UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q10-Q/A

(Amendment No. 1)

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

For the quarterly period ended September 30, 2017March 31, 2018

or

[  ]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: 000-15476000-15746

Emerald Medical Applications CorpVIRTUAL CRYPTO TECHNOLOGIES, INC.

(Exact Name Of Registrant As Specified In Its Charter)

Registrant’s Telephone Number, Including Area Code: +(972) 3-744-4505+972 3-600-3375

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. Yes [X] No [  ]

Indicate by check mark whether the registrant is a shell company (as defined inhas submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 12b-2405 of Regulation S-T (§232.405 of this chapter) during the Exchange Act)preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act) or a smaller reporting company.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

On December 27, 2017,May 21, 2018, the Registrantregistrant had 22,544,26063,722,843 shares of common stock issued and outstanding.

VIRTUAL CRYPTO TECHNOLOGIES, INC.

Explanatory Note

This Amendment No. 1 (this “Amendment No. 1”) to the Quarterly Report on Form 10-Q of Virtual Crypto Technologies, Inc. (the “Company”) for the quarter ended March 31, 2018, as filed by the Company with the Securities and Exchange Commission (the “SEC”) on May 21, 2018 (the “Form 10-Q”), is being filed solely to include as Exhibit 101 the XBRL Interactive Data File exhibits required by Item 6 of the Form 10-Q. No other information contained in the Form 10-Q is being amended. This Amendment No. 1 speaks as of the original filing date of the Form 10-Q, does not reflect any events occurring after the filing of the Form 10-Q and does not modify or update in any way disclosures made in the Form 10-Q. This Amendment No. 1 includes currently-dated certifications of the Company’s Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTSBack to Table of Contents

Virtual Crypto Technologies, Inc.

(Formerly Emerald Medical Applications Corp.Corp)

Balance Sheets

As

(*) Includes $82.331 payable to a related party.

The accompanying notes are an integral part of September 30,these interim financial statements.

Virtual Crypto Technologies, Inc.

(Formerly Emerald Medical Applications Corp)

Statements of Comprehensive Loss

For the Three Months ended March 31, 2018 and 2017

(Unaudited)

The accompanying notes are an integral part of these interim financial statements.

Virtual Crypto Technologies, Inc.

(Formerly Emerald Medical Applications Corp)

Statement of Changes in Stockholders’ Equity (Deficit)

For the Three Months Ended March 31, 2018 and the Year Ended December 31, 20162017

Back to Table of Contents(Unaudited)

The accompanying notes are an integral part of these interim financial statements.

(*) less than $1Virtual Crypto Technologies Inc (Formerly Emerald Medical Applications Corp)

Statements of Cash Flows

(**) Restated – see Note 8.For the Three Months Ended March 31, 2018 and 2017

(Unaudited)

The accompanying notes are an integral part of these financial statements.

Virtual Crypto Technologies, Inc.

(Formerly Emerald Medical Applications Corp.Corp)

Statements of Operations

For the Three Months Ended March 31, 2018 and Nine Months ended September 30, 2017 and 2016

(Unaudited)

Back to Table of Contents

(*) Restated – see Note 8.

The accompanying notes are an integral part of these financial statements.

Emerald Medical Applications Corp.

Statements Stockholders’ Deficit

For the Nine Months Ended September 30, 2017

(Unaudited)

BackNotes to Table of Contents

Emerald Medical Applications Corp.Financial Statements

Statements of Cash Flows(Unaudited)

For the Nine Months Ended September 30, 2017 and 2016

(Unaudited)

Back to Table of Contents

(*) Restated – see note 8. 

Emerald Medical Applications Corp.

Notes to Unaudited Interim Financial Statements

September 30, 2017

Back to Table of Contents

Note 1. The Company and Significant Accounting Policies.

Organizational Background:

Virtual Crypto Technologies, Inc. (f/k/a Emerald Medical Applications CorpCorp) (the “Company”“Company,” “Registrant,” “we,” “us” or “Registrant”“our”), was incorporated in the State of Ohio in 1989 under a predecessor name, Zaxis International Inc. (“Zaxis”). On August 25, 1995, Zaxis merged with a subsidiary of The InFerGene Company, a Delaware corporation, which entity changed its name to Zaxis“Zaxis International, Inc.” and the Company was reincorporated in Delaware as Zaxis. On December 30, 2014, Zaxis entered into a Memorandum of Understanding with Emerald Medical Applications Ltd., which was then a private limited liability company incorporated under the laws of the State of Israel (“Emerald Israel” or “Emerald”). On March 16, 2015, Zaxis and Emerald Israel executed the Share Exchange Agreement, which closed on July 14, 2015.2015 (the “Share Exchange Agreement”), and the Company continued the operations of Emerald Israel as it sole operating activities under its then current name “Zaxis International, Inc.” During the fourth quarter of 2015, in connection with such share exchange, the Company changed its name to “Emerald Medical Applications Corp.” The Share Exchange Agreement was accounted for as a reverse recapitalization. As a result, the historical financial statements of the Registrant were replaced with the historical financial statements of Emerald Israel.

The Company and its subsidiary, Emerald, are collectively referred to as the “Company”.New Business Developments

Emerald,On January 17, 2018, the Company formed a wholly-ownednew wholly owned subsidiary of the Registrant effective July 14, 2015, was organized as a privately-owned company under the laws of the State of Israel, on February 17, 2010. Emerald is a mobile digital-health startup company engaged in the development, sale and service of imaging solutions utilizing its proprietary DermaCompare software that it developed for use in derma imaging and analytics (“DermaCompare”). Emerald believes that its proprietary DermaCompare software represents an advancement in skin cancer screening that should enable physicians to more readily identify and monitor changes in their patients’ skin characteristics.

Emerald’s DermaCompare solution allows dermatologists and other medical care professionals, using a set of 25 total body photography (“TBP”Virtual Crypto Technologies Ltd. (the “Subsidiary”), to capture setsdevelop and market software and hardware products facilitating, allowing and supporting purchase and/or sale of skin lesion images with, among other devices, digital cameras, camera-equipped smart phones cryptocurrencies through ATMs, tablets, personal computers (“PCs”) and/or tablets. These TBP images are then transmitted online and are remotely analyzed by professionals using our DermaCompare software.

Beginning in July 2017, the Company commenced a process of outsourcing the development and maintenance of our patented DermaCompare imaging solution to a major Israeli software company, which company has been involved in the continued development of our technology. The purpose for this outsourcing was to conserve the Company’s capital resources. Certain key external consultants and medical professionals continue to assist and serve the Company as we advance the implementation of our marketing plan. As of September 30, 2017, and the date of this report, the Company has no employees on its payroll. However, certain liabilities with respect to payroll and severance payments remain outstanding.mobile devices.

Going ConcernCessation of Former Operations

Until we are ableOn January 29, 2018, the Company ceased the DermaCompare operations of its former subsidiary, Emerald Israel, and on May 2, 2018, the District Court of Lod gave a winding-up order for Emerald Israel and nominated an Israeli advocate as a special executor to raise additional funds to continue to finance our operations and to sell licenses for our DermaCompare imaging software, our sales and marketing plan has been effectively been delayed. We continue to devote efforts to sell licenses for our DermaCompare imaging software to, among others, NHSs, HMOs, health insurance companies, hospitals and medical clinics through distributers, health care channel partners or directly through independent salespersons and/or web purchase to dermatologists and other physicians (GPs) (collectively,Emerald Israel. To the “Licensees”). We believeextent that these licensesthe liquidation procedure yields proceeds in excess of Emerald Israel’s current obligations, the first $250,000 will be purchaseddistributed to the previous shareholders of the Company’s preferred stock (see Note 3) and any excess thereafter, to the Company. However, based on the number of potential numbers of patients the respective LicenseesCompany’s current best estimate, it is not anticipated that such excess proceeds will serve.be achieved. See Note 6. Discontinued Operations.

The Registrant is currently in late-stage negotiations with several potential private investors to invest additional equity capital in the Company to fund the Company’s ongoing operations and sales and marketing plan as well as to pay the negotiated liabilities owed to Emerald Israel’s ex-employees (see note 6)Going Concern:

The Company has incurred significant operating losses and negative cash flows from operating activities in relation to its DermaCompare operations, since incorporation. The Company raised approximately $1.9 million in the first quarter of 2018, however, it will be required to obtain additional liquidity resources in order to support the commercialization of its productsnew operations and maintain its research and development activities. The Company is addressing its liquidity needs by seeking additional funding from public and/or private sources. There are no assurances, however, that the Company will be able to obtain an adequate level of financial resources that are required for the short and long-term requirements.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Basis of Presentation and significantSignificant Accounting Policies:

The accompanying unaudited consolidated financial statements include the accounts of the Company or in the first person notations “we,” “us” and “our”) and its wholly owned subsidiary, the Subsidiary, prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q. The financial statements presented herein have not been audited by an independent registered public accounting firm but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations and cash flows for the period. However, these results are not necessarily indicative of results for any other interim period or for the full fiscal year. The preparation of financial statements in conformity with generally accepted accounting principlesGAAP requires us to make certain estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses. Actual amounts could differ from these estimates.

Certain information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the Securities and Exchange Commission (“SEC”). The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2017, filed with reference to Note 8 in these financial statements in relation to items restated in the Company's December 31, 2016 financial statements.SEC on April 17, 2018 (the “Annual Report”).

Recent Accounting Pronouncements

The Company assesses the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on its financial statements. Following are newly issued standards or material updates to the Company’s previous assessments from its Annual Report on Form 10-K for the fiscal year ended December 31, 2016:Report:

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued a new standard to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under U.S. generally accepted accounting principles.GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of the promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard is effective with respect to the Company beginning in the first quarter of 2018; early adoption is prohibited. The new standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. As the Company has not incurred revenues to date, it is unable to determine the expected impactdoes not expect the new standard willto have a material impact on its consolidated financial statements.

In February 2016, the FASB issued a new lease accounting standard requiring the recognition of lease assets and liabilities on the balance sheet. This standard is effective beginning in the first quarter of 2019; early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements. As the Company currently is not a party to any leasing arrangement, it does not expect the new standard to have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments.” With respect to assets measured at amortized cost, such as held-to-maturity assets, the update requires presentation of the amortized cost net of a credit loss allowance. The update eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments. The credit loss estimate can now reflect an entity’s current estimate of all future expected credit losses as opposed to the previous standard, when an entity only considered past events and current conditions. With respect to available for sale debt securities, the update requires that credit losses be presented as an allowance rather than as a write-down. The update is effective beginning in the first quarter of 2020; early adoption is permitted. TheAs the Company does not expecthas insignificant receivable balances, the adoption of this standard to have a material impact on its consolidated financial statements.

In May 2017, the FASB issued “ASU No. 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting,” which clarifies when a change to terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the vesting condition, fair value or the award classification is not the same both before and after a change to the terms and conditions of the award. The new guidance is effective on a prospective basis beginning on January 1, 2018 and early adoption is permitted. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, which includes Part I “Accounting for Certain Financial Instruments with Down Round Features” and Part II “Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-Controlling Interests With a Scope Exception”. The ASU makes limited changes to the Board’s guidance on classifying certain financial instruments as either liabilities or equity. The ASU’s objective is to improve (1) the accounting for instruments with “down-round” provisions and (2) the readability of the guidance in ASC 480 on distinguishing liabilities from equity by replacing the indefinite deferral of certain pending content with scope exceptions. This standard is effective beginning in the first quarter of 2019; early adoption is permitted. The Company early adopted the standard, retrospectively, for each prior period presented in thesethe financial statements.statements included elsewhere herein.

Note 2. Deferred Revenues.

On January 24, 2018, the Company’s subsidiary, entered into a binding term sheet (the “Chiron Term Sheet”) with Chiron Refineries Ltd. (“Chiron”), a public company listed on the Tel-Aviv Stock Exchange (TASE: CHR). Pursuant to the Chiron Term Sheet, (i) Virtual Crypto Israel shall appoint a wholly-owned subsidiary of Chiron, under the laws of the Turkish Republic of Northern Cyprus, as the exclusive distributor of Virtual Crypto Israel’s Products in the territory of the Republic of Turkey, including the territory of Turkish Republic of Northern Cyprus (the “Territory”); and (ii) such distributor shall have the right to appoint sub-distributors within the Territory. The appointment of the Chiron subsidiary as distributor is subject to the payment by the distributor of $250,000 to the Company as an appointment fee, of which $150,000 shall be deemed an advance payment by the distributor made on account of future purchases of our Products.

During the three months ended March 31, 2018, the Company received $50,000 on account of the appointment fee, which has been recorded as deferred revenues on our balance sheets.

Note 3. Notes Payable.

Notes payable and accrued interest as of March 31, 2018 and December 31, 2017 are as follows:

Issuances of convertibles notes during the first quarter of 2018

From January 16,2018 through January 23, 2018, the Company received from certain third parties an aggregate amount of $100,000 as consideration for the Company’s issuance of convertible promissory notes in the aggregate principal amount of $100,000 (the “Notes”) (i) bearing interest at the rate of 1% per annum; (ii) with a conversion price of $0.01 per share of common stock; and (iii) repayable through to January 15, 2019. The beneficial conversion feature was valued at $100,000, which resulted in a $100,000 discount recorded as a reduction of debt and an increase to additional paid in capital in the Statement of Shareholders’ Equity (Deficit). The discount is amortized to finance expenses in the Statement of Comprehensive Loss over the term of the Notes. On January 23, 2018, $3,000 of the Notes was converted at $0.01 per share into 300,000 shares, based upon the Notes conversion price of $0.01 per share of common stock.

Transfer and change of ownership of convertible notes during the first quarter of 2018

On January 24, 2018, Alpha Anstalt Capital (“Alpha”), Chi Squared Capital (“Chi”), Firstfire Global Opportunities Fund LTC, Goldmed Ltd, Ilan Malca and Maz Partners (together the “Sellers”) sold their convertible notes totaling $956,209 (the “January 2018 Convertible Notes”) to certain new third-party investors (“New Investors”). On the same day, the Company and the New Investors agreed to(i) amend the conversion price of the January 2018 Convertible Notes from $0.014 to $0.01 (ii) to cancel the Class A warrants and Class B warrants issued together with the January 2018 Convertible Notes (the “Cancelled Warrants”) (see Note 4. Stockholders’ Equity. for accounting treatment of the Cancelled Warrants), (iii) to amend the interest rate from 8% to 1% per annum under the January 2018 Convertible Notes; (iv) to extend the repayment date to January 23, 2019, and (iv) to cancel the option granted to Alpha and Chi in July 2016 (“Alpha Chi Option”).

The change in terms of the January 2018 Convertible Notes, including the cancellation of the warrants was accounted for as an extinguishment of the convertible notes and the issuance of new convertible notes. The Company recorded a finance expense in the amount of 18,415,471in the Statement of Comprehensive Loss and an increase to Additional Paid-in Capital in the Statement of Shareholder’ Equity (Deficit) of $21.6 million as a result of the transaction.

The Company further concluded that the post amended convertible notes contain a beneficial conversion feature equal to the par value of the January 2018 Convertible Notes ($956,209) and accordingly recorded a discount on the January 2018 Convertible Notes, to be amortized to finance expense in the Statement of Comprehensive Loss over the term of the January 2018 Convertible Notes.

The Company accounted for the Alpha Chi Option as derivative liabilities that are measured at their far value at each period end, with changes in fair value recorded as finance expense or income. The fair value of the Alpha Chi Option at December 31, 2017 was nil, and at the date of cancellation was $2,186,629. The Company recorded a finance loss of $2,186,629 during the period from December 31, 2017 through the extinguishment date of the Alpha Chi Option as a result of the change in the fair value of the derivative liability.

On January 24, 2018, $73,000 of the January 2018 Convertible Notes were converted at a conversion price of $0.01 per share into 7,300,000 shares of the Company’s common stock and on March 19, 2018, a further $9,218 of the January 2018 Convertible Loans were converted at a conversion price of $0.01 per shares into 921,800 shares of the Company’s common stock.

Non-convertible note

On July 8, 2014, the Company issued a convertible note to Axel Springer Plug & Play Accelerator GmbH in the amount of $29,719. Accrued interest as of March 31, 2018 and December 31, 2017 amounted to $3,316. In terms of the original agreement, as of March 31, 2018 and December 31, 2017, the convertible note is no longer convertible.

Note 2.4. Stockholders’ Equity.

Shares of the Company’s common stock confer upon their holders the right to receive notice to participate and vote in general meetings of shareholders of the Company, the right to receive dividends, if declared, and the right to receive a distribution of any surplus of assets upon liquidation of the Company.

Shares of the Company’s preferred stock confer upon their holders the right to receive dividends when paid to holders of common stock of the Company on an as-converted basis, and the right to receive a distribution of any surplus of assets upon liquidation of the Company before any distribution or payment shall be made to the holders of any common stock.

Recent

Changes in Shares of Preferred Stock During the First Quarter of 2018

On January 4, 2018, the Company, Emerald Israel, Alpha Capital Ansalt (“Alpha”) and Chi Squared Inc. (“Chi,” and Alpha and Chi together, the “Preferred Shareholders”), entered into an agreement pursuant to which the Preferred Shareholders agreed to cancel their shares of Series A Preferred Convertible Stock in return for the receipt of up to $250,000 of proceeds from the liquidation of Emerald Israel, to the extent that such liquidation yields net positive proceeds (“Excess Net Assets”). As such, as of March 31, 2018, there were no shares of Series A Preferred Convertible Stock outstanding. Management’s best estimate of the potential value of the Excess Net Assets at the date of the cancellation of the shares of Series A Preferred Convertible Stock was $150,000 and therefore, the Company recorded a charge to Additional Paid-in Capital in the Statement of Changes in Shareholders’ Equity (Deficit) with a corresponding credit to liabilities. Management’s best estimate of the potential value of the Excess Net Assets as of March 31, 2018, was nil. Accordingly, the Company recorded a finance income of $150,000 in its Statement of Comprehensive Loss a result of the reversal of the relating liability.

Issuances of Shares of Common Stock During the First Quarter of 2018

On February 24, 2017, Publicis Groupe 90 (“Publicis 90”) invested 500,000 Euros or approximately U$526,000 andDuring the Registrant accepted a Reg S Subscription Agreementfirst quarter of 2018, the Company received the aggregate amount of $1,673,800 from Publicis 90“accredited investors” in consideration for the issuance to Publicis 90 of 1,315,563 restricted shares23,876,427 units (the “Units”) at an offering price of $0.07 per Unit, with each Unit consisting of: (i) one share of the Registrant’sCompany’s common stock (the “Shares”); (ii) one common stock purchase warrant exercisable for a period of twelve months to purchase one additional Share at a subscriptionan exercise price of $0.40$0.14per share (“Class F Warrant”); and (iii) one (1) common stock purchase warrant exercisable for a period of twelve months to purchase one additional Share at an exercise price of $0.28 per share.share (“Class G Warrant”) (the “$0.07 Unit Offering”). The issuance was made in reliance uponoffer and sale of the exemptions provided in Section 4(2) ofUnits, without registration under the Securities Act of 1933, as amended (the “Act”), was made in reliance upon the exemption provided by Section 4(2) of the Act and/or Regulation S and Regulation SD promulgated by the SECthereunder.

In addition, during March 2018, an additional $117,150 was received from other “accredited investors” under the Act.$0.07 Unit Offering, who subscribed for 571,429 Units, which were issued in April 2018 and are reflected as Receipt on Account of Shares in the Statement of Changes in Stockholders’ Equity as of March 31, 2018.

On April 25,February 8, 2018, the Company issued 571,429 units to two accredited investors in respect of $80,000 which was received in August 2017 a holder(the “August 2017 Financing”). Each Unit comprised (i) one share of a convertible note in the principal amountCompany’s common stock; (ii) one Class A warrant exercisable into one shares of $100,000 converted $10,400 into 74,572, shares based on an adjusted conversionthe Company’s common stock at a price of $0.14. The conversion price was adjusted on March 22, 2017 pursuant to$0.14 per share within 12 months for the provisionsissuance date; and (iii) one Class B warrant exercisable into one share of the 2016 Secured Convertible Note Agreement.Company’s common stock at a price of $0.14 per share within 24 months for the issuance date.

On JuneMarch 12, 2017,2018, the Company issued a total of 3,629,999 restricted shares of its common stock to certain warrant holders holding 1,100,000 Class A Warrantsconsultants in connection with services rendered during the first quarter of 2018, which shares were valued at $901,902, based on the closing share price on the day prior to each of the issuances. The above-mentioned amount was recorded as a charge to the Company’s Statement of Comprehensive Loss, with a corresponding credit to Additional Paid in Capital in the Company’s Statement of Changes in Stockholders’ Equity.

On March 20, 2018, the Company issued a total of 62,500 restricted shares of its common stock in consideration for the exercise of a stock option at an exercise price of $0.01 per share, which options were granted in connection with services rendered in October 2016. The Company recorded the proceeds on the exercise of the stock option in Additional Paid-in Capital in its Statement of Comprehensive Equity (Deficit).

As described in Note 3. Notes Payable, the Company issued a total of 8,521,800 shares of its common stock in respect of the conversion of $3,000 of the Notes and 1,100,000 Class B Warrants, elected to exercise certain warrants on a cashless basis. In accordance with$73,000 and $9,218 of the 2016 SecuredJanuary 2018 Convertible Notes.

Warrants

As described in Note Agreement the3. Notes Payable, 6,334,626 Class A warrants and 5,400,478 Class B warrants were increasedcancelled during the first quarter of 2018 (“Cancelled Warrants”), in connection with the change in terms of the convertible notes.

As described above in this Note 4. Stockholders’ Equity, the Company issued 23,867,427 Class F and 23,867,427, Class G warrants in respect of the $0.07 Unit Offering.

On January 26, 2018, the Company signed a consulting agreement with Maz Partners, pursuant to 5,665,626 each, based onwhich they are to provide investment and corporate finance advice to the Company in consideration for 200,000 Class H warrants. Each Class H warrant is exercisable into one share of the Company’s common stock at an adjusted shareexercise price of $0.14 per share and 3,451,490the warrants expire on January 2020. The period of the agreement is two years the effective date. The fair value of the Class H Warrants at the issuance date was $43,829 and was charged to General and administration expenses in the Statement of Comprehensive Loss with a corresponding credit to Additional Paid-in Capital in the Statement of Changes in Stockholders’ Equity (Deficit).

As described above in this Note 4. Stockholders’ Equity, on February 8, 2018, the Company issued 571,429 Class B warrants and 571,429 Class B warrants in respect of the August 2017 Financing.

The following table summarizes information of outstanding warrants issued to investors and consultants in exchange for their services as of March 31, 2018:

(1) During 2015, a total of 2,700,000 Class E Warrants were convertedissued by the Company to 1,096,395 sharesLior Wayn pursuant to the terms of the Share Exchange Agreement and were exercisable in three equal tranches of 900,000 Shares each (the “Tranches”) at $0.14 per share. Thean exercise price of $0.0001 per share of the Company’s common stock, subject to and amountwithin 45 days of shares issued were adjusted on March 22, 2017.

On June 12, 2017, the Company completedachieving the issuance of 125,000milestones defined in the Share Exchange Agreement. On December 16, 2016, the Company terminated Lior Wayn’s employment agreements with the Company and Emerald Israel, and removed him as an executive officer and director. During 2017, Mr. Wayn transferred, sold and assigned his 5,212,878 shares of the Company’s common stock and 900,000 Class E Warrants that were fully-vested to Alpha Anstalt Capital (“Alpha”) pursuant toan entity controlled by Mr. Alimi Ahmed, then a member of the Company’s agreement with Alpha inBoard of Directors. Effective as of December 31, 2016, the prior year.remaining 1,800,000 Class E Warrants that had been issued to Mr. Wayn were canceled.

In July and August 2017, the Company received a total of $80,000 from two accredited investors, for which the Company will issue a total of 571,429 restricted shares of its common stock (the “Shares”) at a price of $0.14 per Share, representing total proceeds to the Registrant of $80,000.

A summary of the Company’s activity related to issuances of options to the Company’s employees, executives, directors and directorsconsultants and related information is as follows:

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the fair market value of the Company’s shares of common sharesstock on September 30,March 31, 2018 and December 31, 2017, respectively, and the exercise price, multiplied by the number of in-the-money stock options on those dates) that would have been received by the stock option holders had all stock option holders exercised their stock options on those dates.

The stock options outstanding as of September 30,March 31, 2018, and December 31, 2017, have been separated into exercise prices, as follows:

(*) Less than $0.01.

Compensation expense recorded by the Company in respect of its stock-based employee compensation awards in accordance with ASC 718-10 for the three month period ended March 31, 2018 and nine month periods ended September 30, 2017 were $13,845was nil and $72,495, respectively (three and nine month periods ended September 30, 2016 – 371,515 and $2,766,823, respectively).$58,650, respectively.

Note 3. Convertible Notes

Effective August 7, 2017, the Company entered into the settlement agreement with Alpha Anstalt Capital and Chi Squared Capital Inc. as a result of the fact that Alpha and Chi Squared had taken the position that certain defaults may have occurred as a result of actions and/or inactions by the Company with respect to the Company’s obligations under convertible notes (the “Notes”) issued during 2016, which the Company did not deem to be defaults (the “Settlement Agreement”).

Pursuant to the Settlement Agreement, the Notes, which had originally provided for a maturity date of June 19, 2017 and were in the original principal amounts of $400,000 and $40,000, respectively, were extended until June 19, 2019, in consideration for which the Company agreed to an increase in the principal amounts to $551,600 and $55,160, respectively, both of which retain the adjusted conversion price of $0.14, calculated in accordance with the terms of the original Notes. Such conversion price is subject adjustments in the event of future financing at a price of less than $0.14 per share. As a further part of the settlement, the Company agreed to issue Alpha and Chi Squared a total of 528.82 newly authorized shares of Series A Convertible Preferred Stock having a stated value and liquidation preference of $1,000 per share, and are convertible into a total of 3,778,647 shares based upon a conversion price of $0.14 per share, subject to adjustment in the event of a future financing such that the amount of ordinary shares to be issued pursuant to conversion of Series A Convertible Preferred Stock will represent the value of $1,000, per 1 Series A Convertible Preferred Stock, based on a conversion price which is identical to the ordinary share price at which securities are offered in such future financing. The Series A Convertible Preferred Stock shall be entitled to receive dividends on the same basis as Ordinary Shares and shall have no voting rights.

As part of the Settlement Agreement, the Company extended an option, granted in July 2016 to Alpha and Chi Squared (“Option”) to purchase Notes for an aggregate of up to $385,000 (up to $350,000 for Alpha Capital Anstalt and up to $35,000 for Chi Squared Capital Inc.) (“Option Notes”) and Warrants (“Option Warrants”) substantially identical to the Notes and Warrants issued pursuant to Settlement Agreement. The Option is exercisable through to July 15, 2018.

The settlement was accounted for as extinguishment of the pre-settlement notes and re issuance of the Notes and Series A Convertible Preferred Stock. As a result of the Settlement Agreement, the Company recorded a charge to general and administrative expenses in the Statement of Operation Losses of $440,684 representing the penalties and liquidation damages portion of the above-mentioned provision, and $219,276 was charged to finance expenses in the Statement of Operating Losses. The Series A Convertible Preferred Stock were recorded in shareholders’ equity at their fair value at the effective date of the settlement. As the Company concluded the conversion feature embedded in the amended notes is not a beneficial conversion feature pursuant to the provisions of ASC 470-20 (“Debt with Conversion and Other Options”), the post amendment carrying amount of the convertible notes, which was based on the fair value of the convertible notes at the effective date of the settlement, was recorded in liabilities in its entirely.

Other the aforementioned notes, all notes with a total principle amount of $195,000 fell due during the nine months ended September 30, 2017. The Company is currently in discussions to extend these notes and believe that these discussions will be successful. There are no contractual penalties in relation to the notes that fell due other than the accumulation of their pre-default contractual interest.

Note 4. Derivative Liabilities.

The Company accounts for options to purchase convertible notes and warrants (refer to Note 3.) as derivative liabilities that are measured at their far value at each cut-off date, in accordance with ASC 815 (“Derivatives and Hedging”).

The Company uses directly observable inputs as well as significant unobservable inputs in the valuation of these derivative liabilities (level 3 measurements). The inputs used in the valuation are risk free interest rate, expected volatility, expect option term, expected dividend yield and Company specific discount rate.

The fair value of the derivative liabilities at September 30, 2017, as well prior to and following the effective date of the aforementioned settlement, was immaterial. The fair value of the derivative liabilities as of December 31, 2016 was $336,272. Finance expense from revaluation of the derivative liabilities included in the Company's statement of operations was $336,272 for the year ended December 31 2016 and finance income was $336,272 for the nine month period ended September 30 2017.

Note 5. Related Party Transactions.

There were noOther than transactions and balances related to cash and share based compensation to the Company’s officers and directors, the issuances of convertible debt and warrants to Alpha and as otherwise set forth herein, the Company did not have any transactions and balances with related parties and executive officers during the nine-month periodthree months ended September 30, 2017March 31, 2018 and there is $43,680 outstanding to related party in respect of costs paid on behalf of the Company as of September 30, 2017.

DuringAs a result of the nine months ended September 30, 2016,issuance of the Notes (see Note 2) and the acquisition by the New Investors of certain convertible notes (see Note 2), certain New Investors may hold convertible notes allowing them to convert the notes in excess of 5% of the Company’s issued and outstanding shares of common stock. Accordingly, such New Investors may be deemed to be related parties under Item 404(a) of Regulation S-K. In addition, certain New Investors receive fees for consulting services provided to the Company, issued 1,195,000 shares to three acting directors, for services valued at a total valuenone of $1,194,403, arrived at usingwhich were incurred during the stock price on date of grant of $1.00 per Nasdaq.com.first quarter ended March 31, 2018.

Note 6. Commitments and Contingencies.Discontinued Operations.

TheOn January 29, 2018, the Company received grantsceased the DermaCompare operations of its former subsidiary, Emerald Israel, and on May 2, 2018, the District Court of Lod gave a winding-up order for Emerald Israel and nominated an Israeli advocate as a special executor to fund research and development projects fromEmerald Israel. To the Stateextent that the liquidation procedure yield proceeds in excess of Israel according to guidelines and procedures ofEmerald Israel’s current obligations, the Innovation Authority of the Ministry of Industry and Trade. Accordingfirst $250,000 will be distributed to the agreement, the Company is obligated to pay royalties on the sale of products developed with the participation of the Chief Scientist. The royalty rate is 3.5% of sales and the total royalties will not exceed the amount of the grants received. As of September 30, 2017, and December 31, 2016, total grants received amounted approximately $222 thousands.

The obligation to pay royalties is contingent upon the successful outcomeprevious shareholders of the Company’s researchpreferred stock (see Note 3. Notes Payable) and development projects and the attainment of sales. The Company has no obligation to pay royalties, if sales are not generated, and if the research and development project fails.

In April 2017, a lawsuit was filed with the Tel Aviv court by Emerald’s former CEO and founder, claiming certain damagesany excess thereafter, to the total amount of $100,000, under the assertion of wrongful dismissal by the Company. The Company believes these claims to be unsubstantiated and wholly without merit and intends to defend itself against these claims. At this early stage of the proceeding andHowever, based on the limited informationCompany’s current best estimate, it is not anticipated that is currently available, the Company’s legal advisors are unable to estimate the outcome of the claim.

In December 2017, a liquidation request was filed with the Tel Aviv District Court by a group of former Company’s employees (“Applicants”), under the assertion of delay of pay and insolvency. On December 20, 2017, a hearing discussion took place according to which the court decision that the Company shall settle its pension debts to the Applicants within 21 days and settle its other debts to them in 60 days, otherwise a winding-up order could be given. Based on the collaboration of both parties and the fact that the Company is in negotiation with third-parties for the infusion of equity capital and has started negotiating the sale of certain assets, the Company’s legal advisors believe that the liquidation claimsuch excess proceeds will be dismissed by the court. The amounts being claimed by the Applicants are less than $96,000 and are included in current liabilities.

Note 7. Income Taxes.

The Company is subject to income taxes under the Israeli and U.S. tax laws:

Corporate tax rates

The Company is subject to Israeli corporate tax rate of 25% in 2016, 24% in 2017 and 23% from 2018. The Company is subject to a blended U.S. tax rate (federal as well as state corporate tax) of 35%.achieved.

As such, financial results of December 31, 2016,Emerald Israel are presented as net loss from discontinued operations on the Company generated net operating losses in IsraelConsolidated Statements of approximately $2,972,501, which may be carried forward and offset against taxable income in the future for an indefinite period.

As of December 31, 2016, the Company generated net operating losses in the U.S. of approximately $15,746,103. Net operating losses in the United States are available through 2035. Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.

The Company is still in its development stage and has not yet generated revenues, therefore, it is more likely than not that sufficient taxable income will not be availableComprehensive Loss for the tax lossesthree months ended March 31, 2018 and 2017; and assets and liabilities of Emerald Israel to be utilized indisposed of are presented as Assets held for sale and Liabilities held for sale on the future. Therefore, a valuation allowance was recorded to reduce the deferred tax assets to its recoverable amounts.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law in the United States. The Tax Act, among other provisions, introduces changes in the U.S corporate tax rate, business related exclusions and deductions and credits, and has internationally tax consequences for companies that operate international. Most of the changes introduced in the Tax Act are effective beginning on January 1, 2018.

The effects of Tax Act provisions are still being identified and evaluated by Management.

Note 8 -Restatement

Options to Purchase Convertible Notes and Warrants

During July 2016 the Company issued Alpha Capital and Chi Squared, an option to (the "Option") to purchase an aggregate of up to $385,000 (up to $350,000 for Alpha Capital and up to $35,000 for Chi Squared) of Notes ("Option Notes") and Warrants ("Option Warrants") substantially identical to the Notes and Warrants issued pursuant to Alpha and Chi in June 2016. As part of the Settlement Agreement concluded in August 2017 (see note 3), The Option was extended through to July 15, 2018. As of the date of the Settlement Agreement, andConsolidated Balance Sheet as of September 30, 2017, the fair value of the Option is nil.

The Option, as described above do not meet the scope exception of ASC 815 ("Derivatives and Hedging") and as such, the Option should have been measured at its fair value at the effective date of the grant date and at each subsequent reporting date.

The Company erroneously did not record the fair value of the Option at the issuance date and at DecemberMarch 31, 2016.2018.

The fair value of the Option at issuance date and as of December 31, 2016 was $1,049,953 and $336,272, respectively.

The following tables present the restated financial statements line items:

Emerald Medical Applications Corp.

Balance Sheet

Emerald Medical Applications Corp.

Statement of Operations

Down Round Feature Included in Convertible Notes and Warrants

The Company's convertible notes and warrants issued in 2016 to Alpha and Chi Squared and Firstfire Global Opportunities Fund, LLC. contain a down round adjustment feature which, according to US Gaap, requires such derivatives to be classified in liabilities and to be measured at their fair value at each cut of date. Such derivative liabilities, with a fair value of $567 thousand as of December 31, 2016 were erroneously not included in the Company's December 31 2016 balance sheet.

The Company early adopted ASU 2017-11, Part I (“Accounting for Certain Financial Instruments with Down Round Features”), issued in July 2017, which makes certain changes in relation to classifying certain financial instruments as either liabilities or equity such that the aforementioned derivatives are no longer precluded from being recorded in equity. The Company adopted the standard retrospectively for all prior periods presented in these interim financial statements such that December 31 2016 comparison information included in these financial statements is identical to the December 31 2016 financial information included in the Company's original 2016 annual 10-K filing.

The Company intends to file an amendment to the 2016 10-K reflecting the above restatement.

Note 9.7. Subsequent Events.

On December 19, 2017,April 20, 2018, the Company approved, subjectissued 700,000 shares of its common stock to a future saletwo former directors in respect of services provided by during the “Sellers,” (as defined below) to sell their convertible loans, loans, and warrant to a certain third-party investors and in connection therewith, to: (i) amend the exercise price of warrants granted to Alpha Capital Anstalt, Chi Squared Capital, Firstfire Global Opportunities Fund, LLC and GoldMed Ltd (the “Sellers”) to $0.01 and (ii) to amend the conversation price of convertible notes granted to Alpha Capital Anstalt, Chi Squared Capital, Firstfire Global Opportunities Fund, LLC. While the Company believes that these transactions will occur, at the date of this report, the closing has not occurred and there is no certainly that the closing will, in fact, take place. In connection with the foregoing, the Company’s Board of Directors is considering the advisability of establishing another wholly-owned Israeli subsidiary engaging in operations that should be more readily able to generate revenues and positive cash flow from operations than the Company’s existing subsidiary.

second quarter ended June 30, 2018.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONSBack to Table of Contents

Special Note Regarding Forward-Looking Statements

The following management’s discussion and analysis section should be read in conjunction with the Company’s unaudited financial statements as of March 31, 2018 and 2017, and the relatedstatements of comprehensiveloss, statement of changes in stockholders’ equity (deficit) and statements of cash flows for the three months then ended, and the related notes thereto contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”). This management’s discussion and analysis section contains forward-looking statements, such as statements of the Company’s plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions “will,” “may,” “could,” “should,” etc., or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These factors include those contained in section captioned “Risk Factors” of the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on April 17, 2018 (the “Annual Report”). The Company’s actual results could differ materially from those contemplated in these forward-looking statements as a result of these factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.

Business Overview

On January 17, 2018, the Company formed a new wholly owned subsidiary under the laws of the State of Israel, Virtual Crypto Technologies Ltd. (the “Subsidiary”), to develop and market software and hardware products facilitating, allowing and supporting purchase and/or sale of cryptocurrencies through ATMs, tablets, personal computers (“PCs”) and/or mobile devices. On January 29, 2018, the Company ceased the DermaCompare operations of its former subsidiary, Emerald Israel, and on May 2, 2018, the District Court of Lod gave a winding-up order for Emerald Israel and nominated an Israeli advocate as a special executor to Emerald Israel.

In March 2018, the Company changed its name from “Emerald Medical Applications Corp.” to “Virtual Crypto Technologies, Inc.” to reflect its new operations and business focus, and the Company’s trading symbol changed from MRLA to VRCP on the OTCQB.

Plan of Operations and Recent Developments

The following plan of operation provides information which management believes is relevant to an assessment and understanding of ourthe Company’s results of operations and financial condition. The discussion should be read along with ourthe Company’s financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which refer to future events. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

Plan of Operationsthereto included elsewhere in this Quarterly Report.

We areOn January 17, 2018, the Company formed Virtual Crypto Technologies Ltd. as a digital health startup company engaged in the development, sale and service of imaging solutions utilizing our proprietary DermaCompare software that we developed for use in derma imaging and analytics (our “DermaCompare” or “Product”). In our development of the DermaCompare technology, we utilized the knowledge learned from advanced military image processing and data analytics to improve the analysis of medical images for the benefit of patients and the medical community. We believe that our proprietary DermaCompare software represents an advancement in skin cancer screening that should enable physicians to more readily identify and monitor changes in their patients’ skin characteristics.

DermaCompare is Emerald’s first application of its technology, which we believe represents an advance in the early detection of skin cancer. DermaCompare is based on automated image analytics software using advanced algorithms for alignment, anchoring, identifying and detecting changes in the shapes, colors and sizes of skin lesions, which could potentially become Melanoma. We apply our DermaCompare technology in image capture, correction and intelligent data extraction in the market for derma imaging products.

Our DermaCompare solution allows dermatologists and other medical care professionals, using a set of 25 total body photography (“TBP”), to capture sets of skin lesion images with, among other devices, digital cameras, camera-equipped smart phones or tablets. These images are then transmitted online and are remotely analyzed by professionals using our DermaCompare software.

Our DermaCompare imaging software has two main modules:

Our future plans also contemplate the use of wearable computing and imaging devices such as Google glasses or other comparable devices.

Our sales and marketing plan, which has already commenced, is to sell licenses for our DermaCompare imaging software to: NHSs, HMOs, health insurance companies, hospitals and medical clinics through distributers, health care channel partners or directly through independent salespersons and/or web purchase to dermatologists and other physicians (GPs) that we expect to purchase licenses based on the number of potential numbers of patients.

In furtherance of our business plan, which has resulted in us becoming an operating company, we have entered into a series of agreements with unaffiliated third parties for the distribution of its DermaCompare Technology, as follows:

1. On August 12, 2013, Emerald entered into an exclusive distribution with Derma Italy Sri, organizednew wholly-owned subsidiary under the laws of the ItalyState of Israel (“Derma Italy”Virtual Crypto Israel”), pursuant and reported the appointment of Mr. Alon Dayan as CEO of the new subsidiary. Virtual Crypto Israel was formed to which Derma Italy was granted exclusive distribution rights in Italy;develop and market software and hardware products facilitating, allowing and supporting purchase and/or sale of cryptocurrencies through ATMs, tablets, personal computers (“PCs”) and/or mobile devices (the “Products”).

2. On December 1, 2013, EmeraldIn March 2018, the Company changed its name from “Emerald Medical Applications Corp.” to “Virtual Crypto Technologies, Inc.” to reflect its new operations and business focus, and the Company’s trading symbol changed from MRLA to VRCP on the OTCQB.

The Company, through its fully owned Israeli subsidiary Virtual Crypto Israel, has developed the NetoBit Trader, a proprietary, Cryptographic algorithmic technology that it is able to confirm in real-time the purchase or sale of any cryptocurrency. The Company’s NetoBit products dramatically improve the cryptocurrency trading experience with faster execution and lower costs, setting a new time to transaction standard, trading in seconds rather the industry norm of 20 minutes. Because of its speed, the Company’s customers enjoy the best crypto exchange rate at the point of transaction. The Company is marketing its NetoBit Trader software and hardware products for the purchase and sale of cryptocurrencies through ATMs, tablets, PCs and/or mobile devices (collectively, the “VC Products”). The Company further believes that the ability to immediately confirm cryptocurrency transactions in real-time should be a major competitive breakthrough in making the purchase and sale of cryptocurrencies user friendly.

The Company filed a Current Report on Form 8-K on January 24, 2018, reporting that through Virtual Crypto Israel subsidiary, it entered into a distribution agreementbinding term sheet (the “Chiron Term Sheet”) with S. Bokhorst - Creatiekracht, organizedChiron Refineries Ltd. (“Chiron”), a public company listed on the Tel-Aviv Stock Exchange (TASE: CHR). Pursuant to the Chiron Term Sheet (i) Virtual Crypto Israel, shall appoint a wholly-owned subsidiary of Chiron, under the laws of the Netherlands, pursuant to which S. Bokhorst was grantedTurkish Republic of Northern Cyprus, as the exclusive distributiondistributor of Virtual Crypto Israel’s Products in the Netherlands;territory of the Republic of Turkey, including the territory of Turkish Republic of Northern Cyprus (the “Territory”); and (ii) the distributor shall have the right to appoint sub-distributors within the Territory. The appointment of the Chiron subsidiary as distributor is subject to the payment by the distributor to Virtual Crypto Israel of $250,000 as an appointment fee, of which $150,000 shall be deemed an advance payment by the distributor made on account of future purchases of the Company’s Products.

3. On February 6, 2014, Emerald entered into a distribution agreement with Medical Edge Pty Ltd, organized underThe Company further granted such distributor an option, exercisable by the laws of Australia (“Medical Edge”), pursuant to which Medical Edge was granted exclusive distribution rights in the markets of Australia, New Zealand and Oceania;

4. On January 14, 2015, Emerald entered into a Project Agreement with Realize S.A. and Ubitech, entities engaged in IT related to medical technology in Greece, and MEDISP and MPUoP, academic and research institutes in Greece (collectively, the “Greek Partners”). Emerald and the Greek Partners anticipate imminent grantsDistributor within 12 months from the Office of Chief Scientistdate on which the ATM Product, including the related software and hardware, is fully tested and ready for installation and operation, to be appointed as an exclusive distributor of the StateProducts for the Federal Republic of Nigeria. If the option is exercised, the distributor shall pay Virtual Crypto Israel and the General Secretariat for Research and Technology of Greece, respectively, the proceeds of which will be used for development of enhanced smartphone applications for diagnosis of early stage Melanoma.an appointment fee not higher than $250,000.To date, $50,000 has been paid by such distributor to Virtual Crypto Israel.

The appointment of such distributor is subject to the payment by the distributor to Virtual Crypto Israel of US$250,000 (the “Appointment Fee”). An amount of $150,000 of the total Appointment Fee shall be deemed an advance payment by the Distributor, made on account of future purchases of the Company’s Products and related services.

As a result of the foregoing, the disclosure under “Results of Operations During nine months ended September 30, 2017the Three Months Ended March 31, 2018 As Compared to the Three Months Ended March 31, 2017” is not comparable and should not be relied upon in evaluating or understanding the year ended December 31, 2016, we raised $1,388,832 throughCompany. Reference is made to the issuance of equity and debt and we may be expected to require up to an additional $1.5 milliondisclosure under “Note 11. Subsequent Events” included in capital during the next 12 months to fully implement our business plan and fund our operations.Company’s Annual.

Results of Operations duringDuring the three months ended September 30, 2017 as comparedThree Months Ended March 31, 2018 As Compared to the three months ended September 30, 2016Three Months Ended March 31, 2017

We have not generated any revenues during the three months ended September 30, 2017 and 2016. During the three-month period ended September 30, 2017 we incurred a net loss of $57,654 as compared to a net loss of $1,300,215 for the three-month period ended September 30, 2016.

Our research and development expenses decreased to $9,779were $54,011 for the three months ended September 30, 2017March 31, 2018, as compared to $155,338nil during the same period in the prior year. The decreaseincrease was due to decreased research and development expenses of Emerald Israel as a result of depleted funding.in the development for our virtual crypto products.

Our general and administrative expenses decreasedincreased to $134,829$1,064,283 for the three months ended September 30, 2016March 31, 2017 as compared to $577,937$68,650 during the same period in the prior year. The significant decreaseincrease was due to increasednon-cash consulting expenses relatingpaid by way of issuances of the Company’s shares and warrants to certain consultants who assisted in the merger betweenestablishment of the Company and Emerald Israel. as well as share based compensation that were incurred during the three months ended September 30, 2016.new business.

Interest incomeexpense increased to $86,954$19,374,082 for the three months ended September 30, 2017March 31, 2018, as compared income of to interest expense of $566,940 during the same period in the prior year. The change in the current period is due to a recalculation of the penalties and liquidation damages calculated in the Settlement Agreement between the Company that Alpha and Chi Squared that have been charged to general and administrative expenses.

Results of Operations during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016

We have not generated any revenues during the nine months ended September 30, 2017 and 2016. During the nine-month period ended September 30, 2017 and 2016 we incurred $11,415,989 and $4,388,419, respectively, in net losses.

Our research and development expenses increased to $359,600 for the nine months ended September 30, 2017 as compared to $450,688 during the same period in the prior year. The decrease was due to discontinued research and development in the third quarter as a result of depletion of funds.

Our general and administrative expenses decreased to $817,435 for the nine months ended September 30, 2017 as compared to $3,346,673$198,450 during the same period in the prior year. The significant decreaseincrease during the period in 2018 was dueprimarily as a result of the changes of the terms of certain convertible notes that occurred during the three months ended March 31, 2018.

Financing Activities During the Three-Month Period Ended March 31, 2018

Issuance of equity during the three-month period ended March 31, 2018

During the first quarter of 2018, the Company received the aggregate amount of $1,673,800 from “accredited investors” in consideration for the issuance of 23,876,427 of the Company’s units (the “Units”), at an offering price of $0.07 per Unit, with each Unit consisting of: (i) one share of the Company’s common stock (the “Shares”); (ii) one common stock purchase warrant exercisable for a period of twelve months to increased expenses relatingpurchase one additional Share at an exercise price of $0.14 per share (“Class F Warrant”); and (iii) one common stock purchase warrant exercisable for a period of twelve months to purchase one additional Share at an exercise price of $0.28 per share (“Class G Warrant”) (the “$0.07 Unit Offering”). The offer and sale of the Units, without registration under the Securities Act of 1933, as amended (the “Act”), was made in reliance upon the exemption provided by Section 4(2) of the Act and/or Regulation S and Regulation D promulgated thereunder.

In addition, during March 2018, an additional $117,150 was received from other “accredited investors” under the $0.07 Unit Offering, who subscribed from 571,429 Units, which were issued in April 2018 and are reflected as Receipt on Account of Shares in the Statement of Changes in Stockholders’ Equity as of March 31, 2018.

On February 8, 2018, the Company issued 571,429 units of the Company’s securities to two accredited investors in respect of $80,000 which was received in August 2017 (“August 2017 Financing”). Each unit was comprised of (i) one share of the Company’s common stock; (ii) one Class A warrant exercisable into one share of the Company’s common stock, at a price of $0.14 per share, within 12 months for the issuance date; and (iii) one Class B warrant exercisable into one share of the Company’s common stock, at a price of $0.14 per share, within 24 months for the issuance date.

On March 12, 2018, the Company issued a total of 3,629,999 restricted shares to certain consultants in connection with services rendered during the first quarter of 2018, which shares were valued at $901,902, based on the closing share price on the day prior to each of the issuances. The above-mentioned amount was recorded as a charge to the merger betweenCompany’s Statement of Comprehensive Loss, with a corresponding credit to Additional Paid in Capital in the Company’s Statement of Changes in Stockholders’ Equity.

On March 20, 2018, the Company and Emerald Israel. as well asissued a total of 62,500 restricted shares of its common stock in consideration for the exercise of a stock option at an exercise price of $0.01 per share, based compensation that were incurred during the nine months ended September 30,which option was granted in connection of certain services rendered in October 2016.

In March 2018, the Company issued a total of 921,800 shares of its common stock in respect of the conversion of $9,218 of the January 2018 Convertible Notes.

Interest expense increased to $238,954

Issuance of new convertible notes during the three-month period ended March 31, 2018

From January 16,2018 through January 23, 2018, the Company received an aggregate amount of $100,000 as consideration for the nine months ended September 30, 2017 as compared incomeissuance of the Company’s convertible promissory notes with an aggregate principal amount of $100,000 (the “Notes”) (i) bearing interest at the rate of 1% per annum; (ii) with a conversion price of $0.01 per share of the Company’s common stock; and (iii) repayable through to $591,058 duringJanuary 15, 2019. 3,000 of the same period in the prior year. The increase in the current period is due to the penalties and liquidation damages calculated in the Settlement Agreement between the Company that Alpha and Chi Squared that have been charged to general and administrative expenses.Notes were converted at a conversion price of $0.01 per share into 300,000 shares.