TransAtlantic Capital (TACI) 10-Q 2009 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2009

OR

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

For the transition period from _________________ to __________________

Commission File Number 000-50482

ACRO Inc.
(Exact name of registrant as specified in its charter)

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

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

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

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

Yesx Noo

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

Large accelerated filero	Accelerated filero
Non-accelerated filero	Smaller reporting companyx

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

Yeso Nox

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

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

Table of Contents
ACRO INC.
(“The Company”)
INDEX

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3. Quantitative and Qualitative Disclosures about Market Risk	18
Item 4T. Controls and Procedures	18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	19
Item 1A. Risk Factors	19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3. Defaults Upon Senior Securities	19
Item 4. Submission of Matters to a Vote of Security Holders	19
Item 5. Other Information	19
Item 6. Exhibits	19
Signatures	19
Exhibit Index	20
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification Pursuant to U.S.C. Section 1350

2

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

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements
Consolidated Balance Sheets

	March 31 2009			December 31 2008
	$			$
Assets
Current assets:
Cash and cash equivalents		57,586			36,943
Trade receivables		1,485			8,803
Prepaid expenses and other current assets		5,608			6,854
Total current assets		64,679			52,600
Other non-current assets		4,520			4,824
Property and equipment, net (Note 3)		51,669			63,113
Intangible assets, net		83,507			86,507
Total assets		204,375			207,044
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable and accrued liabilities		187,554			167,228
Total current liabilities		187,554			167,228
Convertible Promissory Note		93,274			-
Total liabilities		280,828			167,228
Commitments (Notes 5 and 7)
Stockholders' equity (deficiency):
Common stock; $0.001 par value; 700,000,000 shares authorized;
67,824,268 and 67,824,268 shares issued and outstanding as of
March 31, 2009 and December 31, 2008, respectively		67,823			67,823
Additional paid-in capital		3,605,843			3,597,625
Deficit accumulated during the development stage		(3,750,119	)		(3,625,632	)
Total stockholders' equity (deficiency)		(76,453	)		39,816
Total liabilities and stockholders' equity (deficiency)		204,375			207,044

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

3

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

Consolidated Statements of Operations

	Three months ended March 31						Cumulative from Inception (May 22, 2002) to March 31 2009
	2009			2008
	$			$			$
Revenues		6,612			2,302			78,530
Costs and expenses :
Research and development		18,576			43,681			480,240
Sales and marketing		11,945			47,549			321,775
General and administrative*		98,977			145,747			3,038,090
Total operating expenses		129,498			236,977			3,840,105
Operating loss		(122,886	)		(234,675	)		(3,761,575	)
Interest and other income (expenses), net		(1,601	)		(925	)		55,372
Loss before income tax		(124,487	)		(235,600	)		(3,706,203	)
Income tax		-			7,200			43,916
Net loss		(124,487	)		(242,800	)		(3,750,119	)
Basic and diluted net loss per common share		(0.00	)		(0.00	)
Weighted average shares used in computing basic and diluted net
loss per common share		67,823,725			67,576,064			48,907,139

* Includes $8,218, $2,334 and $1,072,420 in stock-based compensation to employees and non-employees for the three months periods ended March 31, 2009, and 2008 and for the cumulative period from May 22, 2002 (date of inception) to March 31, 2009 respectively.

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

4

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

Consolidated Statements of Cash Flows

							Cumulative from inception (May 22, 2002) to March 31 2009
	Three months ended March 31
	2009			2008
	$			$			$
Cash flows from oper ating activities:
Net loss		(124,487	)		(242,800	)		(3,750,119	)
Adjustments to reconcile net loss to net cash used in
operating activities:
Services contributed by officers		-			-			3,500
Depreciation and amortization		14,445			12,121			130,594
Stock-based compensation		8,218			2,334			1,072,420
Changes in operating assets and liabilities:
Decrease (Increase) in Trade receivables		7,318			2,004			(1,485	)
Decrease (Increase) in Prepaid expenses and other current assets		1,245			49,730			(5,609	)
Increase (Decrease) in Accounts payable and accrued liabilities		20,326			(32,413	)		187,554
Increase in Accrued severance pay		-			977			-
Net cash used in operating activities		(72,935	)		(208,047	)		(2,363,145	)
Cash flows from investing activities:
Decrease (increase) in long term deposit		304			(1,599	)		(4,520	)
Decrease (Increase) in short term deposits		-			200,000			-
Purchase of property and equipment		-			(307	)		(145,769	)
Purchase of intangible assets		-			-			(120,000	)
Net cash used in investing activities		304			198,094			(270,289	)
Cash flows from financing activities:
Increase in Convertible promissory note		93,274			-			93,274
Proceeds from issuance of common stock		-			-			2,836,286
Offering costs		-			-			(238,540	)
Net cash provided by financing activities		93,274			-			2,691,020
Net (decrease) increase in cash and cash equivalents		20,643			(9,953	)		57,586
Cash and cash equivalents at beginning of period		36,943			97,159			-
Cash and cash equivalents at end of period		57,586			87,206			57,586
Non-cash activities
Supplemental disclosures of cash flow information:
Cash paid for taxes		-			14,433

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

5

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

Notes to the Consolidated Financial Statements as of March 31, 2009

Note 1 – Business

A. General

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

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

B. Going concern

The accompanying financial statements have been prepared on a basis which assumes that the Company will continue as a going concern and which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has a limited operating history, and has incurred losses of $3,750,119 from operations since its inception. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regard to these matters include continued development, marketing and licensing of its products as well as seeking additional financing arrangements. Although, management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient revenues from its products or financing on terms acceptable to the Company. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In the event that we do not generate revenues or raise sufficient additional funds by a public offering or a private placement, we will consider alternative financing options, if any, or be forced to scale down or perhaps even cease our operations.

Note 2 – Summary of Significant Accounting Policies

A. Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").

B. Financial Statement Preparation

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

6

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

Notes to the Consolidated Financial Statements as of March 31, 2009

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

B. Financial Statement Preparation (cont’d)

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

C. Use of Estimates in the Preparation of Financial Statements

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the financial statement date and the reported expenses during the reporting periods. Actual results could differ from those estimates.

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

D. Principles of Consolidation

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

E. Recently Issued Accounting Standards

FSP FAS 107-1 and APB 28-1

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

FSP FAS 107-1 and APB 28-1 relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet of companies at fair value. Prior to issuing this FSP, fair values for these assets and liabilities were only disclosed once a year. The FSP now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. The Company expects no impact on the Company’s consolidated results of operations or financial position resulting from the adoption of this FSP, and is currently evaluating the additional disclosure requirements of this FSP.

7

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

Notes to the Consolidated Financial Statements as of March 31, 2009

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

E. Recently Issued Accounting Standards (Cont’d)

FSP FAS 157-4

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

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

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

The Company is currently evaluating the impact that this FSP will have, if at all, on its consolidated financial statements and disclosures.

F. Initial Adoption of New Accounting Standards

EITF 07-5

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

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

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

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

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

8

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

Notes to the Consolidated Financial Statements as of March 31, 2009

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

F. Initial Adoption of New Accounting Standards (Cont’d)

SFAS No. 161

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

Note 3 – Property and Equipment

Property and equipment consist of the following:

	Estimated useful life (years)		March 31 2009		December 31 2008
			$		$
Computer equipment		3		13,487		13,487
Production equipment		3		122,341		122,341
Furniture		7-15		7,924		7,924
Leasehold improvements		(*)		2,017		2,017
				145,769		145,769
Less - Accumulated depreciation and amortization				94,100		82,656
				51,669		63,113

(*) over the lease term

Depreciation expense for the three month period ended March 31, 2009 and 2008, and for the cumulative period from May 22, 2002 (date of inception), to March 31, 2009 were $11,445, $9,121, and $94,100, respectively.

Note 4 – Intangible Assets

In March 2006, the Company purchased a patent from Prof. Ehud Keinan (“Keinan”), a stockholder who holds 30.91% of the Company’s shares of common stock, for $120,000. The patent is being amortized over the life of the asset which is estimated at 10 years. Amortization expense for each of the three months periods ended March 31, 2009 and 2008 and for the cumulative period from May 22, 2002 (date of inception) to March 31, 2009 was $3,000, $3,000 and $36,494, respectively. The expected annual amortization expenses for each of the next five years are $12,000.

Effective as of January 1, 2009, the Company affected a transfer of all of its intellectual property, including patents and technology, to its wholly owned subsidiary, Acrosec Ltd, in consideration for an amount representing the value of the intellectual property as will be determined by an independent third-party appraiser selected by the company and Acrosec.

9

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

Notes to the Consolidated Financial Statements as of March 31, 2009

Note 5 – Stock-Based Compensation

During 2006, the Company engaged three consultants to serve as members of its advisory board. The consultants are entitled to receive shares of common stock each quarter that they serve on the company’s advisory board. One of the consultants resigned during 2007. During the three month periods ended March 31, 2009, 2008 and for the cumulative period from May 22, 2002 (date of inception) to March 31, 2009 the consultants earned 33,332 shares, 33,332 shares and 1,164,411 shares respectively. 66,664 shares that were earned during the last six months period, have not yet been issued.

During the three months period ended March 31, 2009, 2008 and for the cumulative period from May 22, 2002 (date of inception) to March 31, 2009, compensation expense recorded in respect of the shares earned by the consultant amounted to $0, $2,334 and $1,006,207 respectively.

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

Under the agreements with the consultants they are entitled to earn up to an additional 80,512 shares of common stock for future services to be performed.

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

197,296 options became vested as of March 31, 2009 and 17,936 options shall vest at the end of the subsequent quarter, following March 31, 2009.

On April 28, 2008, the company’s board of directors approved the grant of options to purchase 1,800,000 shares of common stock of the Company to the trustee in trust for the company’s executives, at an exercise price of $0.075 per share. 750,000 of the options became vested as of March 31, 2009, and 150,000 of the options shall vest at the end of each subsequent quarter, following March 31, 2009, for a period of 7 quarters.

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

On July 8, 2008, the company’s board of directors approved the grant of options to purchase 400,000 shares of common stock of the company to the trustee in trust for two of the company’s executives, at an exercise price of $0.06 per share. All 400,000 of the options became vested as of March 31, 2009.

10

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

Notes to the Consolidated Financial Statements as of March 31, 2009

Note 6 – Related Party Transactions

In February 2006, the Company entered into a consulting services agreement (the “Consulting Agreement”) with BioTech Knowledge LLC, a limited liability company wholly-owned by Prof. Keinan (see Note 4), whereby Prof. Keinan has agreed to provide consulting services for duration of three years which ended on February 1, 2009, at a monthly fee of $3,000. Starting from July 2008, Prof. Keinan agreed that the Company may defer the payment of 100% of his monthly fee until further notice. The total amount of the deferred payment as of March 31, 2009, is $19,500 and is included at accounts payable. During the three months periods ended March 31, 2009 and 2008, the Company incurred $3,000 and $9,000, respectively, for the consulting services provided by Prof. Keinan. In addition to the Consulting Agreement, the Company purchased a patent from Prof. Keinan in March 2006 (see Note 4).

During the three months periods ended March 31, 2009 and 2008, the Company incurred an expense of $34,771 and $32,238, respectively, for consulting services provided by the Company’s CEO and chairman of the board of directors. Starting from July 2008, the company’s CEO and chairman of the board of directors agreed that the Company may defer the payment of 100% of his monthly fee until further notice. The total amount of the deferred payment as of March 31, 2009 is $77,200 and is included at accounts payable.

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

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

Effective as of January 1, 2009, the Company entered into an Intellectual Property Assignment and Services Termination Agreement with its wholly owned subsidiary, Acrosec Ltd., pursuant to which, among others, the Company effected a transfer of all of its intellectual property, including patents and technology, to Acrosec, in consideration for an amount representing the value of the intellectual property as will be determined by an independent third-party appraiser selected by the company and Acrosec. The services agreement between us and Acrosec, dated March 7, 2007, pursuant to which Acrosec provided us certain research, development, manufacturing and management services was terminated. The agreement effectively renders ACRO as a holding company.

11

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

Notes to the Consolidated Financial Statements as of March 31, 2009

Note 7 – Commitments

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

Note 8 – Subsequent Event

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

12

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

You should read the following discussion in conjunction with our consolidated financial statements and related notes thereto. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences include those described in “Risk Factors” in Item 1 of our Annual Report on Form 10-KSB filed with the Securities and Exchange Commission (the “Commission”) on March 13, 2008.

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

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

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

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

General

We develop and market products for the detection of military and commercial explosives for the homeland security market. We were incorporated under the laws of the State of Nevada on May 22, 2002, under the name of Medina International Corp. On May 4, 2006, we changed our name to ACRO Inc. We effected this change of name by merging our company with a wholly-owned subsidiary of our company that we had formed specifically for this purpose. We have a wholly-owned subsidiary, Acrosec Ltd., incorporated under the laws of the State of Israel. Our principal executive and head office is located at 37 Inbar Street, Caesarea, Israel.

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

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

On January 19, 2006, we closed a private placement consisting of 20,200,012 shares of common stock for total gross proceeds of $43,286 in the form of a promissory note payable upon demand, in which two of our current directors, Gadi Aner and Prof. Ehud Keinan, who were not directors at that time, and Zeev Bronfeld, beneficial owner of more than 5% of our common stock, participated. Pursuant to the private placement, we issued, among others: (i) 2,300,004 shares of common stock to Mr. Aner for a total consideration of $4,929; (ii) 2,800,000 shares to M.G-Net Ltd., a private company, wholly-owned by Mr. Aner and his wife, for a total consideration of $6,000; (iii) 5,999,994 shares of common stock to Mr. Bronfeld for a total consideration of $12,857.13; and (iv) 6,400,002 shares of common stock to BioTech Knowledge LLC, a private company wholly-owned by Prof. Keinan, for a total consideration of $13,714. In addition, pursuant to a share purchase agreement dated January 10, 2006, two of our former directors, Nick DeMare and Brad Colby, sold their entire interests in us, 14,000,000 shares of common stock, to BioTech Knowledge LLC. As a result of these two transactions, BioTech Knowledge LLC is our largest stockholders with approximately 30.91% of our common stock.

13

On February 22, 2009, we closed a private placement for total gross proceeds of $93,274 in the form of a convertible promissory note with BioTech Knowledge LLC, convertible to up to 11,659,250 shares of common stock, at a price of $0.008 per share, with each share of common stock such converted awarding a warrant to purchase one share of our common stock at the price per share of $0.016 exercisable within three years.

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

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

As of March 31, 2009, we had not realized any significant revenues from operations and experienced losses of $3,750,119.

Employees

As of May 15, 2009, we do not have any employees. Our subsidiary, Acrosec Ltd., hired the services of Gadi Aner, who serves as our Chairman and our Interim Chief Executive Officer, Gabby Klausner, who serves as our Chief Financial Officer (66% time), Shai Markevitch, who serves as our Marketing and Sales Manager. Commencing February 2009, Mr. Markevitch provides his services, as a freelance consultant, and his fees are calculated based on sales.

Cash Requirements

Our cash requirement through March 31, 2010, is approximately $300,000 which we need for implementation of our plan of operation and developing and commercializing our potential explosive detection device. We estimate our operating expenses and working capital requirements beginning March 31, 2009, and through March 31, 2010, to be as follows:

Estimated Expenses through March 31, 2010
Product Research and Development	$	-
Sales and Marketing	$	50,000
General and Administrative	$	250,000
Capital Expenditures	$	-
Tax Expenses	$	-
Total	$	300,000

At March 31, 2009, we had a deficit in working capital of $(122,875), out of which $107,200 are payable to directors, which agreed to defer their fees until further notice. We are now operating under minimal activity note, until we successfully raise additional funds or receive a significant order to our products, according to this low volume of activity, we anticipate that we will require additional funds of up to approximately $450,000 to keep activating our business for the next twelve-month period. In such event that we do not generate sufficient revenues or raise sufficient additional funds by a public offering or a private placement, we will consider alternative financing options, if any, or be forced to cease our operations

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Our Products

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

In addition, we have developed another device called ACRO-N.E.T. (Nitride Explosives Tester), which detects the presence of commercial and military explosives. ACRO-N.E.T. incorporates into our pen-like device the explosive testing kit of the Israel Institute for Biological Research (IIBR), licensed to us under an agreement dated October 28, 2007, with a subsidiary of IIBR called Life Science Research Israel Ltd. (LSRI). ACRO-N.E.T. is based on the LSRI explosive detecting kit, called ETK five. The ETK five is capable of identifying the full range of well known types of military and commercially available explosives, and also of homemade explosives based on nitrate and chlorate salts. This new device, ACRO-N.E.T., complements ACRO-P.E.T. by providing the possibility to detect explosives other than TATP. Its operation system and advantages are the same as the ACRO-P.E.T. (it is the same device) but it is using different solutions and detects different explosives.

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

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

Plan of Operation

        Our primary objectives over the 12 month period ending on March 31, 2010, are to manufacture and commercialize our product, called the ACRO – SET, that includes both the ACRO-P.E.T (Peroxide Explosives Tester), and ACRO-N.E.T (Nitride Explosives Tester), which are detection devices for explosive materials using the intellectual property covered in U.S. Patent No. 6,767,717 and the license agreement with LSRI. We started to use a new filling machine which will allow us much more effective production. Another main business objective is to expand our technology base by purchasing additional technologies.

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

        On October 28, 2007, our technology agreement with LSRI, a subsidiary of IIBR – Israel Institute for Biological Research, became effective. Under the terms of the agreement, LSRI licensed the long-proven technology of IIBR’s explosives testing kit to Acro, for incorporation into our pen-like device. This allows our pen-like device to detect commercial and military explosives. The agreement is subject to minimum annual revenues to be achieved by us and royalties to be paid to LSRI. The device complements the ACRO-P.E.T., which detects peroxide-based explosives in improvised explosive devices.

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

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Financial Condition, Liquidity and Capital Resources

During the three months ended March 31, 2009, we incurred a loss of $124,487, compared to a net loss of $242,800 for the comparative period in 2008.

During the three months ended March 31, 2009, we incurred $129,498 of operating expenses, comprised of $18,576 for research and development costs, $8,218 for stock-based compensation expenses, $11,945 for sales and marketing costs, $90,759 for general and administrative cost.

During the three months ended March 31, 2008, we incurred $236,977 of operating expenses, comprised of $43,681 for research and development costs, $2,334 for stock-based compensation expenses, $47,549 for sales and marketing costs, $143,413 for general and administrative cost.

As of March 31, 2009, we had deficit in working capital of $(122,874) out of which $107,200 are payable to directors, which agreed to defer their fees until further notice.

As of March 31, 2009, our Company had total assets of $204,375, which consisted of cash and equivalents of $57,586, fixed assets of $51,669, intangible assets of $83,507 and prepaid expenses and other current and non-current assets of $11,613.

From January 1, 2009 to March 31, 2009, we had no significant sales.

Going Concern

The continuation of our business is dependent upon our raising additional financial support or on our ability to create significant sales of our commercial products, ACRO-P.E.T. and ACRO-N.E.T. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial or other loans, assuming those loans would be available, would increase our liabilities and future cash commitments.

We have historically incurred losses, and from inception through March 31, 2009, we have incurred losses of $3,750,119. Because of these historical losses, we will require additional working capital to develop our business operations.

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

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

Recent Private Placements

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

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.

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Critical Accounting Policies

Share Based Compensation

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

The Company accounts for stock-based awards to employees in accordance with SFAS No. 123(R) and related interpretations, which requires all share-based payments to employees to be recognized based on their fair values. The Company recorded the stock based compensation granted to a consultant on the date the consultant earned the awarded shares in the same manner as if the Company paid cash to the consultant for his services.

Recently Issued Accounting Standards

FSP FAS 107-1 and APB 28-1

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

FSP FAS 107-1 and APB 28-1 relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet of companies at fair value. Prior to issuing this FSP, fair values for these assets and liabilities were only disclosed once a year. The FSP now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. The Company expects no impact on the Company’s consolidated results of operations or financial position resulting from the adoption of this FSP, and is currently evaluating the additional disclosure requirements of this FSP.

FSP FAS 157-4

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

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

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

The Company is currently evaluating the impact that this FSP will have, if at all, on its consolidated financial statements and disclosures.

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Initial Adoption of New Standards

EITF 07-5

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

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

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

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

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

SFAS No. 161

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4T. Controls and Procedures

As of the end of the period covered by this report, being March 31, 2009, we performed an evaluation of the effectiveness of our disclosure controls and procedures that are designed to ensure that the material financial and non-financial information required to be disclosed in our annual report and filed with the Securities and Exchange Commission is recorded, processed, summarized and reported timely within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Act, is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on our evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d) – 15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report are effective at such reasonable assurance level.

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

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

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Part II – OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

Not applicable.

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

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

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ACRO INC.
(Registrant)


By: /s/ Gadi Aner
——————————————
Gadi Aner
President, Chief Executive Officer
& Director
Date: May 20, 2009  



By: /s/ Gabby Klausner
——————————————
Gabby Klausner
Treasurer and
Chief Financial Officer
Date: May 20, 2009

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EXHIBIT INDEX

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

Exhibit No. Description

Number Description Method of Filing

(3) Articles of Incorporation and By-laws

3.1 Articles of Incorporation, as amended. Incorporated by reference to Exhibit 3.1 to our registration statement on Form SB-2 filed November 21, 2003

3.2 Bylaws, dated February 25, 2005. Incorporated by reference to Exhibit 3.1 to our current report on Form 8-K filed March 17, 2005 and March 21, 2005

3.3 Certificate of Change Pursuant to NRS 78.209 filed with the State of Nevada effective as of January 25, 2006. Incorporated by reference to Exhibit 3.3 to our annual report on Form 10-KSB filed March 28, 2007

3.4 Certificate of Change Pursuant to NRS 78.209 filed with the State of Nevada effective as of October 25, 2006. Incorporated by reference to Exhibit 3.4 to our annual report on Form 10-KSB filed March 28, 2007

3.5 Certificate of Change Pursuant to NRS 78.209 filed with the State of Nevada effective as of October 30, 2006. Incorporated by reference to Exhibit 3.5 to our annual report on Form 10-KSB filed March 28, 2007

(10) Material Contracts

10.1 Convertible Promissory Note between the Registrant and BioTech Knowledge LLC, dated February 22, 2009. Incorporated by reference to Exhibit 10.1 to our current report on Form 8-K filed February 23, 2009

10.2 Warrant between the Registrant and BioTech Knowledge LLC, dated February 22, 2009. Incorporated by reference to Exhibit 10.10 to our annual report on Form 10-K filed March 30, 2009

10.3 Intellectual Property Assignment and Services Termination Agreement, dated March 29, 2009. Incorporated by reference to Exhibit 10.10 to our annual report on Form 10-K filed March 30, 2009

(31) Section 302 Certification

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

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

(32) Section 906 Certification

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

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