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# UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

# FORM 10-KSB

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

For the fiscal year ended December 31, 2007

|o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|- | ----------------------------------------------------------------------------------

For the transition period from _________ to _________

Commission file number: 000-50482

ACRO INC.(Name of Small Business Issuer in Its Charter)

|                                |                                     
|------------------------------- | ------------------------------------
|
|
|
|
|Nevada                          | 98-0377767                          
|(State or Other Jurisdiction of | (I.R.S. Employer Identification No.)
|Incorporation or Organization) 

|                                         |           
|---------------------------------------- | ----------
|
|
|
|
|37 Inbar St., Caesarea, Israel           | 30889     
|(Address of principal executive offices) | (Zip Code)

+972-4-636-0297(Issuer's telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.001(Title of Class)

Check whether the issuer is not
required to file reports pursuant to Section 13 or 15(d) of the Exchange Act o

Check whether the issuer: (1) filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 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

Check if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no
disclosure will 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-KSB
or any amendment to this Form 10-KSB. o



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

Yes o No x

Issuers revenues for its most
recent fiscal year: $7,784

The aggregate market value of the
shares of common stock held by non-affiliate computed based on the average bid and asked
prices of shares of common stock on February, 15 2008, is $4,730,362.

The number of shares outstanding of
the issuers common stock, as of February 15, 2008: 67,576,607.

DOCUMENTS INCORPORATED
BY REFERENCE: NONE

Transitional Small Business Disclosure Format (Check one):   Yes o No x.

2

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ACRO INC.
ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS

|           |                                                                                                                                       |   
|---------- | ------------------------------------------------------------------------------------------------------------------------------------- | --
|
|
|
|
|PART I     |                                                                                                                                       |   
|           |                                                                                                                                       |   
|ITEM 1.    | DESCRIPTION OF BUSINESS                                                                                                               | 4 
|ITEM 2.    | DESCRIPTION OF PROPERTY                                                                                                               | 16
|ITEM 3.    | LEGAL PROCEEDINGS                                                                                                                     | 16
|ITEM 4.    | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                   | 17
|          
|PART II   
|          
|ITEM 5.    | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER TRANSACTIONS, AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES                  | 17
|ITEM 6.    | PLAN OF OPERATION                                                                                                                     | 19
|ITEM 7.    | FINANCIAL STATEMENTS                                                                                                                  | 25
|ITEM 8.    | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                                                  | 26
|ITEM 8A.   | CONTROLS AND PROCEDURES                                                                                                               | 26
|          
|PART III  
|          
|ITEM 9.    | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT | 27
|ITEM 10.   | EXECUTIVE COMPENSATION                                                                                                                | 31
|ITEM 11.   | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS                                       | 33
|ITEM 12.   | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                                             | 35
|ITEM 13.   | EXHIBITS                                                                                                                              | 36
|ITEM 14.   | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                                                | 36
|          
|SIGNATURES |                                                                                                                                       | 37

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# PART I

# Item 1. Description of
Business

Certain
statements in this Annual Report on Form 10-KSB 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. Factors which could materially affect such forward
looking statements can be found in the Section entitled Risk Factors in Item 1
in this Annual Report on Form 10-KSB. 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, unless otherwise specified, all dollar amounts are expressed in United
States dollars.

Unless
otherwise indicated, all references to we, us, our ,
Company and ACRO meansACRO 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., incorporated under the laws of the State
of Israel, which provides us with research and development, manufacturing, marketing and
management services. 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.

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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 US$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 US$6,000; (iii) 5,999,994 shares of common stock to Mr.
Bronfeld for a total consideration of US$12,857.13; and (iv) 6,400,002 shares of common
stock to BioTech Knowledge LLC, a private company wholly-owned by Prof. Keinan, for a total
consideration of $13,714. In addition, pursuant to a share purchase agreement dated
January 10, 2006, two of our former directors, Nick DeMare and Brad Colby, sold their
entire interests in us, 14,000,000 shares of common stock, to BioTech Knowledge LLC. As a
result of these two transactions, BioTech Knowledge LLC is our largest stockholders with
approximately 30.93% of our common stock.

On
October 16, 2007, we signed a non-binding letter of intent to acquire RAY Detection
Technology Group (RAY) in an all-stock transaction. RAY develops and provides advanced
inspection and detection systems for explosive, chemical and biological threats.
Completion of the proposed acquisition is subject to a number of conditions, including
completion of definitive documentation on terms satisfactory to the parties, due
diligence, the approval of the proposed acquisition by both companies boards of
directors and raising adequate financing. RAYs products are based on a proprietary
technology called Discovery CERT which enables automated trace sampling of bulk goods and
cargo for the detection of explosive, chemical and biological threats. We may not complete
definitive documentation on terms satisfactory to the parties and consummate the
transaction, be satisfied with the due diligence process, or obtain the approval of the
proposed acquisition by both companies boards of directors. Effective as of December
16, 2007, both parties agreed to extend the time frame for the preparation and execution
of a definitive agreement until February 29, 2008, and to extend the exclusive-dealing
period until June 30, 2008. As of March 2008, a definitive agreement was not yet signed by
the parties.

As
of December 31, 2007, we had not realized any significant revenues from operations and
experienced losses of 2,729,431. Our subsidiary, Acrosec Ltd., currently has six
employees.

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.

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Our
Products

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

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, 2007 with a subsidiary of IIBR called Life
Science Research Israel Ltd. (LSRI). This new device, ACRO-N.E.T., complements ACRO-P.E.T
by detecting the nitrogen based explosives, in addition to the peroxide explosives
detected by the ACRO-P.E.T.

We developed a new product named
ACRO-SET, which combines both products mentioned above in one product. ACRO-SET is an
explosive detection kit, comprising of the ACRO-N.E.T and the ACRO-P.E.T, covering a broad
spectrum of explosives and is packed in a pouch that can be held on the belt and is the
ideal solution for security professionals.

During
the fourth quarter of 2007 we delivered samples of the ACRO-SET to several distributors.
However, we have not yet had any significant sales of ACRO-SET.

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.

The Market

Improvised
explosive devices based on peroxide containing materials have increasingly been used in
recent years by various terrorist organizations, especially in the Middle East and other
parts of the world. 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.

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Although
many peroxide-containing materials have been known for more than 70 years, no satisfactory
method for their field detection has been developed to date. 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
identifies explosives is using 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.

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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 2007, 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.

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.

During
the twelve months ended December 31, 2007, we have invested a total of $208,016 in
research and development activities compared to $111,401 invested for the comparative
period in 2006. Most of the research and development activity was done by consultants and
sub contractors.

Government Approvals

Our
ability to develop and commercialize our products is dependent upon approval from certain
governmental security organizations, such as the U.S. Transportation Security Agency. We
are planning to seek regulatory approvals, and are planning on working with the
regulators, such as TSA in the U.S. and other government agencies in other jurisdictions,
to insure that our products meet their specific requirements.

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# RISK FACTORS

Set
forth below are certain risk factors that could harm our business, results of operations
and financial condition. You should carefully read the following risk factors, together
with the financial statements, related notes and other information contained in this
Annual Report on Form 10-KSB. This Annual Report on Form 10-KSB contains forward
looking statements that contain risks and uncertainties. Please refer to the
discussion of Forward-Looking Statements on page one of this Annual Report on
Form 10-KSB in connection with your consideration of the risk factors and other important
factors that may affect future results described below.

# Risks Relating to Our
Business

We have a history of
losses and we expect to incur losses for the foreseeable future.

We
incurred net losses of $1,177,016 for the year ended December 31, 2007 and, as of December
31, 2007, we had an accumulated deficit of $2,729,431 and working capital of $671,238.

We
anticipate that we will require additional funding of up to approximately $130,000
according to our current business structure to implement our business plan and to conduct
research and development for our potential explosive detection products for the next
twelve-month period. Although we intend to begin to generate revenues from the sale of our
products ACRO-P.E.T. and ACRO-N.E.T. and to raise additional money required to fund our
operations during this period of time from the sale of our equity securities, there can be
no assurance that we will be able to do so.

If we are unable to
obtain additional funding, our business operations will be harmed and, if we do obtain additional
financing, our then-existing shareholders may suffer substantial dilution.

We
will require additional funds to sustain and develop our existing and potential explosive
detection products. Additional capital will be required to effect these operations and to
otherwise implement our overall business strategy. There can be no assurance that
financing will be available in amounts or on terms acceptable to us, if at all. The
inability to obtain additional capital will restrict our ability to grow and the company
may not be able to continue to conduct business operations. Any additional equity
financing may involve substantial dilution to our then-existing shareholders.

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We have a limited
operating history and, if we are not successful in continuing to grow our business, then
we may have to scale back or even cease our ongoing business operations.

We have no history of significant
revenues from operations and have no significant tangible assets. We have yet to generate
positive earnings and there can be no assurance that we will ever operate profitably. We
completed the acquisition of U.S. Patent No. 6,767,717 on March 15, 2006 and our company
has little operating history researching and developing explosive detection devices.
Accordingly, we must be considered a development-stage company. Our success is
significantly dependent on the successful commercialization of our existing and potential
explosive detection products. Our operations will be subject to all the risks inherent in
the establishment of a developing enterprise and the uncertainties arising from the
absence of a significant operating history. We may be unable to achieve commercial
acceptance of our existing and potential explosive detection devices or to operate on a
profitable basis. We are in the development stage and potential investors should be aware
of the difficulties normally encountered by enterprises in the development stage. If our
business plan is not successful, and we are not able to operate profitably, investors may
lose some or all of their investment in our company.

We have no supply agreements
with our key supplier, which supplies and manufactures our products. If we need to replace
our supplier and manufacturer, we may not be able to meet the demand for our product.

We
do not manufacture our products internally, and we have a single source of supply for the
components of our product, and the manufacturing of our product. We have no long-term
supply agreements with our sole supplier and manufacturer, 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.

We are a
development-stage company with little experience in the operation of our business. There
is a risk that our business may fail.

To
date, we have been involved primarily in research, testing and product development. We
have only a limited operating history and no experience in mass producing and bringing to
market our products. We may experience in the future many of the problems, delays and
expenses encountered by any early stage business, many of which are beyond our control.
These problems include, but are not limited to:

| |  | unanticipated
difficulties relating to the production and marketing of a new product in the
        marketplace;
| | - | ----------------------------------------------------------------------------------------------------------------

| |  | competition
from larger and more established companies; and
| | - | -----------------------------------------------------------

| |  | lack
of market acceptance of our new products and technologies.
| | - | ---------------------------------------------------------------

There is uncertainty over
whether the intellectual property we acquired infringes on the rights of third parties,
which could add expense and delay operations.

We
acquired U.S. Patent No. 6,767,717 from Prof. Ehud Keinan for $120,000. While Prof. Keinan
has represented to us that, to the best of his knowledge, the explosive detection
technology covered by the Patent does not infringe on the rights of any third party,
neither Prof. Keinan nor our company undertook a formal patent search or other investigation
as to whether the detection technology infringes on the rights of any third party. In the
event it is ultimately found that this technology does infringe on the rights of a third
party, we may be prohibited from developing or marketing products incorporating the
technology and we may be liable for damages to the third party upon whose technology we
may have infringed.

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We may be unable to
protect our proprietary rights, thereby permitting competitors to develop the same or similar
products and technologies to ours, which could add expense and delay operations.

Our
future results and ability to compete will be dependent, in large part, upon the marketing
and sales of our proprietary products and technologies, the development of future
proprietary products and technologies and the commercialization of purchased patented
technologies. While we have purchased a U.S. patent covering certain of aspects of our
explosive detection products, the patent may be successfully challenged and may not
provide us with meaningful proprietary protections. Alternatively, we may not have the
financial resources to mount sustained patent defense. We could also incur substantial
costs in asserting our intellectual property or proprietary rights against others or if
others assert their rights against us. The failure to successfully protect our
intellectual property and proprietary rights could enable others to duplicate or claim
rights to our explosive detection products or otherwise develop similar or competitive
products which may result in decreases in our future results of operations, liquidity and
cash flows. Any such decreases may correspondingly decrease the market price of our common
stock.

Our major shareholders,
officers, directors and affiliated entities own a major portion of our shares and control
us.

Our
major shareholders, executive officers, directors and entities affiliated with them, in
the aggregate, beneficially own approximately 38.65% of our outstanding shares. These
shareholders, if acting together, may be able to control all matters requiring approval by
our shareholders, including the election of directors and the approval of mergers or other
business combination transactions.

We Depend Upon Key
Personnel.

Our
success is heavily dependent on the continued active participation of our current Chairman
and Chief Executive Officer Gadi Aner and our director Prof. Ehud Keinan. Loss of
the services of one or both of these individuals could have a material adverse effect upon
our business, financial condition or results of operations. None of these individuals
currently have any plans to retire or leave ACRO in the near future. We do not maintain
any key life insurance policies for any of these individuals or other personnel. The loss
of any of our senior personnel could significantly impact our business until adequate
replacements can be identified and put in place.

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We face severe
competition from other explosive detection companies, many of whom have greater resources than
we do, which could cause us to lose sales, add expense and delay our operations.

We
will have to compete against companies that are also in the business of developing,
manufacturing and marketing explosive detection devices. We may be unable to effectively
compete in the market sector in which we plan to operate. There are several other
explosive detection providers that have significant inroads to the market sector.

We may be subject to
government approvals and regulations that reduce our ability to commercialize our products,
increase our costs of operations and decrease our ability to generate income.

Our
ability to develop and commercialize our products is dependent upon approval from certain
governmental security organizations, such as the US Transportation Security Agency There
can be no assurance that we will obtain regulatory approvals and certifications for our
products. Even if we are granted such regulatory approvals and certifications, these
approvals and certification may impose limits on the use of our products. We cannot
guarantee that restrictive regulations, rules or directives will not, in the future, be
imposed. Such potential regulatory conditions or compliance with such regulations may
increase our cost of operations or decrease our ability to generate income.

Our sales rely heavily on
governmental agencies.

A
significant portion of our revenues relies on sales to governmental agencies. Our ability
to sell our products to these agencies is dependent on our ability to obtain all required
approvals from these agencies, which may take a long time, and may also be negatively
impacted by other developments that affect these government agencies, including the
following: changes in government programs that are related to our products and services;
adoption of new laws or regulations relating to government contracting or changes to
existing laws or regulations; delays or changes in the government appropriations process;
and uncertainties associated with the war on terror and other geo-political matters.

We currently dependent on
sales of a few explosive detection devices for all of our revenues.

We
expect sales of our pen-like devices to account for virtually all of our revenues for
the foreseeable future. As a result, factors adversely affecting our ability to sell, or
pricing of or demand for, the pen-like devices would have a material adverse effect
on our financial condition and results of operations.

In order for our
detection technology to remain effective, we must respond to the rapid changes in the technology
used in explosive devices.

In
order to remain competitive, we will have to respond quickly to rapid changes
in technology used in commercial and military explosives, as well as
in technology used by terrorists in improvised explosive and other devices. If
we are unable to develop products that detect newly-developed commercial and military
explosives, as well as explosives used by terrorists in improvised explosive and other
devices, our competitive position will be harmed. In order to release new products we may
have to make substantial investments in research and development. Our research and
development activities may not result in revenues for a substantial time period. Moreover,
there is no assurance that our research and development activities will result in the
introduction of any effective products or that the development, design or
commercialization of any future product will be successfully completed or that the
expenses associated with the manufacturing of such future product will allow us to sell
them at a price that is acceptable to the customers.

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We may have difficulties
managing growth which could lead to higher losses.

While
we have not yet generated any revenues through the production and sale of our products,
should certain events occur, we might be in a position to rapidly commercialize our
products. Rapid growth would strain our human and capital resources, potentially leading
to higher operating losses. Our ability to manage operations and control growth will be
dependent upon our ability to raise and spend capital to improve our operational,
financial and management controls, reporting systems and procedures, and to attract and
retain adequate numbers of qualified employees. Should we be unable to successfully create
improvements to our internal procedures and controls in an efficient and timely manner,
management may receive inadequate information necessary to manage our operations, possibly
causing additional expenditures and inefficient use of existing human and capital
resources.

We may seek to expand our
business through acquisitions that could result in a diversion of resources and additional
expenses, which could disrupt our business and harm our financial condition.

We
may, in the future, pursue acquisitions of businesses, products and technologies, or
establish joint venture arrangements to expand our business. The negotiation of potential
acquisitions or joint ventures, as well as the integration of an acquired or
jointly-developed business, technology, service or product could divert managements
time as well as our resources, and disrupt our operations and cause our business to
suffer. We have not acquired a business in the past, and we may be unable to successfully
integrate acquired businesses or joint ventures with our operations.

On
October 16, 2007, we signed a non-binding letter of intent to acquire RAY Detection
Technology Group (RAY) in an all-stock transaction. RAY develops and provides advanced
inspection and detection systems for explosive, chemical and biological threats.
Completion of the proposed acquisition is subject to a number of conditions, including
completion of definitive documentation on terms satisfactory to the parties, due
diligence, the approval of the proposed acquisition by both companies boards of
directors and raising adequate financing. RAYs products are based on a proprietary
technology called Discovery CERT which enables automated trace sampling of bulk goods and
cargo for the detection of explosive, chemical and biological threats. We may not complete
definitive documentation on terms satisfactory to the parties and consummate the
transaction, be satisfied with the due diligence process, obtain the approval of the
proposed acquisition by both companies boards of directors, or be able to raise
additional fund required for the completion of the transaction. Effective as of December
16, 2007, both parties agreed to extend the time frame for the preparation and execution
of a definitive agreement until February 29, 2008, and to extend the exclusive-dealing
period until June 30, 2008. As of March 2008, a definitive agreement was not yet signed by
the parties.

13

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If
we complete the acquisition of RAY and any future acquisitions we may also require
additional capital, which may not be available on favorable terms, if at all, or which may
dilute the interests of our shareholders.

Our principal office is
located in Israel and the unstable military and political conditions of Israel may cause
interruption or suspension of our business operations without warning.

Our
principal office is located in Israel. As a result, we are directly influenced by the
political, economic and military conditions affecting Israel. Since the establishment of
the State of Israel in 1948, a number of armed conflicts have taken place between Israel
and its Arab neighbors and, since September 2000, involving the Palestinian population,
and a state of hostility, varying in degree and intensity, has led to security and
economic problems for Israel and companies based in Israel.

In
addition, Israeli-based companies and companies doing business with Israel have been the
subject of an economic boycott by members of the Arab League and certain other
predominantly Muslim countries since Israels establishment. Although Israel has
entered into various agreements with certain Arab countries and the Palestinian Authority,
and various declarations have been signed in connection with efforts to resolve some of
the economic and political problems in the Middle East, we cannot predict whether or in
what manner these problems will be resolved. Also, since the end of September 2000, there
has been a marked increase in the level of terrorism in Israel, which has significantly
damaged both the Israeli economy and levels of foreign and local investment. Recently,
there has been a further escalation in violence among Israel, Hamas, the Palestinian
Authority and other groups. In addition, in July 2006 there have been extensive
hostilities along Israels northern border with Lebanon and to a lesser extent in the
Gaza Strip. In June of 2007 the Hamas militant group has taken over the Gaza Strip from
the Palestinian Authority, and the hostilities along Israels border with the Gaza
Strip increased. Ongoing and revived hostilities or other Israeli political or economic
factors could harm our operations and product development and cause our sales to decrease.
Furthermore, several countries, principally those in the Middle East still restrict
business with Israel and Israeli companies. These restrictive laws and policies may limit
seriously our ability to sell our products in these countries.

Because our officers and
some of our directors are located in non-U.S. jurisdictions, you may have no effective recourse
against the management for misconduct and may not be able to enforce judgment and civil
liabilities against our officers, directors, experts and agents.

Our
officers, Mr. Gadi Aner and Ms. Gabby Klausner, and some of our directors are nationals
and/or residents of countries other than the United States, and all or a substantial
portion of their assets are located outside the United States. As a result, it may be
difficult for investors to enforce within the United States any judgments obtained against
our officers or directors, including judgments predicated upon the civil liability
provisions of the securities laws of the United States or any U.S. state.

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Investors interests
in our company will be diluted and investors may suffer dilution in their net book value
per share if we issue additional shares or raise funds through the sale of equity
securities.

Our
Certificate of Incorporation authorizes the issuance of 700,000,000 shares of common
stock. Our board of directors has the authority to issue additional shares up to the
authorized capital stated in the Certificate of Incorporation. Our board of directors may
choose to issue some or all of such shares to acquire one or more businesses or to obtain
additional financing in the future. The issuance of any such shares may result in a
reduction of the net book value per share or market price of the outstanding shares of our
common stock. It will also cause a reduction in the proportionate ownership and voting
power of all other stockholders. Further, any such issuance may result in a change of
control of our company.

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. The terms of specific grants are yet
to be determined.

Our by-laws contain
provisions indemnifying our officers and directors against all costs, charges and expenses
incurred by them.

Our
by-laws contain provisions with respect to the indemnification of our officers and
directors against all costs, charges and expenses actually and reasonably incurred by him,
including an amount paid to settle an action or satisfy a judgment in a civil, criminal or
administrative action or proceeding to which he is made a party by reason of his being or
having been one of our directors or officers.

Our by-laws do not
contain anti-takeover provisions which could result in a change of our management and directors
if there is a take-over of our company.

We
do not currently have a shareholder rights plan or any anti-takeover provisions in our
by-laws. Without any anti-takeover provisions, there is no deterrent for a take-over of
our company, which may result in a change in our management and directors.

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# Risks Associated With
Our Common Stock

There is a limited
trading market for our common stock and, if a market for our common stock does not develop,
our investors will be unable to sell their shares.

There
is currently a limited trading market for our common stock and such a market may not
develop or be sustained. Our common stock is eligible for quotation on the National
Association of Securities Dealers Inc.s OTC Bulletin Board. We cannot provide our
investors with any assurance that our common stock will be traded on the OTC Bulletin
Board or, if traded, that a public market will materialize. Further, the OTC Bulletin
Board is not a listing service or exchange, but is instead a dealer quotation service for
subscribing members. If our common stock is not quoted on the OTC Bulletin Board or if a
public market for our common stock does not develop, then investors may not be able to
resell the shares of our common stock that they have purchased and may lose all of their
investment. If we establish a trading market for our common stock, the market price of our
common stock may be significantly affected by factors such as actual or anticipated
fluctuations in our operation results, general market conditions and other factors. In
addition, the stock market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market prices for the shares of
development-stage companies. As we are a development stage company such fluctuations may
negatively affect the market price of our common stock.

Because we do not intend
to pay any dividends on our common stock, investors seeking dividend income or liquidity
should not purchase shares of our common stock.

We
have not declared or paid any dividends on our common stock since our inception, and we do
not anticipate paying any such dividends for the foreseeable future. Investors seeking
dividend income or liquidity should not invest in our common stock.

Penny Stock
Rules may restrict the market for Acros shares

Our
shares of common stock are subject to rules promulgated by the Securities and Exchange
Commission relating to penny stocks, which generally apply to companies whose
shares trade at less than $5.00 per share, or who do not meet certain other financial
requirements specified by the Securities and Exchange Commission. These rules require
brokers who sell penny stocks to persons other than established customers and
accredited investors to complete certain documentation, make suitability
inquiries of investors, and provide investors with certain information concerning the
risks of trading in the such penny stocks. These rules may discourage or restrict the
ability of brokers to sell our shares of common stock in the secondary market.

# Item 2. Description of
Property

As
of February 20, 2007, we have signed a lease agreement for our headquarters at 37 Inbar
St., Caesarea, Israel.

# 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.

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# 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, 2007.

# PART II

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

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, 2006. The quotations set forth below reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not represent
actual transactions.

|            | 2006 | 2007
|----------- | ---- | ----
|
|
|
|
|1st Quarter | 0.88 | 0.01
|2nd Quarter | 1.15 | 0.88
|3rd Quarter | 1.50 | 1.00
|4th Quarter | 2.03 | 1.30

Outstanding Shares and
Shareholders of Record

As
of February 15, 2008, there were 67,576,607 shares of our common stock issued and
outstanding. These shares were held by approximately thirty two (32) 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.

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Securities Authorized For
Issuance Under Equity Compensation Plans

As
of December 31, 2007 we did not have, nor have we since inception had, any equity
compensations plans. Subsequent to the balance sheet date, 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. The terms of specific grants are yet to be determined. 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.

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 US$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 US$6,000; (iii) 5,999,994 shares of common stock to Mr.
Bronfeld for a total consideration of US$12,857.13, and (iv) 6,400,002 shares of common
stock to BioTech Knowledge LLC, a private company wholly-owned by Prof. Keinan, for a total
consideration of $13,714. In addition, pursuant to a share purchase agreement dated
January 10, 2006, two of our former directors, Nick DeMare and Brad Colby, sold their
entire interests in us, 14,000,000 shares of common stock, to BioTech Knowledge LLC. As a
result of these two transactions, BioTech Knowledge LLC is our largest stockholders with
approximately 30.93% 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.

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, 2007, Mr. Barak was issued 811,591 shares of our common stock with a total fair market
value of $56,811.

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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, 2007, Prof. Lerner was entitled to receive 105,674 shares of our common stock with a
total fair market value of $7,397, of which 89,008 shares were issued as of December 31,
2007. An additional 16,666 shares which were earned during the three months ended December
31, 2007 were issued in January 24, 2008.

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,
2007, Prof. Sharpless was entitled to receive 83,330 shares of our common stock with a
total fair market value of $5,833, of which 66,664 shares were issued as of December 31,
2007. An additional 16,666 shares which were earned during the three months ended December
31, 2007 were issued in January 24, 2008.

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

Purchases of Equity
Securities by the Issuer and Affiliated Purchasers

None.

# Item 6. Plan of Operation

You
should read the following discussion in conjunction with our consolidated financial
statements and related notes thereto. In addition to historical information, this
discussion contains forward-looking statements that involve risks, uncertainties and
assumptions that could cause actual results to differ materially from managements
expectations. Factors that could cause such differences include those described in
Risk Factors in Item 1. in this Annual Report on Form 10-KSB.

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# Plan of Operation

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

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 base
worldwide.

On
October 28, 2007, our technology agreement with LSRI, a subsidiary of IIBR  Israel
Institute for Biological Research, became effective. Under the terms of the agreement,
LSRI licensed the long-proven technology of IIBRs explosives testing kit to Acro,
for incorporation into our pen-like device. This 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.

On
October 16, 2007, we signed a non-binding letter of intent to acquire RAY Detection
Technology Group (RAY) in an all-stock transaction. RAY develops and provides advanced
inspection and detection systems for explosive, chemical and biological threats.
Completion of the proposed acquisition is subject to a number of conditions, including
completion of definitive documentation on terms satisfactory to the parties, due
diligence, the approval of the proposed acquisition by both companies boards of
directors and raising adequate financing. RAYs products are based on a proprietary
technology called Discovery CERT which enables automated trace sampling of bulk goods and
cargo for the detection of explosive, chemical and biological threats. We may not complete
definitive documentation on terms satisfactory to the parties and consummate the
transaction, be satisfied with the due diligence process, obtain the approval of the
proposed acquisition by both companies boards of directors, completion of the
transaction. Effective as of December 16, 2007, both parties agreed to extend the time
frame for the preparation and execution of a definitive agreement until February 29, 2008,
and to extend the exclusive-dealing period until June 30, 2008. As of March 2008, a
definitive agreement was not yet signed by the parties.

Cash
Requirements

Our
cash requirement for the next 12 months is approximately $800,000 which we need to
implement our plan of operation and to develop and commercialize our explosive detection
devices. 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. Prof. Keinan is a stockholder who holds approximately 30.93% of Acros
outstanding common stock. In addition, we estimate our operating expenses and working
capital requirements for fiscal year 2008 to be as follows:

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|Estimated Expenses to December 31, 2008 | 
|--------------------------------------- | 
|
|
|
|
|Product Research and Development        | 
|Sales and Marketing                     | 
|General and Administrative              | 
|Capital Expenditures                    | 
|Tax Expenses                            | 
|                                        | 
|Total                                   | 

At
December 31, 2007, we had working capital of $671,238. In accordance with our current
monthly expenses, we will need to raise an additional amount of about $130,000 according
to our current business structure to satisfy our cash requirements until December 31,
2008. 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 scale down or perhaps even cease our
operations.

Purchase or Sale of
Equipment

During
the next 12 months, we plan to spend approximately $5,000 for software, furniture and
office equipment.

Employees

We
currently do not have any employees, and our subsidiary Acrosec Ltd. provides us with
management services. Our subsidiary hired the services of Gadi Aner, who serves as our
Chairman and our Chief Executive Officer, Gabby Klausner, who serves as our Chief
Financial Officer (66% time), Shy Markevitch, who serves as our Vice President Business
Development, Marketing and Sales and four others employees, three of them in partial time.
On October 30, 2007, our Chief Operating Officer ceased his employment.

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
2007 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 2007.

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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, 2007 with a subsidiary of IIBR called
Life Science Research Israel Ltd. (LSRI). ACRO-N.E.T is based on the LSRI explosive
detecting kit, called ETK five. The ETK five is capable of identifying the full range of
well known types of military and 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 2007 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.

Financial Condition,
Liquidity and Capital Resources

During
the twelve months ended December 31, 2007, we incurred a loss of $1,177,016, comparable to
a net loss of $1,351,583 for the comparative period in 2006.

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.

During
the twelve months ended December 31, 2006, we incurred $1,358,040 of operating expenses,
comprised primarily of $111,401 for research and development costs, $749,340 for
stock-based compensation expenses, $19,882 for sales and marketing costs, $477,417 for
general and administrative cost.

At
December 31, 2007, we had working capital of $671,238.

At December
31, 2007, our company had total assets of $1,056,326, which consisted mainly of cash and
equivalents, short term deposits and restricted cash of $777,159, fixed assets of $95,194,
intangible assets of $98,507 and prepaid expenses and other current and non-current assets
of $85,466.

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At
December 31, 2007, our companys total liabilities were $183,854.

We had
no significant revenues during the twelve months ended December 31, 2007, and from
inception through December 31, 2007.

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, 2007 we have
incurred losses of $2,729,431. 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

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

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).

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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
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 is required to adopt Statement 157 beginning on January 1, 2008.
Statement 157 is required to be applied prospectively, except for certain financial
instruments. Any transition adjustment will be recognized as an adjustment to opening
retained earnings in the year of adoption. In November 2007, the FASB proposed a one-year
deferral of Statement 157s, FSP FAS 157-2, Effective Date of FASB Statement
No. 157, delays the effective date of Statement 157 to fiscal years beginning after
November 15, 2008 for all non financial assets and non financial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a recurring
basis. The Company expects no material effect on its financial position, result of
operations and cash flows as a result of adoption SFAS 157.

24

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In
December 2007, the FASB issued FASB Statement No. 141R, Business Combinations (Statement
141R) and FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial
Statements  an amendment to ARB No. 51 (Statement 160). Statements 141R and 160
require most identifiable assets, liabilities, noncontrolling interests, and goodwill
acquired in a business combination to be recorded at full fair value and
require noncontrolling interests (previously referred to as minority interests) to be
reported as a component of equity, which changes the accounting for transactions with
noncontrolling interest holders. Both Statements are effective for periods beginning on or
after December 15, 2008, and earlier adoption is prohibited. Statement 141R will be
applied to business combinations occurring after the effective date. Statement 160 will be
applied prospectively to all noncontrolling interests, including any that arose before the
effective date. The Company expects no material effect on its financial position, result
of operations and cash flows as a result of adopting Statement 141R and Statement 160.

# Recently Adopted
Accounting Standards

Effective
January 1, 2007, the Company adopted provisions of FIN 48. FIN 48 addresses the accounting
for uncertainty in income taxes recognized in an enterprises financial statements
and prescribes a threshold of more-likely-than-not for recognition and derecognition of
tax positions taken or expected to be taken in a tax return. FIN 48 also provides related
guidance on measurement, classification, interest and penalties, and disclosure. See note
6 for the impact of adopting FIN 48 on the Companys results of operations and
financial position.

# 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 $61,499 for the duration of these lease agreements.

# Item 7. Financial
Statements

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

25

---

---

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                        | Page
|------------------------------------------------------- | ----
|
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |     
|CONSOLIDATED FINANCIAL STATEMENTS:                      |     
|Balance sheets                                          |     
|Statements of operations                                |     
|Statements of changes in stockholders' equity (deficit) |     
|Statements of cash flows                                |     
|Notes to financial statements                           |     

F - 1

---

---

# Report of Independent
Registered Public Accounting Firm

# The Board of Directors
and StockholdersACRO Inc. (A Development Stage Company)

We have audited the accompanying
consolidated balance sheets of ACROInc. (A Development Stage Company) and
subsidiary (hereinafter  the Company) as of December 31, 2007 and 2006,
and the related consolidated statements of operations, stockholders equity and cash
flows for each of the years in the two-year period ended December 31, 2007 and for the
cumulative period from May 22, 2002 (date of inception) to December 31, 2007. These
consolidated financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our
audits.

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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An
audit also includes assessing the accounting principles used and significant estimates
made by the 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, the consolidated
financial statements referred to above present fairly, in all material respects, the
financial position of ACROInc. (A Development Stage Company) and subsidiary as of
December 31, 2007 and 2006, and the results of their operations, and their cash flows for
each of the years in the two-year period ended December 31, 2007 and for the cumulative
period from May 22, 2002 (date of inception) to December 31, 2007, 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. As
discussed in Note 1 to the financial statements, the Company has suffered recurring losses
from operations and has a net capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Managements plans in regard to these matters
are also described in Note 1. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

|/s/ Somekh Chaikin
Somekh ChaikinCertified Public Accountants (Isr.)
Member Firm of KPMG International
Tel Aviv, Israel
March 13, 2008
|----------------------------------------------------------------------------------------------------------------------------------------------------

F - 2

---

---

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

|                                                               | December 312007 | December 312006
|-------------------------------------------------------------- | --------------- | ---------------
|
|
|
|
|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:                                           |                 |                
|Short term bank-credit                                         |                 |                
|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; |                 |                
|67,543,275 and 64,931,688 shares issued and outstanding as of  |                 |                
|December 31, 2007 and December 31, 2006, 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 - 3

---

---

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

|                                                    | Year ended December 31 | Cumulativefrom inception(May 22, 2002)to December 312007
|--------------------------------------------------- | ---------------------- | --------------------------------------------------------
|
|
|
|
|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 $251,317, $749,340 and $1,000,657 in stock-based compensation to non-employees
for the years ended December 31, 2007, 2006 and for the cumulative period from May 22,
2002 (date of inception) to December 31, 2007 respectively.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F - 4

---

---

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

|                                              | Common stock | Additionalpaid-incapital | Deficitaccumulated | Totalstockholders'equity (deficit)
|--------------------------------------------- | ------------ | ------------------------ | ------------------ | ----------------------------------
|
|
|
|
|Inception, May 22, 2002                       |              |                          |                    | -                                 
|Sale of common stock for cash                 |              |                          |                    | 14,000,000                        
|Net loss for the period                       |              |                          |                    | -                                 
|                                              |              |                          |                    |                                   
|Balance as at December 31, 2002               |              |                          |                    | 14,000,000                        
|Services contributed by officers              |              |                          |                    | -                                 
|Sale of common stock for cash                 |              |                          |                    | 28,000,000                        
|Offering costs                                |              |                          |                    | -                                 
|Net loss for the year                         |              |                          |                    | -                                 
|                                              |              |                          |                    |                                   
|Balance as at December 31, 2003               |              |                          |                    | 42,000,000                        
|Net loss for the year                         |              |                          |                    | -                                 
|                                              |              |                          |                    |                                   
|Balance as at December 31, 2004               |              |                          |                    | 42,000,000                        
|Net loss for the year                         |              |                          |                    | -                                 
|                                              |              |                          |                    |                                   
|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                        
|                                              |              |                          |                    |                                   

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

F - 5

---

---

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

|                                                      | Year ended December 31 | Cumulativefrom inception(May 22, 2002)to December 312007
|----------------------------------------------------- | ---------------------- | --------------------------------------------------------
|
|
|
|
|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              |                        |                                                         
|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:                 |                        |                                                         
|Increase (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 - 6

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements as of December 31, 2007  
|                                                                        

# Note 1  Business

| | 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 originally was 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 (see Note 7), the Company
ceased to engage in the oil and gas consulting business and engaged in development of
products for the detection of peroxide based 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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, has incurred losses of $2,729,431 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 license fees 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. | Cash,
Cash equivalents, Restricted Cash and Short-term deposits
| | -- | ---------------------------------------------------------------

| | The
Company considers all highly liquid investments, which include short-term deposits with
original maturities of three months or less from the date of purchase that are not
restricted as to withdrawal or use and are readily convertible to known amounts of cash,
to be cash equivalents.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 7

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements as of December 31, 2007  
|                                                                        

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

| | D. | Cash,
Cash equivalents, Restricted Cash and Short-Term Deposits (contd)
| | -- | ------------------------------------------------------------------------

| | Restricted
cash is comprised of a deposit pledged as collateral in connection with credit line.
Short-term deposits are comprised of a deposit in bank with original maturities more than
three months from the date of purchase.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | E. | Foreign
Currency Translation
| | -- | ----------------------------

| | The
Company considers the functional currency of the parent and subsidiary companies to be in
U.S. dollars and accordingly, the accompanying financial statements have been prepared in
U.S. dollars. Assets and liabilities denominated in foreign currencies are translated
using the exchange rate on the balance sheet date. Revenue and expenses are translated at
average exchange rates prevailing during the year. Foreign currency transaction gains and
losses, which to date have not been material, are included in the Consolidated Statements
of Operations.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | F. | Impairment
of Long-Lived Assets
| | -- | -------------------------------

| | The
Companys long-lived assets are reviewed for impairment in accordance with Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS No. 144), whenever events
or changes in circumstances indicate that the carrying amount of the asset may not be
recoverable. Recoverability of an asset to be held and used is measured by a comparison
of the carrying amount of an asset to the future undiscounted cash flows expected to be
generated by the asset. If such asset is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the asset exceeds
its fair value. Through December 31, 2007, no impairment losses were identified.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | G. | Research
and Development Costs
| | -- | ------------------------------

| | Costs
incurred in the research and developments of the Companys product are expensed as
incurred.
| | --------------------------------------------------------------------------------------------------

| | H. | Property
and Equipment
| | -- | ----------------------

| | Property
and equipment are recorded at cost and depreciated using the straight-line method over
their estimated useful lives as described in Note 4. Expenditures for repairs and
maintenance are expensed as incurred.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | I. | Income
Taxes
| | -- | ------------

| | The
Company accounts for income taxes in accordance with SFAS No. 109, Accounting for
Income Taxes. This Statement prescribes the use of the asset and liability method
of accounting whereby deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax laws and rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date. Valuation allowances are provided if, based upon
the weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 8

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements as of December 31, 2007  
|                                                                        

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

| | J. | Accounting
for Stock-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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | K. | Loss
Per Share
| | -- | --------------

| | The
Company computes basic loss per share by dividing net loss by the weighted average number
of shares of common stock outstanding or issuable to consultants. Warrants to purchase
shares of common stock were excluded from the computation of diluted net loss per share
for the reported periods, as such warrants were anti-dilutive since the Company incurred
losses in those periods.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | L. | Severance
Pay
| | -- | -------------

| | The
Israeli subsidiarys liability for severance pay is calculated pursuant to Israels
Severance Pay Law, based on the most recent salary of the employee multiplied by the
number of years of employment, at the balance sheet date. Employees are entitled to one
months salary for each year of employment or a portion thereof. The Companys
liability for its Israeli employees is covered by monthly deposits for insurance policies
and/or pension funds and by accruals. The value of these policies and/or funds is
recorded as an asset in the Companys balance sheet. The deposited funds include
profits accumulated to the balance sheet date. The deposited amounts may be withdrawn
only upon the fulfillment of the obligations pursuant to Israels Severance Pay Law
or labor agreements. The value of the deposited funds is based on the cash surrendered
value of these policies, and includes profits. Severance expense for the years ended
December 31, 2007 and 2006 amounted to $14,087 and $7,151, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | M. | Fair
Value of Financial Instruments
| | -- | -----------------------------------

| | The
carrying amounts of cash and cash equivalents, prepaid expenses and other current assets,
trade payables, other accounts payable and accruals approximate their fair value.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 9

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements as of December 31, 2007  
|                                                                        

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

| | N. | Recently
Issued 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 is required to adopt Statement 157 beginning on
January 1, 2008. Statement 157 is required to be applied prospectively, except for
certain financial instruments. Any transition adjustment will be recognized as an
adjustment to opening retained earnings in the year of adoption. In November 2007, the
FASB proposed a one-year deferral of Statement 157. FSP FAS 157-2, Effective Date
of FASB Statement No. 157, delays the effective date of Statement 157 to fiscal
years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis. The Company expects no material effect on its result of
operations and financial position statements as a result of adoption SFAS 157.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2007, the FASB issued FASB Statement No. 141R, Business Combinations (Statement
141R) and FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial
Statements  an amendment to ARB No. 51 (Statement 160). Statements 141R and 160
require most identifiable assets, liabilities, noncontrolling interests, and goodwill
acquired in a business combination to be recorded at full fair value and
require noncontrolling interests (previously referred to as minority interests) to be
reported as a component of equity, which changes the accounting for transactions with
noncontrolling interest holders. Both Statements are effective for periods beginning on
or after December 15, 2008, and earlier adoption is prohibited. Statement 141R will be
applied to business combinations occurring after the effective date. Statement 160 will
be applied prospectively to all noncontrolling interests, including any that arose before
the effective date. The Company expects no material impact of adopting Statement 141R and
Statement 160 on its results of operations and financial position.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | O. | Recently
Adopted Accounting Standards
| | -- | -------------------------------------

| | Effective
January 1, 2007, the Company adopted provisions of Financial Accounting Standards Board
(FASB) Interpretation No. 48 (FIN 48) Accounting for Uncertain Tax
Positions  An Interpretation of FASB Statement No. 109". FIN 48 addresses the
accounting for uncertainty in income taxes recognized in an enterprises financial
statements and prescribes a threshold of more-likely-than-not for recognition and
derecognizing of tax positions taken or expected to be taken in a tax return. FIN 48 also
provides related guidance on measurement, classification, interest and penalties, and
disclosure. See note 6 for the impact of adopting FIN 48 on the Companys results of
operations and financial position.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 10

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements as of December 31, 2007  
|                                                                        

# Note 3  Prepaid
Expenses and Other Current Assets

| |                            | December 31
2007 | December 31
2006
| | -------------------------- | ---------------- | ----------------
|
|
|
|
| | 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
2007 | December 31
2006
| | ------------------------------------------------ | ----------------------------- | ---------------- | ----------------
|
|
|
|
| | Computer equipment                               |                               |                  |                 
| | Production equipment                             |                               |                  |                 
| | Furniture                                        |                               |                  |                 
| | Leasehold improvements                           |                               |                  |                 
| |                                                  |                               |                  |                 
| |                                                  |                               |                  |                 
| | Less - Accumulated depreciation and amortization |                               |                  |                 
| |                                                  |                               |                  |                 
| |                                                  |                               |                  |                 
| |                                                  |                               |                  |                 

(*)           over the lease term

| | Depreciation
expense for the year ended December 31 2007 and 2006 and for the cumulative period from
May 22, 2002 (date of inception) to December 31, 2007 was $33,429, $12,209 and $45,638,
respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note 5  Intangible
Assets

| | In
March 2006, the Company purchased a patent from Prof. Ehud Keinan (Keinan), a
stockholder who holds 30.93% 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, 2007 and 2006 and for the
cumulative period from May 22, 2002 (date of inception) to December 31, 2007 was $12,000,
$9,493 and $21,493, respectively. The expected annual amortization expenses for each of
the next five years are $12,000.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 11

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements as of December 31, 2007  
|                                                                        

# 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 2007 and 2006, income before income taxes of the
Israeli subsidiary is $73,161 and $5,848 respectively, and the loss before income taxes
for the Company in the US is $1,216,891 and $1,354,141 respectively. The regular
corporate tax rate in Israel for 2007 is 29%. The Israeli corporate tax rates for 2008
and thereafter are as follows: 2008  27%, 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
2007 | December 31
2006
| | ------------- | ---------------- | ----------------
|
|
|
|
| | United States |                  |                 
| | Israel        |                  |                 
| |               |                  |                 
| |               |                  |                 
| |               |                  |                 

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

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

| |                                   | December 31
2007 | December 31
2006
| | --------------------------------- | ---------------- | ----------------
|
|
|
|
| | 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, 2007 and 2006 was $882,298
and $460,407, 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, 2007 and 2006 was an increase of $421,891 and $391,907, 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2007, the Company has net operating loss carry forwards for federal
income tax purposes of approximately $2,594,994, 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 12

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements as of December 31, 2007  
|                                                                        

# Note 6  Income
Taxes (contd)

| | B. | Deferred
Tax (contd)
| | -- | ---------------------

| | As
of December 31, 2007, the Company has not provided for income taxes on the undistributed
earnings of approximately $66,514 of its Israeli subsidiary since these earnings are
intended to be reinvested indefinitely in Israel. Undistributed earnings may be liable to
additional taxes if they were distributed as dividends. It is not practicable to estimate
the amount of additional taxes that might be payable on such undistributed earnings.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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                             |                       
| | Other                                                     |                       
| |                                                           |                       
| | Total income tax expense                                  |                       
| |                                                           |                       

| | The
income tax payable as of December 31, 2007 and 2006 was $36,576, and $3,290 respectively.
| | ---------------------------------------------------------------------------------------------

| | D. | Accounting
for Uncertainty in Income Taxes
| | -- | ------------------------------------------

| | The
Company and its subsidiary adopted FIN 48 as of January 1, 2007, and there was no effect
on the financial statements. As a result, the Company and its subsidiary did not record
any cumulative effect adjustment related to adopting FIN 48.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of January 1, 2007 and for the 12 months ended December 31, 2007, 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 - 13

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements as of December 31, 2007  
|                                                                        

# 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, 2007, 2006 and for the cumulative period from May 22,
2002 (date of inception) to December 31, 2007 the consultants earned 444,921 shares,
555,674 shares and 1,000,595 shares respectively. During the year ended December 31,
2007, 2006 and for the cumulative period from May 22, 2002 (date of inception) to
December 31, 2007 compensation expense recorded in respect of the shares earned by the
consultant amounted to $251,317, $749,340 and $1,000,657 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 210,996
shares of common stock for future services to be performed.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
August 2006, the Company entered into an agreement with a director for his services as a member of
  the Companys Board of
Directors. As compensation, the Director received a signing bonus of $5,000, and a
quarterly fee of $1,500 until October 2007, and $3,000 per quarter thereafter. In
addition, subject to approval by the Board of Directors and adoption of a Stock Option
Plan, the Company will grant the Director 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. At the end of each quarter, the Director may purchase up to 17,936 shares
of the total shares granted.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 14

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements as of December 31, 2007  
|                                                                        

# Note 9  Related
Party Transactions

| | In
February 2006, the Company entered into a consulting services agreement (the Consulting
Agreement) with BioTech Knowledge LLC a limited liability company wholly-owned by
Prof. Keinan (see Note 5), whereby Prof. Keinan has agreed to provide consulting services for
duration of three years at a monthly fee of $3,000. The Company may terminate the
Consulting Agreement with 60 days notice. During the year ended December 31, 2007 and
2006, the Company incurred $45,579 and $30,000, respectively, for the consulting services
provided by Prof. Keinan. In addition to the Consulting Agreement, the Company purchased a
patent from Prof. Keinan in March 2006 (see Note 5).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
the year ended December 31, 2007 and 2006, the Company incurred an expense of $122,765
and $55,417, respectively, for consulting services provided by the Companys
Chairman of the Board of Directors.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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, 2007 are
as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                              | Amount
| | ---------------------------- | ------
|
|
|
|
| | Year ending December 31,     |       
| | 2008                         |       
| | 2009                         |       
| | 2010                         |       
| |                              |       
| | Total minimum lease payments |       
| |                              |       

| | Rent
expense for each of the years ended December 31, 2007 and 2006 and for the cumulative
period from May 22, 2002 (date of inception) to December 31, 2007 was $24,989, $5,670 and
$30,659, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
October 16, 2007, the Company signed a non-binding letter of intent to acquire RAY
Detection Technology Group (RAY) in an all-stock transaction. RAY develops and provides
advanced inspection and detection systems. Completion of the proposed acquisition is
subject to a number of conditions, including completion of definitive documentation on
terms satisfactory to the parties, due diligence, and the approval of the proposed
acquisition by both companies boards of directors and raising funds. RAYs
products are based on a proprietary technology, Discovery CERT, enabling trace automated
sampling of bulk goods and cargo for the detection of explosive, chemical, and biological
threats.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
as of December 16, 2007, both parties agreed to extend the time frame for the preparation
and execution of a definitive agreement until February 29, 2008, and to extend the
exclusive-dealing period until June 30, 2008. As of March 2008, a definitive agreement
was not yet signed by the parties.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
October 28, 2007, the Companys technology agreement with LSRI  Life Science
Research Israel Ltd., a subsidiary of IIBR  Israel Institute for Biological
Research, became effective. Under the terms of the agreement, LSRI will license the
technology of IIBRs explosives testing kit (ETK) to the Company, for incorporation
into the Companys pen-like device, allowing the detection of commercial and
military explosives. The agreement is subject to minimum annual revenues to be achieved
by the Company and royalties to be paid to LSRI. The new device will complement the
ACRO-P.E.T., the Companys peroxide explosive tester for the detection of improvised
explosives.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---

|ACRO Inc. (A Development Stage Company)Consolidated Financial Statements
|------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements as of December 31, 2007  
|                                                                        

# Note 11 
Subsequent Event

| | In
February 2008, the Companys 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. Any option granted
under our Plan not exercised within eight years of the grant date shall expire. The terms
of specific grants are yet to be determined.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Additional
33,332 shares which were earned by members of the advisory board during the three months
ended December 31, 2007, were issued in January 2008.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

F - 16

---

---

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

None.

# Item 8A(T). Disclosure
Controls and Procedures

As
of the end of the period covered by this report, being December 31, 2007, we performed an
evaluation of the effectiveness of our disclosure controls and procedures that are
designed to ensure that the material financial and non-financial information required to
be disclosed in our annual report and filed with the Securities and Exchange Commission is
recorded, processed, summarized and reported timely within the time period specified in
the SECs rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be
disclosed by an issuer in the reports that it files or submits under the Securities Act,
is accumulated and communicated to the issuers management, including its principal
executive and principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. Based on our
evaluation, our management, including our Chief Executive Officer and Chief Financial
Officer, have concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15(d)  15(e) of the Securities Exchange Act of 1934, as amended) as of
the end of the period covered by this report are effective at such reasonable assurance
level. There can be no assurance that our disclosure controls and procedures will detect
or uncover all failures of persons within our company to disclose material information
otherwise required to be set forth in our reports. Our disclosure controls and procedures
are designed to provide reasonable assurance of achieving the desired control objectives.

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: (i) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect our
transactions and asset dispositions; (ii) 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 (iii) 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. Also, 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, 2007 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, 2007.

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.

26

---

---

This
annual report does not include an attestation report of the companys registered
public accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by the companys registered
public accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the company to provide only managements report in this annual
report.

Changes in Internal
Control Over Financial Reporting

During
the most recent fiscal quarter, there have not been any significant changes in our
internal controls over financial reporting or in other factors that have materially
affected, or are reasonably likely to materially affect, our internal controls over
financial reporting.

# Item 8B. Other
Information

None.

# PART III

# Item 9. Directors,
Executive Officers, Promoters, Control Persons and Corporate Governance; ComplianceWith
Section 16(a) of the Exchange Act

# Directors and Executive
Officers, Promoters and Control Persons

Our
current directors, executive officers and other significant employees, their ages,
positions held and duration each person has held that position, are as follows:

|Name              | Position Held with the Company | Age |                                                                 | Date First Electedor Appointed
|----------------- | ------------------------------ | --- | --------------------------------------------------------------- | ------------------------------
|                  |                                |     |                                                                 |                               
|Gadi Aner         |                                |     | Chairman, Chief Executive Officer                               |                               
|Prof. Ehud Keinan |                                |     | Director                                                        |                               
|Dan Elnathan      |                                |     | Director                                                        |                               
|Jacob Bar Shalom  |                                |     | Acting Chief Financial Officer and Treasurer until June 1, 2007 |                               
|Gabby Klausner    |                                |     | Chief Financial Officer                                         |                               

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
2001 to present, 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.

27

---

---

# 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, CMO

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.

Significant Employees

There is no employee of our company
who is not an executive officer but who is expected to make a significant contribution to
the business.

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.

28

---

---

# 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.

# 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.

Family Relationships

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

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:

| | 1. | 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;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | any
conviction in a criminal proceeding or being subject to a pending criminal proceeding
(excluding              traffic violations and other minor offences);
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | 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
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | 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.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

---

---

# 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, 2007, 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
|-------------------- | ---------------------- | ----------------------------------------------------- | -------------------------------
|
|
|
|
|Prof. Ehud Keinan(1) | -                      | 41                                                    | -                              
|Gadi Aner(2)         | 1                      | -                                                     | -                              
|Jacob Bar Shalom(3)  | 1                      | -                                                     | -                              

|(1) | The
named director did not report these transactions on Form 4 and therefore reported on Form
5 all such transactions that should have been reported on Form 4 in each of the Companys
last two fiscal years but were not.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(3) | The
named former officer filed a late Form 3  Initial Statement of Beneficial Ownership.
|--- | -----------------------------------------------------------------------------------------

# 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.

30

---

---

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, who qualifies
as a financial expert under the rules of National Association of Securities Dealers, Inc.,
as a sole member of this committee.

# Item 10. Executive
Compensation

The
following table sets forth all compensation paid or accrued to former and current officers
during the fiscal years ended December 31, 2007 and 2006.

|SUMMARY COMPENSATION TABLE           
|-------------------------------------
|
|
|
|
|Gadi Aner                            
|Chief Executive Officer and Chairman 
|                                     
|Gabby Klausner(2)                    
|Chief Financial Officer              
|                                     
|Jacob Bar(3)                         
|Shalom Former Chief Financial Officer
|                                     
|Shy Markevitch(5)                    
|Vice President Business Development, 
|Marketing and Sales                  

|(1) | Paid
to M.G-Net Ltd., a private company wholly-owned by Gadi Aner, for his
                    services as Chairman of the Board and Chief Executive Officer. In
year 2007 the                     compensation to Mr. Aner, included car maintenance
expenses of $21,889.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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.
|--- | -------------------------

31

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Outstanding Equity Awards
at Fiscal Year-End

We
have not granted any stock options since inception. Subsequent to the balance sheet date,
the Companys 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. The terms of specific grants are yet
to be determined.

Our
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.

32

---

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Compensation of Directors

The
following table sets forth the compensation of our directors for the fiscal year ended
December 31, 2007:

|Name(1)           | Fees
Earned or
Paid in
Cash
($) | Stock
Awards
($) | Option
Awards
($) | Non-Equity
Incentive Plan
Compensation
(#) | Nonqualified
Deferred
Compensation
Earnings
($) | All Other
Compensation ($) | Total
($)
|----------------- | ------------------------------- | ---------------- | ----------------- | ------------------------------------------ | ----------------------------------------------- | -------------------------- | ---------
|
|
|
|
|Prof. Ehud Keinan |                                 |                  |                   | 45,579                                     | (2)                                             |                            | -        
|Dan Elnatahn      |                                 |                  |                   | 14,078                                     |                                                 |                            | -        

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

(2)
          Paid to BioTech Knowledge LLC, a private company wholly-owned by Prof. Ehud
          Keinan, for consulting services performed.

# Item 11. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholders
 Securities
 Authorized for Issuance Under Equity Compensation Plans

We have not granted any stock options
since inception. Subsequent to the balance sheet date, the Companys 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. The terms of specific grants are yet to be determined.

# 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 February 15, 2008 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.

33

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|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   |                                      |                                           | Directors and Officers (as 
|               |                                      |                                           | a group) (2 people)        

(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 February 15, 2008.

(2)
          Based upon 67,576,607 issued and outstanding shares of common stock as of
          February 15, 2008.

(3) The shares are
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.

34

---

---

# Item 12. Certain
Relationships and Related Transactions, and Director Independence

Transactions with Related
Persons

Other
than as disclosed below, during the fiscal years ended December 31, 2006 and December 31,
2007, none of our current directors, officers or principal shareholders, nor any family
member of the foregoing, nor, to the best of our information and belief, any of our former
directors, senior officers or principal shareholders, nor any family member of such former
directors, officers or principal shareholders, has or had any material interest, direct or
indirect, in any transaction, or in any proposed transaction which has materially affected
or will materially affect us.

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 US$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 US$6,000; (iii) 5,999,994 shares of common stock to Mr.
Bronfeld for a total consideration of US$12,857.13; and (vi) 6,400,002 shares of common
stock to BioTech Knowledge LLC, a private company wholly-owned by Prof. Keinan, for a total
consideration of $13,714. In addition, pursuant to a share purchase agreement dated
January 10, 2006, two of our former directors, Nick DeMare and Brad Colby, sold their
entire interests in us, 14,000,000 shares of common stock, to BioTech Knowledge LLC. As a
result of these two transactions, BioTech Knowledge LLC is our largest stockholders with
approximately 30.93% of our common stock.

On
February 1, 2006, we signed a consulting services agreement with BioTech Knowledge LLC a
private company wholly-owned by Prof. Keinan, one of our directors and a beneficial
owner of 20,400,002 shares of common stock. Pursuant to the agreement we pay to BioTech
Knowledge LLC $3,000 each month for consulting services provided by Prof. Keinan. We paid to
BioTech Knowledge LLC $45,579 and $30,000 in 2007 and 2006, respectively.

On
March 15, 2006, we entered into an employment agreement with Gadi Aner for the purpose of
being Chairman of our Board of Directors and Chief Executive Officer, when required. From
March 15, 2006 through December 31, 2006, we paid to M.G-NET Ltd., a private company
wholly-owned by Mr. Aner and his wife, an aggregate amount of $55,417. For the services
and expenses of Mr. Aner. Between January1 and until March 31, 2007, we paid to M.G-NET
Ltd. an aggregate amount of $23,672 for such services and expenses. We agreed to terminate
that agreement effective as of April 1, 2007. Effective April 1, 2007, our subsidiary
entered into an agreement with M.G-NET Ltd. under which M.G-NET agreed to provide to our
subsidiary and to us the services of Gadi Aner as Chairman of our Board of Directors and
as Chief Executive Officer, when required. Pursuant to the agreement, our subsidiary
agreed to pay M.G-NET $5,280 (plus value added tax) per month for his services as
Chairman, and additional $5,280 (plus value added tax) per month for his services as Chief
Executive Officer. We also agreed to provide M.G-NET with a company car. Between April 1
and December 31, 2007, we paid to M.G NET an aggregate amount of $99,093 for the services
provided by Mr. Aner.

On
March 7, 2007, we entered into a service agreement with our subsidiary Acrosec Ltd.
pursuant to which Acrosec Ltd. 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. In 2007, we paid
$898,331 for such services.

Parents

None.

Transaction with Promoters

Note applicable.

35

---

---

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 Rule 4200(a)(15) of the Rules of National Association of Securities
Dealers. The Company has one member on its audit committee, Dan Elnathan, who meets the
independence requirements of rule 10A-3(b)1 of the Exchange Act of 1934.

# Item 13. 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-KSB. Exhibits
which are incorporated by reference herein can be inspected and copied at the public
reference rooms maintained by the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. SEC filings are also available to be public at
the website of the SEC at http://www.sec.gov.

# Item 14. Principal
Accountant Fees and Services

Audit Fees

For
the fiscal year ended December 31, 2007, Somekh Chaikin, a member firm of KPMG
International, is expected to bill approximately $16,000 for the audit of our annual
financial statements and review of our Form 10-KSB. For the fiscal year ended December 31,
2006, Somekh Chaikin billed approximately $40,000 for the audit of our annual financials
statements and review of our Form 10-KSB.

Audit-Related Fees

We
paid fees to Somekh Chaikin of approximately $12,000 and $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, 2007 and 2006, respectively.

Tax Fees

For
the fiscal year ended December 31, 2007, Somekh Chaikin 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, 2006, Somekh Chaikin billed $5,000 for these services.

All Other Fees

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

36

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# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have
duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

| |  | ACRO INC.By: /s/ Gadi Aner
Gadi AnerChief Executive Officer
| |  | -------------------------------------------------------------------------

Date: March 13, 2008

In
accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.

| |  | By: /s/ Gadi Aner
Gadi AnerChief Executive OfficerDate:    March 13, 2008
| |  | ---------------------------------------------------------------------------------------

| |  | By: /s/ Gabby Klausner
Gabby KlausnerChief Financial OfficerPrincipal Accounting OfficerDate: March 13, 2008
| |  | --------------------------------------------------------------------------------------------------------------------------

| |  | By: /s/ Ehud Keinan
Ehud KeinanDirectorDate:    March 13, 2008
| |  | ----------------------------------------------------------------------------

| |  | By: /s/ Dan Elnatahn
Dan ElnatahnDirectorDate:    March 13, 2008
| |  | ------------------------------------------------------------------------------

37

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# Exhibit Index

|                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number
3.1 
3.2 
3.3 
3.4 
3.5 
10.1 
10.2 
10.3 
10.4 
10.5 
10.6 
10.7 
10.8 
10.9 
10.10 
10.11 
14.1 | Description
Articles of Incorporation, as amended. 
Bylaws, dated February 25, 2005. 
Certificate of Change Pursuant to NRS 78.209 filed 
with the State of Nevada effective as of January 25, 
2006.
Certificate of Change Pursuant to NRS 78.209 filed 
with the State of Nevada effective as of October 25, 
2006.
Certificate of Change Pursuant to NRS 78.209 filed 
with the State of Nevada effective as of October 30, 
2006.
Agreement and Plan of Merger for the Merger of ACRO 
Inc. with and into Medina International Corp., dated 
April 25, 2006.
Finder's Fee Agreement between the Registrant and 
David Sidoo, dated March 8, 2005. 
Patent Purchase Agreement between the Registrant and 
Prof. Ehud Keinan, dated February 1, 2006. 
Consulting Agreement between the Registrant and 
BioTech Knowledge LLC, dated February 1, 2006. 
Letter of Agreement between the Registrant and BioTech 
Knowledge LLC, dated February 1, 2006. 
Advisory Board Agreement between the Registrant and 
Mr. Ehud Barak. 
Advisory Board Agreement between the Registrant and 
Prof. Richard E. Lerner, dated May 31, 2006. 
Advisory Board Agreement between the Registrant and 
Prof. K. Barry Sharpless, dated September 28, 2006. 
Finders Agreement between the Registrant and Siden 
Investment Inc. dated February 1, 2007. 
Consulting Agreement between Acrosec Ltd. and M.G NET
Ltd., dated March 26, 2007 
Cooperation and Licensing Agreement between the Registrant and Life
Science Research Israel Ltd., dated October 28, 2007.
Code of Business Conduct and Ethics and Compliance 
Program | Method of Filing
Incorporated by reference to Exhibit 3.1 to our
registration statement on Form SB-2 filed November
21, 2003
Incorporated by reference to Exhibit 3.1 to our
current report on Form 8-K filed March 17, 2005 and
March 21, 2005
Incorporated by reference to Exhibit 3.3 to our
annual report on Form 10-KSB filed March 28, 2007
Incorporated by reference to Exhibit 3.4 to our
annual report on Form 10-KSB filed March 28, 2007
Incorporated by reference to Exhibit 3.5 to our
annual report on Form 10-KSB filed March 28, 2007
Incorporated by reference to Exhibit 10.2 to our
current report on Form 8-K filed May 4, 2006
Incorporated by reference to Exhibit 10.2 to our
current report on Form 8-K filed March 17, 2005 and
March 21, 2005
Incorporated by reference to Exhibit 10.1 to
current report on Form 8-K filed February 3, 2006
Incorporated by reference to Exhibit 10.2 to our
current report on Form 8-K filed February 3, 2006
Incorporated by reference to Exhibit 10.3 to our
current report on Form 8-K filed February 3, 2006
Incorporated by reference to Exhibit 10.6 to our
annual report on Form 10-KSB filed March 28, 2007
Incorporated by reference to Exhibit 99.2 to our
current report on Form 8-K filed June 5, 2006
Incorporated by reference to Exhibit 10.8 to our
annual report on Form 10-KSB filed March 28, 2007
Incorporated by reference to Exhibit 10.9 to our
annual report on Form 10-KSB filed March 28, 2007
Incorporated by reference to Exhibit 10.10 to our
annual report on Form 10-KSB filed March 28, 2007
Filed herewith (English Translation)
Incorporated by reference to Exhibit 14.1 to our
Form 10-KSB for the year ended December 31, 2004,
filed on March 30, 2005

38

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|                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                            
|------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------
|31.1      
31.2      
32.1      
32.2 | Rule 13a-14(a) Certification of Principal Executive   
Officer
Rule 13a-14(a) Certification of Principal Financial   
Officer. 
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.  
Certification of Principal Financial Officer Pursuant 
to 18 U.S.C. Section 1350, as Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. | Filed herewith
Filed herewith
Filed herewith
Filed herewith

39

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