UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549


Form 10-K
  FOR ANNUAL AND TRANSITION REPORTS


PURSUANT TO SECTIONS 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934





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



For the fiscal year ended December 31, 2009




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




Commission File Number: 000-50482




ACRO INC.


(Exact Name of Registrant as Specified in its Charter)
  Nevada

(State or Other Jurisdiction of

Incorporation or Organization)



18 Halivne street, Timrat

Israel

(Address of Principal Executive Offices)
98-0377767

(IRS Employer

Identification No.)



23840

(Zip Code)


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




Securities registered pursuant to Section 12(b) of the Act:  None


Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value




Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:




Yes oNo þ


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act:


Yes oNo þ


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 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 þNo o


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


Yes oNo o


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





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


Large accelerated filer o

Accelerated filer oNon-accelerated filer  o

Smaller reporting company þ


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


Yes oNo þ


The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2009, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $678,242 (based on the average bid and asked price for the registrant’s common stock on June 30, 2009 on the OTC Bulletin Board of $0.01 per share).





At March 29, 2010, 67,824,268 shares of the registrant’s common stock were outstanding.




DOCUMENTS INCORPORATED BY REFERENCE: None





TABLE OF CONTENTS


PagePART IItem 1.
Business
1Item 1A.
Risk Factors
5Item 1B.
Unresolved Staff Comments
5Item 2.
Properties
5Item 3.
Legal Proceedings
5PART IIItem 4.
Market for Registrant’s Common Equity, Related Stockholder Matters  and Issuers Purchases of Equity Securities
6Item 5.
Selected Financial Data
8Item 6.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
8Item 6A.
Quantitative and Qualitative Disclosures About Market Risk
12Item 7.
Financial Statements and Supplementary Data
12Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
14Item 8A(T).
Controls and Procedures
14Item 8B.
Other Information
15PART IIIItem 9.
Directors, Executive Officers and Corporate Governance
15Item 10.
Executive Compensation
18Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
21Item 12.
Certain Relationships and Related Transactions, and Director Independence
22Item 13.
Principal Accountant Fees and Services
24PART IVItem 14.
Exhibits and Financial Statement Schedules
25SIGNATURES
26EXHIBIT INDEX
27





i





PART I




Item 1. Business




Certain statements in this Annual Report on Form 10-K are “forward-looking statements.”  These statements involve a number of risks, uncertainties and other factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.  Investors are urged to consider these factors carefully in evaluating the forward looking statements and are cautioned not to place undue reliance on such forward-looking statements.  The forward-looking statements made herein are only made as of the date hereof and we will undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.





Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.





In this Annual Report on Form 10-K, unless otherwise specified, all dollar amounts are expressed in United States dollars.





Unless otherwise indicated, all references to “we,” “us,” “our,” “Company” and “ACRO” means ACRO Inc.




Corporate Overview




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 our wholly owned subsidiary, Acrosec Ltd., pursuant to which, among others, we effected a transfer of all of our intellectual property, including patents and technology, to Acrosec,in consideration for an amount representing the value of the intellectual property as will be determined by an independent third-party appraiser selected by us and Acrosec. Concurrently, the services agreement between us and Acrosec, dated March 7, 2007, pursuant to which Acrosec provided us certain research, development, manufacturing and management services, was terminated. The Intellectual Property Assignment and Services Termination Agreement effectively render ACRO as a holding company.




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




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




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.




1





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




On February 22, 2009, we received from BioTech Knowledge LLC an interest-free loan in the aggregate amount of $93,274 in the form of a convertible promissory note, convertible into up to 11,659,250 shares of our  common stock, at a price of $0.008 per share, within 12 months from February 22, 2009, with each share of common stock such converted awarding a warrant to purchase one share of our common stock at the price per share of $0.016 exercisable within three years. As of March 15, 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 two shares of our common stock and one warrant to purchase one share of our common stock at the price per share of $0.025, exercisable within twelve months from March 15, 2010. In connection with this private placement, we issued the finder a warrant to purchase 40,000 shares of our common stock at a price per share of $0.025, exercisable within twelve months of the closing date.




During year 2009 and until March 31, 2010, we received from BioTech Knowledge LLC additional interest-free loan in the aggregate amount of $40,000 in the form of a convertible promissory note, convertible into up to 5,000,000 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 December 31, 2009, we had not realized any significant revenues from operations and experienced accumulated losses of $3,949,928.




Our Current Business




Our goal is to leverage our technology and capabilities in the field of explosive detection devices and to commercialize our products for detection of military and commercial explosives.




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.




2





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




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




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.




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.





The Market




Improvised explosive devices based on peroxide, as well as other explosives materials have increasingly been used in recent years by various terrorist organizations. This has generated growing interest in technology that can detect this threat.  The main reason for the growth in the use of peroxide-based explosives by terrorist groups is that such explosives can be easily “home-made” using inexpensive, readily-available starting materials which can be purchased in most hardware and paint stores, even in bulk quantities. One class of such peroxide-based explosives can be easily produced by reacting various carbonyl compounds (e.g. ketones, aldehydes and their derivatives) with hydrogen peroxide under acid catalysis. For example, when a mixture of acetone, hydrogen peroxide and small amounts of a mineral acid such as sulfuric acid is left for several hours at room temperature, white crystals of triacetone triperoxide, commonly referred to as TATP, and diacetone diperoxide, commonly referred to as DADP, are formed.




The three overall methods of explosives detection in use today are as follows:




(a)
Manual – searching by hand and/or with the use of specially-trained dogs. This practice involves obvious risks.(b)
Bulk Detection – attempting to detect macroscopic mass on the basis of characteristic-specific gravity using X-ray or CT techniques.(c)
Trace Detection – sensing the presence of explosives through chemical identification of microscopic residues of the compound, in either vapor or particle form. Trace detection is generally used to resolve alarms raised when suspicious items are identified either manually or through bulk detection.




3





Consequently, and in view of the increased use of such peroxide-based explosives by terrorists, especially in the Middle East as well as in other parts of the world, there exists an urgent need for highly-sensitive methods and devices for the early detection of peroxide-based explosives and improvised explosive devices employing them.




Competition




We are competing with other developers and manufacturers of explosive detection devices. Several of our competitors recently announced efforts to develop devices that detect TATP.  Most of these devices are based on air-sampling followed by spectral analysis using various methods.  These instruments, which are quite heavy and expensive, are designed primarily for checkpoint stations, such as airports and we do not consider them as competing products to ours. There are several more products in the market that are similar to our, but most of them are based on wet chemistry (it is necessary to drop different solutions on the suspected material), which is unfriendly and unsafe use. Another system used to identify explosives makes use of “spray” but it is unsafe and less accurate.




Manufacturing




We engage subcontractors for the manufacture of the plastic parts of our products.  We have no long-term supply agreement with our sole supplier and manufacturer, and cannot assure you that we will be able to obtain such components on a timely basis or at acceptable prices. If we are unable to obtain our products at acceptable prices and on a timely basis, we may not be able to meet the demand for our products, which would adversely affect our production capability, our reputation and results of operations.




Distribution




Currently, we are introducing our products to potential customers in the market through distributors.




Intellectual Property




Our success will depend in part on our ability, and the ability of our future licensees, to obtain patent protection for the technology and processes we acquired pursuant to the Patent Purchase Agreement with Prof. Keinan. Under the Patent Purchase Agreement, we purchased the technology covered by United States Patent No. 6,767,717 issued on July 27, 2004.




This Patent involves a method for the detection of explosives. The abstract describes “a method of detecting a peroxide-based explosive in a sample suspected of consisting of or comprising such explosive, which method comprises dissolving said sample in a suitable organic solvent, contacting the solution with an aqueous solution of a strong acid capable of decomposing said explosive to release hydrogen peroxide, and contacting the resulting mixture with a peroxide enzyme.”




On November 2008, we submitted a new US patent application number 11926194 with the subject: “Apparatus for Identifying Explosive Materials” in order to protect our containing device of the ACRO-PET, ACRO-NET, ACRO UET, ACRO CHET and ACRO ANET. The patent is still classified as “Pending”.




In addition, pursuant to our agreement with LSRI, we have obtained a license allowing us to incorporate the long-proven technology of IIBR’s explosives testing kit into our pen-like device.  This will enable our pen-like device to detect commercial and military explosives.





Furthermore, pursuant to our agreement with Yissum, dated November 25, 2009, we have obtained a license allowing us to commercial developing and marketing the technology of detecting Uronium salts traces. This enabled us developing our new product, the ACRO U.E.T.


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.




4





During the twelve months ended December 31, 2009, we have invested a total of $65,167 in research and development activities compared to $142,247 invested for the comparative period in 2008.  Most of the research and development activity was done by consultants and subcontractors.




Government Approvals




Our ability to develop and commercialize our products is dependent upon approval from certain governmental security organizations. We are in the process of getting regulatory approvals, and are working with the regulators and other government agencies in other jurisdictions, to insure that our products meet their specific requirements.


Employees


As of March 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 September 2009, Ms. Klausner provides her services as a freelance consultant.


Item 1A.Risk Factors




Not applicable.




Item 1B. Unresolved Staff Comments




Not applicable.




Item 2. Properties




In February 20, 2007, we have signed a lease agreement for our headquarters at 37 Inbar St., Caesarea, Israel. Our lease commitment expired at the end of June 2009 and we did not renew the agreement. We are currently using the premises of our CEO, Gadi Aner, at 18 Halivne street, Timrat 23840, Israel, on a rent free basis. There is no written lease agreement or other written contract for the space use.


Item 3.  Legal Proceedings




We are not a party to, or the subject of, any pending legal proceeding. We are not aware of any proceeding being contemplated by a governmental authority.




5




PART II




Item 4. Market for Common Equity, Related Stockholder Transactions and Small Business Issuer Purchases of Equity Securities.




Market Information




Our shares of common stock were initially approved for quotation on the Over-the-Counter Bulletin Board (OTCBB) under the symbol “MNAI” on September 14, 2004. On February 6, 2006, as a result of a seven-for-one forward stock split, the National Association of Securities Dealers, Inc. changed our trading symbol to “MDIN”.  However, no market for our common stock developed until March 23, 2006. 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.  As a result, our common stock is quoted on the OTCBB under the new symbol “ACRI”.




The following table sets forth the high and low bid prices of our common stock, as reported by the OTCBB for each quarter since January 1, 2007. The quotations set forth below reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions. Investors should not rely on historical prices of our common stock as an indication of its future price performance. The last sale price of our common stock as reported by the OTCBB on March 15, 2010, was $0.07 per share.




2008


2009High


High


High


Low1st Quarter


0.10



0.05



0.04



0.012nd Quarter


0.10



0.05



0.01



0.013rd Quarter


0.07



0.02



0.04



0.014th Quarter


0.05



0.01



0.04



0.01




Outstanding Shares and Shareholders of Record




As of March 15, 2010, there were 67,824,268 shares of our common stock issued and outstanding.  These shares were held by approximately Thirty (30) shareholders of record.




Dividends




We have not paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. Our current policy is to retain earnings, if any, to fund the development and growth of our business. Any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our financial condition, operating results, capital requirements, applicable contractual restrictions and any other factors that our board of directors deems relevant.




Securities Authorized for Issuance under Equity Compensation Plans




Through the December 31, 2009, we authorized the issuance of options to our directors and officers to acquire in the aggregate of 2,415,232 shares of our common stock. For more information, see Item. 11 entitled “Executive Compensation.”




We have issued shares of our common stock to the members of our advisory board for their service as advisory board members. See “– Recent Sales of Unregistered Securities.”




Recent Sales of Unregistered Securities




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. 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.




6





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




In April 2006, we appointed Mr. Ehud Barak to serve on our advisory board. Mr. Barak received a grant of 166,666 shares of common stock for each quarter of service on our advisory board. On June 18, 2007, Mr. Ehud Barak resigned from our advisory board. As of December 31, 2008, Mr. Barak was issued 811,591 shares of our common stock with a total fair market value of $56,811.




In May 2006, we appointed Prof. Richard A. Lerner as an additional member of our advisory board. Prof. Lerner will receive a grant of 16,666 shares of common stock for each quarter of service on our advisory board, not to exceed a total of 200,000 shares. As of December 31, 2009, Prof. Lerner was entitled to receive 200,000 shares of our common stock with a total fair market value of $6,000, of which 152,828 shares were issued as of December 31, 2009. Additional 47,172] shares which were earned during the nine months ended June 30, 2009, were not yet issued.




In September 2006, we appointed Prof. K. Barry Sharpless to serve on our advisory board. Prof. Sharpless will receive a grant of 16,666 shares of common stock for each quarter of service on our advisory board, not to exceed a total of 200,000 shares. As of December 31, 2009, Prof. Sharpless was entitled to receive 200,000 shares of our common stock with a total fair market value of $6,000, of which 133,328 shares were issued as of December 31, 2009.  Additional 66,672 shares which were earned during the twelve months ended September 30, 2009, were not yet issued.




The shares granted to the advisory board members were issued 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.




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. 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.




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. 600,000 of the options became vested on December 31, 2008, and 150,000 of the options shall vest at the end of each subsequent quarter, for a period of 2 years. 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 of December 31, 2009, all options are fully vested .





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 options are fully vested as of  December 31, 2008.




On February 22, 2009, we received from BioTech Knowledge LLC an interest-free loan in the aggregate amount of $93,274 in the form of a convertible promissory note, convertible to up to 11,659,250 shares of common stock, at a price of $0.008 per share, within 12 months from February 22, 2009, with each share of common stock such converted awarding a warrant to purchase one share of our common stock at the price per share of $0.016 exercisable within three years. As of March 15, 2010, and the note was converted in full into 11,659,250 shares of our common stock. During year 2009 and until March 31, 2010, we received another interest-free loan from BioTech Knowledge LLC in the amount of $40,000, convertible to up to 5,000,000 shares of common stock, at a price of $0.008 per share, within 12 months from the closing date, with each share of common stock such converted awarding a warrant to purchase one share of our common stock at the price per share of $0.016 exercisable within three years.




7




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 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.




BioTech Knowledge LLC is our largest stockholder holding approximately 30.91% of our common stock.




Use of Proceeds from Registered Securities


None.


Purchases of Equity Securities by the Issuer and Affiliated Purchasers




None.




Securities Authorized for Issuance Under Equity Compensation Plans




See Item 11 for information regarding securities authorized for issuance under our equity compensation plans.




Item 5. Selected Financial Data




Not applicable.




Item 6. 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.




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 December 31, 2009, we have incurred losses of $3,949,928. 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 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.




8





Recent Private Placements




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




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




Critical Accounting Policies




Share Based Compensation




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.




Recent Accounting Pronouncements




In June 2008, the FASB Emerging Items 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 consensus is effective for fiscal years (and interim periods) beginning after December 15, 2008. The consensus must be applied to outstanding instruments as of the beginning of the fiscal year in which the Issue is adopted as a cumulative-effect adjustment to the opening balance of retained earnings for that fiscal year. Early application is not permitted. The Company is currently evaluating the effect of EITF 07-5 and has not yet determined the impact of the consensus on its financial position or results of operations.




9




Financial Condition, Liquidity and Capital Resources




During the twelve months ended December 31, 2009, we incurred a loss of $324,296, comparable to a net loss of $896,201 for the comparative period in 2008.




During the twelve months ended December 31, 2009, we incurred $405,608 of operating expenses, comprised primarily of $65,167 for research and development costs, $19,045 for stock-based compensation expenses, $14,520 for sales and marketing costs, $306,876 for general and administrative cost.




During the twelve months ended December 31, 2008, we incurred $947,970 of operating expenses, comprised primarily of $142,247 for research and development costs, $63,545 for stock-based compensation expenses, 203,463 for sales and marketing costs, $538,715 for general and administrative cost.




At December 31, 2009, we had a deficit in working capital of $247,985.




At December 31, 2009, our company had total assets of $144,327, which consisted mainly of cash and equivalents of $25,812, fixed assets of $28,555, intangible assets of $74,507 and prepaid expenses and other current and non-current assets of $15,452.




At December 31, 2009, our company’s total liabilities were $409,762.




During the twelve months ended December 31, 2009, we had revenues of $73,358. From inception through December 31, 2009 we had revenues of $145,276.




Results of Operations




In the fiscal year ended December 31, 2009, we generated revenues of $73,358 and incurred a loss of $324,296 during that period.




Off-Balance Sheet Arrangements




None




Plan of Operation




Our primary objectives over the 12 month period ending on December 31, 2010, 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, 2008, 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 new 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.


10





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.




Cash Requirements




Our cash requirement for the next 12 months is approximately $300,000. We estimate our operating expenses and working capital requirements at our current minimal activity phase, for fiscal year 2009 to be as follows:




Estimated Expenses to December 31, 2010Product Research and Development

$
-Sales and Marketing

$
50,000General and Administrative

$
250,000Capital Expenditures

$
-Tax Expenses

$
-Total

$
300,000




At December 31, 2009, we had a deficit in working capital of $247,985 out of which $193,882 are payable to directors, which agreed to defer their fees until further notice.




During year 2009 and until March 31, 2010, we received an interest free loan in the aggregate amount of $40,000 from Bio Tech Knowledge LLC, convertible to up to 5,000,000 shares of 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.




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 $150,000 to keep activating our business for the next twelve-month period (considering the assumption that in such minimal activity volume, directors will continue to defer their fees).  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.




Purchase or Sale of Equipment




During the next 12 months, we do not plan to purchase software, furniture and office equipment.




Products in Development




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 2008 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 is available for sale since mid 2008.




In addition, we have developed another device called ACRO-N.E.T., 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, 2008 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 (it is the same device) but it is using different solutions and detects different explosives.


11





To date, the efficiency approval of ACRO-P.E.T is derived from laboratory research and limited sales. We had performed an independent research at the Technion institute laboratory, which indicated the ACRO-P.E.T to show accurate and fast results in detecting TATP explosives. ACRO-N.E.T which is based on the ETK – kit, has a large field experience and evidences for its efficiency. 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 in detecting of explosives.




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.




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 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.




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.




Item 6A. Quantitative and Qualitative Disclosures About Market Risk




Not applicable.




Item 7. Financial Statements and Supplementary Data




Our, and our subsidiary’s consolidated financial statements beginning on pages F-1 through F-16, as set forth in the following index, are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.




12




Index to Consolidated Financial Statements




Report of Independent Registered Public Accounting Firm
F-1Consolidated Balance Sheets
F-2Consolidated Statements of Operation
F-3Consolidated Statements Stockholders’ Equity
F-4Consolidated Statements of Cash Flows
F-5Notes to Consolidated Financial Statements
F-6 – F-14





13





REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors of ACRO Inc. (A Development Stage Company)





We have audited the accompanying consolidated balance sheet of ACRO Inc. and subsidiary (a development stage company) (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statement of income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2009, and for the period from May 22, 2002 (date of incorporation) to December 31, 2009. These financial statements are the responsibility of the Company’s Board of Directors and management. Our responsibility is to express an opinion on the financial statements based on our audits. The consolidated financial statements of the Company for the year ended December 31, 2007 and for the period May 22, 2002 (date of incorporation) through December 31, 2007, were audited by other auditors whose reports, dated March 13, 2008, expressed an unqualified opinion and included an explanatory paragraph concerning an uncertainty about the Company’s ability to continue as a going concern.The financial statements for the period May 22, 2002 (date of inception) through December 31, 2007 reflect total revenues and net loss of $14,914 and $2,729,431, respectively, of the related totals.  The other auditors' report has been furnished to us, and our opinion, insofar as it relates to the amounts included for such prior period, is based solely on the report of such other auditors.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.





In our opinion, based on our audit and the report of other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of ACRO Inc. and subsidiary as of December 31, 2009, and the results of their operations and their cash flows for the year then ended and for the period from May 22, 2002 (date of incorporation) to December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.





The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  The Company is a development stage company engaged in development of products for the detection of military and commercial explosives for the homeland security market.  As discussed in Note 1 to the financial statements, the Company’s operating losses since inception to December 31, 2009, raise substantial doubt about its ability to continue as a going concern.  Management’s plans concerning these matters are also described in Note 1 to the financial statements.  The financial statements do not include any adjustments that might result from the outcome of these uncertainties.





Brightman Almagor Zohar & Co.


Certified Public Accountants


A Member Firm of Deloitte Touche Tohmatsu





Tel Aviv, Israel


March 29, 2010




F - 1


ACROInc. (A Development Stage Company)
 Consolidated Financial Statements
 Consolidated Balance Sheets
 
  December 31


December 312009


2008$



$AssetsCurrent assets:Cash and cash equivalents


25,812



36,943Trade receivables (Note 3)


3,359



8,803Prepaid expenses and other current assets


9,332



6,854Total current assets


38,503



52,600Other non-current assets


2,762



4,824Property and equipment, net (Note 4)


28,555



63,113Intangible assets, net


74,507



86,507Total assets


144,327



207,044Liabilities and stockholders’ equity (deficit)Current liabilities:Shot term bank credit


795



-Accounts payable and accrued liabilities


285,693



167,228Total current liabilities


286,488



167,228Convertible Promissory Note


123,274



-Total liabilities


409,762



167,228Commitments (Notes 8 and 10)Stockholders’ equity (Deficiency):Common stock; $0.001 par value; 700,000,000 shares authorized;

and 67,824,268 shares issued and outstanding as of

December 31, 2009 and December 31, 2008, respectively


67,823



67,823Additional paid-in capital


3,616,670



3,597,625Deficit accumulated during the development stage


(3,949,928
)


(3,625,632
)Total stockholders’ equity (Deficiency):


(265,435
)


39,816Total liabilities and stockholders’ equity


144,327



207,044




F - 2




ACROInc. (A Development Stage Company)
 Consolidated Financial Statements
 Consolidated Statements of Operations




Cumulativefrom inception(May 22, 2002)Year ended December 31


to December 312009


2008


2009$



$



$Revenues


73,358



57,004



145,276Costs and expenses :Research and development


65,167



142,247



526,831Sales and marketing


14,520



203,463



324,350General and administrative *


325,921



602,260



3,240,923Total operating expenses


405,608



947,970



4,092,104Operating loss


(332,250
)


(890,966
)


(3,946,828
)Interest income, net


7,954



2,105



64,927Loss before income taxes


(324,296
)


(888,861
)


(3,881,901
)Income tax expense


-



7,340



43,916Net loss


(324,296
)


(896,201
)


(3,949,928
)Basic and diluted net loss per common share


(0.00
)


(0.01
)


(0.08
)Weighted average number of shares used in computingbasic and diluted net loss per common share


67,824,268



67,719,443



50,778,384




*
Includes $19,045, $63,545 and $1,083,247 in stock-based compensation to employees and non-employees for the years ended December 31, 2009, 2008 and for the cumulative period from May 22, 2002 (date of inception) to December 31, 2009 respectively.


F - 3


ACROInc. (A Development Stage Company)
 Consolidated Financial Statements
 Statement of Stockholders’ Equity




Additional





TotalCommon stock


paid-in


Deficit


stockholders’Shares


Amount


Capital


accumulated


equity (deficit)$



$



$



$Balance as at December 31, 2007


67,543,275



67,543



3,534,360



(2,729,431
)


872,472Issuance of common stock on January 22, 2008


33,332



33



(33
)


-



-Issuance of common stock on April 27, 2008


180,997



181



(181
)


-



-Issuance of common stock on July 14, 2008


33,332



33



(33
)


-



-Issuance of common stock on October  29, 2008


33,332



33



(33
)


-



-Stock-based compensation to employees and non-employees


-



-



63,545



-



63,545Net loss for the year


-



-



-



(896,201
)


(896,201
)Balance as at December 31, 2008


67,824,268



67,823



3,597,625



(3,625,632
)


39,816Stock-based compensation to employees and non-employees


-



-



19,045



-



19,045Net loss for the year


-



-



-



(324,296
)


(324,296
)Balance as at December 31, 2009


67,824,268



67,823



3,616,670



(3,949,928
)


(265,435
)




F - 4




ACROInc. (A Development Stage Company)
 Consolidated Financial Statements


Consolidated Statements of Cash Flows
   Cumulativefrom inception(May 22, 2002)Year ended December 31


to December 312009


2008


2009$


$


$Cash flows from operating activities:Net loss


(324,296
)


(896,201
)


(3,949,928
)Adjustments to reconcile net loss to net cash used inoperating activities:Services contributed by officers


-



-



3,500Depreciation and amortization


46,557



49,018



162,707Stock-based compensation


19,045



63,545



1,083,247Changes in operating assets and liabilities:Trade receivables


5,444



(4,177
)


(3,359
)Prepaid expenses and other current assets


(2,478
)


63,307



(9,332
)Accounts payable and accrued liabilities


118,466



(13,480
)


285,693Accrued severance pay


-



(3,146
)


-Net cash used in operating activities


(137,262
)


(741,134
)


(2,427,472
)Cash flows from investing activities:Decrease (increase) in long term deposit


2,062



5,855



(2,762
)Decrease in restricted cash


-



30,000



-Increase in short term deposits


-



650,000



-Purchase of property and equipment


-



(4,937
)


(145,769
)Purchase of intangible assets


-



-



(120,000
)Net cash provided by (used) in investing activities


2,062



680,918



(268,531
)Cash flows from financing activities:Decrease in short term bank-credit


795



-



795Convertible Promissory Note


123,274







123,274Proceeds from issuance of common stock


-



-



2,836,286Offering costs


-



-



(238,540
)Net cash provided by financing activities


124,069



-



2,721,815Net  (decrease) increase in cash and cash equivalents


(11,131
)


(60,216
)


25,812Cash and cash equivalents at beginning of period


36,943



97,159



-Cash and cash equivalents at end of period


25,812



36,943



25,812Supplemental disclosures of cash flow information:Cash paid for interest


-



-



-Cash paid for taxes


-



-



-





F - 5




ACROInc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of December 31, 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 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 $3,949,928 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.




F - 6




ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of December 31, 2009





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.           Recently Issued Accounting Standards





In June 2008, the FASB Emerging Items 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 consensus is effective for fiscal years (and interim periods) beginning after December 15, 2008. The consensus must be applied to outstanding instruments as of the beginning of the fiscal year in which the Issue is adopted as a cumulative-effect adjustment to the opening balance of retained earnings for that fiscal year. Early application is not permitted. The Company is currently evaluating the effect of EITF 07-5 and has not yet determined the impact of the consensus on its financial position or results of operations.




F - 7


ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of December 31, 2009




Note 3 - Prepaid Expenses and Other Current Assets




December 31


December 312009


2008$


$Value-added tax receivable


3,414



1,429Prepaid expenses


5,918



5,4259,332



6,854




Note 4 - Property and Equipment





Property and equipment consist of the following:




Estimateduseful life


December 31


December 31(years)


2009


2008$


$Computer equipment


3



13,487



13,487Production equipment


3



122,341



122,341Furniture


7-15



7,924



7,924Leasehold improvements


(*)



2,017



2,017145,769



145,769Less - Accumulated depreciation and amortization






117,214



82,65628,555



63,113




(*) over the lease term





Depreciation expense for the year ended December 31, 2009 and 2008 and for the cumulative period from May 22, 2002 (date of inception) to December 31, 2009, was $34,557, $37,018 and $117,214, respectively.





Note 5 - 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 years ended December 31, 2009 and 2008 and for the cumulative period from May 22, 2002 (date of inception) to December 31, 2009 was $12,000, $12,000 and $45,493, respectively. The expected annual amortization expenses for each of the next four years are $12,000.




F - 8




ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of December 31, 2009




Note 6 - Income Taxes




A.           Income Taxes





Income taxes included in the consolidated statements of operations represent current taxes as a result of taxable income of the Israeli subsidiary, which was formed in March 2006, in accordance with local tax laws. In 2009 and 2008, income (loss) before income taxes of the Israeli subsidiary is $(261,914) and $65,335 respectively, and the loss before income taxes for the Company in the US is $34,274 and $954,198 respectively. The regular corporate tax rate in Israel for 2009 is 26%. The Israeli corporate tax rates for 2008 and thereafter are as follows: 2009 - 26%, and for 2010 - 25%, 2011 – 24%, 2012 – 23%, 2013 – 22%, 2014 – 21%, 2015 – 20%, 2016 and thereafter – 18% The applicable statutory tax rate for the Company in the US is 34%.




Loss from continuing operations, before income taxes, consists of the following:




December 31


December 312009


2008$



$United States


(34,274
)


(954,198
)Israel


(261,914
)


65,335(296,188
)


(888,863
)




B.           Deferred Tax





The components of the deferred tax assets are as follows:




December 31


December 312008


2007$


$Deferred tax assets:Net operating loss carry forwards


1,286,057



1,206,307Valuation allowance


(1,286,057
)


(1,206,307
)Net deferred tax assets


-



-




The valuation allowance for deferred tax assets as of December 31, 2009 and 2008 was $1,502,495 and $1,206,307 respectively. The U.S. deferred tax assets have been fully offset by a valuation allowance. The net change in the total valuation allowance for the years ended December 31, 2009 and 2008 was an increase of $79,750 and $324,009, respectively. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers projected taxable income and tax planning strategies in making this assessment.  In order to fully realize the deferred tax asset, the Company will need to generate future taxable income prior to the expiration of the deferred tax assets governed by the tax code.  Based on the level of historical taxable losses, management believes that it is more likely than not that the Company will not realize the benefits of these deductible differences.





F - 9





ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of December 31, 2009




Note 6 - Income Taxes (Cont’d)


As of December 31, 2009, the Company has net operating loss carry forwards for federal income tax purposes of approximately $3,844,151, after the consideration of approximately $201,400 of net operating loss carry forwards that are expected to expire unused due to an ownership change as defined under the Internal Revenue Code section 382 that occurred in early 2006. These federal net operating loss carry forwards will expire if not utilized on various dates through 2027.





C.           Reconciliation of Income Tax Expense:





A reconciliation of the theoretical income tax computed on the loss before income taxes at the statutory tax rate and the actual income tax provision is presented as follows:




Year ended December 312009


2008$


$Loss before income taxes as per the income statement


(296,188
)


(888,863
)Tax calculated according to the statutory tax rate of 34%


(100,704
)


(302,213
)Increase (decrease) in income tax resulting from:Non-deductible expenses


-



4,870Change in valuation  allowance


79,750



324,009Foreign tax rate differential


23,695



(4,573
)Exchange rate differences


(2,741
)


(14,753
)Total income tax expense


-



7,340




The income tax payable as of December 31, 2009 and 2008 was $9,880 and $29,954 respectively.





D.           Accounting for Uncertainty in Income Taxes




The Company and its subsidiary adopted FIN 48 as of January 1, 2007, but the adoption had no effect on the financial statements.





As of January 1, 2009 and for the 12 months ended December 31, 2009, the Company and its subsidiary did not have any unrecognized tax benefits and do not expect that the amount of unrecognized tax benefits will change significantly within the next 12 months. The Company and its subsidiary’s accounting policy is to accrue interest and penalties related to unrecognized tax benefits as a component of income tax expense.





The Company and its subsidiary file income tax returns in the U.S. federal and state jurisdictions and in Israel. The Company’s tax returns remain subject to examination by the Internal Revenue Service for the tax years beginning in 2002. The Israeli subsidiary was incorporated in March 2006 and its tax returns remain subject to examination by the Israeli tax authorities for the years beginning in 2006.




F - 10


ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of December 31, 2009




Note 7 – Stock Transactions




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




During year 2009 and until March 31, 2010, the Company received an interest free loan in the amount of $40,000 from Bio Tech Knowledge LLC, convertible to up to 5,000,000 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 February 22, 2009, the Company received an interest free loan in the amount of $93,274 in the form of a convertible promissory note with BioTech Knowledge LLC, convertible to up to 11,659,250 shares of our common stock, at a price of $0.008 per share, within 12 months from the closing date, with each share of common stock such converted awarding a warrant to purchase one share of the Company’s common stock at the price per share of $0.016 exercisable within three years. As of March 15, 2010, the note was converted in full into11,659,250 shares of our common stock.




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





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





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




F - 11




ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of December 31, 2009


Note 7 – Stock Transactions (Cont’d)





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





Note 8 - 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 years ended December 31, 2009, 2008 and for the cumulative period from May 22, 2002 (date of inception) to December 31, 2009, the consultants earned 80,512 shares, 133,328 shares and 1,264,407 shares respectively. 113,844 shares that were earned during the last four quarters, have not yet been issued. During the year ended December 31, 2009, 2008 and for the cumulative period from May 22, 2002 (date of inception) to December 31, 2009, compensation expense recorded in respect of the shares earned by the consultant amounted to $0, $5,550 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 December 31, 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 December 31, 2009, 450,000 options were expired and cancelled and 150,000 of the options shall vest at the end of each subsequent quarter, following December 31, 2009, for a period of 3 more quarters. 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 December 31, 2009.




F - 12




ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of December 31, 2009


Note 9 - 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 period was ended at 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 December 31, 2009, is $19,500  and is included at accounts payable. During the year ended December 31, 2009 and 2008, the Company incurred $3,000 and $36,046, 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 5).





During the year ended December 31, 2009 and 2008, the Company incurred an expense of $126,720 and $128,011, 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 December 31, 2009, is $158,400 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 10 – Commitments





On October 28, 2008, 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 will complement the ACRO-P.E.T., the Company’s peroxide explosive tester for the detection of improvised explosives.





F - 13




ACRO Inc. (A Development Stage Company)
 Consolidated Financial Statements
 Notes to the Consolidated Financial Statements as of December 31, 2009


Note 11 – Subsequent Event




During year 2009 and until March 31, 2010, the Company received an interest free loan in the amount of $40,000 from Bio Tech Knowledge LLC, convertible to up to 5,000,000 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 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 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.




The Company has successfully completed the development of its new product, 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. It is the main component of ammonium nitrate fuel oil (ANFO), an increasingly popular component of improvised explosive devices.




F - 14




Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


On April 7, 2008, we terminated our engagement with Somekh Chaikin a member firm of KPMG International (KPMG) as the Company’s independent registered public accounting firm.  KPMG had been our independent registered public accounting firm and audited the consolidated financial statements for the years ended December 31, 2006 and 2007.  The reports of KPMG on the consolidated financial statements for the past fiscal years indicated contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles, except for an explanatory paragraph relating to our ability to continue as a “going concern” for the years ended December 31, 2006 and 2007.  The termination of KPMG was approved unanimously by our audit committee and our board of directors.
  In connection with the audits for the two most recent fiscal years and the subsequent interim periods to date, there were (i) no disagreements between us and KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to the satisfaction of KPMG, would have caused KPMG to make reference thereto in their report on the Company’s financial statements for these fiscal years; and (ii) no reportable events.


On April 7, 2008, we engaged Brightman Almagor Zohar & Co. a member of Deloitte Touche Tohmatsu (Deloitte), as our independent registered public accounting firm. We had not consulted with Deloitte regarding the application of accounting principles to any contemplated or completed transactions nor the type of audit opinion that might be rendered on the Company’s financial statements, and neither written nor oral advice was provided that would be an important factor considered by us in reaching a decision as to an accounting, auditing or financial reporting issues.




Item 8A(T). Controls and Procedures


(a)          Our management, including our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2009. Based on such review, our chief executive officer and chief financial officer have concluded that we have in place effective controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.




(b)          Our management, under the supervision of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:




·
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;




·
provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and




·
provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.




Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.




14




Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31, 2009, based on the framework for Internal Control-Integrated Framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that the Company’s internal controls over financial reporting were effective as of December 31, 2009.




This management report on internal control over financial reporting shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liabilities of that Section.




This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Commission that permit us to provide only management’s report in this Annual report.




(c)          There were no changes in our internal controls over financial reporting identified with the evaluation thereof that occurred during the quarter ended December 31, 2009, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.




Item 8B. Other Information
  None.


PART III


Item 9. Directors, Executive Officers and Corporate Governance
  Directors and Executive Officers


The following table sets forth information regarding our current directors and executive officers, their ages, positions held and duration each person has held that position, as of March 15, 2010.


Name
Age
Position
Date First Elected

or AppointedGadi Aner
56
Chief Executive Officer and Chairman
March 15, 2006Prof. Ehud Keinan
62
Director
March 15, 2006Dan Elnathan(1)
55
Director
March 15, 2006Gabby Klausner (2)
39
Treasurer and Chief Financial Officer
June 1, 2007


________________________________


(1) Sole member of the Audit Committee.
 (2) Commencing February 2009, Ms. Klausner provides her services, as a freelance consultant.


Significant Employees


As of March 15, 2010, we do not have any employees.




Family Relationships


There are no family relationships between any of our directors, executive officers and proposed directors or executive officers.
  15


Business Experience





The following is a brief account of the education and business experience of each director and executive officer during at least the past five years, indicating each person’s principal occupation during the period, and the name and principal business of the organization by which he was employed.


Gadi Aner.From 2007 to present, Mr. Aner is the CEO and chairman of the board of directors of Acro Inc. From 2001 to 2007, Mr. Aner has been the founder and managing director of Symposia (Israel) Ltd., which develops applications for the organization of events and conferences and utilizes the Internet infrastructure to enable clients to use these applications. From 1998 to 2000, Mr. Aner was the CEO of Verdant Biotechnologies Ltd., which is an agricultural biotechnology company developing technologies to enhance the resistance of agricultural crops. From 1995 to 1997, Mr. Aner served as the CEO of Pharmore Therapeutics Ltd., which worked in collaboration with the Technion, the Israel Institute of Technology, in developing less toxic, novel compounds for treatment of cancer. Mr. Aner received his bachelor’s degree in economics and political science from Haifa University.
  Prof. Ehud Keinan. Prof. Keinan is currently the Benno Gitter and Ilana Ben Ami Chair of Biotechnology at the Technion’s Faculty of Chemistry. He received his Ph.D. in Organic Chemistry from the Weizmann Institute of Science in Israel in 1977 and undertook post-doctoral research in the Department of Chemistry at University of Wisconsin from 1977 to 1980. Since 2004, Prof. Keinan has served as the Dean of the Faculty of Chemistry at the Technion. From 1999 to 2004, Prof. Keinan served as the founder and head of the Institute of Catalysis Science and Technology at the Technion. Prof. Keinan has received numerous honors and awards in the fields of chemistry and biochemistry. He has also published extensively in the areas of chemistry and biochemistry.
  Dan Elnathan Mr. Elnathan is currently the chairman of the Accounting Department at the College of Management in Israel. He has served in that position since 2002. From 2000 to 2001, he was a professor of clinical accounting at the University of Southern California’s School of Accounting. From 2004 to present, Mr. Elnathan also served as a member of the board of director and the chairman of the audit committee of Vita Pri Hagalil, an Israeli public company. Mr. Elnathan received his Ph.D. in Accounting from the Wharton School of Business at University of Pennsylvania.
  Gabby Klausner Ms. Klausner is a certified public accountant. She holds a Master of Business Administration from Haifa University, Israel and a BA in Economics and Finance from Tel Aviv University. Prior to joining Acro, Ms. Klausner served from 2005 as a cost analyst for Vishay Israel’s optical components center (opto fab) in Yoqneam, Israel. From 1999 to 2005 she was the controller for CyOptics, Inc. and its Israeli subsidiary, CyOptics Israel Ltd. (Vishay Israel acquired the latter in 2005). From 1997 through 1999 Ms. Klausner was deputy controller for SemiConductor Devices (SCD), a provider of infrared detectors and laser diodes. Before joining SCD, she was an account manager at two large Israeli accounting firms.


Advisory Board




We have two members on our advisory board:




Name
Date AppointedRichard A. Lerner
May 31, 2006K.Barry Sharpless
September, 2006




We had a third member, Mr. Ehud Barak, who resigned from our advisory board on June 18, 2007.




Prof. Richard A. Lerner. Prof. Lerner has been a member of our advisory board since June 5, 2006. Prof. Lerner is an American research chemist and is currently President and Chief Executive Officer of The Scripps Research Institute (TSRI) in La Jolla, California. In 1982 he was appointed Chairman of the Department of Molecular Biology of TSRI, and five years later assumed the directorship. In 1991, when the TSRI was established as a nonprofit entity, Prof. Lerner became its first president. Prof. Lerner is best known for his work on converting antibodies into enzymes, providing a method of catalyzing chemical reactions thought impossible using classical techniques. In addition to his research into catalytic antibodies, Prof. Lerner has led extensive studies into protein structure, characterized a novel lipid hormone that induces sleep, and provided the first evidence of a role for ozone in human disease. In addition to his role as President of TSRI, Prof. Lerner is the Lita Annenberg Hazen Professor of Immunochemistry and Cecil H. and Ida M. Green Chair in Chemistry. He was the recipient of, among other prizes and awards, the Parke Davis Award in 1978, the San Marino Prize in 1990, the Wolf Prize in Chemistry for 1994 (with Peter Schultz), the California Scientist of the Year Award in 1996, the University of California Presidential Medal in 2002, and the Paul Ehrlich-and Ludwig Darmstaedter Prize in 2003. He has also been elected to the Royal Swedish Academy of Sciences and the United States National Academy of Sciences. Prof. Lerner has numerous books and publications to his credit. Under Prof. Lerner’s leadership, The Scripps Research Institute has grown three-fold in terms of laboratory space and more than quadrupled it’s staff levels, making it among the largest nonprofit biomedical research organizations in the world. He also oversaw the establishment of a sister research campus, called Scripps Florida, in Palm Beach County.
  16
  K. Barry Sharpless. Prof. Sharpless has been a member of our advisory board since September, 2006. Prof. Sharpless is a W. M. Keck Professor of Chemistry and a member of The Scripps Research Institute. Prof. Sharpless is also a 2001 Nobel Prize Laureate in Chemistry. Having completed a B.A. at Dartmouth College in 1963, he went on to complete his Ph.D. at Stanford University in 1968. He continued postdoctoral research at Stanford in 1968 and at Harvard University in 1969.


Involvement in Certain Legal Proceedings


None of our directors, executive officers, promoters or control persons have been involved in any of the following events during the past ten years:


·
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
  ·
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
  ·
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
  ·
being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange   Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.


Promoters and control persons.


None.


Section 16(a) Beneficial Ownership Reporting Compliance
 
 Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended December 31, 2009, all filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with.
 To the best of our knowledge, all executive officers, directors and greater than 10% stockholders filed the required reports in a timely manner.Code of Ethics


Code of Ethics


Effective March 23, 2005, our Company’s board of directors adopted a Code of Business Conduct and Ethics and Compliance Program that applies to all of our Company’s officers, directors and employees. Our Code of Business Conduct and Ethics and Compliance Program was filed with the Securities and Exchange Commission as Exhibit 14.1 to our Form 10-KSB for the year ended December 31, 2004, filed on March 30, 2005. We will provide a copy of the Code of Business Conduct and Ethics and Compliance Program to any person without charge, upon request. Requests can be sent to: ACRO Inc., P.O. Box 100, Caesarea, Israel.
  17


Corporate Governance
  Audit, Compensation and Nominating Committees


Our board of directors is of the view that it is appropriate for us to have neither a standing compensation nor nominating committee because there are currently only three directors on our board of directors, one of whom, Mr. Dan Elnathan is an “independent director” under the rules of the National Association of Securities Dealers, Inc. Furthermore, we are currently quoted on the OTC Bulletin Board, which is sponsored by the National Association of Securities Dealers, Inc., under the symbol “ACRI” and the OTCBB does not have any listing requirements mandating the establishment of any particular committees. These directors have performed the functions of nominating and compensation committees and will continue to do so. There are no policies or procedures for stockholders to submit recommendations or nomination for directors. Our board of directors does not believe that a defined policy with regard to the consideration of candidates recommended by stockholders is necessary at this time. Given the early stage of our development as a company, a specific nominating policy would be premature and of little assistance until our business operations are at a more advanced level. The process of identifying and evaluating nominees for director is conducted by our board of directors.
  Based on the information gathered, our board of directors then makes a decision on whether to recommend the candidates as nominees for director. We do not pay fees to any third party or parties to identify or evaluate or assist in identifying or evaluating potential nominees.
  On March 7, 2007, we established an audit committee and appointed Dan Elnathan as a sole member of this committee.


Audit Committee Financial Expert


Our board of directors determined that Mr. Dan Elnathan qualifies as an “audit committee financial expert” as defined by Item 407(d) of Regulation S-K. Mr. Dan Elnathan is an “independent director” as defined in Rule 5605(a)(2) of the Rules of National Association of Securities Dealers and the requirements of rule 10A-3(b)1 of the Exchange Act of 1934.


Item 10. Executive Compensation
  Summary Compensation Table


The following table sets forth all compensation paid or accrued to former and current officers during the fiscal years ended December 31, 2009 and 2008.




SUMMARY COMPENSATION TABLEName and

Principal Position


Year



Salary

($)

Bonus

($)


Stock

Awards

($)

Option

Awards

($)


Non-Equity

Incentive Plan

Compensation

(#)

Nonqualified

Deferred

Compensation

Earnings

($)

All Other

Compensation

($)

Total

($)Gadi Aner


2009



-

-


-

-


-

126,720
(1)
25,820
(1)
152,540Chief Executive Officer and Chairman


2008



-

-


-

15,700


-

31,680
(1)
117,969
(1)
172,101Gabby Klausner(2)


2009



36,507






-






5,246
(2)
89,232Chief Financial Officer


2008



77,164






2,963






-

89,232


(1)
Earned by M.G-Net Ltd., a private company wholly-owned by Gadi Aner, for his services as Chairman of the Board and Chief Executive Officer.  An amount of $158,400 is deferred, sincestarting from October 2008, Mr. Aner agreed to defer the payment of 100% of his monthly fee until further notice.

In the years ended 2009 and 2008, the compensation to Mr. Aner, included car maintenance expenses of $25,820 and $21,637, respectively.(2)
In August 2009 $6,019 were paid as vacation at end of employment. Started September 2009 Ms. Klausner acted as a freelanced CFO. $5,246 were paid as consultants fees.




18




Outstanding Equity Awards at Fiscal Year-End




The following table sets forth all outstanding equity awards for the fiscal year ended December 31, 2009.




OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-ENDOPTION AWARDS
STOCK AWARDS


Name


Number of Securities

Underlying Unexercised

Options

(#)

Exercisable



Number of Securities Underlying Unexercised Options

(#)

Unexercisable



Equity

Incentive

Plan

Awards:

Number of

Securities

Underlying

Unexercised

Unearned

Options

(#)



Option Exercise Price

($)

Option

Expiration

Date


Number of Shares or

Units of Stock That

Have Not Vested

($)



Market Value of

Shares or Units

of Stock That

Have Not Vested

($)



Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested

(#)



Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested

(#)Gadi Aner, Chief Executive

Officer and Chairman


600,000



300,000



-



0.075

April 28, 2016Gabby Klausner,


3,000,000



150,000



-



0.075

April 28, 2016Chief Financial Officer


200,000



-



-



0.06

July 8, 2016




In February 2008, our board of directors approved an adoption of an Israeli share option plan, the 2008 Israeli Share Option Plan, according to the capital gains tax track through a trustee. It was decided to reserve a pool of 4,000,000 shares of our common stock, for grants to employees, directors and consultants under the plan.




The 2008 Israeli Share Option Plan was adopted to comply under Section 102 of the Israeli Income Tax Ordinance, which allows Israeli employees to receive favorable tax treatment for compensation in the form of shares or options. Under our 2008 Israeli Share Option Plan, we may grant to our Israeli directors, officers and employees, except for such persons that are deemed to be a controlling shareholder or a consultant under Section 32 of the Income Tax Ordinance, options to purchase our shares of common stock. This plan also allows for beneficial tax treatment for options issued through a trustee. Based on Israeli law currently in effect and elections which we have made, and provided that options granted or, upon their exercise, the underlying shares, issued under the plan are held by the trustee for at least two years following the date in which the options are granted, the optionees are (i) entitled to defer any taxable event with respect to the options until the underlying shares are sold, and (ii) subject to capital gains tax of 25% on the sale of the shares. We may not recognize expenses pertaining to the options for tax purposes.




Israeli tax law allows us to choose from among three alternative sets of tax tracks for our 2008 Israeli Share Option Plan or future plans. In approving the 2008 Israeli Share Option Plan, our board of directors selected the capital gains tax track described above. Our board of directors may, subject to limitations under Section 102, change this selection in the future. Notwithstanding the above, we are entitled to allocate options not according to the selected tax track, but by direct grant to employees; provided, that the requirements of Section 102 are met.




19




Under this plan, in any of the following events: (i) a sale of all or substantially all of the assets of our company; or (ii) a sale (including an exchange) of all or substantially all of the shares of the capital stock of our company; or (iii) a merger, consolidation or like transaction of our company with or into another corporation., the administrator of the plan, in its sole discretion shall decide: (i) if and how the unvested options shall be canceled, replaced or accelerated; (ii) if and how vested options (including options with respect to which the vesting period has been accelerated according to Section (i) shall be exercised, replaced and/or sold by the trustee or the company (as the case may be) on the behalf of Israeli optionees; (iii) how the underlying shares issued upon exercise of the options and held by the trustee on behalf of optionees shall be replaced and/or sold by the trustee on behalf of the optionee.




Any option granted under our Plan not exercised within eight years of the grant date shall expire. Under this plan, if the optionee ceases to be an employee, director, officer or consultant of our company for any reason other than death, disability, retirement or cause, then he will be entitled to exercise all of his options that are vested but unexercised, if not previously expired, not later than the earlier of (i) a period of ninety days after the date of his termination; or (ii) the term of the options. If the termination is a result of the employee death, retirement or disability, any vested but unexercised options shall be exercisable in the case of death, by his or her estate, personal representative or beneficiary, or in the case of retirement or disability, by the optionee or his or her personal representative (as the case may be), until the earlier of (i) 180 days after the date of termination of employment; or (ii) the term of the options. If we terminate the employment of an employee for cause, all of his or her vested and unvested options expire immediately.




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. 600,000 of the options became vested on December 31, 2008, and 150,000 of the options shall vest at the end of each subsequent quarter, for a period of 2 years. 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. 179,360 options are fully vested and 17,936 options shall vest at the end of each subsequent quarter, following December 31, 2008, for a period of 2 quarters




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 options are fully vested as of December 31, 2008.




Compensation of Directors




The following table sets forth the compensation of our directors for the fiscal year ended December 31, 2009:




Director CompensationName(1)


Fees

Earned or

Paid in

Cash

($)



Stock

Awards

($)



Option

Awards

($)



Non-Equity

Incentive Plan

Compensation

($)



Nonqualified

Deferred

Compensation

Earnings

($)



All Other

Compensation

($)



Total

($)Dan Elnathan


12,000
(2)


-



2,128



-



-







14,128Prof. Ehud Keinan


3,000
(2)


-



-



-



-







3,000




(1) The compensation of Gadi Aner, our Chief Executive Officer and Chairman, is fully reflected in the Summary Compensation Table above.


(2)  The earned fees were deferred until further notice


20
  Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters





Securities Authorized for Issuance Under Equity Compensation Plans




In February 2008, our board of directors approved an adoption of an Israeli share option plan, according to the capital gains tax track through a trustee. It was decided to reserve a pool of 4,000,000 shares of our common stock of the Company, for allocation to employees, directors and consultants under the plan.




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. 600,000 of the options became vested on December 31, 2008, and 150,000 of the options shall vest at the end of each subsequent quarter, for a period of 2 years. 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. 179,360 options are fully vested and 17,936 options shall vest at the end of each subsequent quarter, following December 31, 2008, for a period of 2 quarters




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 options are fully vested as of December 31, 2008.




The following summary information is presented for stock options authorized for issuance on an aggregate basis as of December 31, 2009.




Plan Category

Number of Securities to be issued upon exercise of outstanding options, warrants and rights.

(a)


Weighted average exercise price of outstanding options, warrants and rights.

(b)


Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)

(c)Equity compensation plans approved by security holders

Not Applicable


Not Applicable


Not ApplicableEquity compensation plans not approved by security holders


1,765,232
(1)

$
0.067



2,234,768
(2)




(1)
As of December 31, 2009, the following options have been issued and outstanding pursuant to an equity compensation plan: (i) an option to purchase 900,000 shares of common stock granted to Gadi Aner, an option to purchase 450,000 shares of common stock granted to Gabby Klausner, each with an exercise price of $0.075 per share pursuant to the approval of the Company’s board of directors dated April 28, 2008;  (ii) an option to purchase 215,232 shares of common stock granted to Dan Elnathan with an exercise price of $0.001 per share pursuant to the approval of the Company’s board of directors dated April 28, 2008; (iii) an option to purchase 200,000 shares of common stock granted to Gabby Klausner with an exercise price of $0.06 per share pursuant to the approval of the Company’s board of directors dated July 8, 2008.




(2)
Options remaining available for future issuance under the 2008 share option plan, excluding securities reflected in column (a).




The share option plan is administered by either our board of directors or a committee, consisting of such number of members (but no less than two (2)) as may be determined by our board of directors, to which the board of directors shall have delegated power to act on its behalf with respect to the share option plan. The administrator of the share option plan has full power and authority to select the individuals to whom awards will be granted, to make any combination of awards to participants, to accelerate the exercisability or vesting of any award, to provide substitute awards and to determine the specific terms and conditions of each award, subject to the provisions of the share option plan, our articles of association and any applicable law.




The share option plan permits us to make grants of stock options to officers, employees, directors, consultants and other key persons. Stock options granted under the share option plan shall have an exercise price as determined by the administrator of the share option plan.




In the event of a merger or sale of all or substantially all assets or shares of capital stock, the administrator at its sole discretion shall decide the treatment of the options in the sale event.




21




Security Ownership of Certain Beneficial Owners and Management




The following table sets forth certain information concerning the number of shares of our common stock known by us to be owned beneficially as of March 15, 2010, by: (i) each person (including any group) that owns more than 5% of any class of the voting securities of our company; (ii) each director and officer of our company; and (iii) directors and officers as a group. Unless otherwise indicated, the stockholders listed possess sole voting and investment power with respect to the shares shown.




In the following table, we have determined the number and percentage of shares beneficially owned in accordance with Rule 13d-3 of the Exchange Act based on information provided to us by our controlling shareholder, executive officers and directors, and this information does not necessarily indicate beneficial ownership for any other purpose. In determining the number of shares of our common stock beneficially owned by a person and the percentage ownership of that person, we include any shares as to which the person has sole or shared voting power or investment power, as well as any shares subject to warrants or options held by that person that are currently exercisable or exercisable within 60 days after March 15, 2010.




Title of Class

Name and Address of

Beneficial Owner


Amount and Nature of

Beneficial Ownership


Percentage

of Class(1)(2)Common Stock

Prof. Ehud Keinan


37,624,744
(3)


55.5
%10550 North TorreyPines RoadMB-20, La JollaCA 92037Common Stock

Gadi Aner


5,955,686
(4)

(4)
8.78
%P.O. Box 18Timrat, 23840IsraelCommon Stock

Zeev Bronfeld


5,999,994



8.85
%6 Ori StreetTel Aviv, 65654IsraelCommon Stock

Dan Elnathan


215,232



0.3
%45 Nof Harim St., MevaseretZion, 90805 IsraelCommon Stock

Gabby Klausner


500,000



0.7
%33 Hachatzavim St.Ramat YishayPOB 2173, IsraelCommon Stock

Directors and Officers (as


38,954,066



57.43
%a group) (4 persons)




(1) Regulations under the Exchange Act, defines a beneficial owner of a security as: (a) any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares; (b) any person who, directly or indirectly, create or uses a trust, proxy, power of attorney, pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting such person of beneficial ownership of a security or preventing the vesting of such beneficial ownership. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on March 15, 2010.




22







(2) Based upon 67,824,268 issued and outstanding shares of common stock as of March 15, 2010.




(3) Including 20,966,494 shares registered under BioTech Knowledge LLC, which is wholly-owned by Prof. Ehud Keinan.




(4) Including 2,800,000 shares registered under M.G-NET LTD., which is wholly-owned by Mr. Gadi Aner and his wife.




Item 12. Certain Relationships and Related Transactions, and Director Independence
  Transactions with Related Persons


In February 2008, our board of directors approved an adoption of an Israeli share option plan, according to the capital gains tax track through a trustee. It was decided to reserve a pool of 4,000,000 shares of common stock of the Company, for allocation to employees, directors and consultants under the plan. Information regarding the grant of options under the share option plan to our directors and officers is described above in Item. 10 entitled “Executive Compensation.” We have issued, and will issue, shares of our common stock to the members of our advisory board for their service as advisory board members. See “– Recent Sales of Unregistered Securities.”




On March 7, 2007, we entered into a service agreement with our wholly-owned subsidiary, Acrosec Ltd. (Acrosec) pursuant to which Acrosec provides us with research and development, manufacturing, marketing and management services, in exchange for payment by us of the costs of such services plus an additional 0%-10%, based on the service provided. Effective as of 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. The services agreement between us and Acrosec pursuant to which Acrosec provided us certain research, development, manufacturing and management services was terminated. The agreement effectively renders ACRO as a holding company.


Transactions with our Controlling Shareholder




On February 22, 2009, we received from BioTech Knowledge LLC an interest-free loan in the aggregate amount of $93,274 in the form of a convertible promissory note, convertible to up to 11,659,250 shares of common stock, at a price of $0.008 per share, within 12 months from February 22, 2009, with each share of common stock such converted awarding a warrant to purchase one share of our common stock at the price per share of $0.016 exercisable within three years. As of March 15, 2010, and the note was converted in full into 11,659,250 shares of our common stock. BioTech Knowledge LLC is our largest stockholder, holding approximately 30.91% of our common stock.




During year 2009 and until March 31, 2010, we received another interest-free loan from BioTech Knowledge LLC in the amount of $40,000, convertible to up to 5,000,000 shares of common stock, at a price of $0.008 per share, within 12 months from the closing date, with each share of common stock such converted awarding a warrant to purchase one share of our common stock at the price per share of $0.016 exercisable within three years.




Promoters and certain control persons


None.




Parents


None.




23





Directors Independence





Our only director who is independent is Dan Elnathan. The chairman of the board of directors, Gadi Aner, is also an officer of the Company, and Prof. Ehud Keinan is a controlling shareholder. Therefore neither qualifies as independent directors. The determination of independence has been made using the definition of “independent director” contained under the Rules of National Association of Securities Dealers. The Company has one member on its audit committee, Dan Elnathan, who meets the independence requirements of rule 10A-3(b)1 of the Exchange Act of 1934.




Item 13. Principal Accountant Fees and Services


The following table shows the aggregate fees for professional services rendered by our accountants for the fiscal years ended December 31, 2009 and December 31, 2008.


Fiscal Year Ended December 31,2009


2008(in thousands)Audit Fees

$
40


$
40Audit-Related Fees

$
-


$
-Tax Fees

$
5


$
5All Other Fees

$
-


$
-Total

$
45


$
45


Audit Fees


For the fiscal year ended December 31, 2009, Brightman Almagor Zohar & Co., a member of Deloitte Touche Tohmatsu (“Brightman Almagor Zohar & Co.”) is expected to bill approximately $40,000 for the audit of our annual financial statements and review of our Form 10-K. For the fiscal year ended December 31, 2008, Brightman Almagor Zohar & Co. billed approximately $40,000 for these services




Audit-Related Fees




We paid fees to Somekh Chaikin a member firm of KPMG International (KPMG) of approximately $21,000 for audit related fees in connection with professional services to assist our management with Sarbanes Oxley Section 404 and Transfer Pricing benchmark during the fiscal years ended December 31, 2008.




Tax Fees


For the fiscal year ended December 31, 2009, Brightman Almagor Zohar & Co. is expected to bill approximately $5,000 for the Israeli subsidiary’s tax reports reviewing and filing services. For the fiscal year ended December 31, 2008, Brightman Almagor Zohar & Co. billed $5,000 for these services.




All Other Fees




We do not use Brightman Almagor Zohar & Co. for financial information system design and implementation. These services, which include: designing and implementing a system that aggregates source data underlying the financial statements and generates information that is significant to our financial statements, are provided internally. We do not engage Brightman Almagor Zohar & Co. to provide compliance outsourcing services. Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before Brightman Almagor Zohar & Co. is engaged by us to render any auditing or permitted non-audit related service, the engagement be: approved by our audit committee; or entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management. The audit committee pre-approves all services provided by our independent auditors. The audit committee has considered the nature and amount of fees billed by Brightman Almagor Zohar & Co. and believes that the provision of services for activities unrelated to the audit is compatible with maintaining Brightman Almagor Zohar & Co.’s independence.




24


PART IV


Item 14. Exhibits and Financial Statement Schedules


(1)
Financial Statements:  the response to this portion of Item 14 is submitted as a separate section of this report.
  (2)
Financial Statement Schedule:  None
  (3)
Exhibits:  Exhibits are as set forth in the section entitled “Exhibit Index” which follows the section entitled “Signatures” in this annual report on Form 10-K.
  25


SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, 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 KlausnerChief Executive Officer
Treasurer andand Chairman
Chief Financial OfficerDate: March 29, 2010
Date: March 29, 2010


KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints each of Gadi Aner and Gabby Klausner such person’s true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such person and in such person’s name, place and stead, in any and all capacities, to sign any and all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that any said attorney-in-fact and agent, or any substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof.
  Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature
Title
Date/s/ Gadi Aner

Gadi Aner
Chief Executive Officer & Chairman

(principal executive officer)
March 29, 2010/s/Gabby Klausner

Gabby Klausner
Treasurer & Chief Financial Officer (principal

financial officer and principal accounting officer)
March 29, 2010/s/Ehud Keinan

Ehud Keinan
Director
March 29, 2010/s/Dan Elnathan

Dan Elnathan
Director
March 29, 2010




26




Exhibit Index




Number
Description

Method of Filing3.1
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, 200710.1
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, 2009
  27
  10.10
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, 200910.12
Convertible Promissory Note between the Registrant and BioTech Knowledge LLC, dated March 24, 2010.

Filed herewith10.13
Warrant between the Registrant and BioTech Knowledge LLC, dated March 24, 2010.

Filed herewith10.14
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.

Filed herewith14.1
Code of Business Conduct and Ethics and Compliance Program

Incorporated by reference to Exhibit 14.1 to our Form 10-KSB for the year ended December 31, 2004, filed March 30, 200521
Subsidiaries of the Registrant

Incorporated by reference to Exhibit 21 to our annual report on Form 10-K filed March 30, 200931.1
Rule 13a-14(a) Certification of Principal Executive Officer

Filed herewith31.2
Rule 13a-14(a) Certification of Principal Financial Officer.

Filed herewith32.1
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