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

The accompanying notes are an integral part of 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 MonthsEnded March 31, 2018 and the Year Ended December 31, 2017

(Unaudited)

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

Virtual Crypto Technologies Inc (Formerly Emerald Medical Applications Corp.Corp)

Balance SheetsStatements of Cash Flows

As of June 30,For the Three Months Ended March 31, 2018 and 2017 (Unaudited) and December 31, 2016

Back to Table of Contents(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 Six Months ended June 30, 2017 and 2016

(Unaudited)

Back to Table of Contents

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

Emerald Medical Applications Corp.

Statements Stockholders’ Deficit

For the Six Months Ended June 30, 2017

(Unaudited)

BackNotes to Table of Contents

Emerald Medical Applications Corp.Financial Statements

Statements of Cash Flows(Unaudited)

For the Six Months Ended June 30, 2017 and 2016

(Unaudited)

Back to Table of Contents

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

Emerald Medical Applications Corp.

Notes to Unaudited Interim Financial Statements

June 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.andInc.” and the Company was reincorporated in Delaware as Zaxis. On December 30, 2014, Zaxis entered into a non-binding 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”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.Emerald Israel.

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

Emerald Medical Applications Ltd,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 aVirtual 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 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.devices.

Emerald’s DermaCompare solution allows dermatologists and other medical care professionals, using a setCessation 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 TBP images are then transmitted online and are remotely analyzed by professionals using our DermaCompare software.Former Operations

Our salesOn January 29, 2018, the Company ceased the DermaCompare operations of its former subsidiary, Emerald Israel, and marketing plan, which has already commenced, ison 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 sell licenses for our DermaCompare imaging software to: NHSs, HMOs, health insurance companies, hospitalsEmerald Israel. To the extent that the liquidation procedure yields proceeds in excess of Emerald Israel’s current obligations, the first $250,000 will be distributed to the previous shareholders of the Company’s preferred stock (see Note 3) and medical clinics through distributers, health care channel partners or directly through independent salespersons and/or web purchaseany excess thereafter, to dermatologists and other physicians (GPs) that we expect to purchase licensesthe Company. However, based on the numberCompany’s current best estimate, it is not anticipated that such excess proceeds will be achieved. See Note 6. Discontinued Operations.

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 potential numbers2018, however, it will be required to obtain additional liquidity resources in order to support the commercialization of patients.its new 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 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 the 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 2017,2014, the Financial Accounting Standards Board (“FASB”(the “FASB”) issued Accounting Standards Update (“ASU”) No. 2017-09, “Compensation-Stock Compensation (Topic 718): Scopea new standard to achieve a consistent application of Modification Accounting,” which clarifiesrevenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under GAAP. Under the new model, recognition of revenue occurs when a changecustomer obtains control of the promised goods or services in an amount that reflects the consideration to termswhich the entity expects to be entitled in exchange for those goods or conditionsservices. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of a share-based payment award must be accounted for as a modification.revenue and cash flows arising from contracts with customers. The new guidance requires modification accounting if the vesting condition, fair value or the award classificationstandard is not the same both before and after a changeeffective with respect to the terms and conditionsCompany beginning in the first quarter of the award.2018; early adoption is prohibited. The new guidancestandard 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 does not expect the new standard to 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 on a prospective basis beginning on January 1, 2018 andin the first quarter of 2019; early adoption is permitted. The Company does not expect the adoption of this standard to have ana 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. As the Company has insignificant receivable balances, 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 the financial 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 July 7, 2016,During the first quarter of 2018, the Company announced that it had been awarded first prizereceived the aggregate amount of 500,000 Euros or approximately U$526,000, in a competition against over 3,500 other tech companies in the Publicis Groupe 90 initiative at the inaugural edition of Viva Technology Paris. On February 24, 2017, the Registrant accepted a Reg S Subscription Agreement$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 representing(“Class G Warrant”) (the “$0.07 Unit Offering”). The offer and sale of the award of 500,000 Euros. The issuance was made in reliance upon 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, respectively, 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.

Employee Stock Options

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 June 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 June 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 six month periods ended June 30, 2017 werewas nil and $58,650, and $117,301, respectively (three and six month periods ended June 30, 2016- 244,542 and $455,032, respectively).respectively.

Note 3.5. 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 six-month periodthree months ended June 30, 2017March 31, 2018 and there is $88,178 outstanding to related party in respect of costs paid on behalf of the Company as of June 30, 2017 (as of June 30, 2017 - $125,962).2017.

During the six months ended June 30, 2016, the Company issued 1,195,000 shares to three acting directors, for services valued atAs a total value of $1,194,403, arrived at using the stock price on date of grant of $1.00 per Nasdaq.com.

Note 4. Commitments and Contingencies.

The Company received grants to fund research and development projects from the State of Israel according to guidelines and proceduresresult of the Innovation Authorityissuance of the Ministry of Industry and Trade. According 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 salesNotes (see Note 2) and the total royalties will not exceedacquisition by the amountNew Investors of certain convertible notes (see Note 2), certain New Investors may hold convertible notes allowing them to convert the grants received. Asnotes in excess of June 30, 2017 and December 31, 2016, total grants received amounted approximately $222 thousands.

The obligation to pay royalties is contingent upon the successful outcome5% of the Company’s researchissued and development projects andoutstanding 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 attainmentCompany, none of sales. The Company has no obligation to pay royalties, if sales are not generated, and if the research and development project fails.

Note 5. Convertible Notes.

All the Convertible notes fell duewhich were incurred during the six monthsfirst quarter ended June 30, 2017. The Company is currently in discussions to extend these notes and believe that these discussions will be successful. (See also note 7)March 31, 2018.

Note 6. Income Taxes.Discontinued Operations.

TheOn 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. To the extent that the liquidation procedure yield proceeds in excess of Emerald Israel’s current obligations, the first $250,000 will be distributed to the previous shareholders of the Company’s preferred stock (see Note 3. Notes Payable) and any excess thereafter, to the Company. However, based on the Company’s current best estimate, it 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%.not anticipated that such excess proceeds will be 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.Consolidated Balance Sheet as of March 31, 2018.

Note 7. Subsequent Events.

Effective August 7, 2017,On April 20, 2018, the Company entered intoissued 700,000 shares of its common stock to two former directors in respect of services provided by during 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”).second quarter ended June 30, 2018.

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. 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, and subject to certain adjustments. The Series A Preferred Stock shall be entitled to receive dividends on the same basis as Ordinary Shares and shall have no voting rights

As a result of the Settlement Agreement, the Company recorded a provision in the balance sheet in the amount of $740,860, bringing the total of (i) the fair value of the Series A Convertible Preferred Stock, and (ii) the increase in the fair value of the Notes. A corresponding charge was made in general and administrative expenses in the Statement of Operation Losses of $440,684 representing the penalties and liquidation damaged portion of the above-mentioned provision, and $300,176 was charged to finance expenses in the Statement of Operating Losses.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONSBack

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 Tablerisks 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 Contentsthe 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 2 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 intoThe Company further granted such distributor an option, exercisable by the Distributor within 12 months from the date 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 Products for the Federal Republic of Nigeria. If the option is exercised, the distributor shall pay Virtual Crypto Israel 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 distribution agreement with Medical Edge Pty Ltd, organizedresult of the foregoing, the disclosure under “Results of Operations During the laws of Australia (“Medical Edge”), pursuantThree Months Ended March 31, 2018 As Compared to which Medical Edge was granted exclusive distribution rightsthe Three Months Ended March 31, 2017” is not comparable and should not be relied upon in evaluating or understanding the Company. Reference is made to the disclosure under “Note 11. Subsequent Events” included in the markets of Australia, New Zealand and Oceania;Company’s Annual.

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 grants from the Office of Chief Scientist of the State of 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.

During the six months ended June 30, 2017 and the year ended December 31, 2016, we raised $1,516,187 through the issuance of equity and debt and we may be expected to require up to an additional $1.5 million in capital during the next 12 months to fully implement our business plan and fund our operations. 

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

We have not generated any revenues during the three months ended June 30, 2017 and 2016. During the three-month period ended June 30, 2017 and 2016 we incurred $1,130,724 and $1,187,972, respectively, in net losses.

Our research and development expenses decreased to $168,583were $54,011 for the three months ended June 30, 2017March 31, 2018, as compared to $192,002 during the same period in the prior year. The decrease was due to decreased research and development expenses of Emerald Medical Applications Ltd.

Our general and administrative expenses decreased to $520,953 for the three months ended June 30, 2016 as compared to $1,016,932 during the same period in the prior year. The significant decrease was due to increased expenses relating to the merger between the Company and Emerald Medical Applications Ltd. as well as share based compensation that were incurred during the three months ended June 30, 2016.

Interest expense increased to $441,187 for the three months ended June 30, 2017 as compared income of to $20,962 during 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.

Results of Operations during the six months ended June 30, 2017 as compared to the six months ended June 30, 2016

We have not generated any revenues during the six months ended June 30, 2017 and 2016. During the six-month period ended June 30, 2017 and 2016 we incurred $1,694,608 and $3,088,204, respectively, in net losses.

Our research and development expenses increased to $349,821 for the six months ended June 30, 2017 as compared to $295,350nil during the same period in the prior year. The increase was due to continued research and development expenses of Emerald Medical Applications Ltd.in the development for our virtual crypto products.

Our general and administrative expenses decreasedincreased to $682,606$1,064,283 for the sixthree months ended June 30,March 31, 2017 as compared to $2,820,401$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 Medical Applications Ltd. as well as share based compensation that were incurred during the six months ended June 30, 2016.new business.

Interest expense increased to $662,181$19,374,082 for the sixthree months ended June 30, 2017March 31, 2018, as compared income of to $27,547$198,450 during the same period in the prior year. The significant increase during the period in 2018 was primarily 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 purchase 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 current period is dueStatement 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 penalties and liquidation damages calculatedCompany’s Statement of Comprehensive Loss, with a corresponding credit to Additional Paid in Capital in the Settlement Agreement betweenCompany’s Statement of Changes in Stockholders’ Equity.

On March 20, 2018, the Company that Alphaissued 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 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.

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 issuance 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 Chi Squared that have been charged(iii) repayable through to general and administrative expenses.January 15, 2019. 3,000 of the Notes were converted at a conversion price of $0.01 per share into 300,000 shares.

Liquidity and Capital Resources

Our balance sheet as of June 30, 2017March 31, 2018 reflects current assets of $17,768$1,478,498 consisting of cash of $14,110$1,449,795 and other receivablesassets held for sale in respect of $3,658. Asour discontinued operations of December 31, 2016, we had$28,703. We also have $921,270in current assets of $13,842liabilities consisting of cash of $4,486, and other receivables of $9,356. We had fixed assets, net of accumulated depreciation of $28,139, as of June 30, 2017 and $31,803 as of December 31, 2016.

As of June 30, 2017, we had total current liabilities of $2,042,931 consisting of $279,284$206,304 in accounts payable and accrued liabilities, $740,860 as a provision for settlement$50,000 of deferred revenues, $16,667 employee payable, $1,922 in accrued interest, short-term portion of convertible notes $88,178of $186,412 and liabilities held of sale in respect of our discontinued operations of $459,965. As of December 31, 2017, we had current assets of $15,181 consisting of $2,959 in cash and other receivables of $12,222. As of December 31, 2017, we had fixed assets, net of $14,290, $1,011,941 in current liabilities consisting of $445,653 in accounts payable and accrued liabilities, $82,331 in accounts payable to related parties, $118,508 employeesparty, $98,476 employee payable, $58,801$67,846 in accrued interest, payable, $724,605 inand short-term portion of convertible notes payable and $32,695 in short term notes payable.of $317,635.

We had negative working capital of $2,025,163$557,228as of March 31, 2018, as of June 30, 2017 compared to negative working capital $944,355of $996,760 at December 31, 2016.2017. Our total liabilities as of June 30, 2017March 31, 2018 were $1,997,231$921,270, as compared to $958,197$1,618,106 at December 31, 2016.2017.

During the six month period ended June 30, 2017,March 31, 2018, we had negative cash flow from continuing operations of $511,652,$345,449, which was the result of a net loss of $1,694,608,$20,802,376, increase in accrued interest of $26,033, $7,445 depreciation expense, $325,399 forand amortization of debt discount $5,698 increase in other receivables, $740,860 increase in the provisionon convertible notes of $20,165,406 and $892,300shares and warrants issued for the settlement of convertible loans, 37,656 increase in accounts payable and accrued liabilities,services, offset by $34,832 decreasenet changes in amounts due from related party.working capital of $600,799.

During the sixthree months ended June 30, 2017,March 31, 2018, we had negativeno cash flow effect from investing activities of $4,995, which was the result of an increase in restricted cash of $1,184 and the acquisition of fixed assets valued in the amount of $3,771.activities.

During the period ended June 30, 2017,March 31, 2018, we had positive cash flow from financing activities of $526,213$1,792,185, which was the result of $526,213$1,574,972 proceeds from issuance of equity.equity, $117,150 of receipt on account of shares, $100,000 from the issuance of convertible notes and $63 for the eservice of options.

There are no limitations in the Company’s certificateCertificate of incorporationIncorporation on the Company’s ability to borrow funds or raise funds through the issuance of restrictedshares of its common stock to effectaffect a business combination. The Company’s limited resources and lack of having cash-generating business operations may make it difficult to borrow funds or raise capital. The Company’s limitations to borrow funds or raise funds through the issuance of restricted capital stock required to effect or facilitate a business combination may have a material adverse effect on the Company’s financial condition and future prospects, including the ability to complete a business combination.

Until such time as the Company can generate substantial revenues, the Company expects to finance its cash needs through a combination of the sale of its equity and/or convertible debt securities, debt financing and strategic alliances and collaborations. The Company does not have any committed external source of funds. To the extent that the Company raises additional capital through the sale of its equity and/or convertible debt securities, the ownership interest of its stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. To the extent that debt financing ultimately proves to be available, any borrowing will subject us to various risks traditionally associated with indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest, including debt of an acquired business.

If the Company raises funds through additional collaborations or strategic alliances with third parties, we may have to relinquish valuable rights to our future revenue streams and/or distribution arrangements. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. If the Company is unable to raise additional funds through equity and/or debt financings when needed or on attractive terms, the Company may be required to delay, limit, reduce or terminate the operations of some or all of its business segments.

The Company has only limited capital. Additional financing is necessary for the Company to continue as a going concern. OurThe Company’s independent auditors have unqualified audit opinion for the period ended June 30,December 31, 2017 with an explanatory paragraph on going concern.

In view of these matters, realization of a major portion of the assets in the accompanying balance sheet is dependent upon continued operations of the Company. Management believes that actions presently being taken to obtain additional equity financing will provide the opportunity to continue as a going concern.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKBack to Table of Contents

We have not entered into, and do not expect to enter into, financial instrumentsNot required for trading or hedging purposes.smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURESBack to Table of Contents

Evaluation of Disclosure Controls and Procedures

As of June 30, 2017,March 31, 2018, the Company’s chief executive officerChief Executive Officer and chief financial officerChief Financial Officer conducted an evaluation (the “Evaluation”) regarding the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act. Based upon the evaluation of these controls and procedures required by Rules 13a-15 or 15d-15, our chief executive officerthe Company’s Chief Executive Officer and chief financial officerChief Financial Officer concluded that ourthe Company’s disclosure controls and procedures were ineffective as of the end of June 30, 2017March 31, 2018 under the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). because of certain material weaknesses. As of such date, the Company had neither the resources, nor the personnel, to provide an adequate control environment.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended June 30, 2017March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls and Procedures

The Company’s management, including our Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or its internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The Company’s control systems are designed to provide such reasonable assurance of achieving their objectives. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

CEO and CFO Certifications

Exhibits 31.1 and 31.2 to this Quarterly Report are the Certifications of the Company’s Chief Executive Officer and the Chief Financial Officer, respectively. These Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act (the “Section 302 Certifications”). This Item 4 of this Quarterly Report, which you are currently reading, is the information concerning the Evaluation referred to above and in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGSBack to Table of Contents

None.On December 12, 2016, the Company filed a Current Report on Form 8-K reporting that at a meeting of its Board of Directors held on November 18, 2016, at which meeting the majority of the Company’s Board of Directors authorized the termination of Lior Wayn as CEO/president of the Company and of its wholly-owned Israeli subsidiary, Emerald Israel. The termination of Mr. Wayn as an executive officer of the Company and Emerald Israel was “for cause” as described more fully in such Form 8-K. In addition, the Form 8-K further reported that in connection with, Mr. Wayn’s termination as an executive officer, Mr. Wayn was removed as a director of the Companying accordance with the provisions of Section 141(k) of the General Corporation Law of the State of Delaware based upon the written consent of the holders of the majority of the Company’s shares of common stock issued and outstanding at November 16, 2016.

In April 2017, a lawsuit was filed with the Tel Aviv, Israel court by Mr. Wayn claiming certain damages to the total amount of $100,000, under the assertion of wrongful dismissal by the Company and Emerald Israel. The Company believes these claims to be unsubstantiated and wholly without merit and intends to vigorously defend itself against these claims. The Company believes that Mr. Wayn will not be successful in his claim. Nevertheless, the Company believes that the outcome of the proceeding will not materially affect the Company.

In December 2017, a liquidation request was filed with the Tel Aviv District Court by a group of former employees of Emerald Israel, under the assertion of delay of pay and insolvency. On December 20, 2017, at a hearing before the court, it was ordered that Emerald Israel shall settle its pension debts to the former employees under applicable Israeli law within 21 days and settle its other debts to them in 60 days, the failure of which would result in a winding-up order (the equivalent of a liquidation) being potentially issued. Based on the collaboration of Emerald Israel and its former employees and the fact that the Company was 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 claim will be dismissed by the court. The amounts being claimed by the former employees were less than $96,000 and are included in current liabilities at March 31, 2018.

On January 29, 2018, the Company transferred the ordinary shares of its former Israeli subsidiary, Emerald Israel, to Attorney Eviatar Knoller, Esq., with offices at 20 Lincoln, Tel Aviv-Jaffa 6713412, as trustee (the “Trustee”). The purpose of the transfer of the management shares to the Trustee, pursuant to resolution of the Registrant’s Board of Directors, was to enable the Trustee to liquidate the management shares and/or the assets of Emerald Israel to satisfy its debts and satisfy its financial obligations to former employees. As a result, the former employees of Emerald Israel commenced an action in a court of competent jurisdiction in Israel to liquidate Emerald Israel and use any assets to satisfy the debts owed to the former employees.

On April 24, 2018, Emerald Israel announced to the District Court of Lod, Tel Aviv about the failure in contracting a buyer for its technology at market price and therefore that Emerald Israel is no longer opposed to the requested Liquidation Warrant. On May 1, 2018, the Official Receiver submitted its response to the court, stating that according to such announcement of Emerald Israel, it did not oppose the requested Liquidation Warrant either. Based on both the Company’s and the Official Receiver’s position, on May 2, 2018, the District Court of Lod has given a Winding-up Order in Emerald Israel’s file and temporarily nominated Adv. Hanit Nov as a Special Executor to Emerald Ltd.

ITEM 1A. RISK FACTORSBack to Table of Contents

See risk factors discussed in Part I, “Item 1. Description of Business, subheading1A. Risk Factors” in ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2016.Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSBack

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.

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.

From January 31, 2018 through March 23, 2018, the Company received an aggregate amount of $1,769,950 from the sale to Tableaccredited investors of Contents25,285,000 of the Company’s units, at an offering price of $0.07 per unit, with each unit consisting of: (i) one share of the Company’s common stock; and (ii) one common stock purchase warrant, exercisable for a period of twenty-four months, to purchase one additional share of the Company’s common stock, at an exercise price of $0.14 per share. On April 16, 2018, after the quarter ended March 31, 2018, the Company received an additional $150,000 from the sale of the units at $0.07 per unit, pursuant to which the Company issued an additional 2,142,857 units.

On February 8, 2018 the Company issued 571,429 shares of its common stock to two accredited investors in consideration for $80,000, which was paid by these investors prior to December 31, 2017.

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.

On March 20, 2018, the Company issued a total of 1,092,500 restricted shares of its common stock as follows: (i) 62,500 shares were issued to an accredited investor in connection with the exercise of a stock option at an exercise price of $0.01 per share, which options were granted in connection with a services rendered in October 2016; (ii) 300,000 restricted shares were issued to Yair Fudim, the Company’s CEO and Chairman, pursuant to a services agreement, which shares were valued at $0.01 per share and do not vest and are not deemed earned until February 2019 under the agreement; and (iii) 730,000 restricted shares were issued to an accredited investor in connection with services under a six-month services agreement, which shares were valued at $124,100, based on the closing share price on the day prior to the execution of the agreement.

The offer and sale of the Company’s units and shares of common stock to accredited investors referenced above, without registration under the Securities Act of 1933, as amended (the “Act”), was made in reliance upon the exemption provided under Section 4(2) of the Act and/or Regulation S and/or Regulation D promulgated thereunder.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIESBack to Table of Contents

None.

ITEM 4. MINE SAFETY DISCLOSUREBack to Table of Contents

None.Not applicable.

ITEM 5. OTHER INFORMATIONBack to Table of Contents

None.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. 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.

ITEM 6. EXHIBITSBack to Table of Contents

(a) The following documents are filed as exhibits to this report on Form 10-QQuarterly Report or incorporated by reference herein.

SIGNATURES

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

EMERALD MEDICAL APPLICATIONS CORP.undersignedthereunto duly authorized.