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, 2018 and 2017

(Unaudited)

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

Emerald Medical Applications Corp.

Statements of Cash Flows(Unaudited)

For the Six Months Ended June 30, 2017 and 2016

(Unaudited)

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

Emerald Medical Applications Corp.

Notes to Unaudited Interim Financial Statements

June 30, 2017

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Note 1. The Company and Significant Accounting Policies.

Organizational Background:

Virtual Crypto Technologies, Inc., f/k/a Emerald Medical Applications CorpCorp. (the “Company”“Company,” “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.under the name of “Zaxis International, Inc.” On December 30, 2014, Zaxis entered into a non-binding Memorandum of Understandingan agreement with Emerald Medical Applications Ltd., which was then a private limited liability company incorporatedorganized under the laws of the State of Israel (“Emerald”Emerald Israel”).

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 Emerald Israel became the Company’s wholly-owned subsidiary engaged in the business of developing Emerald Israel’s DermaCompare technology, engaged in the development, sale and service of imaging solutions utilizing its DermaCompare software for use in derma imaging and analytics for the detection of skin cancer.

During the fourth quarter of 2015, in connection with the Share Exchange Agreement, 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 RegistrantCompany were replaced with the historical financial statements of Emerald.Emerald Israel. Reference is made to the disclosure under “Cessation of Former Operations”below.

New Business Developments

On January 17, 2018, the Company formed a new wholly-owned subsidiary in Israel, Virtual Crypto Technologies Ltd. (the “New Subsidiary”), to develop and market software and hardware products facilitating, allowing and supporting purchase and/or sale of cryptocurrencies through ATMs, tablets, personal computers and/or mobile devices. Reference is made to the disclosure under “Item 2. Management’s Discussion and Analysis and Results of Operations” located below in this Quarterly Report on Form 10-Q.

Cessation of Former Operations

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, Israel 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 yields proceeds in excess of Emerald Israel’s current obligations, the first $250,000 will be distributed to the previous stockholders of the Company’s preferred stock (see Note 3) and any excess thereafter, to the Company. However, based on the Company’s current best estimate, it is not anticipated that any 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 subsidiary, Emerald,DermaCompare operations, since inception. While the Company raised approximately $1.9 million in the first quarter of 2018 to fund the operations of its New Subsidiary, the Company will require additional capital resources in order to support the commercialization of the New Subsidiary’s technology and 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 collectively referredno assurances, however, that the Company will be able to asobtain an adequate level of financial resources that are required for the “Company”.Company’s short and long-term requirements, or at all.

Emerald Medical Applications Ltd, a wholly-owned subsidiary of

These conditions raise substantial doubt about the Registrant effective July 14, 2015, was organizedCompany’s ability to continue as a privately-owned company undergoing concern. The consolidated financial statements do not include any adjustments to reflect the lawspossible future effects on recoverability and classification of assets or the Stateamounts and classification of Israel on February 17, 2010. Emerald is a mobile digital-health startup company engaged inliabilities that may result from the development, sale and serviceoutcome 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.this uncertainty.

Emerald’s 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 TBP images are then transmitted online and are remotely analyzed by professionals using our DermaCompare software.

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.

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 U.S. 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 itsthe 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 six-month period ended June 30, 2018, the Company received $100,000 as an appointment fee, which has been recorded as deferred revenues on the balance sheet. $50,000 was received in cash and $50,000 was received in the form of 380,143 shares of Chiron. The value of the shares at the date of issuance was $50,000 and was recorded as short-term investments on the balance sheet. Any changes in fair value are recoded to finance expenses in the condensed consolidated statements of operations and comprehensive loss.

Note 3. Notes Payable.

Notes payable and accrued interest as of June 30, 2018 and December 31, 2017 are as follows:

Issuances of convertibles notes during the six months of 2018

From January 16, 2018 through January 23, 2018, the Company received from certain third-party accredited investors $100,000 in consideration for the issuance of convertible promissory notes (the “Notes”) as follows: (i) interest at the rate of 1% per annum; (ii) a conversion price of $0.01 per share of common stock; and (iii) repayable through to January 15, 2019, without penalty. 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 Stockholders’ Deficit. The discount is amortized to finance expenses in the condensed consolidated statements of operations and 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 six months ended June 30, 2018

On January 24, 2018, Alpha Anstalt Capital (“Alpha”), Chi Squared Capital (“Chi”), Firstfire Global Opportunities Fund LTC, Goldmed Ltd, IlanMalca and Maz Partners sold their convertible notes previously issued by the Company in the aggregate amount of $958,611 (the “January 2018 Convertible Notes”) to certain new third-party accredited investors the “New Investors”) and, on connection therewith, 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) cancel the Class A warrants and Class B warrants issued with the January 2018 Convertible Notes (see Note 4. Stockholders’ Equity for accounting treatment of the cancelled warrants); (iii) amend the interest rate from 8% to 1% per annum under the January 2018 Convertible Notes; (iv) to extend the repayment/maturity date on the January 2018 Convertible Notes to January 23, 2019; and (iv) cancel the options granted to Alpha and Chi in July 2016 (the “Alpha-Chi Options”).

The change in terms of the January 2018 Convertible Notes, including the cancellation of the above-referenced 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 $21,622,897 in the Statement of Operations and Comprehensive Loss and an increase to Additional Paid-in Capital in the Statement of Stockholders’ Deficit of $22.6 million as a result of the transaction.

The Company further concluded that the post-amended January 2018 Convertible Notes contain a beneficial conversion feature equal to the par value of the January 2018 Convertible Notes ($958,611) 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.

On January 24, 2018, $73,000 of the January 2018 Convertible Notes was converted, at the adjusted 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 Notes were converted, at the adjusted conversion price of $0.01 per share, 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 December 31, 2017 amounted to $3,316. Pursuant to terms of the original agreement, as of June 30, 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 IssuancesChanges in Shares of CommonPreferred Stock During the First Quarter of 2018

On July 7, 2016,January 4, 2018, the Company, announcedEmerald Israel, Alpha Capital Ansalt and Chi Squared Inc. (collectively, 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 it had been awarded first prizesuch liquidation yields net positive proceeds (“Excess Net Assets”). As such, as of 500,000 Euros or approximately U$526,000, inJune 30, 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 competition against over 3,500 other tech companiescharge to Additional Paid-in Capital in the Publicis Groupe 90 initiative atStatement of Changes in Stockholders’ Deficit with a corresponding credit to liabilities. Management’s best estimate of the inaugural editionpotential value of Viva Technology Paris. On February 24, 2017, the Registrant acceptedExcess Net Assets as of June 30, 2018, was nil. Accordingly, the Company recorded a Reg S Subscription Agreementfinance income of $150,000 in its Condensed Consolidated Statements of Operations and Comprehensive Loss a result of the reversal of the relating liability.

Issuances of Shares of Common Stock During the Six Months ended June 30, 2018

Between January 2018 and April 2018, the Company received the aggregate amount of $1,940,950 from Publicis 90certain “accredited investors” in consideration for the issuance to Publicis 90 of 1,315,563 restricted shares27,697,855 units (the “Units”) at an offering price of $0.07 per Unit, with each Unit consisting of (the “$0.07 Unit Offering”): (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 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 bythereunder.

On February 8, 2018, the SEC underCompany issued 571,429 units to two accredited investors in respect of $80,000 which was received in August 2017 (the “August 2017 Financing”). Each Unit comprised (i) one share of the Act.Company’s common stock; (ii) one Class A warrant exercisable into one shares 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 of its common stock to certain consultants in connection with services rendered during the first quarter of 2018, which shares were valued at $892,300, 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 Condensed Consolidated Statement of Changes in Stockholders’ Deficit.

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 Condensed Consolidated Statement of Changes in Stockholders’ Deficit.

On April 25, 2017,20, 2018, the Company issued a holdertotal of 700,000 restricted shares of its common stock to certain consultants in connection with services rendered during the second quarter of 2018, which shares were valued at $112,000, based on the closing share price on the day prior to each of the issuances. The above-mentioned amount was recorded as a convertible notecharge to the Company’s Statement of Comprehensive Loss, with a corresponding credit to Additional Paid in Capital in the principal amountCompany’s Statement of $100,000 converted $10,400 into 74,572,Changes in Stockholders’ Equity.

As described in Note 3. Notes Payable, the Company issued a total of 8,521,800 shares based on an adjusted conversion price of $0.14. The conversion price was adjusted on March 22, 2017 pursuant to the provisionsits common stock in respect of the 2016 Securedconversion of $3,000 of the Notes and $73,000 and $9,218 of the January 2018 Convertible Note Agreement..Notes.

On June 12, 2017, certain warrant holders holding 1,100,000 Class A Warrants and 1,100,000 Class B Warrants, elected to exercise certain warrants on a cashless basis. In accordance with

As described in Note 3. Notes Payable, the 2016 Secured Convertible Note Agreement theCompany’s 6,334,626 Class A warrants and 5,400,478 Class B warrants were increasedcancelled during the first quarter of 2018, in connection with the change in terms of the convertible notes.

As described above in this Note 4. Stockholders’ Equity, the Company issued 27,697,855 Class F and 27,697,855, 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 $39,845 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’ Deficit.

As described above in this Note 4. Stockholders’ Equity, on February 8, 2018, the Company issued 571,429 Class B Warrants were converted to 1,096,395 shares at $0.14 per share. The exercise pricewarrants and amount571,429 Class B warrants in respect of shares issued were adjusted on March 22, 2017.the August 2017 Financing.

OnThe following table summarizes information of outstanding warrants issued to investors and consultants in exchange for their services as of June 12, 2017,30, 2018:

(1) During 2015, a total of 2,700,000 Class E Warrants were issued by the Company completedto Lior Wayn pursuant to the issuanceterms of 125,000the Share Exchange Agreement and were exercisable in three equal tranches of 900,000 Shares each (the “Tranches”) at an exercise price of $0.0001 per share of the Company’s common stock, subject to and within 45 days of the Company achieving the milestones 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 for the six months ended June 30, 2018 and the fiscal year ended December 31, 2017 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, 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, 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 was nil for each of the threethree- and six monthsix-month periods ended June 30, 2018 (and for three- and six-month periods ended June 30, 2017, werewas $58,650 and $117,301, respectively (three and six month periods ended June 30, 2016- 244,542 and $455,032, 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 Capital Ansalt and as otherwise set forth herein, the Company did not have any transactions and balances with related parties during the six-month period ended June 30, 2017 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).

During the six months ended June 30, 2016, the Company issued 1,195,000 shares to three acting directors, for services valued at 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 procedures of the Innovation Authority 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 sales and the total royalties will not exceed the amount of the grants received. As 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 outcome of the Company’s research 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.

Note 5. Convertible Notes.

All the Convertible notes fell dueexecutive officers during the six months ended June 30, 2017. The Company is currently in discussions to extend these notes2018 and believe that these discussions will be successful. (See also note 7)2017.

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, Israel (the “District Court”) 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 and six months periods ended June 30, 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 June 30, 2018.

Note 7. Subsequent Events.

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. 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 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 June 30, 2018 and 2017, and the related statements of operations and comprehensive loss, statement of changes in stockholders’ deficit and statements of cash flows for the three and six month periods 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 “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K, filed with the U.S. 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 “Virtual Crypto Israel”), to develop and market software and hardware products facilitating, allowing and supporting purchase and/or sale of cryptocurrencies through ATMs, tablets, personal computers 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 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”. The Company’s shares are now quoted on the OTCQB under the symbol “VRCP”.

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 Israel 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 Italy (“Derma Italy”), pursuant to which Derma Italy was granted exclusive distribution rights in Italy;

2. On December 1, 2013, Emerald entered into a distribution agreement with S. Bokhorst - Creatiekracht, organized under the laws of the Netherlands, pursuant to which S. Bokhorst was granted exclusive distribution in the Netherlands;

3. On February 6, 2014, Emerald entered into a distribution agreement with Medical Edge Pty Ltd, organized under 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 grants from the Office of Chief Scientist of the State of Israel and reported the General Secretariatappointment of Mr. Alon Dayan as CEO of the Virtual Crypto Israel effective June 30, 2018. Virtual Crypto Israel was formed to develop and market software and hardware products facilitating, allowing and supporting purchase and/or sale of cryptocurrencies through ATMs, tablets, personal computers and/or mobile devices (the “Products”).

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 Researchthe purchase and Technologysale of Greece, respectively,cryptocurrencies through ATMs, tablets, PCs and/or mobile devices (collectively, the proceeds“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 with the SEC a Current Report on Form 8-K on January 24, 2018, reporting that through Virtual Crypto Israel subsidiary, it 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) 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 will$150,000 shall be used for developmentdeemed an advance payment by the distributor made on account of enhanced smartphone applications for diagnosisfuture purchases of early stage Melanoma.the Company’s Products.

DuringThe 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, $100,000 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 an appointment fee of US$250,000, of which $150,000 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 Company’s results of operations discussed below for the three and six months ended June 30, 2018, as compared to the three and six months ended June 30, 2017 are not comparable and should not be relied upon in evaluating or understanding the Company or its results of operations for the fiscal year endedending December 31, 2016, we raised $1,516,187 through2018. Reference is made to the issuancedisclosure under “Note 11. Subsequent Events” 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. Company’s financial statements filed as part of the Annual Report.

Results of Operationsoperations during the three months ended June 30, 20172018, as compared to the three months ended June 30, 20162017

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 $266,954 for the three months ended June 30, 20172018, 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 incurred as a result of Emerald Medical Applications Ltd.the development for our virtual crypto products.

Our general and administrative expenses decreasedincreased to $682,606$356,515 for the three months ended June 30, 2018, as compared to $484,376 during the same period in the prior year.

Interest expense increased to $2,615,760 for the three months ended June 30, 2018, as compared to $453,176 during the same period in the prior year. The increase during the period in 2018 was primarily as a result of the changes in the terms of the convertible loans that took place in 2018.

Results of operations during the six months ended June 30, 2018, as compared to the six months ended June 30, 2017

Our research and development expenses were $630,965 for the six months ended June 30, 20172018, as compared to $2,820,401nil during the same period in the prior year. The increase was due to research and development expenses incurred as a result of the development for our virtual crypto products.

Our general and administrative expenses increased to $1,420,798 for the six months ended June 30, 2018, as compared to $553,026 during the same period in the prior year. The significant decreaseincrease was due to increasednon-cash consulting expenses relatingpaid via the issuances of the Company’s shares of common stock and warrants to certain consultants who assisted in the merger between the Company and Emerald Medical Applications Ltd. as well as share based compensation that were incurred during the six months ended June 30, 2016.establishment of our new business operations.

Interest expense increased to $662,181$21,989,842 for the six months ended June 30, 20172018, as compared income of to $27,547$651,626 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 six months ended June 30, 2018.

Issuance of equity during the six-month period ended June 31, 2018

During the first quarter of 2018, the Company received the aggregate amount of $1,940,950 from certain “accredited investors” in consideration for the issuance of 27,697,855 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.

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 $892,300, 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 current period is dueCompany’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 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.

On April 20, 2018, the Company issued a total of 700,000 restricted shares of its common stock to certain consultants in connection with services rendered during the second quarter of 2018, which shares were valued at $112,000, 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 penaltiesCompany’s Statements of Operations and liquidation damages calculatedComprehensive Loss, with a corresponding credit to Additional Paid in Capital in the Settlement Agreement betweenCompany’s Statement of Changes in Stockholders’ Deficit.

Issuance of new convertible notes during the six-month period ended June 30, 2018

From January 16, 2018 through January 23, 2018, the Company that Alphareceived 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 was converted at a conversion price of $0.01 per share into 300,000 shares of the Company’s common stock.

Liquidity and Capital Resources

Our balance sheet asAs of June 30, 2017 reflects current assets of $17,768 consisting of cash of $14,110 and other receivables of $3,658. As of December 31, 2016,2018, we had current assets of $13,842$1,167,102, consisting of cash of $4,486,$1,108,779 and other receivablesshort term investment of $9,356.$58,323. 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 totalalso have $1,195,400 in current liabilities of $2,042,931 consisting of $279,284$119,265 in accounts payable and accrued liabilities, $740,860 as a provision for settlement$100,000 of deferred revenues, $55,049 employee payable, nil in accrued interest, short-term portion of convertible notes $88,178of $438,264 and liabilities held of sale in respect of our discontinued operations of $482,822. 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$28,298 as of June 30, 20172018, as compared to negative working capital $944,355of $996,760 at December 31, 2016.2017. Our total liabilities as of June 30, 20172018 were $1,997,231$1,195,400, as compared to $958,197$1,618,106 at December 31, 2016.2017.

During the six month period ended June 30, 2017,2018, we had negative cash flow from continuing operations of $511,652,$935,193, which was the result of a net loss of $1,694,608,$24,041,605, depreciation expense of $14,290, increase in accrued interest of $26,033, $7,445 depreciation expense, $325,399 forand amortization of debt discount $5,698on convertible notes of $523,481, increase in other receivables, $740,860 increase in the provision for the settlementsettlements of convertible loans, 37,656 increaseloan of $21,472,897, $1,044,144 worth of shares and warrants issued for services, $50,000 in accounts payableproceeds from deferred revenues, and accrued liabilities,gain from short term investment of $8,323, offset by $34,832 decreasenet changes in amounts due from related party.working capital of $9,923.

During the six months ended June 30, 2017,2018, 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, 2017,2018, we had positive cash flow from financing activities of $526,213$2,041,013, which was the result of $526,213 proceeds of $1,940,950 received from sale of common stock and related warrants (net of issuance expenses), $100,000 received from the issuance of equity.short-term convertible notes, and $63 from the exercise of options. Based on the receipt of these funds, we believe we have adequate capital to operate pursuant to our business plan through June 2019. We have no plans to seek additional capital at this time as we believe we have funds for our operations through that date.

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.combination, subject to the maximum number of shares of the Company’s common stock authorized under the Company’s Certificate of Incorporation. 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 some or all of its operations.

The Company has only limited capital. Additional financing is necessary for the Company to continue as a going concern. OurThe Company’s independent auditors haveregistered public accounting firm issued its unqualified audit opinion for the periodfiscal year 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 Company’s 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, 2017,2018, 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, 20172018 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, 20172018 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, the majority of the Company’s Board of Directors authorized the termination of Lior Wayn as CEO/president of the Company and of its then 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 Company further reported in the Form 8-K 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 by Mr. Wayn with the Tel Aviv, Israel court claiming certain damages in 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 unsupported by the evidence and wholly without merit and intends to vigorously defend itself against these claims. While the Company believes that Mr. Wayn will not be successful in his claim, notwithstanding the outcome of this proceeding, the Company believes that it will not materially affect the Company.

As discussed above, in December 2017, a liquidation request was filed with the 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 District 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 District Court. The amounts being claimed by the former employees were less than $96,000 and are included in current liabilities at June 30, 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 reported to the District Court regarding the failure in contracting a buyer for its DermaCompare technology at fair market price and therefore that Emerald Israel was no longer opposed to the requested Liquidation Warrant. On May 1, 2018, the Official Receiver submitted its response to the District 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 issued a Winding-up Order 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 to Table of Contents

None.On April 20, 2018, the Company issued a total of 700,000 restricted shares of its common stock to certain consultants in connection with services rendered during the second quarter of 2018, which shares were valued at $112,000, 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 Statements of Operations and Comprehensive Loss, with a corresponding credit to Additional Paid in Capital in the Company’s Statement of Changes in Stockholders’ Deficit.

The offer and sale of the Company’s shares of common stock referenced above, without registration under 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 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.

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.undersigned hereunto duly authorized.