Optionable Inc - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - Optionable Inc	ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - Optionable Inc	ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - Optionable Inc	ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - Optionable Inc	ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

ý	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended March 31, 2011.

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from ___________ to ___________

Commission File Number: 000-51837

OPTIONABLE, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		52-2219407
(State or Other Jurisdiction of Incorporation or		(IRS Employer Identification No.)
Organization)

55 St. Marks Place, Suite 4, New York, NY		10003
(Address of Principal Executive Offices)		(Zip Code)

(914) 773-1100

(Registrant’s Telephone Number Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesý Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o		Accelerated Filer o
Non-accelerated Filer o		Smaller reporting company ý

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

The number of outstanding shares of the registrant’s Common Stock as of May 12, 2011 is 48,333,128.

OPTIONABLE, INC.

INDEX

PART I:	FINANCIAL INFORMATION

ITEM 1:	FINANCIAL STATEMENTS (Unaudited)	4

	Consolidated Balance Sheets	4

	Consolidated Statements of Operations	5

	Consolidated Statements of Cash Flows	6

	Notes to the Consolidated Financial Statements	7

ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS	17

ITEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20

ITEM 4:	CONTROLS AND PROCEDURES	20


PART II:	OTHER INFORMATION

ITEM 1:	LEGAL PROCEEDINGS	21

ITEM 1A :	RISK FACTORS	22

ITEM 2:	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	22

ITEM 3:	DEFAULTS UPON SENIOR SECURITIES	22

ITEM 5:	OTHER INFORMATION	22

ITEM 6:	EXHIBITS	22

SIGNATURES		27

OPTIONABLE, INC. CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2011			2010
	(Unaudited)			(Audited)
ASSETS
Current Assets:
Cash and cash equivalents	$	2,596,725		$	3,054,598
Refundable income taxes		92,393			92,393
Prepaid expenses		-			317,033
Total current assets		2,689,118			3,464,024


Total assets	$	2,689,118		$	3,464,024

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable and accrued expenses	$	295,200		$	97,740
		295,200			97,740

Due to director, net of unamortized discount of $229,569 and $245,243
at March 31, 2011 and December 31, 2010, respectively		279,128			263,454
Total liabilities		574,328			361,194

Stockholders' Equity:
Preferred Stock; $.0001 par value, 5,000,000 shares authorized, none issued
and outstanding at March 31, 2011 and December 31, 2010		-			-
Common stock; $.0001 par value, 100,000,000 shares authorized,
52,428,203 issued and 48,333,128 outstanding
at March 31, 2011 and December 31, 2010		5,242			5,242
Additional paid-in capital		162,794,840			162,792,730
Treasury stock at cost, 4,095,075 shares at March 31, 2011 and December 31, 2010		(47,552	)		(47,552	)
Accumulated deficit		(160,637,740	)		(159,647,590	)

Total stockholders’ equity		2,114,790			3,102,830

Total liabilities and stockholders’ equity	$	2,689,118		$	3,464,024

See Notes to Unaudited Consolidated Financial Statements.

OPTIONABLE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS


	For the three months ended
	March 31,
	2011			2010
	(Unaudited)			(Unaudited)

Operating expenses:
Selling, general and administrative	$	979,541		$	786,612

Total operating expenses		979,541			786,612

Operating loss		(979,541	)		(786,612	)

Other income (expense):
Interest income		5,064			2,933
Interest expense to related parties		(15,673	)		(13,909	)
		(10,609	)		(10,976	)

Loss before income tax benefit		(990,150	)		(797,588	)

Income tax benefit		-			147,912

Net loss	$	(990,150	)	$	(649,676	)

Basic loss per common share	$	(0.02	)	$	(0.05	)

Diluted loss per common share	$	(0.02	)	$	(0.05	)

Basic weighted average common
shares outstanding		48,333,128			48,333,128

Diluted weighted average common shares outstanding		48,333,128			48,333,128

See Notes to Unaudited Consolidated Financial Statements.

OPTIONABLE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the three months ended
	March 31,
	2011			2010
	(Unaudited)			(Unaudited)

Cash flows from operating activities:
Net loss	$	(990,150	)	$	(649,676	)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization of debt discount		15,673			13,909
Share-based compensation expense		2,110			938
Changes in operating assets and liabilities:
Prepaid expenses		317,033			(2,414	)
Accounts payable and accrued expenses		197,461			(61,292	)
Recoverable income taxes		-			781,417

Net cash (used in) provided by operating activities		(457,873	)		82,882

Net cash used in investing activities		-			-

Net cash used in financing activities		-			-

Net (decrease) increase in cash		(457,873	)		82,882

Cash, beginning of period		3,054,598			4,231,534

Cash, end of period	$	2,596,725		$	4,314,416

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	-		$	-

Cash paid for interest	$	-		$	-

Noncash investing and financing activities:	$	-		$	-

See Notes to Unaudited Consolidated Financial Statements.

OPTIONABLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Organization, Description of Business and Going Concern

Optionable, Inc. (the “Company”) is a corporation that was formed in Delaware in February 2000. Between April 2001 and July 2007, a substantial portion of its revenues were generated from providing energy derivative brokerage services to brokerage firms, financial institutions, energy traders, and hedge funds worldwide.

The Company has not generated any revenues since the third quarter of 2007 as a result of the termination of the business relationship with it by its largest customer together with the combined succession of events since then. The litigation matters listed below and discussed in Item 1 of Part II of this Report, “Legal Proceedings” have had a significant adverse impact on its business, including current and, likely, future results of operations and financial condition.

The Company’s management is seeking out possible business transactions and new business relationships in areas unrelated to brokerage services.

The Company is a defendant to three significant legal proceedings, one from the Commodities and Futures Trade Commission (“CFTC”), another from its largest stockholder, Chicago Mercantile Exchange/ New York Mercantile Exchange (“NYMEX”), and a third one from its former largest customer, Bank of Montreal (“BMO”). Also named in such lawsuits, among others, are: one of the Company’s current board members and former president, as well as the Company’s former chief executive officer. The Company’s former chairman is a defendant in the latter two proceedings. Additionally, the Company’s former chief executive officer and former president (who is a current board member) are defendants in a claim made by the Securities and Exchange Commission. Furthermore, the US Department of Justice has indicted the Company’s former chief executive officer.

Going Concern

The Company is unable to determine whether it will have sufficient funds to meet its obligations for at least the next twelve months. The combination of its anticipated legal costs to defend against current legal proceedings, the potential amounts the Company would have to pay if there are negative outcomes in one or more of such legal proceedings and the Company’s obligations under its indemnification obligations could exceed the Company’s resources. The legal proceedings also negatively impact the Company’s ability to enter into strategic transactions with other companies. The Company’s future depends on its ability to satisfactorily resolve the aforementioned legal issues and there is no assurance it will be able to do so. If the Company fails for any reason, it would not be able to continue as a going concern and could potentially be forced to seek relief through a filing under the US Bankruptcy Code.

OPTIONABLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and the footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011. The accompanying consolidated financial statements should be read in conjunction with the Company’s form 10-K for the fiscal year ended December 31, 2010 which was filed on April 4, 2011.

Note 2 - Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Concentration of Credit Risks

The Company is subject to concentrations of credit risk primarily from cash and cash equivalents.

The Company's cash and cash equivalents accounts are held at financial institutions and are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000 between January 2007 and October 2008 and $250,000 for interest-bearing accounts and an unlimited amount for noninterest-bearing accounts after October 2008. During the three-month periods ended March 31, 2011 and March 31, 2010, the Company had bank balances exceeding the FDIC insurance limit. While the Company periodically evaluates the credit quality of the financial institutions in which it holds deposits, it cannot reasonably alleviate the risk associated with the sudden failure of such financial institutions. The Company’s cash and cash equivalents held at financial institutions exceeded the FDIC insurance limit at March 31, 2011 and December 31, 2010, respectively.

Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted Financial Accounting Statement Board (“FASB”) Accounting Standard Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements.

OPTIONABLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

	Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities

	Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data

	Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

The Company did not have any Level 2 or Level 3 assets or liabilities as of March 31, 2011 and December 31, 2010, with the exception of its due to director. The Company deems that the carrying value of the due to director approximates the fair value at March 31, 2011 and December 31, 2010.

Cash and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of March 31, 2011 and December 31, 2010, respectively. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.

In addition, ASC 825-10-25, “Fair Value Option,” was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value option for any of its qualifying financial instruments.

Income Taxes

Income taxes are accounted for in accordance with "Accounting for Income Taxes", which requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company's assets and liabilities result in a deferred tax asset, ASC 740 requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some or all deferred tax assets will not be realized. Penalties and interest on underpayment of taxes are reflected in the Company’s effective tax rate.

OPTIONABLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by management include, but are not limited to, the realization of receivables and share-based payments. Actual results will differ from these estimates.

Basic and Diluted Earnings per Share

Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common shares and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of stock options and warrants (calculated using the modified-treasury stock method). The outstanding options amounted to 2,183,000 and 1,233,000 at March 31, 2011 and March 31, 2010 respectively. The outstanding warrants amounted to 0 and 100,000 at March 31, 2011 and March 31, 2010, respectively. The options and warrants outstanding at March 31, 2011 and March 31, 2010, respectively, have been excluded from the computation of diluted common shares outstanding and diluted earnings per share due to their anti-dilutive effect.

Stock Compensation

Under ASC 718, Compensation-Stock Compensation, companies are required to measure the costs of stock-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. In March 2005, the SEC issued SAB 107. SAB 107 expresses views of the staff regarding the interaction between ASC 718 and certain SEC rules and regulations and provides the staff's views regarding the valuation of share-based payment arrangements for public companies. Compensation cost is measured on the date of grant as its fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.

OPTIONABLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Contingencies

The outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty. FASB ASC 450-20-25-2, “Contingencies- Loss Contingencies-Recognition”, requires that an estimated loss from a loss contingency such as a legal proceeding or claim should be accrued by a charge to income if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. Disclosure of a contingency is required if there is at least a reasonable possibility that a loss has been incurred.

In determining whether a loss should be accrued the Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. While the Company believes that it will continue to incur losses from such legal proceedings, it is unable to make a reasonable estimate of the amount of loss.

Recent Accounting Pronouncements

A variety of accounting standards have been issued or proposed by FASB that do not require adoption until a future date. The Company does not expect the adoption of any of these standards to have a material impact once adopted.

Note 3- Prepaid expenses

Prepaid expenses primarily consists of retainers paid to certain law firms which represent the Company and certain former and current directors and officers in connection with legal proceedings which are described in Note 6 – “Litigation and Contingencies”.

Note 4 - Due to Related Parties

The terms and amounts of due to related parties at March 31, 2011 and December 31, 2010 are as follows:

Due to Director and former President, non-interest bearing, unsecured, payable by March 12, 2014, if the Company obtains additional equity or debt financing of at least $1,000,000 following a capital raise, the Company will repay its Director up to 5.3% of the capital raise, up to $381,250, with the remaining balance and accrued interest of 4.68% from the date of the capital raise due on March 12, 2014:

OPTIONABLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	March 31,		December 31,
	2011		2010
	$	508,697	$	508,697
Discount, using initial implied rate of 12%		(229,569)		(245,243)
	$	279,128	$	263,454

The amortization of the discount on the due to related parties amounted to approximately $15,673 and $14,000 during the three-month periods ended March 31, 2011 and March 31, 2010, respectively.

Note 5- Stockholders' Equity

Stock Compensation Plan

During November 2004, the Company adopted the 2004 Stock Option Plan, and amended it as of March 1, 2011 (as amended, the "2004 Plan"). The 2004 Plan allows for the grant of both incentive stock options and nonstatutory stock options. The 2004 Plan may be administered, interpreted and constructed by the Board of Directors. The number of shares of common stock which may be issued pursuant to options granted under the 2004 Plan may not exceed 7,500,000 shares.

During the three-month periods ending March 31, 2011 and March 31, 2010, respectively, the Company recorded share-based payment expenses amounting to approximately $2,110 and $938, in connection with all options outstanding at the respective measurement dates. The amortization of share-based payment was recorded in selling, general and administrative during such periods.

The Company granted 500,000 options in March 2011, as follows: 100,000 options were granted to each of CEO Brad O'Sullivan, CFO Matthew Katzeff, Director Andrew Samaan, Director and former President Edward O’Connor and Comptroller Michael Templeton. These were the only options granted during the three-month period ended March 31, 2011.

The Company granted no options during the three-month period ended March 31, 2010.

OPTIONABLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The fair value of the options granted during the three-month period ended March 31, 2011 is based on the Black Scholes Model using the following assumptions:

Exercise price:	$0.020

Market price at date of grant:	$0.020

Volatility:	162%

Expected dividend rate:	0%

Expected terms:	5 years

Risk-free interest rate:	2.12%

The following activity occurred under our plan:

	Three-month periods ended March 31,
	2011		2010

Weighted-average grant-date fair value of options granted	$	0.020	$	N/A

Fair value of options granted	$	9,335	$	N/A

The total compensation cost related to nonvested options not yet recognized amounted to approximately $7,200 at March 31, 2011 and the Company expects that it will be recognized over the following weighted-average period of 23 months.

If any options granted under the 2004 Plan expire or terminate without having been exercised or cease to be exercisable, such options will be available again under the 2004 Plan. All employees of the Company and its subsidiaries, if any, are eligible to receive incentive stock options and nonstatutory stock options. Non-employee directors and outside consultants who provided bona-fide services not in connection with the offer or sale of securities in a capital raising transaction are eligible to receive nonstatutory stock options. Incentive stock options may not be granted below the fair market value of the Company's common stock at the time of grant or, if to an individual who beneficially owns more than 10% of the total combined voting power of all stock classes of the Company or a subsidiary, the option price may not be less than 110% of the fair value of the common stock at the time of grant. The expiration date of an incentive stock option may not be longer than ten years from the date of grant. Option holders, or their representatives, may exercise their vested options up to three months after their employment termination or one year after their death or permanent and total disability. The 2004 Plan provides for adjustments upon changes in capitalization. With respect to the current directors and officers of the Company, their nonstatutory stock options do not expire until the second anniversary of their resignation of the Company for Good Reason or termination without Cause (as these terms are defined in the 2004 Plan), or upon the occurrence of certain other events. The 2004 Plan provides for adjustments upon changes in capitalization.

OPTIONABLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company's policy is to issue shares pursuant to the exercise of stock options from its available authorized but unissued shares of common stock. It does not issue shares pursuant to the exercise of stock options from its treasury shares.

Note 6 - Litigation and Contingencies

Regulatory Matters

Commodity Futures Trading Commission v. Cassidy et al.

On November 18, 2008, the Commodity Futures Trading Commission (“CFTC”) filed a complaint in the United States District Court for the Southern District of New York, against the Company; former employees of the Company, including its former Chief Executive Officer, Kevin Cassidy, and its former President (currently a Director), Edward O’Connor; and two former employees of BMO, David Lee and Robert Moore. The CFTC claims that the Company is liable for violations of Section 4c(b) of the Commodity Exchange Act (“CEA”) and CFTC Regulations 33.10(a),(b) and (c). The CFTC seeks a permanent injunction restraining and enjoining the Company and other defendants from directly or indirectly violating these provisions. The CFTC further seeks an order directing the Company and other defendants to pay civil monetary penalties, in an undetermined amount. The Company is unable to predict the outcome of this matter. The Court denied our motion to dismiss the complaint on March 31, 2010.

CMEG NYMEX Inc. v. Optionable, Inc. et. al.

On April 10, 2009, NYMEX filed a complaint against the Company, several past and present officers and directors (one of whom is a current director), and other defendants in the United States District Court for the Southern District of New York. The complaint claims that defendants are liable for securities and common-law fraud, negligent misrepresentation, and breach of warranty in connection with an April 2007 transaction in which several individuals who were officers and directors of the Company at the time sold shares in it to NYMEX and the Company issued NYMEX warrants for the purchase of additional shares. The complaint seeks rescission, compensatory damages of at least $28.5 million, and punitive damages of $28.5 million. The Company is unable to predict the outcome of this matter. The Court denied our motion to dismiss the complaint on March 31, 2010.

OPTIONABLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Bank of Montreal v. Optionable, Inc. et al.

On August 28, 2009, the Bank of Montreal (“BMO”) filed a complaint against the Company and other defendants in the United States District Court for the Southern District of New York. The other defendants include former employees Scott Connor and Ryan Woodgate, former chief executive officer Kevin Cassidy, former chairman Mark Nordlicht, and former president (and currently a Director) of the Company, Edward O’Connor, as well as MF Global Inc. and one of its current or former employees. The complaint claims that the Company is liable for fraud, negligent misrepresentation, breach of fiduciary duty, and breach of contract. It demands compensatory and punitive damages in an undetermined amount, and it demands indemnification from the Company for certain of BMO’s trading losses and attorneys’ fees. The Company is unable to predict the outcome of this litigation. The Court denied our motion to dismiss the complaint on June 18, 2010.

Claims from former employee

On December 9, 2009, Scott Connor, a co-defendant in the BMO action, filed cross-claims against the Company. Connor claims rights to indemnity and contribution from the Company for any liability he may have to BMO. He also lays claims of breach of contract, quantum meruit, and unjust enrichment, on the basis of an allegation that the Company failed to pay him the full amount of salary and commissions that was due to him for 2007. The Company is unable to predict the outcome of this matter. The Company filed a motion to dismiss Mr. Connor’s claims against it on November 15, 2010, which is still pending before the Court.

While the Company intends to defend itself vigorously against such claims and cross-claims, there exists the possibility of adverse outcomes that the Company cannot determine. These matters are subject to inherent uncertainties and management’s view of these matters may change in the future.

Note 7 - Income Taxes

The tax benefit of the net operating loss for the three-month period ended March 31, 2011 was approximately $340,000. Realization of this benefit is dependent on the Company earning future taxable income. This amount is fully reserved by a valuation allowance due to the uncertainty of realization.

The recoverable income tax amounting to approximately $92,000 as of March 31, 2011 and December 31, 2010 is recoverable from applications for carryback refund from the Company’s 2006 federal tax returns.

OPTIONABLE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8 – Subsequent Events

In accordance with ASC 855, “Subsequent Events”, the Company evaluated subsequent events after the balance sheet date of March 31, 2011 through the date on which these financial statements were filed.

The Company did not have any material subsequent events to disclose.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Optionable, Inc. (the “Company”) was formed in Delaware in February 2000. Between April 2001 and July 2007, a substantial portion of the Company’s revenues were generated from providing energy derivative brokerage services to brokerage firms, financial institutions, energy traders, and hedge funds worldwide.

The Company has not generated any revenues since the third quarter of 2007 as a result of the termination of the business relationship by its largest customer and the succession of events since then. In addition, the matters discussed in Note 6 to the Financial Statements and Item 1 of Part II of this Report "Legal Proceedings" have had a significant adverse impact on its business and future results of operations and financial condition.

The Company is a defendant to three legal proceedings, one from the Commodities and Futures Trade Commission (“CFTC”), another from its largest shareholder, Chicago Mercantile Exchange/ New York Mercantile Exchange (“NYMEX”), and a third one from its former largest customer, Bank of Montreal (“BMO”). Also named in such lawsuits, among others, are: one of the Company’s current board members and former president, as well as the Company’s former chief executive officer. The Company’s former chairman is a defendant in the latter two proceedings. Additionally, the Company’s former chief executive officer and former president are defendants in a claim made by the Securities and Exchange Commission. Furthermore, the US Department of Justice has indicted the Company’s former chief executive officer.

The Company has exhausted its insurance policy for the current litigation matters described in Note 6 to the Financial Statements and Item 1 of Part II of this Report "Legal Proceedings". As a result of this and the fact that the Company has not generated any revenues since the third quarter of 2007, the Company cash reserves, liquidity and capital resources likely will decrease more rapidly in the coming reporting cycles. The Company’s Board of Directors has placed a cap on advancements for litigation expenses at $40,000 per month per defendant. Going forward these advancements for litigation fees will no longer be covered by insurance.

GOING CONCERN

Results of Operations

							Increase/			Increase/
	For the three months ended						(Decrease)			(Decrease)
	March 31,						in $ 2011			in % 2011
	2011			2010			vs 2010			vs 2010


Operating expenses:
Selling, general and administrative		979,541			786,612			192,929			24.5	%
Total operating expenses		979,541			786,612			192,929			24.5	%

Operating loss		(979,541	)		(786,612	)		(192,929	)		24.5	%

Other income (expense):
Interest income		5,064			2,933			2,131			72.7	%
Interest expense-related parties		(15,673	)		(13,909	)		1,764			12.7	%
		(10,609	)		(10,976	)		(367	)		-3.3	%

Net loss before income tax		(990,150	)		(797,588	)		(192,562	)		24.1	%

Income tax benefit		-			147,912			(147,912	)		-100.0	%

Net loss	$	(990,150	)	$	(649,676	)	$	340,474			52.4	%

NM: Not meaningful

General and administrative expenses

General and administrative expenses consists primarily of legal fees, incurred in connection with the Company’s attention to matters described in Note 6 to the Financial Statements and Item 1 of Part II of this Report "Legal Proceedings", expenses incurred in connection with the handling of certain matters which occur during the course of our operations and compensation of personnel supporting our operations.

The increase in general and administrative expenses during the three-month period ended March 31, 2011, in comparison to the comparable period in 2010, is primarily due to the increase in expenses of legal counsel, which were approximately $920,000 and $560,000 for the three-month periods ended March 31, 2011 and March 31, 2010, respectively, offset by substantially lower salaries having been paid to the Company's current chief executive officer and chief financial officer compared to their predecessors.

As a result of the matters discussed above and in Item 1 of Part II of this Report, we believe that our legal fees for 2011 will continue to constitute a large share of our general and administrative expenses.

Interest income

Interest income consists primarily of interest earned on interest-bearing cash and cash equivalents. The increase in interest income during the three month period ended March 31, 2011, in comparison to the comparable period in 2010, is primarily due to the increase in the amount of the Company’s cash and cash equivalents held in interest bearing-accounts.

Interest expense to related parties

Interest expense to related parties consists of interest charges associated with amounts due to related parties. As of March 31, 2011, the only remaining related party note payable is due to Edward O’Connor. The increase in interest expense to related parties during the three-month period ended March 31, 2011, in comparison to the comparable period in 2010, is due to the amortization of the discount. See Note 4 to Financial Statements.

Income tax

Income tax benefit/expense consists of federal and state current and deferred income tax or benefit based on our net income. The decrease in our deferred income tax benefit during the three-month period ended March 31, 2011, in comparison to the comparable period in 2010, is primarily due to refundable taxes having been delivered since the end of the prior year period and prior to the commencement of the current period. See Note 7 to Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Our cash balance as of March 31, 2011 amounts to approximately $2.6 million.

During the three-month period ended March 31, 2011, we used cash for operating activities of approximately $458,000, resulting from the net loss incurred by the Company of approximately $990,000, adjusted for:

	·	the amortization of debt discount of approximately $15,673 and share-based compensation expense of approximately $2,100;
	·	a decrease in prepaid expenses of approximately $317,000; and
	·	an increase in accounts payable and accrued expenses of approximately $197,000.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A summary of significant accounting policies is included in Note 2 of the unaudited financial statements included in this Report. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition. Our financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management's application of accounting policies. Critical accounting policies for us include the following:

Contingencies

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying consolidated financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of May 12, 2011, our Chief Executive Officer and our Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon that evaluation, our Chief Executive Officer and our Principal Financial Officer concluded that, as of May 12, 2011, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, including ensuring that such material information is accumulated and communicated to our Chief Executive Officer and our Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

PART II: OTHER INFORMATION

ITEM 1. Legal Proceedings

Commodity Futures Trading Commission v. Cassidy et al.

CMEG NYMEX Inc. v. Optionable, Inc. et. al.

Bank of Montreal v. Optionable, Inc. et al.

Claims from former employee

ITEM 1A. RISK FACTORS

Not applicable.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.		Description

3.1		Certificate of Incorporation of Optionable, Inc., dated February 4, 2000 (incorporated by reference to Exhibit 3(i)(a)to the registrant's Registration Statement on Form SB-2, filed December 22, 2004, file no. 333-121543 (the "SB-2").

3.2		Certificate of Amendment to the Certificate of Incorporation of Optionable, Inc., dated March 30, 2000 (incorporated by reference to Exhibit 3(i)(b) to the SB-2)

3.3		Certificate of Amendment to the Certificate of Incorporation of Optionable, Inc., dated May 31, 2000 (incorporated by reference to Exhibit 3(i)(c) to the SB-2).

3.4		Certificate of Amendment to the Certificate of Incorporation of Optionable, Inc., dated July 21, 2000 (incorporated by reference to Exhibit 3(i)(d) to the SB-2).

3.5		Corrected Certificate of Amendment to the Certificate of Incorporation of Optionable, Inc., dated January 31, 2003 (incorporated by reference to Exhibit 3(i)(e) to the SB-2).

3.6		Certificate of Amendment to the Certificate of Incorporation of Optionable, Inc., dated June 9, 2004 (incorporated by reference to Exhibit 3(i)(f) to the SB-2).

3.7		Amended and Restated By-laws of Optionable, Inc. (incorporated by reference to Exhibit 3(ii) to the SB-2)

10.1		Master Services Agreement with Capital Energy Services LLC dated April 1, 2004 including the Consulting Agreement as a part thereof and Addendum, dated October 7, 2004 (incorporated by reference to Exhibit 10(ii)(a) to the SB-2)

10.2		Addendum to Master Services Agreement (incorporated by reference to Exhibit 10(ii)(b) to the SB-2)

10.3		Amendment to Master Services Agreement (incorporated reference to the registrant's Current Report on Form 8-K, dated as of April 10, 2006)

10.4		Termination Agreement (of Master Service Agreement; incorporated by reference to the registrant's Current Report of Form 8-K, dated as of January 31, 2007)

10.5		Options Order Flow Agreement, dated July 1, 2004, between the Company and Intercontinental Exchange, Inc. (incorporated by reference to Exhibit 10(iii)(a) to the SB-2)

10.6		Superseding Option Order Flow Agreement, dated as of March 2, 2005 (incorporated by reference to Exhibit 10(iii)(b) to the SB-2)

10.7		Employment Agreement, as amended, between the Company and Edward J. O'Connor (incorporated by reference to Exhibit 10(iv) (a) to the SB-2)

10.8		Optionable, Inc. 2004 Stock Option Plan (incorporated by reference to Exhibit 4.1 to the registrant's Registration Statement on Form S-8, file number 333-129853, as filed on November 21, 2005 (the "S-8")

10.9		Form of Incentive Stock Option Agreement(incorporated by reference to Exhibit 4.2 to the S-8)

10.10		Nonstatutory Stock Option Agreement(incorporated by reference to Exhibit 4.3 to the S-8)

10.11		Prepaid Commission Agreement, dated February 3, 2003, between the Company and Mark Nordlicht (incorporated by reference to Exhibit 10(vi) to the SB-2).

10.12		Revolving Credit Facility Agreement, dated June 5, 2003, between the Company and Platinum ValueArbitrage Fund LP(incorporated by reference to Exhibit 10(vii)(a) to the SB-2)

10.13		$500,000 Revolving Promissory Note from the Company to Platinum Value Arbitrage Fund LP dated June 5, 2003 (incorporated by reference to Exhibit 10(vii)(b) to the SB-2)

10.14		Prepaid Commission Agreement, dated June 9, 2003, between the Company and Platinum Partners Value Arbitrage Fund LLP(incorporated by reference to Exhibit 10(viii) to the SB-2)

10.15		Loan Agreement, dated February 13, 2004, between the Company and Mark Nordlicht (incorporated by reference to Exhibit 10(ix)(a) to the SB-2)

10.16		$250,000 Promissory Note, dated February 13, 2004, from the Company to Mark Nordlicht (incorporated by reference to Exhibit 10(ix)(b) to the SB-2)

10.17		$250,000 Promissory Note Extension Agreement, dated September 9, 2004 (incorporated by reference to Exhibit 10(ix)(c) to the SB-2)

10.18		Loan Agreement, dated March 8, 2004, between the Company and Mark Nordlicht (incorporated by reference to Exhibit 10(x)(a) to the SB-2)

10.19		$50,000 Promissory Note, dated March 8, 2004, from the Company to Mark Nordlicht (incorporated by reference to Exhibit 10(x)(b) to the SB-2)

10.20		$50,000 Promissory Note Extension Agreement, dated September 9, 2004 (incorporated by reference to Exhibit 10(x)(c) to the SB-2)

10.21		Loan Agreement, dated March 22, 2004, between the Company and Mark Nordlicht (incorporated by reference to Exhibit 10(xi)(a) to the SB-2)

10.22		$5,621,753.18 Promissory Note, dated March 22, 2004, from the Company to Mark Nordlicht (incorporated by reference to Exhibit 10(xi)(b) to the SB-2)

10.23		Addendum to Loan Agreement, dated March 22, 2004 (incorporated by reference to Exhibit 10(xi)(c) to the SB-2)

10.24		Addendum to Promissory Note, dated March 22, 2004 (incorporated by reference to Exhibit 10(xi)(d) to the SB-2)

10.25		Revolving Credit Facility Agreement, dated April 15, 2004, between the Company and Mark Nordlicht (incorporated by reference to Exhibit 10(xii)(a) to the SB-2)

10.26		$50,000 Promissory Note, dated April 15, 2004, from the Company to Mark Nordlicht (incorporated by reference to Exhibit 10(xii)(b) to the SB-2)

10.27		Warrant Agreement for the Purchase of Common Stock (incorporated by reference to the registrant's Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 2006)

10.28		Service and Repurchase Agreement (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of January 31, 2007

10.29		Code of Business Conduct and Ethics (Incorporated by reference to the registrant’s Form 10-KSB for the fiscal year ended December 31, 2007)

10.30		Acquisition Agreement, dated March 23, 2007, between the Company, Peter Holmquist, Douglas Towne, and Joseph McHugh (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of March 23, 2007.

10.31		Release, Rescission and Termination Agreement, dated May 18, 2007, by and among Optionable, Inc., Peter Holmquist, Douglas Towne, Joseph McHugh and Nicole Troiani (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of May 18, 2007.

10.32		Separation and Release Agreement, dated July 25, 2007, by and among Optionable, Inc., Opex International, Inc., Kevin DeAndrea, Noah Rothblatt, Kevin Brennan and Nicole Troiani. (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of July 25, 2007).

10.33		Warrant, dated April 10, 2007, issued pursuant to that certain Stock and Warrant Purchase Agreement, dated April 10, 2007, by and among Optionable, Inc., NYMEX Holdings, Inc., Mark Nordlicht, Kevin Cassidy through Pierpont Capital, Inc. and Edward O'Connor through Ridgecrest Capital, Inc. (incorporated by reference to the registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2007)

10.34		Stock and Warrant Purchase Agreement, dated April 10, 2007, by and among Optionable, Inc., NYMEX Holdings, Inc., Mark Nordlicht, Kevin Cassidy through Pierpont Capital, Inc. and Edward O'Connor through Ridgecrest Capital, Inc.(portions of this exhibit are subject to a confidential treatment request) (incorporated by reference to the registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2007)

10.35		Investor Rights Agreement, dated April 10, 2007, by and among Optionable, Inc., NYMEX Holdings, Inc., Mark Nordlicht, Kevin Cassidy and Edward O'Connor. (incorporated by reference to the registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2007)

10.36		Waiver, dated April 10, 2007, by and between Optionable, Inc. and Mark Nordlicht, to that certain Loan Agreement, dated March 22, 2004, by and between Optionable, Inc. and Mark Nordlicht. (incorporated by reference to the registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2007)

10.37		Amended and Restated Employment Agreement, dated April 10, 2007, by and between Optionable, Inc. and Kevin Cassidy. (incorporated by reference to the registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2007)

10.38		Registration Rights Agreement, dated April 10, 2007, by and between Optionable, Inc. and NYMEX Holdings, Inc. (incorporated by reference to the registrant's Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2007)

10.39		Separation and Release Letter, dated November 6, 2007, by and between Optionable, Inc. and Albert Helmig (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of November 6, 2007).

10.40		Letter Agreement, dated as of November 26, 2007, by and between Optionable, Inc. and Thomas Burchill. (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of November 26, 2007).

10.41		Letter Agreement, dated as of November 26, 2007, by and between Optionable, Inc. and Dov Rauchwerger. (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of November 26, 2007).

10.42		Stock Option Agreement, dated as of November 26, 2007, by and between Optionable, Inc. and Thomas Burchill. (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of November 26, 2007).

10.43		Stock Option Agreement, dated as of November 26, 2007, by and between Optionable, Inc. and Dov Rauchwerger. (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of November 26, 2007).

10.44		Separation Agreement between Optionable, Inc. and Edward J. O’Connor dated as of January 28, 2009. (incorporated by reference to the registrant’s Current Report on Form 8-K dated as of February 2, 2009)

10.45		Employment Agreement between Optionable, Inc. and Thomas Burchill dated as of January 28, 2009(incorporated by reference to the registrant’s Current Report on Form 8-K dated as of February 2, 2009)

10.46		Letter Agreement dated as of January 15, 2009 with respect to compensation to Andrew Samaan (incorporated by reference to the registrant’s Current Report on Form 8-K dated as of February 2, 2009)

10.47		Settlement and Voting Agreement between Optionable, Inc. and Mark Nordlicht dated as of February 26, 2009 (incorporated by reference to the registrant’s Current Report on Firm 8-K dated as of February 27, 2009)

10.48		Employment Letter dated May 17, 2010 with respect to compensation to Brad P. O’Sullivan (incorporated by reference to the registrant’s Current Report on Form 8-K dated as of July 2, 2010)

10.49		Stock Option Agreement dated as of November 26, 2007, by and between Optionable, Inc. and Brad P. O’Sullivan (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of July 2, 1010).

10.50		Indemnification Agreement, by and between Optionable, Inc. and Brad P. O’Sullivan (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of July 2, 1010).

10.51		Indemnification Agreement, by and between Optionable, Inc. and Andrew Samaan (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of July 2, 1010).

10.52		First Amendment to 2004 Stock Option Plan (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of March 4, 2011).

10.53		Amendment to Stock Option Agreement between Optionable, Inc. and Matthew Katzeff (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of March 4, 2011).

10.54		Amendment to Stock Option Agreement between Optionable, Inc. Brad O’Sullivan (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of March 4, 2011).

10.55		Amendment to Stock Option Agreement between Optionable, Inc. and Andrew Samaan (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of March 4, 2011).


31.1*		Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act

31.2*		Certification by Principal Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act

32.1*		Certification by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code

32.2*		Certification by Principal Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code

* Filed herewith

SIGNATURES

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

May 12, 2011

	Optionable, Inc.


	By:	/s/ Brad P. O’Sullivan

		Brad P. O’Sullivan

		Chief Executive Officer

		(Principal Executive Officer)

Attached files

Stock widget

Investing forum

Optionable Inc Reports

Also read