Item 1. Business
Certain statements in this Annual Report on Form 10-K are “forward-looking statements.” These statements involve a number of risks, uncertainties and other factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Investors are urged to consider these factors carefully in evaluating the forward looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date hereof and we will undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
In this Annual Report on Form 10-K, unless otherwise specified, all dollar amounts are expressed in United States dollars.
Unless otherwise indicated, all references to “we,” “us,” “our,” “Company” and “ACRO” means ACRO Inc.
Corporate Overview
We developed and market products for the detection of military and commercial explosives for the homeland security market. We were incorporated under the laws of the State of Nevada on May 22, 2002, under the name of Medina International Corp. On May 4, 2006, we changed our name to ACRO Inc. We effected this change of name by merging our company with a wholly-owned subsidiary of our company that we had formed specifically for this purpose. We have a wholly-owned subsidiary, Acrosec Ltd. (Acrosec), incorporated under the laws of the State of Israel. Effective January 1, 2009, we entered into an Intellectual Property Assignment and Services Termination Agreement with our wholly owned subsidiary, Acrosec Ltd., pursuant to which, among others, we effected a transfer of all of our intellectual property, including patents and technology, to Acrosec, in consideration for an amount representing the value of the intellectual property as will be determined by an independent third-party appraiser selected by us and Acrosec. Concurrently, the services agreement between us and Acrosec, dated March 7, 2007, pursuant to which Acrosec provided us certain research, development, manufacturing and management services, was terminated. The Intellectual Property Assignment and Services Termination Agreement effectively render ACRO as a holding company.
Initially, our business had been to provide professional consulting services for the technical and economic evaluation of petroleum and natural gas resources.
However, since we were not successful in implementing our initial business plan for consulting services, we decided to no longer offer consulting services to oil and gas companies. Accordingly, on March 15, 2006, we completed our acquisition of a patent for $120,000 pursuant to a patent purchase agreement with Prof. Ehud Keinan, which we refer here as the Patent Purchase Agreement. The patent, U.S. Patent No. 6,767,717, describes a method of detection of peroxide-based explosives. Through a consulting services agreement that we signed at the same time, Prof. Keinan, the inventor of the method described in the patent, has agreed to provide consulting services to us in order to develop the patent into a commercially viable product. We are a development stage company with little history of research and development of explosives detection equipment. We are currently contemplating to cease our current operations and purchase new technologies.
On January 19, 2006, we closed a private placement consisting of 20,200,012 shares of common stock for total gross proceeds of $43,286 in the form of a promissory note payable upon demand, in which two of our current directors, Gadi Aner and Prof. Ehud Keinan, who were not directors at that time, and Zeev Bronfeld, beneficial owner of more than 5% of our common stock, participated. Pursuant to the private placement, we issued, among others: (i) 2,300,004 shares of common stock to Mr. Aner for a total consideration of $4,929; (ii) 2,800,000 Shares to M.G-Net Ltd., a private company, wholly-owned by Mr. Aner and his wife, for a total consideration of $6,000; (iii) 5,999,994 shares of common stock to Mr. Bronfeld for a total consideration of $12,857.13; and (iv) 6,400,002 shares of common stock to BioTech Knowledge LLC, a private company wholly-owned by Prof. Keinan, for a total consideration of $13,714. In addition, pursuant to a share purchase agreement dated January 10, 2006, two of our former directors, Nick DeMare and Brad Colby, sold their entire interests in us, 14,000,000 shares of common stock, to BioTech Knowledge LLC.
On March 15, 2006, we consummated a second private placement, pursuant to which, we issued to certain investors 2,376,000 shares of common stock, together with warrants to purchase 2,376,000 shares of common stock at an exercise price of $ 0.75 per share, exercisable until March 15, 2008, in consideration of an aggregate gross proceeds of $1,188,000, less transaction cost of $ 99,031.
On February 27, 2007, the Company consummated a private placement of 2,000,000 units, at a price of $0.75 per unit, for aggregate proceeds of $1,500,000, each unit comprising one share of the Company’s common stock and one warrant to purchase one share of the Company’s common stock at an exercise price per share of $1.25 exercisable within five years (“Unit”). In connection with the private placement, the Company paid a finder’s fee of $120,000 in cash and issued a warrant to purchase 160,000 Units to the finder.
On February 22, 2009, we received from BioTech Knowledge LLC an interest-free loan in the aggregate amount of $93,274 in the form of a convertible promissory note, convertible into up to 11,659,250 shares of our common stock, at a price of $0.008 per share, within 12 months from February 22, 2009, with each share of common stock such converted awarding a warrant to purchase one share of our common stock at the price per share of $0.016 exercisable within three years. As of April 10, 2011, BioTech Knowledge LLC is our largest stockholder, holding approximately 30.91% of our common stock. As of April 10, 2011, we did not repay the loan and BioTech Knowledge LLC did not convert the note into shares.
On March 15, 2010, we closed a private placement of 500,000 units, at a price of $0.05 per unit, for aggregate proceeds of $25,000. Each unit is comprised two shares of our common stock and one warrant to purchase one share of our common stock at the price per share of $0.025, exercisable within twelve months from March 15, 2010. In connection with this private placement, we issued the finder a warrant to purchase 40,000 shares of our common stock at a price per share of $0.025, exercisable within twelve months of the closing date.
During years 2009 and 2010, we received from BioTech Knowledge LLC an additional interest-free loan in the aggregate amount of $90,000 in the form of a convertible promissory note, convertible into up to 11,250,000 shares of our common stock, at a price of $0.008 per share, within 12 months from March 24, 2010, with each share of common stock such converted awarding a warrant to purchase one share of our common stock at the price per share of $0.016 exercisable within three years.
All outstanding warrants, options and loans outstanding as of July 28, 2011 have been cancelled.
2011 Private Placement
On July 5, 2011, we entered into a share purchase agreement (the "Agreement") with Top Alpha Capital, an Israeli corporation, for the sale of 96,613,788 shares of our common stock, representing 49.9% of our outstanding share capital, for the total consideration of US$160,000 ("Transaction"). The purchase price was funded by available funds. Top Alpha is a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and the issuance of the shares was made in an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
The share purchase closed on July 28, 2011.
Pursuant to the Agreement, simultaneously with the closing of the Transaction, the convertible notes held by BioTech Knowledge LLC in the aggregate amount of $185,774, were converted into 23,221,750 shares of our common stock. In addition, at the closing, all outstanding warrants and options to purchase our shares were cancelled.
Following the closing of the Transaction and until twelve months thereafter, Top Alpha shall have the option to purchase up to 15,515,052 of the shares held by BioTech Knowledge LLC, at a price per share of $0.0018.
Pursuant to the Agreement, as long as Mr. Aner and Mr. Bronfeld will hold any of our shares they hold as of the closing, they shall have the right to veto any transaction with Top Alpha, e.g, the issuance of shares or compensation to Top Alpha. This veto right shall terminate upon any of the following events: (a) a merger between ACRO and another entity; (b) an asset acquisition by ACRO; (c) ACRO’s purchase of shares of another entity, or (d) acquisition by a third party of a controlling interest in ACRO. In any case, such veto right shall not apply to issuance of additional shares to Top Alpha in the event ACRO shall have outstanding debts on the closing of the Transaction. In such event, we shall issue Top Alpha shares based on a company valuation of $160,000 proportionate to the outstanding debt.
Following the closing of the Transaction and until six months thereafter, Top Alpha shall supply office services, management, consulting and investment banking services to ACRO at no cost.
Effective as of the closing of the Transaction, all existing officers and directors, except for Ehud Keinan resigned from their office, and the officers chosen by Top Alpha were appointed and stockholders were asked by written consent to approve the election of Asaf Porat, the investment banker of Top Alpha, as a director. Following the closing, Top Alpha agreed to vote for the reappointment of Mr. Keinan as a director of ACRO until Mr. Keinan’s share holdings shall comprise of less than ten percent (10%) of our outstanding common stock.
At the closing of this transaction Top Alpha owned 49.9% of our common stock.
As of December 31, 2012, we had not realized any significant revenues from operations and experienced an operating loss of $131,525.
Reverse Split
In January 2012, we effectuated a ten for one (10:1) reverse stock split. As a result, the outstanding common stock of ACRO, Inc. decreased from 193,487,806 to 19,349,000.
Our Products
Our first product is called the Peroxide Explosives Tester (ACRO-P.E.T.). ACRO-P.E.T. is a small, disposable, pen-like probe which detects the presence of peroxide-based explosives using three chemical solutions and relies on direct contact with the suspicious substance. ACRO-P.E.T. has been designed for rapid, on-site detection of peroxide-based explosives. Its main advantages are high sensitivity, high selectivity, fast response, simple operation, high mobility, small size and cost effectiveness. In November 2006, we completed the first production of the ACRO-P.E.T. for evaluation by potential customers. In 2007, we developed a new version of ACRO-P.E.T. which enables easier verification of peroxide-based explosives, such as triacetone triperoxide (TATP). In addition, in the new version we improved the sampling device to enable easy and immediate sampling of suspicious liquids, in addition to all other forms of explosives, such as powder. The new version has been available for sale since mid 2007.
In addition, we developed the ACRO-N.E.T. (Nitride Explosives Tester), which detects the presence of commercial and military explosives. ACRO-N.E.T. incorporates into our pen-like device the explosive testing kit of the Israel Institute for Biological Research (IIBR), licensed to us under an agreement dated October 28, 2007, with a subsidiary of IIBR called Life Science Research Israel Ltd. (LSRI). ACRO-N.E.T. is based on the LSRI explosive detecting kit, called ETK. The ETK is capable of identifying the full range of well known types of military and commercially available explosives, and also of homemade explosives based on nitrate and chlorate salts. This device, ACRO-N.E.T., complements ACRO-P.E.T. by providing the possibility to detect explosives other than TATP. Its operation system and advantages are the same as the ACRO-P.E.T.; however, it uses different solutions and detects different explosives. We also signed several agreements with LSRI pursuant to which we may distribute the ETK and ETK 5, exclusively, in several countries. The ETK’s kits complete our products.
The ACRO-SET is a sensitive, rapid and reliable kit for field detection and identification of trace explosives. Weighing about one-quarter of a pound, this kit contains the ACRO-PET, which detects improvised explosives such as TATP, and the ACRO-NET, which detects the entire range of the nitro explosives including all conventional explosives, the improvised ammonium nitrate, ANFO, and urea nitrate. Conveniently packed in a belt pouch, the Acro-SET is, in effect, a portable, inexpensive micro-laboratory for identification of all explosives by any law enforcement personnel.
Since the fourth quarter of 2007, we have delivered samples of ACRO-SET to several distributors and potential clients in many countries including the USA, UK, China, Canada, Spain, Singapore, Japan, South Africa, Australia, Serbia, Italy, Germany, Luxemburg, South Korea, India, New Zealand and Russia. During 2010, we had sales in the aggregate amount of $79,227, in 2011, we had sales of $3,300 and in 2012, we had sales of $0.
ACRO-N.E.T. is based on the LSRI explosive detecting kit, called ETK Nevertheless, we cannot assure that ACRO-P.E.T. and ACRO-N.E.T. will gain commercial acceptance in the marketplace.
During 2008, we developed a product called “TATP Simulant”. The TATP Simulant is a hands-on tool of practicing detection and identification of peroxide based explosives such as TATP and HMTD. We delivered samples of TATP Simulant to several clients, but at this stage we cannot estimate the commercial value of this product, if any.
During 2009, we developed the ACRO-CH.E.T. (Chlorates Explosives Tester) which detects chlorate based explosives traces and the ACRO-U.E.T (Urea nitrate Explosives Tester) which detects the presence urea nitrate traces. Both products have low false positive and negative alarm rates.
During the first quarter of 2010, we completed the development, Acro-ANET, a specific tester and a trace-detector of ammonium nitrate. The white crystals of ammonium nitrate are commonly used in agriculture as high-nitrogen fertilizer and are the main component of ammonium nitrate fuel oil (ANFO), an increasingly popular component of improvised explosive devices.
We are currently contemplating ceasing our current operations and purchasing new technologies.
The Market
Improvised explosive devices based on peroxide, as well as other explosives materials have increasingly been used in recent years by various terrorist organizations. This has generated growing interest in technology that can detect this threat. The main reason for the growth in the use of peroxide-based explosives by terrorist groups is that such explosives can be easily “home-made” using inexpensive, readily-available starting materials which can be purchased in most hardware and paint stores, even in bulk quantities. One class of such peroxide-based explosives can be easily produced by reacting various carbonyl compounds (e.g. ketones, aldehydes and their derivatives) with hydrogen peroxide under acid catalysis. For example, when a mixture of acetone, hydrogen peroxide and small amounts of a mineral acid such as sulfuric acid is left for several hours at room temperature, white crystals of triacetone triperoxide, commonly referred to as TATP, and diacetone diperoxide, commonly referred to as DADP, are formed.
The three overall methods of explosives detection in use today are as follows:
(a)
Manual - searching by hand and/or with the use of specially-trained dogs. This practice involves obvious risks.
(b)
Bulk Detection - attempting to detect macroscopic mass on the basis of characteristic-specific gravity using X-ray or CT techniques.
(c)
Trace Detection - sensing the presence of explosives through chemical identification of microscopic residues of the compound, in either vapor or particle form. Trace detection is generally used to resolve alarms raised when suspicious items are identified either manually or through bulk detection.
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 announced efforts to develop devices that detect TATP. Most of these devices are based on air-sampling followed by spectral analysis using various methods. These instruments, which are quite heavy and expensive, are designed primarily for checkpoint stations, such as airports and we do not consider them as competing products to ours. There are several more products in the market that are similar to our, but most of them are based on wet chemistry (it is necessary to drop different solutions on the suspected material), which is unfriendly and unsafe use. Another system used to identify explosives makes use of “spray” but it is unsafe and less accurate.
Manufacturing
We engage subcontractors for the manufacture of the plastic parts of our products. We have no long-term supply agreement with our sole supplier and manufacturer, and cannot assure you that we will be able to obtain such components on a timely basis or at acceptable prices.
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.”
In addition, pursuant to our agreement with LSRI, we have obtained a license allowing us to incorporate the long-proven technology of IIBR’s explosives testing kit into our pen-like device. This will enable our pen-like device to detect commercial and military explosives.
Effective January 1, 2009, we entered into an Intellectual Property Assignment and Services Termination Agreement with our wholly owned subsidiary, Acrosec Ltd., pursuant to which, among others, we effected a transfer of all of our intellectual property, including patents and technology, to Acrosec, in consideration for an amount representing the value of the intellectual property as will be determined by an independent third-party appraiser selected by us and Acrosec. The services agreement between us and Acrosec, dated March 7, 2007, pursuant to which Acrosec provided us certain research, development, manufacturing and management services was terminated. The agreement effectively renders ACRO a holding company.
We are currently contemplating ceasing our current operations and purchasing new technologies in which case, our success will depend on our ability to purchase such new technologies.
During the twelve months ended December 31, 2012, we did not invest funds in research and development activities.
Government Approvals
Our ability to develop and commercialize our products is dependent upon approval from certain governmental security organizations.
Employees
As of February 1st, 2012, we have entered into an employment agreement with Asaf Porat president, shief executive officer and chief financial officer, pursuant to it Mr. Porat shall receive an annual salary of $70,000.
As of December 31st, 2012, Mr. Porat has accrued $64,167 in unpaid salary.
Item 1A.
Item 1A. Risk Factors
1.
We depend on key personnel, the loss of whom could adversely affect our ability to operate and manage our company.
Our success is substantially dependent on the performance of our executive officer, Asaf Porat. The loss of the service of Mr. Porat could have a material adverse effect on our business, results of operations and financial condition. Competition for senior management, marketing personnel and other employees is intense, and there can be no assurance that we will be successful in attracting and retaining such personnel. Failure to successfully manage our personnel requirements could cause a decrease in sales and revenues. While we intend to purchase key person life insurance for our executive officers, currently we do not have any such insurance.
2.
We will need, and may not be able to obtain, additional financing which could force us to slow down or suspend our operations.
ACRO needs to continue to market its products and services in order to expand its operations. In addition, we may need to engage in an offering of debt or equity securities in order to finance our operations and projected growth in 2013. However, there can be no assurance that additional capital will be available on acceptable terms. As such, we may not be able to fund our future operations, adequately promote our products, develop or enhance services or respond to competitive pressures, or to engage in research and development for new products and/or technologies. Any such inability could adversely affect our ability to enter into new contracts, which would prevent us from growing or maintaining operations of the company.
3.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial reporting, which would harm our business and the trading price of our stock.
Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our business and operating results could be harmed.
During the year ended December 31, 2012, management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Such an evaluation requires the check and testing of the existence of the required controls. Based on this examination, as December 31, 2012, management has concluded that its disclosure controls and procedures are effective. We will continue to carry out such evaluations in the future.
4.
Our auditors have included a note about our ability to continue as a going concern.
In its report our independent auditor, Barzily & Co., has stated that based on our limited operating history and accrued losses, there is a doubt about our ability to continue as a going concern. While we intend to raise additional capital during 2012, there is no assurance that we will be able to, or that we will be able to continue operations.
5.
We have had no significant revenues for two years while we had revenues of $79,227 in 2010, we only had sales revenues of $3,300 in 2011 and $0 sales revenues in 2012. We intend to focus on the development or acquisition of new technologies and products, but there is no guarantee we will be able to do so.
Item 1B.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2.
Item 2. Properties
We are currently using the premises of our Top Alpha Capital, our largest shareholder at 1 Ben Gurion Street, Bnei Brak, Israel on a rent free basis. There is no written lease agreement or other written contract for the space use.
Item 3.
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.
PART II
Item 4.
Item 4. [Removed and Reserved].
Item 5.
Item 5. Market for Common Equity, Related Stockholder Transactions and Small Business Issuer Purchases of Equity Securities.
Market Information
Our shares of common stock were initially approved for quotation on the Over-the-Counter Bulletin Board (OTCBB) under the symbol “MNAI” on September 14, 2004. On February 6, 2006, as a result of a seven-for-one forward stock split, the National Association of Securities Dealers, Inc. changed our trading symbol to “MDIN”. However, no market for our common stock developed until March 23, 2006. On May 4, 2006, we changed our name to ACRO Inc. We effected this change of name by merging our company with a wholly-owned subsidiary of our company that we had formed specifically for this purpose. As a result, our common stock is quoted on the OTCBB under the new symbol “ACRI”.
In January 2012, we instituted a ten to one (10:1) reverse stock split pursuant to which the 193,487,806 shares then outstanding became 19,348,780 shares.
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, 2011. The quotations set forth below reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions. Investors should not rely on historical prices of our common stock as an indication of its future price performance. The last sale price of our common stock as reported by the OTCBB on March 20, 2013, was $.045 per share.
Outstanding Shares and Shareholders of Record
As of March 31, 2013, there were 19,348,780 shares of our common stock issued and outstanding. These shares were held by approximately thirty (30) shareholders of record.
Dividends
We have not paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. Our current policy is to retain earnings, if any, to fund the development and growth of our business. Any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our financial condition, operating results, capital requirements, applicable contractual restrictions and any other factors that our board of directors deems relevant.
Recent Sales of Unregistered Securities
On February 22, 2009, we received from BioTech Knowledge LLC an interest-free loan in the aggregate amount of $93,274 in the form of a convertible promissory note, convertible to up to 11,659,250 shares of common stock, at a price of $0.008 per share, within 12 months from February 22, 2009, with each share of common stock such converted awarding a warrant to purchase one share of our common stock at the price per share of $0.016 exercisable within three years. During years 2009 and 2010 we received another interest-free loan from BioTech Knowledge LLC in the amount of $90,000, convertible to up to 11,250,000 shares of common stock, at a price of $0.008 per share, within 12 months from the closing date. These loans were cancelled in 2011.
2011 Private Placement
On July 5, 2011, we entered into a share purchase agreement (the "Agreement") with Top Alpha Capital, an Israeli corporation, for the sale of 96,613,788 shares of our common stock, representing 49.9% of our outstanding share capital, for the total consideration of US$160,000 ("Transaction"). The purchase price was funded by available funds. Top Alpha is a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and the issuance of the shares was made in an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
The share purchase closed on July 28, 2011.
Pursuant to the Agreement, simultaneously with the closing of the Transaction, the convertible notes held by BioTech Knowledge LLC in the aggregate amount of $185,774, were converted into 23,221,750 shares of our common stock. In addition, at the closing, all outstanding warrants and options to purchase our shares were cancelled.
Following the closing of the Transaction and until twelve months thereafter, Top Alpha shall have the option to purchase up to 15,515,052 of the shares held by BioTech Knowledge LLC, at a price per share of $0.0018.
Pursuant to the Agreement, as long as Mr. Aner and Mr. Bronfeld will hold any of our shares they hold as of the closing, they shall have the right to veto any transaction with Top Alpha, e.g, the issuance of shares or compensation to Top Alpha. This veto right shall terminate upon any of the following events: (a) a merger between ACRO and another entity; (b) an asset acquisition by ACRO; (c) ACRO’s purchase of shares of another entity, or (d) acquisition by a third party of a controlling interest in ACRO.
Following the closing of the Transaction and until six months thereafter, Top Alpha supplied office services, management, consulting and investment banking services to ACRO at no cost.
Effective as of the closing of the Transaction, all existing officers and directors, except for Ehud Keinan resigned from their office, and the officers chosen by Top Alpha were appointed and stockholders were asked by written consent to approve the election of Asaf Porat, the investment banker of Top Alpha, as a director. Following the closing, Top Alpha agreed to vote for the reappointment of Mr. Keinan as a director of ACRO until Mr. Keinan’s share holdings shall comprise of less than ten percent (10%) of our outstanding common stock. Mr. Keinan resigned in January 2011.
At the closing of this transaction Top Alpha owned 49.9% of our common stock.
Use of Proceeds from Registered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
Item 6.
Item 6. Selected Financial Data
Not applicable.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with our consolidated financial statements and related notes thereto. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations.
Going Concern
The continuation of our business is dependent upon our raising additional financial support and/or on our ability to purchase new technologies. 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, 2012, we have incurred losses of $4,441,263. Because of these historical losses, we will require additional working capital to develop our business operations.
There can be no assurance that additional funds will be available on terms acceptable to us, or at all. These conditions raise substantial doubt about our ability to continue to operate as a going concern. The audited financial statements attached to this annual report do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
Critical Accounting Policies
Share Based Compensation
The Company accounts for stock-based awards to employees in accordance with (ASC) 718-10 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.
The Company accounts for convertible debt with beneficial conversion feature in accordance with ASC 470-20 which requires the Company to recognize separately, at issuance, the embedded beneficial conversion feature in additional paid-in capital. The recognition is done by allocating a portion of the proceeds equal to the intrinsic value of that feature in additional paid-in capital. The intrinsic value is calculated as the difference between the effective conversion price of the convertible debt and the fair value of the shares at issuance date.
The Company accounts for intangible assets in accordance with ASC 360-10 under which recoverability of assets are tested whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.
Financial Condition, Liquidity and Capital Resources
RESULTS OF OPERATIONS FOR ACRO, INC.
YEAR ENDED DECEMBER 31, 2012 COMPARED TO YEAR ENDED DECEMBER 31, 2011
Revenues
For the years ended December 31, 2011 and 2012, ACRO had revenues of $3,300 and $0, respectively, a decrease of $ 3,300 or 100%.
Research and Development
In 2011, we earned $168 for research and development activities and in 2012, we had no research and development costs of earning.
Operating Expenses
General and administrative expenses increased from $107,055 to $131,525, an increase of $24,470, or 22.9% for the years ended 2011 and 2012.
Financial Income (Expenses)
For the year ended December 31, 2011 we had $35,182 in interest expense and for the year ended December 31, 2012, we had interest expense of $5,943, a decrease of $29,239.
Other Income (Expenses)
In 2011, we had $299,000 in income from forgiveness of debt. We had no such income in 2012.
Net Income (Loss)
As a result of the above, we finished 2012 with a net loss of $137,468, compared to a net income of $160,281 in 2011.
Liquidity and Capital Resources
Since our inception, we have been dependent on investment capital as our primary sources of liquidity. We had an accumulated deficit at December 31, 2012 of $4,441,263. During the year ended December 31, 2011, we incurred a net loss of $137,468.
Investing and operating activities have historically been funded through our financing activities, which provided cash or approximately $158,904 in 2011 and $0 in 2012.
On December 31, 2012 ACRO had no long term debt.
Off-Balance Sheet Arrangements
None
Cash Requirements
Our cash requirement for the next 12 months is approximately $150,000. We estimate our operating expenses and working capital requirements at our current minimal activity phase, for fiscal year 2013 to be as follows:
We are now operating under minimal activity note, until we successfully raise additional funds or receive a significant order to our products, according to this low volume of activity, we anticipate that we will require additional funds of up to approximately $150,000 to keep activating our business for the next twelve-month period (considering the assumption that in such minimal activity volume, directors will continue to defer their fees). In such event that we do not generate sufficient revenues or raise sufficient additional funds by a public offering or a private placement, we will consider alternative financing options, if any, or be forced to cease our operations.
Purchase or Sale of Equipment
During the next 12 months, we do not plan to purchase software, furniture and office equipment.
Products Developed
Our first product is called the Peroxide Explosives Tester (ACRO-P.E.T). ACRO-P.E.T is a small, disposable, pen-like probe which detects the presence of peroxide-based explosives using three chemical solutions and relies on direct contact with the suspicious substance. ACRO-P.E.T has been designed for rapid, on-site detection of peroxide-based explosives. Its main advantages are high sensitivity, high selectivity, fast response, simple operation, high mobility, small size and cost effectiveness. In November 2006, we completed the first production of the ACRO-P.E.T for evaluation by potential customers. In 2008 developed a new version of ACRO-P.E.T. which enables easier verification of peroxide-based explosives, such as triacetone triperoxide (TATP). In addition, in the new version we improved the sampling device to enable easy and immediate sampling of suspicious liquids, in addition to all other forms of explosives, such as powder. The new version is available for sale since mid 2008.
In addition, we have developed another device called ACRO-N.E.T., which detects the presence of commercial and military explosives. ACRO-N.E.T. incorporates into our pen-like device the explosive testing kit of the Israel Institute for Biological Research (IIBR), licensed to us under an agreement dated October 28, 2008 with a subsidiary of IIBR called Life Science Research Israel Ltd. (LSRI). ACRO-N.E.T is based on the LSRI explosive detecting kit, called ETK. The ETK is capable of identifying the full range of well known types of military and commercially available explosives, and also of homemade explosives based on nitrate and chlorate salts. This 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.
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 ACRO-SET is a sensitive, rapid and reliable kit for field detection and identification of trace explosives. Weighing about one-quarter of a pound, this kit contains the ACRO-PET, which detects improvised explosives such as TATP, and the ACRO-NET, which detects the entire range of the nitro explosives including all conventional explosives, the improvised ammonium nitrate, ANFO, and urea nitrate. Conveniently packed in a belt pouch, the Acro-SET is, in effect, a portable, inexpensive micro-laboratory for identification of all explosives by any law enforcement personnel.
During 2008, we developed a product called “TATP Simulant”. The TATP Simulant is a hands-on tool of practicing detection and identification of peroxide based explosives such as TATP and HMTD. We delivered samples of TATP Simulant to several clients, but at this stage we cannot estimate the commercial value of this product, if any.
During 2009, we developed the ACRO-CH.E.T. (Chlorates Explosives Tester) which detects chlorate based explosives traces and the ACRO-U.E.T (Urea nitrate Explosives Tester) which detects urea nitrate traces. Both products have low false positive and negative alarm rates. Our product,
During the first quarter of 2010, we completed the development, Acro-ANET, a specific tester and a trace-detector of ammonium nitrate. The white crystals of ammonium nitrate are commonly used in agriculture as high-nitrogen fertilizer, and are the main component of ammonium nitrate fuel oil (ANFO), an increasingly popular component of improvised explosive devices.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data
Our, and our subsidiary’s consolidated financial statements beginning on pages through, as set forth in the following index, are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
Index to Consolidated Financial Statements
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
(a) Our management, including our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2012. Based on such review, our chief executive officer and chief financial officer have concluded that we have in place effective controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
(b) Our management, under the supervision of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:
●
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;
●
provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
●
provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31, 2012, 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, 2012.
This management report on internal control over financial reporting shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liabilities of that Section.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Commission that permit us to provide only management’s report in this Annual report.
(c) There were no changes in our internal controls over financial reporting identified with the evaluation thereof that occurred during the quarter ended December 31, 2012, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 9. Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
The following table sets forth information regarding our current directors and executive officers, their ages, positions held and duration each person has held that position, as of March 15, 2012.
Significant Employees
As of February 1st, 2012, we have entered into an employment agreement with Asaf Porat president, chief executive officer and chief financial officer, pursuant to it Mr. Porat shall receive an annual salary of $70,000.
As of March 15, 2013, Mr. Porat had $64,167 in accrued but unpaid salary.
Family Relationships
There are no family relationships between any of our directors, executive officers and proposed directors or executive officers.
Business Experience
The following is a brief account of the education and business experience of each director and executive officer during at least the past five years, indicating each person’s principal occupation during the period, and the name and principal business of the organization by which he was employed.
Asaf Porat. Mr. Porat has been a partner at Top Alpha Capital, an Israeli investment company, since 2010. Top Alpha Capital is the controlling shareholder of Acro. From 2008 to 2010, Mr. Porat was a partner and investment relations manager at Titan Investments, Inc., an Israeli investment company. From 2005 to 2008, Mr. Porat was an Investor Relations manager at “investor relations”. He is a graduate of Tel Aviv University and Ben Gurion University.
Baruch Mitzengendler. Mr. Miztengendler has been an analyst at Top Alpha Capital since 2009, where he provides analysis services for investment companies. Top Alpha Capital is the controlling shareholder of Acro. From May 2004 through August 2008, he was a staff design engineer for Qimonda AG, a semiconductor manufacturer whose shares trade on the New York Stock Exchange under the symbol “QI.”
Involvement in Certain Legal Proceedings
None of our directors, executive officers, promoters or control persons have been involved in any of the following events during the past ten years:
●
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
●
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
●
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
●
being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Promoters and control persons.
None.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended December 31, 2012, all filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with.
To the best of our knowledge, all executive officers, directors and greater than 10% stockholders filed the required reports in a timely manner.
Code of Ethics
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., 1 Ben Gurion Street, Bnei Brak, 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 two directors on our board of directors, one of whom, Mr. Baruch Mitzengander is an “independent director” under the rules of the National Association of Securities Dealers, Inc. Furthermore, we are currently quoted on the OTC Bulletin Board, which is sponsored by the National Association of Securities Dealers, Inc., under the symbol “ACRI” and the OTCBB does not have any listing requirements mandating the establishment of any particular committees. These directors have performed the functions of nominating and compensation committees and will continue to do so. There are no policies or procedures for stockholders to submit recommendations or nomination for directors. Our board of directors does not believe that a defined policy with regard to the consideration of candidates recommended by stockholders is necessary at this time. Given the early stage of our development as a company, a specific nominating policy would be premature and of little assistance until our business operations are at a more advanced level. The process of identifying and evaluating nominees for director is conducted by our board of directors.
Based on the information gathered, our board of directors then makes a decision on whether to recommend the candidates as nominees for director. We do not pay fees to any third party or parties to identify or evaluate or assist in identifying or evaluating potential nominees.
Item 10.
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth all compensation paid or accrued to former and current officers during the fiscal years ended December 31, 2011 and 2012.
(1)
Both Mr. Aner and mr. Klausher resigned in July 2011.
(2)
Appointed in July 2011.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth all outstanding equity awards for the fiscal year ended December 31, 2012.
The Company has no options outstanding as of the date of this report.
In February 2008, our board of directors approved an adoption of an Israeli share option plan, the 2008 Israeli Share Option Plan, according to the capital gains tax track through a trustee. It was decided to reserve a pool of 4,000,000 shares of our common stock, for grants to employees, directors and consultants under the plan.
The 2008 Israeli Share Option Plan was adopted to comply under Section 102 of the Israeli Income Tax Ordinance, which allows Israeli employees to receive favorable tax treatment for compensation in the form of shares or options. Under our 2008 Israeli Share Option Plan, we may grant to our Israeli directors, officers and employees, except for such persons that are deemed to be a controlling shareholder or a consultant under Section 32 of the Income Tax Ordinance, options to purchase our shares of common stock. This plan also allows for beneficial tax treatment for options issued through a trustee. Based on Israeli law currently in effect and elections which we have made, and provided that options granted or, upon their exercise, the underlying shares, issued under the plan are held by the trustee for at least two years following the date in which the options are granted, the optionees are (i) entitled to defer any taxable event with respect to the options until the underlying shares are sold, and (ii) subject to capital gains tax of 25% on the sale of the shares. We may not recognize expenses pertaining to the options for tax purposes.
Israeli tax law allows us to choose from among three alternative sets of tax tracks for our 2008 Israeli Share Option Plan or future plans. In approving the 2008 Israeli Share Option Plan, our board of directors selected the capital gains tax track described above. Our board of directors may, subject to limitations under Section 102, change this selection in the future. Notwithstanding the above, we are entitled to allocate options not according to the selected tax track, but by direct grant to employees; provided, that the requirements of Section 102 are met.
Under this plan, in any of the following events: (i) a sale of all or substantially all of the assets of our company; or (ii) a sale (including an exchange) of all or substantially all of the shares of the capital stock of our company; or (iii) a merger, consolidation or like transaction of our company with or into another corporation., the administrator of the plan, in its sole discretion shall decide: (i) if and how the unvested options shall be canceled, replaced or accelerated; (ii) if and how vested options (including options with respect to which the vesting period has been accelerated according to Section (i) shall be exercised, replaced and/or sold by the trustee or the company (as the case may be) on the behalf of Israeli optionees; (iii) how the underlying shares issued upon exercise of the options and held by the trustee on behalf of optionees shall be replaced and/or sold by the trustee on behalf of the optionee.
Any option granted under our Plan not exercised within eight years of the grant date shall expire. Under this plan, if the optionee ceases to be an employee, director, officer or consultant of our company for any reason other than death, disability, retirement or cause, then he will be entitled to exercise all of his options that are vested but unexercised, if not previously expired, not later than the earlier of (i) a period of ninety days after the date of his termination; or (ii) the term of the options. If the termination is a result of the employee death, retirement or disability, any vested but unexercised options shall be exercisable in the case of death, by his or her estate, personal representative or beneficiary, or in the case of retirement or disability, by the optionee or his or her personal representative (as the case may be), until the earlier of (i) 180 days after the date of termination of employment; or (ii) the term of the options. If we terminate the employment of an employee for cause, all of his or her vested and unvested options expire immediately.
All outstanding options were cancelled in 2011.
Compensation of Directors
No directors received compensation in 2012.
Item 11.
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Securities Authorized for Issuance Under Equity Compensation Plans
In February 2008, our board of directors approved an adoption of an Israeli share option plan, according to the capital gains tax track through a trustee. It was decided to reserve a pool of 4,000,000 shares of our common stock of the Company, for allocation to employees, directors and consultants under the plan.
All outstanding options were cancelled in July 2011.
The following summary information is presented for stock options authorized for issuance on an aggregate basis as of December 31, 2012.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information concerning the number of shares of our common stock known by us to be owned beneficially as of March 15, 2013, by: (i) each person (including any group) that owns more than 5% of any class of the voting securities of our company; (ii) each director and officer of our company; and (iii) directors and officers as a group. Unless otherwise indicated, the stockholders listed possess sole voting and investment power with respect to the shares shown.
In the following table, we have determined the number and percentage of shares beneficially owned in accordance with Rule 13d-3 of the Exchange Act based on information provided to us by our controlling shareholder, executive officers and directors, and this information does not necessarily indicate beneficial ownership for any other purpose. In determining the number of shares of our common stock beneficially owned by a person and the percentage ownership of that person, we include any shares as to which the person has sole or shared voting power or investment power, as well as any shares subject to warrants or options held by that person that are currently exercisable or exercisable within 60 days after March 15, 2013.
(1) Regulations under the Exchange Act, defines a beneficial owner of a security as: (a) any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares; (b) any person who, directly or indirectly, create or uses a trust, proxy, power of attorney, pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting such person of beneficial ownership of a security or preventing the vesting of such beneficial ownership. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on March 15, 2011.
(2) Based upon 19,349,000 issued and outstanding shares of common stock as of March 31, 2012.
(3) Including 4,362,177 shares registered under BioTech Knowledge LLC, which is wholly-owned by Prof. Ehud Keinan.
(3) Mr. Porat and Mr. Mitzengender are affiliates of Top Alpha Capital.
Item 12.
Item 12. Certain Relationships and Related Transactions, and Director Independence
Transactions with Related Persons
On March 7, 2007, we entered into a service agreement with our wholly-owned subsidiary, Acrosec Ltd. (Acrosec) pursuant to which Acrosec provides us with research and development, manufacturing, marketing and management services, in exchange for payment by us of the costs of such services plus an additional 0%-10%, based on the service provided. Effective as of January 1, 2009, we entered into an Intellectual Property Assignment and Services Termination Agreement with Acrosec pursuant to which, among others, we effected a transfer of all of our intellectual property, including patents and technology, to Acrosec, in consideration for an amount representing the value of the intellectual property as will be determined by an independent third-party appraiser selected by us and Acrosec. The services agreement between us and Acrosec pursuant to which Acrosec provided us certain research, development, manufacturing and management services was terminated. The agreement effectively renders ACRO as a holding company.
2011 Private Placement
On July 5, 2011, we entered into a share purchase agreement (the "Agreement") with Top Alpha Capital, an Israeli corporation, for the sale of 96,613,788 shares of our common stock, representing 49.9% of our outstanding share capital, for the total consideration of US$160,000 ("Transaction"). The purchase price was funded by available funds. Top Alpha is a non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) and the issuance of the shares was made in an offshore transaction relying on Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
The share purchase closed on July 28, 2011.
Pursuant to the Agreement, simultaneously with the closing of the Transaction, the convertible notes held by BioTech Knowledge LLC in the aggregate amount of $185,774, were converted into 23,221,750 shares of our common stock. In addition, at the closing, all outstanding warrants and options to purchase our shares were cancelled.
Pursuant to the Agreement, as long as Mr. Aner and Mr. Bronfeld will hold any of our shares they hold as of the closing, they shall have the right to veto any transaction with Top Alpha, e.g, the issuance of shares or compensation to Top Alpha. This veto right shall terminate upon any of the following events: (a) a merger between ACRO and another entity; (b) an asset acquisition by ACRO; (c) ACRO’s purchase of shares of another entity, or (d) acquisition by a third party of a controlling interest in ACRO.
Effective as of the closing of the Transaction, all existing officers and directors, except for Ehud Keinan resigned from their office, and the officers chosen by Top Alpha were appointed and stockholders were asked by written consent to approve the election of Asaf Porat, the investment banker of Top Alpha, as a director. Following the closing, Top Alpha agreed to vote for the reappointment of Mr. Keinan as a director of ACRO until Mr. Keinan’s share holdings shall comprise of less than ten percent (10%) of our outstanding common stock. Mr. Keinan resigned as a director in January 2011.
As a result of this transaction Top Alpha owns 49.9% of our common stock.
Transactions with a former Controlling Shareholder
Promoters and certain control persons
None.
Parents
None.
Item 13.
Item 13. Principal Accountant Fees and Services
The following table shows the aggregate fees for professional services rendered by our accountants for the fiscal years ended December 31, 2011 and December 31, 2012.
Audit Fees
For the fiscal year ended December 31, 2011 and 2012, Barzily & Co., billed approximately $8,000 for the audit of our annual financial statements and review of our Form 10-K.
Tax Fees
For the fiscal year ended December 31, 2011 and 2012 Barziliy & Co. billed approximately $1,500 for the Israeli subsidiary’s tax reports reviewing and filing services. .
All Other Fees
We do not use Barzily & Co. for financial information system design and implementation. These services, which include: designing and implementing a system that aggregates source data underlying the financial statements and generates information that is significant to our financial statements, are provided internally. We do not engage Barzily & Co. to provide compliance outsourcing services. Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before Barzily & Co. is engaged by us to render any auditing or permitted non-audit related service, the engagement be: approved by our audit committee; or entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee’s responsibilities to management. The audit committee pre-approves all services provided by our independent auditors. The audit committee has considered the nature and amount of fees billed by Barzily & Co. and believes that the provision of services for activities unrelated to the audit is compatible with maintaining Barzily & Co. independence.
PART IV
Item 14.
Item 14. Exhibits and Financial Statement Schedules
(1)
Financial Statements: the response to this portion of Item 14 is submitted as a separate section of this report.
(2)
Financial Statement Schedule: None
(3)
Exhibits: Exhibits are as set forth in the section entitled “Exhibit Index” which follows the section entitled “Signatures” in this annual report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints each of Gadi Aner and Gabby Klausner such person’s true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such person and in such person’s name, place and stead, in any and all capacities, to sign any and all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that any said attorney-in-fact and agent, or any substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Asaf Porat
Chief Executive Office, Chief Financial Officer & Chairman
3.21.13
Asaf Porat
(principal executive office, principal financial officer, principal accounting officer)
/s/ Baruch Mitzengendler
3.21.13
Baruch Mitzengendler
Director
Exhibit Index
ACRO INC. (A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2012 AND 2011
INDEX
- - - - - - - - - - - - - - - - -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
ACRO Inc. (A Development Stage Company):
We have audited the accompanying consolidated balance sheets of ACRO Inc. (A Development Stage Company)
(the “Company”) and its subsidiary as of December 31, 2012 and 2011 and the related consolidated statements of comprehensive income (loss), changes in shareholders’ deficiency and cash flows for years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statements 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 consolidated financial position of the Company as of December 31, 2012 and 2011, and the consolidated results of its operations, changes in shareholders' deficiency and cash flows for the years then ended. in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a “going concern”. As discussed in Note 1b 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 1b. the financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Barzily & Co.
Jerusalem, Israel
March 21, 2013
ACRO INC. (A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
US Dollars
The accompanying notes are an integral part of the consolidated financial statements.
ACRO INC. (A Development Stage Company)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
US Dollars (except share and per share data)
*
Includes $0, $11,672 and $1,118,263 stock-based compensation for the years ended December 31, 2012, 2011 and for the cumulative period from May 22, 2002 (date of inception) to December 31, 2012, respectively.
The accompanying notes are an integral part of the consolidated financial statements.
ACRO INC. (A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
US Dollars (except shares data)
(*) See Note 6c.
The accompanying notes are an integral part of the consolidated financial statements.
ACRO INC. (A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
US Dollars
The accompanying notes are an integral part of the consolidated financial statements.
ACRO INC. (A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars
NOTE 1:- GENERAL
a. General
ACRO Inc. (A Development Stage 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. ACRO Inc. 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, ACRO Inc. ceased to engage in oil and gas consulting and engaged in development of products for the detection of military and commercial explosives for the homeland security market.
Hereinafter, ACRO Inc. and its wholly owned subsidiary in Israel will be referred to as "the Company."
Since its inception, the Company had no significant revenues and in accordance with ASC 915 codified from Statement of Financial Accounting Standard (“SFAS”) No. 7 “Accounting and Reporting by Development Stage Enterprises”, the Company is considered a development stage company.
b. Going concern
The accompanying financial statements have been prepared assuming the Company will continue as a “going concern”. 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 with regard to these matters include financing from a major shareholder Top Alpha Capital S.M. Ltd. (“Top Alpha”). 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.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("US GAAP").
a. Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions management is required to make. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary. It is at least reasonably possible that management’s estimates could change in the near term with respect to these matters.
b. Financial Statements in U.S. dollars
As the majority of the Company's financing is received in U.S. dollars. Accordingly, the Company has determined the U.S. dollar as the currency of its primary economic environment and thus, its functional and reporting currency. Non-dollar transactions and balances have been remeasured into US dollars. All transaction gains and losses from the re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of operations as financial income or expenses, as appropriate.
ACRO INC. (A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)
c. Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned Israeli subsidiary, Acrosec Ltd. (“Acrosec”) All material intercompany transactions and balances have been eliminated in consolidation.
d. Property and equipment
Property and equipment are stated at cost net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, at the following annual rates:
e. Impairment of long-lived assets
The Company's long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets 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 assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. As of December 31, 2012, management believes that all of the Company’s long-lived assets are recoverable.
f. Research and Development costs
Research and Development costs are charged to the statement of operations as incurred.
g. Convertible debt with beneficial conversion feature
The Company accounts for convertible debt with beneficial conversion feature in accordance with ASC 470-20 which requires the Company to recognize separately, at issuance, the embedded beneficial conversion feature in additional paid-in capital. The recognition is done by allocating a portion of the proceeds equal to the intrinsic value of that feature in additional paid-in capital. The intrinsic value is calculated as the difference between the effective conversion price of the convertible debt and the fair value of the shares at issuance date.
ACRO INC. (A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)
h. Exchange Rates
Exchange differences are charged or credited to operations as incurred.
Exchange rates:
i. Income taxes
The Company accounts for income taxes by the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary to reduce the amount of deferred tax assets to their estimated realizable value.
j. Basic and Diluted Net Income (Loss) per Share
Basic net income (loss) per share is computed based on the weighted average number of common shares outstanding during each year. Diluted income (loss) per share is computed based on the weighted average number of common shares outstanding during each year, plus dilutive potential common shares considered outstanding during the year.
k. Implementation of the new accounting standards
The Company accounts for comprehensive income in accordance with ASC 220, "Comprehensive Income". This statement establishes standards for the reporting and display of comprehensive income and its components. Comprehensive income generally represents all changes in shareholders' equity during the period except those resulting from investments by, or distributions to, shareholders.
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which is effective for annual reporting periods beginning after December 15, 2011. Accordingly, the Company adopted ASU 2011-05 on January 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. Upon adoption of the new guidance, the Company elected to present a separate statement of consolidated comprehensive income.
ACRO INC. (A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars
NOTE 3:- PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
Depreciation expense for the year ended December 31, 2012 and 2011 and for the cumulative period from May 22, 2002 (date of inception) to December 31, 2012, was $1,391, $10,,492 and $142,951, respectively.
NOTE 4:- CONVERTIBLE PROMISSORY NOTES AND OTHER
a.
On February 22, 2009, the Company received an interest free loan in the amount of $93,273 in the form of a convertible promissory note with BioTech Knowledge LLC, convertible to up to 11,659,250 shares of the Company's common stock, at a price of $0.008 per share, within 12 months from the closing date, with each share of common stock such converted awarding a warrant to purchase one share of the Company’s common stock at the price per share of $0.016 exercisable within three years. During the years 2009, 2010 and 2011, the Company received from Bio Tech Knowledge LLC additional interest free loans, with the same terms, in an aggregate amount of $92,500. The loans were convertible to up to 11,562,500 shares of the Company's common stock, at a price of $0.008 per share, within 12 months from the date of the grant, with each share of common stock such converted awarding a warrant to purchase one share of the Company’s common stock at the price per share of $0.016 exercisable within three years.
Consistent with provisions of ASC 470-20, the Company evaluated whether the notes contain a beneficial conversion feature ("BCF") and determined that in most cases the BCF amount exceeded the amount of notes, and as a result the notes initially recorded at nil and are to be amortized over the term of notes, which is one year (although as discussed below repayment or conversion did not occur during the one year period which has expired).
On July 5, 2011 in the framework of the purchase agreement, the convertible notes were converted into shares of the Company and all options expired. See Note 6a.
ACRO INC. (A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 4:- CONVERTIBLE PROMISSORY NOTES AND OTHER (cont.)
b.
On April 1, 2010, the Company received a loan from Lindon Group Inc., Rhode Island Corporation (which is a related party of one of the Company's former major customers) in the amount of $35,000, bearing a yearly interest of 6%, in the form of a promissory note. This loan was forgiven by Lindon group on March 8, 2011, along with terminating its distribution agreement with the Company.
c.
On June 30, 2012 the Company signed a loan agreement in the amount of $ 62,255 (later increased $71,274), in the form of a convertible promissory note, with Top Alpha. This note shall accrue interest at the rate of 6% per annum, the interest shall be payable semi-annually on December 31 and June 30. The above amount should be paid on or before December 31, 2013. This note is convertible up to 4,309,633 shares of the Company's common stock, at a price $0.0165383 per share.
In respect of In respect of the loan value of benefit component in the amount of $14,857 was charged to capital reserve.
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NOTE 5:- 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 from the device 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 6:- SHAREHOLDERS' DEFICIENCY
a.
On July 5, 2011 the Company entered into a share purchase agreement (the "Agreement") with Top Alpha for the issue of 96,613,788 shares of common stock, representing 49.9% of the Company outstanding shares capital, for the total consideration of $160,000 ("Transaction"). The purchase price was funded by available funds. As a result of this transaction, balances in the amount of $ 264,000 were deducted from the results of the operations for the year in regard to waiver of debt.
Pursuant to the Agreement, with closing of the transaction convertible notes held by Bio Tech Knowledge LLC in the aggregate amount of approximately $186,000 were converted into 23,221,750 shares of the Company as common stock. In addition, at the closing all outstanding warrants and options to purchase Company shares were cancelled. See also Note 4a.
ACRO INC. (A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 6:- SHAREHOLDERS' DEFICIENCY (cont.)
Pursuant to the Agreement, as long as Mr. Aner and Mr. Bronfeld will hold any of the Company shares they hold as of the closing, they shall have the right to veto any transaction with Top Alpha, e.g, the issuance of shares or compensation to Top Alpha. This veto right shall terminate upon any of the following events: (a) a merger between the Company and another entity; (b) an asset acquisition by the Company; (c) The Company’s purchase of shares of another entity, or (d) acquisition by a third party of a controlling interest in the Company. In any case, such veto right shall not apply to issue of additional shares to Top Alpha in the event the Company shall have outstanding debts on the closing of the transaction. In such event, the Company shall issue Top Alpha shares based on a company valuation of $160,000 proportionate to outstanding debt.
Following the closing of the transaction and until six months thereafter, Top Alpha supplied office services, management, consulting and investment banking services to the Company at no cost.
As a result of this transaction Top Alpha owns 49.9% of the Company's common stock.
Pursuant to the share purchase agreement between the Company and Top Alpha Capital, on July 28, 2011, Gadi Aner and Dan Einathan resigned as directors of the Company, and Asaf Porat and Boris Mitsengendler were appointed as directors until the next annual shareholders meeting. In addition, Gabby Klausner resigned as Chief Financial Officer and treasurer, and Gadi Aner resigned as President and Chief Executive Officer, and Asaf Porat was appointed Chief Executive Officer and President, and Chief Financial Officer.
b.
On April 14, 2011 a loan agreement was signed with Oren Fuerst and Noam Yellin (the lenders), according to which the company was entitled to receive a loan of an aggregated amount of $53,000 ($26,500 from each), in a form of convertible promissory note. As of May 23, 2011 the company received only $19,000. The lenders decided to withdraw from the agreement and not to lend the balance to the company. Therefore the company board of directors decided to cancel the agreement with the lenders. On July 26, 2011, as part of the share acquisition agreement signed by the Company, 4,828 thousand shares were issued to Noam Yellin in consideration of waiver of the loan in the amount of $ 19,000.
c.
On January, 2012, the Company executed a one-for-ten reverse split of all ordinary shares. Following the reverse split, the number of outstanding ordinary shares decreased from 193,487,806 to 19,349,000 and the par value per ordinary share increased from $ 0.001 to $ 0.01. All fractional shares resulting from the reverse split, that are one-half share or more, were increased to the next higher whole number of shares and all fractional shares that are less than one-half share, were decreased to the next lower whole number of shares.
ACRO INC. (A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 7:- INCOME TAXES
a. Tax rates
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.
Corporate tax structure:
Taxable income of Israeli companies is subject to tax at the rate of 24% in 2011 and 25% in 2012 and thereafter.
In the USA, Acro Inc. is subject to a 15%-35% corporate tax rate.
Gain (Loss) from continuing operations, before income taxes, consists of the following:
b. Deferred Tax
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, 2012 and 2011 was an increase of $128,494 and a decrease of $1,424 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 reducible. 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, 2012, the Company has net operating loss carry forwards for federal income tax purposes of approximately $4.4 million, 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.
ACRO INC. (A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 7:- INCOME TAXES (cont.)
c. Reconciliation of Income Tax Benefit (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:
d. Accounting for Uncertainty in Income Taxes
As of January 1, 2012 and for the 12 months ended December 31, 2012, 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 on 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.
e. Agreement to a subsidiary tax assessment
On January 29 , 2013 Acrosec reached an agreement with the tax authorities in Israel. According to the agreement, the accumulated loss declared in 2011, in the amount of 2.2 million NIS was erased.
NOTE 8:- RELATED PARTIES
a.
Starting October 2008, the Company's CEO and chairman of the board of directors agreed that the company may defer payment of his monthly fee until further notice.
During the years ended December 31, 2012 and 2011, the Company incurred an expense of $0 and $31,680, respectively, for consulting services provided by the Company's CEO and chairman of the board directors.
ACRO INC. (A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 8:- RELATED PARTIES (cont.)
b.
On April 1, 2012, the Company approved a contract with the Company CEO, President and CFO, at an annual salary of $ 70,000. The term of employment shall be two years. This employment agreement is effective as of February 1, 2012.
During the year ended December 31, 2012, the Company incurred an expense of $64,167, for salary for the CEO, President and CFO of the Company.
c.
On December 18, 2012, the Company entered into a consulting agreement with Top Alpha, pursuant to which Top Alpha shall provide consulting services to the Company for six months. According to this agreement, Top Alpha shall receive a monthly fee equal to 8.5% of the Company outstanding common stock per month as compensation for its services. The agreement terminates on June 17, 2013.
NOTE 9:- SUBSEQUENT EVENTS
In January 29, 2013 Acrosec reached an agreement with the tax authorities in Israel. See also Note 7e.