---

---

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

# Form 10-K

# FOR ANNUAL AND TRANSITION REPORTSPURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934

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

For the fiscal year ended December 31, 2008

|o | 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                                   | 98-0377767         
|(State or Other Jurisdiction of          | (IRS Employer      
|Incorporation or Organization)           | Identification No.)
|                                        
|37 Inbar St., Caesarea,                  | 30889              
|Israel                                   | (Zip Code)         
|(Address of Principal Executive Offices)
|                                         |                    

+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 o     No x

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

Yes o     No x

Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by Section 13 or
15(d) of the 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 x     No 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 | Non-accelerated filer o     | 
| | Accelerated filer o       | Smaller reporting company x | 

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

Yes o No x



---

---

The aggregate market value of the
common stock held by non-affiliates of the registrant as of June 30, 2008, the last
business day of the registrants most recently completed second fiscal quarter, was
approximately $4,069,457 (based on the average bid and asked price for the
registrants common stock on June 30, 2008 on the OTC Bulletin Board of $0.06 per
share).

At March 3, 2009, 67,824,268 shares of the registrants common stock were outstanding.

DOCUMENTS INCORPORATED
BY REFERENCE: None



---

---

# TABLE OF CONTENTS

|              |                                                                                                               | Page
|------------- | ------------------------------------------------------------------------------------------------------------- | ----
|
|
|
|
|              | PART I                                                                                                        |     
|             
|Item 1.       | Business                                                                                                      | 1   
|             
|Item 1A.      | Risk Factors                                                                                                  | 4   
|             
|Item 1B.      | Unresolved Staff Comments                                                                                     | 4   
|             
|Item 2.       | Properties                                                                                                    | 4   
|             
|Item 3.       | Legal Proceedings                                                                                             | 4   
|             
|Item 4.       | Submission of Matters to a Vote of Security Holders                                                           | 4   
|             
|              | PART II                                                                                                      
|             
|Item 5.       | Market for Registrant's Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities | 5   
|             
|Item 6.       | Selected Consolidated Financial Data                                                                          | 7   
|             
|Item 7.       | Management's Discussion and Analysis of Financial Condition and Results of Operations                         | 7   
|             
|Item 7A.      | Quantitative and Qualitative Disclosures About Market Risk                                                    | 11  
|             
|Item 8.       | Financial Statements and Supplementary Data                                                                   | 11  
|             
|Item 9.       | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                          | 12  
|             
|Item 9A(T).   | Controls and Procedures                                                                                       | 12  
|             
|Item 9B.      | Other Information                                                                                             | 13  
|             
|              | PART III                                                                                                     
|             
|Item 10.      | Directors, Executive Officers and Corporate Governance                                                        | 13  
|             
|Item 11.      | Executive Compensation                                                                                        | 16  
|             
|Item 12.      | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                | 19  
|             
|Item 13.      | Certain Relationships and Related Transactions, and Director Independence                                     | 21  
|             
|Item 14.      | Principal Accountant Fees and Services                                                                        | 22  
|             
|              | PART IV                                                                                                      
|             
|Item 15.      | Exhibits and Financial Statements                                                                             | 23  
|             
|SIGNATURES    | 24                                                                                                           
|             
|EXHIBIT INDEX | 25                                                                                                           

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 and 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. Our principal
executive and head office is located at 37 Inbar St., Caesarea, Israel.

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

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

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
February 22, 2009, we closed a private placement for total gross proceeds of $93,274 in
the form of a convertible promissory note with BioTech Knowledge LLC, convertible to up to
1,165,925 shares of common stock, at a price of $0.008 per share, with each share of
common stock such converted awarding a warrant to purchase one share of our common stock
at the price per share of $0.016 exercisable within three years. As a result of these
transactions, BioTech Knowledge LLC is our largest stockholder with approximately 30.91%
of our common stock.

1

---

---

As
of December 31, 2008, we had not realized any significant revenues from operations and
experienced losses of $3,625,632.

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 have developed another device called ACRO-N.E.T. (Nitride Explosives Tester),
which detects the presence of commercial and military explosives. ACRO-N.E.T. incorporates
into our pen-like device the explosive testing kit of the Israel Institute for Biological
Research (IIBR), licensed to us under an agreement dated October 28, 2007, with a
subsidiary of IIBR called Life Science Research Israel Ltd. (LSRI). ACRO-N.E.T. is based
on the LSRI explosive detecting kit, called ETK. 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.

We
see as our main product as the ACRO-SET that includes both P.E.T. and N.E.T.,
and covers the total range of explosives detecting. Since the fourth quarter of 2007, we
delivered samples of ACRO-SET to several distributors and potential clients in 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 June and July, 2008, we received a few purchase orders for our products from
governmental bodies in the USA and China. During 2008, we had sales of $57,004.

To
date, evidence of the efficacy of ACRO-P.E.T. is derived from laboratory research and
limited product sales. We had performed independent research at the 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.

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.

2

---

---

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

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
do not manufacture our products internally, and engage a third party for the supply and
manufacture of our products. We have no long-term supply agreements 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 and ACRO-NET. The patent is still classified as
Pending.

3

---

---

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.

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.

During
the twelve months ended December 31, 2008, we have invested a total of $142,247 in
research and development activities compared to $208,016 invested for the comparative
period in 2007. 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 planning to seek regulatory approvals, and are
planning on working with the regulators and other government agencies in other
jurisdictions, to insure that our products meet their specific requirements.

Employees

As
of March 30, 2009, we do not have any employees. Our subsidiary, Acrosec Ltd., hired the
services of Gadi Aner, who serves as our Chairman and our Interim Chief Executive Officer,
Gabby Klausner, who serves as our Chief Financial Officer (66% time), Shai Markevitch, who
serves as our Marketing and Sales Manager. Commencing February 2009, Mr. Markevitch
provides his services, as a freelance consultant, and his fees are calculated based on
sales.

# Item 1A. Risk Factors

Not
applicable.

# Item 1B. Unresolved Staff Comments

Not
applicable.

# Item 2. Properties

As
of  February  20,  2007,  we have  signed a lease  agreement  for our  headquarters  at
37  Inbar  St., Caesarea, Israel. Our lease commitment expires at the end of June 2009.

# 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.

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

There
were no matters submitted to a vote of our security holders either through solicitation of
proxies or otherwise in the fourth quarter of the fiscal year ended December 31, 2008.

4

---

---

# PART II

# Item 5. Market for
Common Equity, Related Stockholder Transactions and Small Business Issuer Purchases of
EquitySecurities.

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 on
March 23, 2009, was $0.03 per share.

|            | 2007 | 2008
|----------- | ---- | ----
|
|
|
|
|1st Quarter |      |     
|2nd Quarter |      |     
|3rd Quarter |      |     
|4th Quarter |      |     

Outstanding Shares and
Shareholders of Record

As of March 3, 2009, 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

Throughout
the 2008 fiscal year, 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. As a
result of these transactions, BioTech Knowledge LLC is our largest stockholder with
approximately 30.91% of our common stock. 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.

5

---

---

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, 2008, Prof. Lerner was entitled to receive 169,494 shares of our common stock with a
total fair market value of $5,085, of which 152,828 shares were issued as of December 31,
2008. Additional 16,666 shares which were earned during the three months ended December
31, 2008, 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,
2008, Prof. Sharpless was entitled to receive 149,994 shares of our common stock with a
total fair market value of $4,500, of which 133,328 shares were issued as of December 31,
2008. Additional 16,666 shares which were earned during the three months ended December
31, 2008, 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. 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
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.

In
February 2009, we received an interest-free loan in the aggregate amount of $93,274 in the
form of a convertible promissory note from BioTech Knowledge LLC, to be repaid on February
8, 2010, unless earlier converted into our shares common stock or prepaid, pursuant to the
terms of the note. The note is convertible into up to 1,165,925 shares of our common
stock, at a price per share of $0.008. In addition, we issued BioTech Knowledge LLC a
warrant to purchase our shares of common stock, exercisable within three years following
the conversion of the note, at the price per share of $0.016. The warrant is exercisable
into amount of shares of common stock equal to the number of shares of common stock issued
to BioTech Knowledge LLC following the conversion of the note.

6

---

---

Use of Proceeds from
Registered Securities

None.

Purchases of Equity
Securities by the Issuer and Affiliated Purchasers

None.

# Item 6. Selected
Consolidated Financial Data

Not
applicable.

Item 7. 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, ACRO-P.E.T and
ACRO-N.E.T. The issuance of additional equity securities by us could result in a
significant dilution in the equity interests of our current stockholders. Obtaining
commercial or other loans, assuming those loans would be available, would increase our
liabilities and future cash commitments.

We
have historically incurred losses, and from inception through December 31, 2008, we have
incurred losses of $3,625,632. Because of these historical losses, we will require
additional working capital to develop our business operations.

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

The
viability of ACRO for a significant period of time 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.

Recent Private Placements

In
February 2009, we received an interest-free loan in the aggregate amount of $93,274 in the
form of a convertible promissory note from BioTech Knowledge LLC, to be repaid on February
8, 2010, unless earlier converted into our shares common stock or prepaid, pursuant to the
terms of the note. The note is convertible into up to 1,165,925 shares of our common
stock, at a price per share of $0.008. In addition, we issued BioTech Knowledge LLC a
warrant to purchase our shares of common stock, exercisable within three years following
the conversion of the note, at the price per share of $0.016. The warrant is exercisable
into amount of shares of common stock equal to the number of shares of common stock issued
to BioTech Knowledge LLC following the conversion of the note.

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.

7

---

---

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
April 2008, the FASB issued FASB Staff Position 142-3, Determination of the Useful
Life of Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB Statement No. 142,
Goodwill and Other Intangible Assets (SFAS 142). The objective of
FSP 142-3 is to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used to measure
the fair value of the asset under SFAS 141(R), Business Combinations, and
other U.S. generally accepted accounting principles. FSP 142-3 will be effective
beginning in fiscal year 2010. The Company is currently evaluating the impact that
FSP 142-3 will have, if at all, on its consolidated financial statements and
disclosures.

In
May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including
Partial Cash Settlement) (APB 14-1). APB 14-1 requires the issuer to separately
account for the liability and equity components of convertible debt instruments in a
manner that reflects the issuers nonconvertible debt borrowing rate. The guidance
will result in companies recognizing higher interest expense in the statement of
operations due to amortization of the discount that results from separating the liability
and equity components. APB 14-1 will be effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. The Company is currently assessing the impact of APB 14-1 on its
consolidated financial statements.

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.

8

---

---

Initial adoption of New
Accounting Standards

In
February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities  including an
amendment of FASB Statement No. 115 (Statement 159). Statement 159 gives the Company the
irrevocable option to carry most financial assets and liabilities at fair value that are
not currently required to be measured at fair value. If the fair value option is elected,
changes in fair value would be recorded in earnings at each subsequent reporting date.
SFAS 159 is effective for the Companys 2008 fiscal year. The Company expects no
material effect on its financial position, result of operations and cash flows as a result
of adoption SFAS 159.

In
September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurement (Statement
157). Statement 157 defines fair value, establishes a framework for the measurement of
fair value, and enhances disclosures about fair value measurements. The Statement does not
require any new fair value measures. The Statement is effective for fair value measures
already required or permitted by other standards for fiscal years beginning after November
15, 2007. The Company adopted Statement 157 beginning on January 1, 2008 and expects no
material effect on its financial position, result of operations and cash flows as a result
of the adoption.

Financial Condition, Liquidity and Capital Resources

During
the twelve months ended December 31, 2008, we incurred a loss of $896,201, comparable to a
net loss of $1,177,016 for the comparative period in 2007.

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.

During
the twelve months ended December 31, 2007, we incurred $1,196,635 of operating expenses,
comprised primarily of $208,016 for research and development costs, $251,317 for
stock-based compensation expenses, $86,485 for sales and marketing costs, $650,817 for
general and administrative cost.

At
December 31, 2008, we had a deficit in working capital of $114,628.

At December
31, 2008, our company had total assets of $52,600, which consisted mainly of cash and
equivalents of $36,943, fixed assets of $63,113, intangible assets of $86,507 and prepaid
expenses and other current and non-current assets of $15,657.

At
December 31, 2008, our companys total liabilities were $167,228.

During
the twelve months ended December 31, 2008, we had revenues of $57,004. From inception
through December 31, 2008 we had revenues of $71,918.

Results of Operations

In
the fiscal year ended December 31, 2008, we generated revenues of $57,004 and incurred a
loss of $896,201 during that period.

Off-Balance Sheet
Arrangements

We
entered into non-cancellable operating leases agreements for vehicles and premises. We
have a commitment to pay a total of $20,513 for the duration of these lease agreements,
which ends on August 14, 2010. We placed a deposit in the amount of $4,824 as a guarantee
to this commitment, which is included under current assets in our balance sheet.

Plan of Operation

Our
primary objectives over the 12 month period ending on December 31, 2009, are to
manufacture and commercialize our product, called the ACRO  SET, that includes both
the ACRO-P.E.T (Peroxide Explosives Tester), and ACRO-N.E.T (Nitride Explosives Tester),
which are detection devices for explosive materials using the intellectual property
covered in U.S. Patent No. 6,767,717 and the license agreement with LSRI. Please see the
Products in Development section below. 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 will allow 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.

9

---

---

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.

Cash Requirements

Our
cash requirement for the next 12 months is approximately $300,000. We are obligated to pay
BioTech Knowledge LLC, a wholly-owned limited liability company of Prof. Ehud Keinan,
$3,000 per month for consulting services to be provided by Prof. Keinan. Beginning July
2008, Prof. Keinan agreed that the Company may defer the payment of 100% of his monthly
fee until further notice. Prof. Keinan is a stockholder who holds approximately 30.91% of
ACROs outstanding shares of common stock. In addition, 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, 2009 | 
|--------------------------------------- | 
|
|
|
|
|Product Research and Development        | 
|                                        | 
|Sales and Marketing                     | 
|                                        | 
|General and Administrative              | 
|                                        | 
|Capital Expenditures                    | 
|                                        | 
|Tax Expenses                            | 
|                                        | 
|                                        | 
|Total                                   | 

At
December 31, 2008, we had a deficit in working capital of $114,628 out of which $78,137
are payable to directors, which agreed to defer their fees until further notice.

In
February 2009, we received an interest-free loan in the aggregate amount of $93,274 in the
form of a convertible promissory note from BioTech Knowledge LLC, to be repaid on February
8, 2010, unless earlier converted into our shares common stock or prepaid, pursuant to the
terms of the note. 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 $420,000 to keep activating our business for the next twelve-month period.
In such event that we do not generate sufficient revenues or raise sufficient additional
funds by a public offering or a private placement, we will consider alternative financing
options, if any, or be forced to cease our operations.

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.

10

---

---

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 comercially available explosives, and also of homemade explosives based on
nitrate and chlorate salts. This new device, ACRO-N.E.T., complements ACRO-P.E.T. by
providing the possibility to detect explosives other than TATP. Its operation system and
advantages are the same as the ACRO-P.E.T (it is the same device) but it is using
different solutions and detects different explosives.

We
see as our main product the ACRO-SET that includes both P.E.T and N.E.T, and
covers the total range of explosives detecting. During the fourth quarter of 2008 we
delivered samples of ACRO-SET to several distributors. However, we have not yet had any
significant sales of it.

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.

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.

# Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not
applicable.

# Item 8. 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.

|                                                        |               
|------------------------------------------------------- | --------------
|
|
|
|
|Report of Independent Registered Public Accounting Firm | F - 1         
|Consolidated Balance Sheets                             | F - 2         
|Consolidated Statements of Operation                    | F - 3         
|Consolidated Statements Stockholders' Equity            | F - 4         
|Consolidated Statements of Cash Flows                   | F - 5         
|Notes to Consolidated Financial Statements              | F - 6 - F - 15

11

---

---

| |  |                                                                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Brightman Almagor Zohar1 Azrieli Center
Tel Aviv 67021
P.O.B. 16593, Tel Aviv 61164
Israel
Tel: +972 (3) 608 5555
Fax: +972 (3) 609 4022
info@deloitte.co.il
www.deloitte.com

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

# To the Board of
Directors and Stockholders ofACRO 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, 2008, and the related consolidated statement of
income, stockholders equity, and cash flows for the year then ended and for the
period from May 22, 2002 (date of incorporation) to December 31, 2008. 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.

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, such consolidated
financial statements present fairly, in all material respects, the financial position of
ACRO Inc. and subsidiary as of December 31, 2008, 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, 2008, 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 enterprise 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, 2008, 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.

/s/ Brightman Almagor Zohar & Co.Brightman Almagor Zohar & Co.
Certified Public Accountants
A Member Firm of Deloitte Touche Tohmatsu

Tel Aviv, Israel
March 30, 2009

F - 1

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|                                                                        
|Consolidated Balance Sheets                                             
|                                                                        

|                                                               | December 31
2008 | December 31
2007
|-------------------------------------------------------------- | ---------------- | ----------------
|
|
|
|
|Assets                                                         |                  |                 
|                                                               |                  |                 
|Current assets:                                                |                  |                 
|Cash and cash equivalents                                      |                  |                 
|Short term deposits                                            |                  |                 
|Restricted cash                                                |                  |                 
|Trade receivables                                              |                  |                 
|Prepaid expenses and other current assets                      |                  |                 
|                                                               |                  |                 
|Total current assets                                           |                  |                 
|                                                               |                  |                 
|Other non-current assets                                       |                  |                 
|Property and equipment, net                                    |                  |                 
|Intangible assets, net                                         |                  |                 
|                                                               |                  |                 
|                                                               |                  |                 
|Total assets                                                   |                  |                 
|                                                               |                  |                 
|                                                               |                  |                 
|Liabilities and stockholders' equity (deficit)                 |                  |                 
|                                                               |                  |                 
|Current liabilities:                                           |                  |                 
|Accounts payable and accrued liabilities                       |                  |                 
|                                                               |                  |                 
|                                                               |                  |                 
|Total current liabilities                                      |                  |                 
|                                                               |                  |                 
|                                                               |                  |                 
|Accrued severance pay                                          |                  |                 
|                                                               |                  |                 
|                                                               |                  |                 
|Total liabilities                                              |                  |                 
|                                                               |                  |                 
|                                                               |                  |                 
|Commitments (Notes 8 and 10)                                   |                  |                 
|                                                               |                  |                 
|Stockholders' equity:                                          |                  |                 
|Common stock; $0.001 par value; 700,000,000 shares authorized; |                  |                 
|67,824,268 and 67,543,275 shares issued and outstanding as of  |                  |                 
|December 31, 2008 and December 31, 2007, respectively          |                  |                 
|Additional paid-in capital                                     |                  |                 
|Deficit accumulated during the development stage               |                  |                 
|                                                               |                  |                 
|                                                               |                  |                 
|Total stockholders' equity                                     |                  |                 
|                                                               |                  |                 
|                                                               |                  |                 
|Total liabilities and stockholders' equity                     |                  |                 
|                                                               |                  |                 

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

F - 2

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|                                                                        
|Consolidated Statements of Operations                                   
|                                                                        

|                                                    | Year ended December 31 | Cumulative
from inception
(May 22, 2002)
to December 31
|--------------------------------------------------- | ---------------------- | -------------------------------------------------------
|
|
|
|
|Revenues                                            |                        |                                                        
|                                                    |                        |                                                        
|                                                    |                        |                                                        
|Costs and expenses :                                |                        |                                                        
|Research and development                            |                        |                                                        
|Sales and marketing                                 |                        |                                                        
|General and administrative *                        |                        |                                                        
|                                                    |                        |                                                        
|                                                    |                        |                                                        
|Total operating expenses                            |                        |                                                        
|                                                    |                        |                                                        
|                                                    |                        |                                                        
|Operating loss                                      |                        |                                                        
|Interest income, net                                |                        |                                                        
|                                                    |                        |                                                        
|Loss before income taxes                            |                        |                                                        
|Income tax expense                                  |                        |                                                        
|                                                    |                        |                                                        
|                                                    |                        |                                                        
|Net loss                                            |                        |                                                        
|                                                    |                        |                                                        
|                                                    |                        |                                                        
|Basic and diluted net loss per common share         |                        |                                                        
|                                                    |                        |                                                        
|                                                    |                        |                                                        
|Weighted average number of shares used in computing |                        |                                                        
|basic and diluted net loss per common share         |                        |                                                        
|                                                    |                        |                                                        

|* | Includes
$63,545, $251,317 and $1,064,202 in stock-based compensation to employees and
non-employees for the years ended December 31, 2008, 2007 and for the cumulative period
from May 22, 2002 (date of inception) to December 31, 2008 respectively.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F - 3

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|                                                                        
|Statement of
Stockholders Equity                                       
|                                                                        

|                                              | Common stock | Additional
paid-in
Capital | Deficit
accumulated | Total
stockholders'
equity (deficit)
|--------------------------------------------- | ------------ | -------------------------- | ------------------- | ------------------------------------
|
|
|
|
|Balance as at December 31, 2005               |              |                            |                     | 42,000,000                          
|Issuance of common stock on January 19, 2006  |              |                            |                     | 20,200,012                          
|Issuance of common stock and warrants  on     |              |                           
|March 15, 2006                                |              |                            |                     | 2,376,000                           
|Offering costs                                |              |                            |                     | -                                   
|Issuance of common stock on September 5, 2006 |              |                            |                     | 172,344                             
|Issuance of common stock on November 6, 2006  |              |                            |                     | 183,332                             
|Stock-based compensation to non-employees     |              |                            |                     | -                                   
|Net loss for the year                         |              |                            |                     | -                                   
|                                              |              |                            |                     |                                     
|                                              |              |                           
|Balance as at December 31, 2006               |              |                            |                     | 64,931,688                          
|Issuance of common stock on January 19, 2007  |              |                            |                     | 199,998                             
|Issuance of common stock and warrants  on     |              |                           
|February 27, 2007                             |              |                            |                     | 2,000,000                           
|Offering costs                                |              |                            |                     | -                                   
|Issuance of common stock on July 19, 2007     |              |                            |                     | 378,257                             
|Issuance of common stock on October 30, 2007  |              |                            |                     | 33,332                              
|Stock-based compensation to non-employees     |              |                            |                     | -                                   
|Net loss for the year                         |              |                            |                     | -                                   
|                                              |              |                            |                     |                                     
|Balance as at December 31, 2007               |              |                            |                     | 67,543,275                          
|                                              |              |                           
|Issuance of common stock on January 22, 2008  |              |                            |                     | 33,332                              
|Issuance of common stock on April 27, 2008    |              |                            |                     | 180,997                             
|Issuance of common stock on July 14, 2008     |              |                            |                     | 33,332                              
|Issuance of common stock on October 29, 2008  |              |                            |                     | 33,332                              
|Stock-based compensation to employees and     |              |                           
|non-employees                                 |              |                            |                     | -                                   
|Net loss for the year                         |              |                            |                     | -                                   
|                                              |              |                            |                     |                                     
|                                              |              |                           
|Balance as at December 31, 2008               |              |                            |                     | 67,824,268                          
|                                              |              |                            |                     |                                     

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

F - 4

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|                                                                        
|Consolidated Statements of Cash Flows                                   
|                                                                        

|                                                      | Year ended December 31 | Cumulative
from inception
(May 22, 2002)
to December 31
|----------------------------------------------------- | ---------------------- | -------------------------------------------------------
|
|
|
|
|Cash flows from operating activities:                 |                        |                                                        
|Net loss                                              |                        |                                                        
|                                                      |                        |                                                        
|Adjustments to reconcile net loss to net cash used in |                        |                                                        
|operating activities:                                 |                        |                                                        
|Services contributed by officers                      |                        |                                                        
|Depreciation and amortization                         |                        |                                                        
|Stock-based compensation                              |                        |                                                        
|                                                      |                        |                                                        
|Changes in operating assets and liabilities:          |                        |                                                        
|Trade receivables                                     |                        |                                                        
|Prepaid expenses and other current assets             |                        |                                                        
|Accounts payable and accrued liabilities              |                        |                                                        
|Accrued severance pay                                 |                        |                                                        
|                                                      |                        |                                                        
|                                                      |                        |                                                        
|Net cash used in operating activities                 |                        |                                                        
|                                                      |                        |                                                        
|                                                      |                        |                                                        
|Cash flows from investing activities:                 |                        |                                                        
|Decrease (increase) in long term deposit              |                        |                                                        
|Decrease (increase) in restricted cash                |                        |                                                        
|Increase in short term deposits                       |                        |                                                        
|Purchase of property and equipment                    |                        |                                                        
|Purchase of intangible assets                         |                        |                                                        
|                                                      |                        |                                                        
|                                                      |                        |                                                        
|Net cash used in investing activities                 |                        |                                                        
|                                                      |                        |                                                        
|                                                      |                        |                                                        
|Cash flows from financing activities:                 |                        |                                                        
|Decrease in short term bank-credit                    |                        |                                                        
|Proceeds from issuance of common stock                |                        |                                                        
|Offering costs                                        |                        |                                                        
|                                                      |                        |                                                        
|                                                      |                        |                                                        
|Net cash provided by financing activities             |                        |                                                        
|                                                      |                        |                                                        
|                                                      |                        |                                                        
|Net (decrease) increase in cash and cash equivalents  |                        |                                                        
|                                                      |                        |                                                        
|Cash and cash equivalents at beginning of period      |                        |                                                        
|                                                      |                        |                                                        
|                                                      |                        |                                                        
|Cash and cash equivalents at end of period            |                        |                                                        
|                                                      |                        |                                                        
|                                                      |                        |                                                        
|Supplemental disclosures of cash flow information:    |                        |                                                        
|Cash paid for interest                                |                        |                                                        
|                                                      |                        |                                                        
|                                                      |                        |                                                        
|Cash paid for taxes                                   |                        |                                                        
|                                                      |                        |                                                        

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

F - 5

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|                                                                        
|Notes to the Consolidated Financial Statements as of December 31, 2008  
|                                                                        

# Note 1  Business

| | A. | General
| | -- | -------

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

| | Since
its inception, the Company has no significant revenues and in accordance with Statement
of Financial Accounting Standard (SFAS) No. 7 Accounting and Reporting
by Development Stage Enterprises, the Company is considered a development stage
company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | B. | Going
concern
| | -- | -------------

| | The
accompanying financial statements have been prepared on a basis which assumes that the
Company will continue as a going concern and which contemplates the realization of assets
and the satisfaction of liabilities and commitments in the normal course of business. The
Company has a limited operating history, and has incurred losses of $3,625,632 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, 2008  
|                                                                        

# 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
April 2008, the FASB issued FASB Staff Position 142-3, Determination of the Useful
Life of Intangible Assets (FSP 142-3). FSP 142-3 amends the
factors that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement No. 142,
Goodwill and Other Intangible Assets(SFAS 142). The
objective of FSP 142-3 is to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142 and the period of expected cash flows
used to measure the fair value of the asset under SFAS 141(R), Business
Combinations, and other U.S. generally accepted accounting principles. FSP 142-3
will be effective beginning in fiscal year 2010. The Company is currently evaluating the
impact that FSP 142-3 will have, if at all, on its consolidated financial statements
and disclosures.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including
Partial Cash Settlement) (APB 14-1). APB 14-1 requires the issuer to
separately account for the liability and equity components of convertible debt
instruments in a manner that reflects the issuers nonconvertible debt borrowing
rate. The guidance will result in companies recognizing higher interest expense in the
statement of operations due to amortization of the discount that results from separating
the liability and equity components. APB 14-1 will be effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. The Company is currently assessing the impact of APB 14-1 on
its consolidated financial statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F - 7

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|                                                                        
|Notes to the Consolidated Financial Statements as of December 31, 2008  
|                                                                        

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

| | D. | Recently
Issued Accounting Standards (Cont'd)
| | -- | ---------------------------------------------

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

| | E. | Initial
Adoption of New Standards
| | -- | ---------------------------------

| | In
February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities  including an
amendment of FASB Statement No. 115 (Statement 159). Statement 159 gives the Company the
irrevocable option to carry most financial assets and liabilities at fair value that are
not currently required to be measured at fair value. If the fair value option is elected,
changes in fair value would be recorded in earnings at each subsequent reporting date.
SFAS 159 is effective for the Companys 2008 fiscal year. The Company expects no
material effect on its financial position, result of operations and cash flows as a
result of adoption SFAS 159.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
September 2006, the FASB issued FASB Statement No. 157, Fair Value Measurement (Statement
157). Statement 157 defines fair value, establishes a framework for the measurement of
fair value, and enhances disclosures about fair value measurements. The Statement does
not require any new fair value measures. The Statement is effective for fair value
measures already required or permitted by other standards for fiscal years beginning
after November 15, 2007. The Company adopted Statement 157 beginning on January 1, 2008
and expects no material effect on its financial position, result of operations and cash
flows as a result of the adoption.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 8

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|                                                                        
|Notes to the Consolidated Financial Statements as of December 31, 2008  
|                                                                        

# Note 3  Prepaid
Expenses and Other Current Assets

| |                            | December 312008 | December 312007
| | -------------------------- | --------------- | ---------------
|
|
|
| | Value-added tax receivable |                 |                
| | Prepaid expenses           |                 |                
| | Interest receivables       |                 |                
| | Other                      |                 |                
| |                            |                 |                
| |                            |                 |                
| |                            |                 |                

# Note 4  Property
and Equipment

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

| |                                                  | Estimated
useful life
(years) | December 31
2008 | December 31
2007
| | ------------------------------------------------ | ----------------------------- | ---------------- | ----------------
|
|
|
|
| | Computer equipment                               |                               |                  |                 
| | Production equipment                             |                               |                  |                 
| | Furniture                                        |                               |                  |                 
| | Leasehold improvements                           |                               |                  |                 
| |                                                  |                               |                  |                 
| |                                                  |                               |                  |                 
| | Less - Accumulated depreciation and amortization |                               |                  |                 
| |                                                  |                               |                  |                 
| |                                                  |                               |                  |                 
| |                                                  |                               |                  |                 

(*)    
          over the lease term

| | Depreciation
expense for the year ended December 31, 2008 and 2007 and for the cumulative period from
May 22, 2002 (date of inception) to December 31, 2008, was $37,018, $33,429 and $82,656,
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, 2008 and 2007 and for the
cumulative period from May 22, 2002 (date of inception) to December 31, 2008 was $12,000,
$12,000 and $33,493, respectively. The expected annual amortization expenses for each of
the next five years are $12,000.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 9

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|                                                                        
|Notes to the Consolidated Financial Statements as of December 31, 2008  
|                                                                        

# 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 2008 and 2007, income before income taxes of the
Israeli subsidiary is $65,335 and $73,161 respectively, and the loss before income taxes
for the Company in the US is $954,198 and $1,216,891 respectively. The regular corporate
tax rate in Israel for 2008 is 27%. The Israeli corporate tax rates for 2008 and
thereafter are as follows: 2009  26%, and for 2010 and thereafter  25%. 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
2008 | December 31
2007
| | ------------- | ---------------- | ----------------
|
|
|
|
| | United States |                  |                 
| | Israel        |                  |                 
| |               |                  |                 
| |               |                  |                 
| |               |                  |                 

| | B. | Deferred
Tax
| | -- | ------------

| | The
components of the deferred tax assets are as follows:
| | ---------------------------------------------------------

| |                                   |  | December 31
2008 | December 31
2007
| | --------------------------------- |  | ---------------- | ----------------
|
|
|
|
| | Deferred tax assets:              |  |                  |                 
| | Net operating loss carry forwards |  |                  |                 
| | Valuation allowance               |  |                  |                 
| |                                   |  |                  |                 
| |                                   |  |                 
| | Net deferred tax assets           |  |                  |                 
| |                                   |  |                  |                 

| | The
valuation allowance for deferred tax assets as of December 31, 2008 and 2007 was
$1,206,307 and $882,298 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, 2008 and 2007 was an increase of $324,009 and $421,891, 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 - 10

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|                                                                        
|Notes to the Consolidated Financial Statements as of December 31, 2008  
|                                                                        

# Note 6  Income
Taxes (Contd)

| | As
of December 31, 2008, the Company has net operating loss carry forwards for federal
income tax purposes of approximately $3,547,963, 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 31
| | --------------------------------------------------------- | ----------------------
|
|
|
|
| | Loss before income taxes as per the income statement      |                       
| |                                                           |                       
| |                                                           |                       
| | Tax calculated according to the statutory tax rate of 34% |                       
| |                                                           |                       
| | Increase (decrease) in income tax resulting from:         |                       
| | Non-deductible expenses                                   |                       
| | Change in valuation  allowance                            |                       
| | Foreign tax rate differential                             |                       
| | Exchange rate differences                                 |                       
| |                                                           |                       
| | Total income tax expense                                  |                       
| |                                                           |                       

| | The
income tax payable as of December 31, 2008 and 2007 was $29,954, and $36,576
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, 2008 and for the 12 months ended December 31, 2008, 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 - 11

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|                                                                        
|Notes to the Consolidated Financial Statements as of December 31, 2008  
|                                                                        

# Note 7  Stock
Transactions

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

| | 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, 2008, 2007 and for the cumulative period from May 22,
2002 (date of inception) to December 31, 2008 the consultants earned 133,328 shares,
578,249 shares and 1,131,079 shares respectively. 33,332 shares that were earned during
the last quarter, have not yet been issued. During the year ended December 31, 2008, 2007
and for the cumulative period from May 22, 2002 (date of inception) to December 31, 2008,
compensation expense recorded in respect of the shares earned by the consultant amounted
to $5,550, $251,317 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 entitled to earn up to an additional 80,512
shares of common stock for future services to be performed.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 12

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|                                                                        
|Notes to the Consolidated Financial Statements as of December 31, 2008  
|                                                                        

# Note 8 
Stock-Based Compensation (Contd)

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

| | 179,360
options became vested as of December 31, 2008 and 17,936 options shall vest at the end of
each subsequent quarter, following December 31, 2008, for a period of 2 quarters.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 as of December 31, 2008, and 150,000 of the options shall vest at
the end of each subsequent quarter, following December 31, 2008, 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 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 400,000 of
the options became vested as of December 31, 2008.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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. 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, 2008, is
$16,500 and is included at accounts payable. The Company may terminate the Consulting
Agreement with 60 days prior notice. During the year ended December 31, 2008 and 2007,
the Company incurred $36,046 and $45,579, 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, 2008 and 2007, the Company incurred an expense of $128,011
and $122,765, respectively, for consulting services provided by the Companys CEO
and chairman of the board of directors. Starting from July 2008, the companys
CEO and chairman of the board of directors agreed that the Company may defer the
payment of 100% of his monthly fee until further notice.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 13

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|                                                                        
|Notes to the Consolidated Financial Statements as of December 31, 2008  
|                                                                        

# Note 9  Related
Party Transactions (Contd)

| | The
total amount of the deferred payment as of December 31, 2008, is $52,800 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

| | The
Company entered into non-cancellable operating lease agreements for vehicles and
premises. The future minimum lease payments under these leases at December 31, 2008, are
as follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | Amount
|---------------------------- | ------
|
|
|
|
|Year ending December 31,     |       
|2009                         |       
|2010                         |       
|                             |       
|Total minimum lease payments |       
|                             |       

| | Rent
expense for each of the years ended December 31, 2008 and 2007 and for the cumulative
period from May 22, 2002 (date of inception) to December 31, 2008, was $25,405, $24,989
and $56,064, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 - 14

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|                                                                        
|Notes to the Consolidated Financial Statements as of December 31, 2008  
|                                                                        

# Note 11 
Subsequent Event

| | In
February 2009, the Company received an interest-free loan in the aggregate amount of
$93,274 in the form of a convertible promissory note from BioTech Knowledge LLC, to be
repaid on February 8, 2010, unless earlier converted into its shares common stock or
prepaid, pursuant to the terms of the note. The note is convertible into up to 1,165,925
shares of its common stock, at a price per share of $0.008. In addition, the Company
issued BioTech Knowledge LLC a warrant to purchase its shares of common stock,
exercisable within three years following the conversion of the note, at the price per
share of $0.016. The warrant is exercisable into amount of shares of common stock equal
to the number of shares of common stock issued to BioTech Knowledge LLC following the
conversion of the note.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
as of January 1, 2009, the Company entered into an Intellectual Property Assignment and
Services Termination Agreement with its wholly owned subsidiary, Acrosec Ltd., pursuant
to which, among others, the Company effected a transfer of all of its intellectual
property, including patents and technology, to Acrosec, in consideration for an amount
representing the value of the intellectual property as will be determined by an
independent third-party appraiser selected by 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 as a holding company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---

Item 9. 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 9A(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, 2008. 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.

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, 2008 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, 2008.

12

---

---

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,
2008, that have materially affected, or are reasonably likely to           materially
affect our internal control over financial reporting.

# Item 9B. Other
Information

None.

# PART III

# Item 10. 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 30, 2009.

|Name               | Age | Position                              | Date First Elected
or Appointed
|------------------ | --- | ------------------------------------- | -------------------------------
|
|
|
|
|Gadi Aner          | 55  | Chief Executive Officer and Chairman  | March 15, 2006                 
|Prof. Ehud Keinan  | 61  | Director                              | March 15, 2006                 
|Dan Elnathan(1)    | 54  | Director                              | March 15, 2006                 
|Gabby Klausner     | 38  | Treasurer and Chief Financial Officer | June 1, 2007                   
|Shai Markevitch(2) | 43  | Marketing and Sales Freelance Manager | August 19, 2007                
|                   |     |                                       |                                

---

|(1) Sole
member of the Audit Committee.
|---------------------------------------

|(2) Commencing
February 2009, Mr. Markevitch provides his services, as a freelance           consultant,
and his fees are calculated based on sales.
|----------------------------------------------------------------------------------------------------------------------------------------------------

Significant Employees

As
of March 30, 2009, 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.

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.

13

---

---

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.

Shai
Markevitch, Marketing and Sales Freelance Manager. Mr. Markevitch has extensive
international business experience. Prior to joining Acro, Mr. Markevitch served for many
years as business development manager for several international companies like HP and
Amdocs, in the US , the European market and Israel , where he led sales and marketing
efforts in various countries and subjects. Mr. Markevitch holds a B.Sc. in Physics and
Computer Science from Ben-Gurion University of the Negev, Israel.

Advisory Board

We have two members on our advisory
board:

|                  |                
|----------------- | ---------------
|
|
|
|
|Name              | Date Appointed 
|                 
|Richard A. Lerner | May 31, 2006   
|K.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.

14

---

---

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 five 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, 2008, 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, except for the following:

|Name              | Number of
Late Reports | Number of
Transactions
Not Reported
On a Timely Basis | Failure to File
Requested Forms
|----------------- | ---------------------- | ----------------------------------------------------- | -------------------------------
|
|
|
|
|Ehud Keinan(1)    |                        |                                                       |                                
|Gabby Klausner(2) |                        |                                                       |                                

|(1) | The named officer and director failed to file Form 4 Statement of Changes           in
Beneficial Ownership.
|--- | -------------------------------------------------------------------------------------------------------------

|(2) | The named officer filed a late Form 4 Statement of Changes in Beneficial
          Ownership.
|--- | ----------------------------------------------------------------------------------------------

15

---

---

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., 37 Inbar Street, Caesarea,
Israel.

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 4200(a)(15) 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 11. 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, 2008 and 2007.

|SUMMARY COMPENSATION TABLE
|--------------------------
|
|
|
|
|Gadi Aner                 
|Chief Executive Officer   
|and Chairman              
|                          
|Gabby Klausner(2)         
|Chief Financial Officer   
|                          
|Jacob Bar(3)              
|Shalom Former Chief       
|Financial Officer         
|                          
|Shai Markevitch(5)        
|Marketing and             
|Sales Manager             

16

---

---

|(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                $52,800is deferred, since starting from July 2008, Mr. Aner agreed to
defer the                payment of 100% of his monthly fee until further notice. In
years ended 2008 and 2007 the compensation to Mr. Aner, included car
                    maintenance expenses of $21,637 and$21,889 respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | On
June 1, 2007, Ms. Klausner was appointed as our Chief Financial Officer.
|--- | ---------------------------------------------------------------------------

|(3) | On
June 1, 2007, Mr. Bar-Shalom ceased to serve as our Chief Financial Officer.
|--- | -------------------------------------------------------------------------------

|(4) | The
amount paid either directly to Mr. Bar-Shalom or to a company that hired Mr.
               Bar-Shalom to perform his position as acting Chief Financial Officer.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | On
August 19, 2007, Mr. Markevitch was appointed as our Vice President Business
               Development, Marketing and Sales.
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(6) | Car
maintenance expenses.
|--- | -------------------------

Outstanding Equity Awards
at Fiscal Year-End

The
following table sets forth all outstanding equity awards for the fiscal year ended
December 31, 2008.

# OUTSTANDING EQUITY
AWARDS AT FISCAL YEAR-END

|OPTION AWARDS                       | STOCK AWARDS
|----------------------------------- | ------------
|
|
|
|
|Gadi Aner,                          |             
|Chief Executive Officer and         |             
|Chairman                            |             
|                                    |             
|                                    |             
|Gabby                               |             
|Klausner,Chief                      |             
|Financial                           |             
|Officer                             |             
|                                    |             
|Shai Markevitch,                    |             
|Vice President                      |             
|Business Development, Marketing and |             
|Sales                               |             
|                                    |             

17

---

---

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.

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.

18

---

---

Compensation of Directors

The
following  table sets forth the  compensation  of our directors for the fiscal year ended
December 31, 2008:

|             | Director Compensation
|------------ | ---------------------
|
|
|
|Dan Elnathan |                      

(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 include a
deferred amount of $8,837.

# Item 12. 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, 2008.

|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 |                                                                                                  |                                                                                  |                                                                                                                                               
|                             |                                                                                                  |                                                                                 
|Equity compensation plans    |                                                                                                  |                                                                                 
|not approved by security     |                                                                                                  |                                                                                 
|holders                      |                                                                                                  |                                                                                  |                                                                                                                                               

|(1) | As
of December 31, 2008, 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, an
option to purchase 450,000                     shares of common stock granted to Shai
Markevitch, 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 and an                     option to purchase 200,000
shares of common stock granted to Shai Markevitch                     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).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------

19

---

---

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.

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 3, 2009, 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 3, 2009.

|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           | 
|               |                                      |                                           | 10550 North Torrey          | 
|               |                                      |                                           | Pines Road                  | 
|               |                                      |                                           | MB-20, La Jolla             | 
|               |                                      |                                           | CA 92037                    | 
|Common Stock   |                                      |                                           | Gadi Aner                   | 
|               |                                      |                                           | P.O. Box 18                 | 
|               |                                      |                                           | Timrat, 23840               | 
|               |                                      |                                           | Israel                      | 
|Common Stock   |                                      |                                           | Zeev Bronfeld               | 
|               |                                      |                                           | 6 Ori Street                | 
|               |                                      |                                           | Tel Aviv, 65654             | 
|               |                                      |                                           | Israel                      | 
|Common Stock   |                                      |                                           | Dan Elnathan                | 
|               |                                      |                                           | 45 Nof Harim St., Mevaseret | 
|               |                                      |                                           | Zion, 90805 Israel          | 
|Common Stock   |                                      |                                           | Gabby Klausner              | 
|               |                                      |                                           | 33 Hachatzavim St.          | 
|               |                                      |                                           | Ramat Yishay                | 
|               |                                      |                                           | POB 2173, Israel            | 
|Common Stock   |                                      |                                           | Shai Markevitch             | 
|               |                                      |                                           | 37 Inbar St.                | 
|               |                                      |                                           | Caesarea, 30889, Israel     | 
|Common Stock   |                                      |                                           | Directors and Officers      | 
|               |                                      |                                           | a group) (4persons)         | 

20

---

---

(1)     Regulation
S-B 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 3, 2009.

(2)          Based upon
67,824,268 issued and outstanding shares of common stock as of March           3, 2009.

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

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

# Item 13. 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. 11 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

In
February 2009, we received an interest-free loan in the aggregate amount of $93,274 in the
form of a convertible promissory note from BioTech Knowledge LLC, to be repaid on February
8, 2010, unless earlier converted into our shares common stock or prepaid, pursuant to the
terms of the note. The note is convertible into up to 1,165,925 shares of our common
stock, at a price per share of $0.008. In addition, we issued BioTech Knowledge LLC a
warrant to purchase our shares of common stock, exercisable within three years following
the conversion of the note, at the price per share of $0.016. The warrant is exercisable
into amount of shares of common stock equal to the number of shares of common stock issued
to BioTech Knowledge LLC following the conversion of the note.

21

---

---

Promoters and certain
control persons

None.

Parents

None.

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 14. 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, 2008 and December 31, 2007.

|                   | Fiscal Year Ended
December 31,
|------------------ | ------------------------------
|
|
|
|
|Audit Fees         |                               
|Audit-Related Fees |                               
|Tax Fees           |                               
|All Other Fees     |                               
|Total              |                               

Audit Fees

For
the fiscal year ended December 31, 2008, Brightman Almagor Zohar & Co. a member of
Deloitte Touche Tohmatsu is expected to bill approximately $40 for the audit of our annual
financial statements and review of our Form 10-K. For the fiscal year ended December 31,
2007, Somekh Chaikin billed approximately $16,000 for the audit of our annual financials
statements and review of our Form 10-KSB and additional 24,000 for quarterly reviews.

Audit-Related Fees

We
paid fees to Deloitte of approximately $0 for audit related fees in connection with
professional services to assist our management with Sarbanes Oxley Section 404 during the
fiscal years ended December 31, 2008. 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, 2008, Brightman Almagor Zohar & Co. a member of
Deloitte Touche Tohmatsu 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, 2007, Somekh Chaikin billed $5,000 for these services.

22

---

---

All Other Fees

We
do not use Deloitte 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 Deloitte to provide
compliance outsourcing services. Effective May 6, 2003, the Securities and Exchange
Commission adopted rules that require that before Deloitte 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
Deloitte and believes that the provision of services for activities unrelated to the audit
is compatible with maintaining Deloittes independence.

# PART IV

# Item 15. Exhibits and
Financial Statements

(1)
               Financial Statements:  the response to this portion of Item 15
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.

23

---

---

# 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
Gadi AnerChief Executive Officerand ChairmanDate: March 30, 2009 |  | By: /s/ Gabby Klausner
Gabby KlausnerTreasurer andChief Financial OfficerDate: March 30, 2009
| | --------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------

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      | Chief Executive Officer & Chairman             | March 30, 2009
|Gadi Aner          | (principal executive officer)                 
|                  
|/s/ Gabby Klausner | Treasurer & Chief Financial Officer (principal | March 30, 2009
|Gabby Klausner     | financial officer and principal accounting    
|                   | officer)                                      
|                  
|/s/ Ehud Keinan   
|Ehud Keinan        | Director                                       | March 30, 2009
|                  
|/s/ Dan Elnathan  
|Dan Elnathan       | Director                                       | March 30, 2009

24

---

---

# Exhibit Index

|Number | Description                                                                                                              |  | Method of Filing                                                                                                   
|------ | ------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------
|
|
|
|
|3.1    | Articles of Incorporation, as amended.                                                                                   |  | Incorporated by reference to Exhibit 3.1 to our registration statement on Form SB-2 filed November 21, 2003        
|      
|3.2    | Bylaws, dated February 25, 2005.                                                                                         |  | Incorporated by reference to Exhibit 3.1 to our current report on Form 8-K filed March 17, 2005 and March 21, 2005 
|      
|3.3    | Certificate of Change Pursuant to NRS 78.209 filed with the State of Nevada effective as of January 25, 2006.            |  | Incorporated by reference to Exhibit 3.3 to our annual report on Form 10-KSB filed March 28, 2007                  
|      
|3.4    | Certificate of Change Pursuant to NRS 78.209 filed with the State of Nevada effective as of October 25, 2006.            |  | Incorporated by reference to Exhibit 3.4 to our annual report on Form 10-KSB filed March 28, 2007                  
|      
|3.5    | Certificate of Change Pursuant to NRS 78.209 filed with the State of Nevada effective as of October 30, 2006.            |  | Incorporated by reference to Exhibit 3.5 to our annual report on Form 10-KSB filed March 28, 2007                  
|      
|10.1   | 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, 2006                      
|      
|10.2   | Finder's Fee Agreement between the Registrant and David Sidoo, dated March 8, 2005.                                      |  | Incorporated by reference to Exhibit 10.2 to our current report on Form 8-K filed March 17, 2005 and March 21, 2005
|      
|10.3   | Patent Purchase Agreement between the Registrant and Prof. Ehud Keinan, dated February 1, 2006.                          |  | Incorporated by reference to Exhibit 10.1 to current report on Form 8-K filed February 3, 2006                     
|      
|10.4   | 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, 2006                 
|      
|10.5   | 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, 2006                 
|      
|10.6   | Advisory Board Agreement between the Registrant and Mr. Ehud Barak.                                                      |  | Incorporated by reference to Exhibit 10.6 to our annual report on Form 10-KSB filed March 28, 2007                 
|      
|10.7   | 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, 2006                     
|      
|10.8   | 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, 2007                 
|      
|10.9   | Finders Agreement between the Registrant and Siden Investment Inc. dated February 1, 2007.                               |  | Incorporated by reference to Exhibit 10.9 to our annual report on Form 10-KSB filed March 28, 2007                 

25

---

---

|10.10 | 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, 2007                       
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------
|     
|10.11 | 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, 2008                       
|     
|10.12 | Intellectual Property Assignment and Services Termination Agreement, dated March 29, 2009.                                                     |  | Filed herewith                                                                                                            
|     
|10.13 | Convertible Promissory Note between the Registrant and BioTech Knowledge LLC, dated February 22, 2009.                                         |  | Incorporated by reference to Exhibit 10.1 to
our current report on Form 8-K filed February 23, 2009                       
|     
|10.14 | Warrant between the Registrant and BioTech Knowledge LLC, dated February 22, 2009.                                                             |  | Filed herewith                                                                                                            
|     
|14.1  | 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 on March 30, 2005
|     
|21    | Subsidiaries of the Registrant                                                                                                                 |  | Filed herewith                                                                                                            
|     
|31.1  | Rule 13a-14(a) Certification of Principal Executive Officer                                                                                    |  | Filed herewith                                                                                                            
|     
|31.2  | Rule 13a-14(a) Certification of Principal Financial Officer.                                                                                   |  | Filed herewith                                                                                                            
|     
|32.1  | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |  | Filed herewith                                                                                                            

26

---

---