehold improvements


(*
)


2,017



2,017146,991



145,769Less - Accumulated depreciation and amortization






128,224



117,21418,767



28,555





(*) over the lease term




Depreciation expense for each of the three month and the nine month periods ended September 30, 2010 and 2009, and for the cumulative period from May 22, 2002 (date of inception), to September 30, 2010 were $3,384, $11,778, $11,010, $34,772 and $128,224, respectively.


8





ACRO Inc. (A Development Stage Company)Consolidated Financial StatementsNotes to the Consolidated Financial Statements as of March 31, 2010





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 nine months periods ended September 30, 2010 and 2009 and for the cumulative period from May 22, 2002 (date of inception) to September 30, 2010 were $3,000, $3,000, $6,000, $6,000 and $54,493, respectively. The expected annual amortization expenses for each of the next five years are $12,000.





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 nine month period ended September 30, 2010, 2009 and for the cumulative period from May 22, 2002 (date of inception) to September 30, 2010, the consultants earned 0 shares, 99,996 shares and 1,264,407 shares respectively. 113,844 shares out of the total shares that were earned have not yet been issued. During the three and nine months period ended September 30, 2010, 2009 and for the cumulative period from May 22, 2002 (date of inception) to September 30, 2010, compensation expense recorded in respect of the shares earned by the consultant amounted to $0, $0, $0, $0 and $1,006,207 respectively.





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


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





In August 2006, the Company entered into an agreement with a director for his services as a member of the Company’s Board of Directors. As compensation, the director received a signing bonus of $5,000, and a quarterly fee of $1,500 until October 2007, and $3,000 per quarter thereafter. Starting from July 2008, the director agreed that the Company may defer the payment of 100% of his quarterly fee until further notice. In addition, following the adoption of a Stock Option Plan, on April 28, 2008, the Company’s board of directors approved the grant of an option to the director to purchase 215,232 shares of common stock of the Company at an exercise price per share that is equal to the par value of the Company’s common stock. All options became vested as of September 30, 2010.





On April 28, 2008, the Company’s board of directors approved the grant of options to purchase 1,800,000 shares of common stock of the Company to the trustee in trust for the Company’s executives, at an exercise price of $0.075 per share. 1,350,000 of the options became vested as of September 30, 2010, 450,000 of the options were cancelled, due to work termination of one of the executives. An additional option to purchase 215,232 shares of common stock of the Company was granted to a director at an exercise price per share that is equal to the par value of the Company’s common stock (as described above).





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





On July 8, 2008, the Company’s board of directors approved the grant of options to purchase 400,000 shares of common stock of the Company to the trustee in trust for two of the Company’s executives, at an exercise price of $0.06 per share. All options became vested as of September 30, 2010.


9





ACRO Inc. (A Development Stage Company)Consolidated Financial StatementsNotes to the Consolidated Financial Statements as of March 31, 2010





Note 6 - Related Party Transactions





In February 2006, the Company entered into a consulting services agreement (the “Consulting Agreement”) with BioTech Knowledge LLC, a limited liability company wholly-owned by Prof. Keinan (see Note 5), whereby Prof. Keinan has agreed to provide consulting services for duration of three years at a monthly fee of $3,000. The agreement was terminated on February 1, 2009. Starting from July 2008, Prof. Keinan agreed that the Company may defer the payment of 100% of his monthly fee until further notice. The total amount of the deferred payment as of September 30, 2010, is $19,500 and is included at accounts payable. During the three and nine months period ended September 30, 2010 and 2009, the Company incurred $0, $0, $0 and $3,000 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 year 2009 and until September 30, 2010, the Company received from BioTech Knowledge LLC an interest free loan in the aggregate amount of $155,774 in the form of a convertible promissory note , convertible into up to 19,471,750 shares of the Company's common stock, at a price of $0.008 per share, within 12 months from March 24, 2010, with each share of common stock such converted awarding a warrant to purchase one share of the Company’s common stock at the price per share of $0.016 exercisable within three years.




During the three and nine months period ended September 30, 2010 and 2009, the Company incurred an expense of $31,680, $95,040, $31,680, $95,040 respectively, for consulting services provided by the Company’s CEO and chairman of the board of directors.





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





The total amount of the deferred payment as of September 30, 2010, is $248,160 and is included at accounts payable.





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





Note 7 – Convertible Promissory Note





During 2009 and until September 30, 2010, the Company received from BioTech Knowledge LLC an interest free loan in the aggregate amount of $165,774 (of which $10,000 was received in the current quarter) in the form of a convertible promissory note, convertible into up to 20,721,750 shares of our common stock, at a price of $0.008 per share, within 12 months from March 24, 2010, with each share of common stock such converted awarding a warrant to purchase one share of the Company’s common stock at the price per share of $0.016 exercisable within three years.





On April 1, 2010, the Company received a loan from Lindon Group Inc., Rhode Island Corporation (which is a related party of one of the company's major customers) in the amount of $35,000, bearing a yearly interest of 6%, in the form of a promissory note.


10





ACRO Inc. (A Development Stage Company)Consolidated Financial StatementsNotes to the Consolidated Financial Statements as of March 31, 2010





Note 8 – Commitments





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





Note 9 - Stock Transactions





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





* * * * * * * *


11




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


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




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




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




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




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




General




We 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. (Acrosec), incorporated under the laws of the State of Israel. Effective January 1, 2009, we entered into an Intellectual Property Assignment and Services Termination Agreement with Acrosec, pursuant to which, among others, we effected a transfer of all of our intellectual property, including patents and technology, to Acrosec,in consideration for an amount representing the value of the intellectual property as will be determined by an independent third-party appraiser selected by us and Acrosec. Concurrently, the services agreement between us and Acrosec, dated March 7, 2007, pursuant to which Acrosec provided us certain research, development, manufacturing and management services, was terminated. The Intellectual Property Assignment and Services Termination Agreement effectively render ACRO as a holding company.




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




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


12




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.




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




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




During 2009 and until September 30, 2010, we received from BioTech Knowledge LLC an interest-free loan in the aggregate amount of $165,774 in the form of a convertible promissory note, convertible into up to 20,721,750 shares of our common stock, at a price of $0.008 per share, within 12 months from March 24, 2010, with each share of common stock such converted awarding a warrant to purchase one share of our common stock at the price per share of $0.016 exercisable within three years. As of September 30, 2010, and pursuant to the conversion in full of the note, BioTech Knowledge LLC is our largest stockholder, holding approximately 30.91% of our common stock.




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




On April 1, 2010, we received a loan from Lindon Group Inc., Rhode Island Corporation in the amount of US$35,000, bearing a yearly interest of 6%, in the form of a promissory note.




As of September 30, 2010, we had not realized any significant revenues from operations and experienced losses of $4,167,134.




Employees


As of August 15, 2010, we do not have any employees. Our subsidiary, Acrosec, hired the services of Gadi Aner, who serves as our Chairman and our Chief Executive Officer, Gabby Klausner, who serves as our Chief Financial Officer. Commencing on September 2009, Ms. Klausner provides her services as a freelance consultant.


13




Cash Requirements




Our cash requirement through September 30, 2011, is approximately $300,000 which we need for implementation of our plan of operation and developing and commercializing our potential explosive detection device. We estimate our operating expenses and working capital requirements beginning September 30, 2010, and through September 30, 2011, to be as follows:





Estimated Expenses through September 30, 2011Product Research and Development

$
50,000Sales and Marketing

$
50,000General and Administrative

$
200,000Capital Expenditures

$
-Tax Expenses

$
-Total

$
300,000




At September 30, 2010, we had a deficit in working capital of $329,795, out of which $294,660 are payable to directors, which agreed to defer their fees until further notice.We are now operating under minimal activity note, until we successfully raise additional funds or receive a significant order to our products, according to thislow volume of activity, we anticipate that we will require additional funds of up to approximately $650,000 to keep activating our business for the next twelve-month period. In such event that we do not generate sufficient revenues or raise sufficient additional funds by a public offering or a private placement, we will consider alternative financing options, if any, or be forced to cease our operations.




Our Products




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




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




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




Since the fourth quarter of 2007, we delivered samples of ACRO-SET to several distributors and potential clients in many countries including the USA, UK, China, Canada, Spain, Singapore, Japan, South Africa, Australia, Serbia, Italy, Germany, Luxemburg, South Korea, India, New Zealand and Russia. During 2009 and 2010 we had sales in the aggregate amount of $132,735.


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To date, evidence of the efficiency of ACRO-P.E.T. is derived from laboratory research and limited product sales. We had performed independent research at 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 Nevertheless, we cannot assure that ACRO-P.E.T. and ACRO-N.E.T. will gain commercial acceptance in the marketplace. During 2008, we developed a new product called “TATP Simulant”. The TATP Simulant is a hands-on tool of practicing detection and identification of peroxide based explosives such as TATP and hexamethylene triperoxide diamine (HMTD). We delivered samples of the TATP Simulant to several clients, but at this early stage we cannot estimate the commercial value of this product, if any.




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




During 2009, we developed the ACRO-CH.E.T. (Chlorates Explosives Tester) which detects chlorate based explosives traces and the ACRO-U.E.T (Urea nitrate Explosives Tester) which detects the presence urea nitrate traces. Both products have low false positive and negative alarm rates. Our new product, ACRO U.E.T is based on a technology of detection and diagnostic characterization of the improvised explosive urea nitrate, and other explosives that contain the uronium cation developed by Prof. Yossi Almog, licensed to us under an agreement dated November 25, 2009, with Yissum Research Development Company of the Hebrew University. The agreement is valid for a year until November 25, 2010 and probably will not be extended after that date.




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




We also entered into an agreement with one of our distributors in Europe, pursuant to which we may sell its products, which are mainly kits for identification of drugs, in Israel and several other countries.




Plan of Operation




Our primary objectives over the 12 month period ending on September 30, 2011, are to manufacture and commercialize our products: 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. ACRO UET, ACRO CHET and ACRO ANET, We also continue our efforts to sell the ETK kit and the MINI ETK. Another main business objective is to expand our technology base by purchasing additional technologies.




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.




On November 25, 2009, we entered into a technology agreement with Yissum Research Development Company of the Hebrew University ("Yissum"). Under the terms of the agreement, Yissum licensed us the technology of detecting Uronium salts traces. This enabled us developing our new product, the ACRO U.E.T. which is based on a technology of detection and diagnostic characterization of the improvised explosive urea nitrate, and other explosives that contain the uronium cation developed by Prof. Yossi Almog. The agreement is valid for a year until November 25, 2010 and probably will not be extended after that date.


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Financial Condition, Liquidity and Capital Resources




During the three months ended September 30, 2010, we incurred a loss of $79,193, compared to a net loss of $75,117 for the comparative period in 2009.





During the nine months ended September 30, 2010, we incurred a loss of $217,206, compared to a net loss of $288,628 for the comparative period in 2009.





During the nine months ended September 30, 2010, we incurred $283,246 of operating expenses, comprised of $64,856 for research and development costs, $17,508 for stock-based compensation expenses, $4,215 for sales and marketing costs, $196,667 for general and administrative cost.





During the nine months ended September 30, 2009, we incurred $306,294 of operating expenses, comprised of $49,334 for research and development costs, $16,464 for stock-based compensation expenses, $21,892 for sales and marketing costs, $218,604 for general and administrative cost.





As of September 30, 2010, we had deficit in working capital of $329,795 out of which $294,660 are payable to directors, which agreed to defer their fees until further notice.





As of September 30, 2010, we had total assets of $139,447, which consisted of cash and equivalents of $5,081, fixed assets of $18,767, intangible assets of $65,507, trade receivables, prepaid expenses and other current assets, of $43,929 and other non- current assets of 6,163.





From January 1, 2010 to September 30, 2010, we had sales of $74,015.




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. 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 September 30, 2010, we have incurred losses of $4,167,134. 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 from 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 is dependent on our 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




On March 15, 2010, we closed a private placement of 500,000 units, at a price of $0.05 per unit, for aggregate proceeds of $25,000. Each unit is comprised two shares of our common stock and one warrant to purchase one share of our common stock at the price per share of $0.025, exercisable within twelve months from closing date (i.e. March 15, 2011). In connection with this private placement, we issued the finder a warrant to purchase 40,000 shares of our common stock at a price per share of $0.025, exercisable within twelve months of the closing date.As of May 20, 2010, the 500,000 shares of our common stock were not yet issued.


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During 2009 and until September 30, 2010, we received from BioTech Knowledge LLC an interest-free loan in the aggregate amount of $165,774 in the form of a convertible promissory note, convertible into up to 20,721,750 shares of our common stock, at a price of $0.008 per share, within 12 months from March 24, 2010, with each share of common stock such converted awarding a warrant to purchase one share of our common stock at the price per share of $0.016 exercisable within three years.




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




Critical Accounting Policies




Share Based Compensation




The Company accounts for stock-based awards to employees and nonemployees in accordance with ASC 718, 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.




Initial adoption of New Accounting Standards




ASU 2010-9 - Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.




In February 2010, the FASB issued ASU No. 2010-09, “Subsequent Events”, that amended its guidance on subsequent events. SEC filers are not required to disclose the date through which an entity has evaluated subsequent events. The amended guidance was effective upon issuance for all entities




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 September 30, 2010, we performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure that the material financial and non-financial information required to be disclosed in our annual report and filed with the Securities and Exchange Commission is recorded, processed, summarized and reported timely within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Act, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on our evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d – 15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report are effective at such reasonable assurance level.




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




There were no changes in our internal controls over financial reporting identified with the evaluation thereof that occurred during the quarter ended September 30, 2010, that have materially affected, or are reasonable likely to materially affect our internal control over financial reporting.


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Part II — OTHER INFORMATION




Item 1. Legal Proceedings




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




Item 1A. Risk Factors


Not applicable.




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




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




Item 3. Defaults Upon Senior Securities


None.




Item 4. [Removed and Reserved]




Item 5. Other Information


None.




Item 6. Exhibits


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




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

/s/Gabby KlausnerGadi Aner

Gabby KlausnerPresident, Chief Executive Officer

Treasurer and& Director

Chief Financial OfficerDate: May 6, 2011

Date: May 6, 2011


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Exhibit Index


Number

Description

Method of Filing(3)

Articles of Incorporation and By-laws3.1

Articles of Incorporation, as amended.

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

Bylaws, dated February 25, 2005.

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

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

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

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

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

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

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

Material Contracts10.1

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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10.12

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

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

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

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

The Registrant’s 2008 Israeli Share Option Plan

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

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

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

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

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

Section 302 Certification31.1

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

Filed herewith31.2

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

Filed herewith(32)

Section 906 Certification32.1

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

Filed herewith




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