UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-K
   (Mark
One)
  T
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2008
 
  ̈
TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 FOR THE
TRANSITION PERIOD FROM __________ TO __________
  COMMISSION
FILE NUMBER: 000-51837
 
 OPTIONABLE,
INC.
 (Name of
registrant in its charter)
 
 Delaware
                  (State
      or other jurisdiction of incorporation or organization)
                52-2219407
                  (I.R.S.
      Employer Identification No.)
 
 95 Croton Avenue, Suite 32,
Ossining, NY 10562
 (Address
of principal executive offices) (Zip Code)
 
 Issuer’s
telephone Number: (914)
773-1100
 
 Securities
registered under Section 12(b) of the Exchange Act: None.
 
 Securities
registered under Section 12(g) of the Exchange Act: Common Stock:
$.0001
 
 Indicate by check mark whether the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
o No
x
   Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes o No
x
 
 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 x No
o
   Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
   Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
 
 Large
accelerated filer oAccelerated
filero
 Non-accelerated
filer   oSmaller
reporting company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
   
 The
aggregate market value of the common stock held by non-affiliates of the
registrant, based upon the last sale price of the common stock reported on the
OTC-Bulletin Board on December 31, 2008 was $325,875.
   The
number of shares of registrant’s common stock outstanding, as of February 10,
2009 was 52,423,403.
   DOCUMENTS
INCORPORATED BY REFERENCE
   None.
 
 
  
 TABLE
OF CONTENTS
  
 PagePART IItem
      1.        Description of
      Business
                                  1Item
      1A.    Risk Factors
                                  5Item
      2.        Properties
                                  11Item
      3.        Legal
    Proceedings
                                  11Item
      4.        Submission of Matters to a
      Vote of Security Holders
                                  13PART IIItem
      5.       Market for Common Equity and
      Related Stockholder Matters
                                  13Item
      6.       Selected Financial
    Data
                                  15Item
      7.       Management’s Discussion and
      Analysis or Plan of Operation
                                  15Item
      7A.   Quantitative and Qualitative Disclosures about Market
      Risks
                                  21Item
      8.       Financial Statements and
      Supplementary Data
                                  21Item
      9.       Changes In and Disagreements with
      Accountants on Accounting and Financial Disclosure
                                  21Item
      9A.    Controls and Procedures
                                  21Item
      9B.     Other Information
                                  23PART IIIItem
      10.     Directors, Executive Officers, Promoters
      and Control Persons; Compliance
      With Section 16(a) of the Exchange Act
                                  23Item
      11.     Executive Compensation
                                  26Item
      12.     Security Ownership of Certain Beneficial
      Owners and Management and
      Related Stockholder Matters
                                  28Item
      13.     Certain Relationship and Related
      Transactions
                                  30Item
      14.     Principal Accountant Fees and
      Services
                                  33Item
      15.     Exhibits
                                  34SIGNATURES
                                  38
 
 
 
 PART
I
 
 ITEM
1.  DESCRIPTION OF BUSINESS.
 
  Optionable, Inc. (“the “Company”) was formed in Delaware in
February 2000. Between April 2001 and July 2007, a substantial portion of our
revenues were generated from providing energy derivative brokerage services to
brokerage firms, financial institutions, energy traders, and hedge funds
worldwide. A substantially portion of all energy derivatives we have brokered in
the past were natural gas derivatives.
   We
launched our electronic trading system, OPEX, in 2006 and we enhanced its
features and functionalities during 2007 and 2008. Users of OPEX can execute on
the platform mostly energy-related derivative trades. A significant portion of
the contracts executable on OPEX are those offered by NYMEX, a US exchange.
However, we believe that OPEX features and functionalities can be ported to
other derivatives as well, such as credit default swaps, interest-related
derivatives, metals and other commodities. Additionally, we believe that OPEX,
with appropriate enhancements, may be able to execute transactions offered by
other exchanges as well. Effective November 4, 2008, the Company has suspended
the development of OPEX. However, we intend to maintain OPEX and explore its
possible sale or licensing.
   A
significant portion of our revenues through the third quarter of 2007 was
derived from our business relationship with BMO Financial Group ("BMO"). We have
not generated any revenues since the third quarter of 2007 as a result of the
suspension of the business relationship with us by BMO together with the
combined succession of events since then. In addition, the matters discussed in
Item 3 of Part I of this Report "Legal Proceedings" have had a significant
adverse impact on our business, including current and, likely, future results of
operations and financial condition. Our management continues to seek out
possible business transactions and new business relationships. Accordingly,
we have refined our business strategy by seeking the following
options:
 
 (1)
              to
      get advice from investment bankers as to whether we could or should sell
      our technology;
 (2)
              to
      license our technology to joint ventures with other brokerage or software
      development firms; and
 (3)
              to
      merge with another company, with a preference to combine with an operating
      brokerage firm.
   We are
also considering whether we should satisfy our existing obligations with current
creditors and distribute our remaining assets to our stockholders.
 
 We
believe that if we merge with an existing brokerage firm, we may be able to
maximize the value of our intangible assets. While we have been in discussions
for strategic transactions with certain brokerage and software development firms
from time to time, none of these discussions have materialized into an agreement
with any of these parties. We cannot guarantee that we will be able to enter
into a strategic transaction with a third party in the foreseeable
future.
   While we
believe that it is likely that we will have to sell our technology, we are
currently unable to determine whether we will continue to have any significant
continuing involvement in the development or operations of OPEX or the brokerage
operations of a brokerage firm with which we may combine our
operations.
  
 
  GOING
CONCERN
   The
Company believes it has sufficient funds to meet its obligations, based on its
internal projections, for at least the next twelve months. However, the Company
cannot guarantee that it will do so. If there are unforeseen expenses or
financial obligations which occur during that period such as those related to
matters disclosed in Part I, Item 3- Legal Proceedings, the Company may not be
able to meet such obligations. Additionally, if the Company acquires a brokerage
or trading firm or a technology company which could be instrumental in the
Company's long-term growth, this could hamper the Company's ability to continue
as a going concern, both from a short-term or a long-term perspective, and the
Company would have to resort to financing, through either debt or equity
placements, for the funding of either such acquisitions or unforeseen expenses
or financial obligations. There can be no assurance that any such financing
would be available on acceptable terms, or at all, especially in light of the
pending litigation against the Company and recent economic
conditions.
   INDUSTRY
   The
markets for energy commodities trading include trading in both physical
commodities contracts and derivative instruments -- instruments that derive
their value from an underlying energy commodity or index -- across a wide
variety of commodities, including crude oil, natural gas, electricity or power,
coal, chemicals, weather and emissions. Derivative instruments provide a means
to manage exposure to price risk, asset portfolio allocation, speculation or
arbitrage. Contracts for physical commodities allow counterparties to contract
for the delivery of the underlying physical asset.
   ENERGY
DERIVATIVES
   Energy
derivatives are characterized by its underlying commodity (e.g., natural gas),
the term of the contract, and the settlement, which can require physical
delivery or financial settlement. The energy derivatives with the most liquidity
are those with shorter settlement or expiration dates (less than three months).
Derivatives with longer settlement or expiration dates are also larger in dollar
volume and are not as liquid, requiring more extensive resources to find
potential counterparties. Accordingly, these derivatives tend to generate higher
brokerage transaction fees.
   Energy-based
commodities are actively traded.
   Market
Participants
   Financial
institutions, including bank brokerage houses and hedge funds as well as
eligible individual traders use energy derivatives market to weigh their risk
and rewards in: 1) a balanced portfolio asset allocation without investing in
the physical asset, and 2) speculate on the price movement of the commodity
prices or the related derivatives. Energy producers, distributors and large
consumers will use energy gas derivatives market to manage their exposure to
future price movements for certain quantity, time and delivery location, and
sometimes, with an expectation that the derivatives would ultimately provide a
financial gain.
   Types
of Energy Derivatives Markets
   There are
two types of energy derivative markets -- the futures market and the
over-the-counter ("OTC") market.
   Futures
Market
   Most of
the transactions on the energy futures market are made through an exchange, such
as New York Mercantile Exchange ("NYMEX") and Intercontinental Exchange
("ICE").
   The
trading of energy futures is conducted either on an electronic platform or on an
open-outcry trading floor. Prices are established publicly either on a screen or
on the floor by participants posting bids, or buying indications, and offers, or
indications to sell. While the electronic platform provides more transparency to
market participants, the open-outcry trading floor provides a better environment
for exchange of ideas and solutions. However, it is anticipated that the volume
of transactions conducted in an open-outcry trading floor will continue to
decrease in the future.
   2
 Futures
and options are two derivatives available to trade on a futures market. Futures
consist of a contract to buy or sell a certain quantity of energy, for example,
during a specified month and are settled through either physical delivery or
cash settlement. Options consist of a right, but not an obligation, to buy or
sell a futures contract at a certain price.
   OTC
Market
   Over-the-counter,
or OTC, is a term used to describe trading activity that does not take place on
a regulated exchange.
   Several
derivatives are available for trade on the OTC market, such as forwards and
swaps, differentials and spreads and options.
   Forwards
are negotiated agreements between counterparties to deliver a specified quantity
of natural gas, on a specified date, and at a specified location.
   Swaps are
contracts between the holders of two different assets with differing risk and
performance profiles in which the risk or performance characteristics are
exchanged. Swaps may be settled against the future price of a single commodity
or against an index of commodity prices.
   Spreads
are the simultaneous purchase and sale of forward contracts for different
months, different commodities or different grades of the same
commodity.
   Basis
options are contracts that allow counterparties to swap the physical or
financial delivery of natural gas commodity between two different delivery
points.
   Options
traded on the OTC market, unlike those traded on the futures market, are
contracts that convey to the buyer the right, but not the obligation, to require
the seller to make or take delivery of a stated quantity of energy at a
specified price. Options may also be settled in cash, based on the difference
between the market price of, for example, natural gas and the price of the
commodity specified in the option.
   Besides
the types of derivatives traded on those markets, there are several inherent
differences between them. For example, the futures market is primarily conducted
through an open-outcry market, such as NYMEX, which imposes physical limitations
on the number of participants who can trade at the same time. Accordingly,
membership on such exchanges becomes a commodity of its own and may require
significant resources. The types of derivatives traded on the OTC market are not
standardized such as those used on the futures market. Therefore, when one
counterparty wants to enter into OTC derivatives transactions, the use of a
broker or a comprehensive electronic platform facilitates the search for another
counterparty.
   However,
there is a significant similarity between these energy derivatives markets in
that they lack transparency for the participants, unlike the equity market.
Counterparties to a natural gas derivative transaction are unaware of all offers
available on either market at any given time under current conditions, unless it
is executed on an electronic platform with sufficient liquidity.
   Our Solution
   We
understand that the participants in the energy derivatives market have various
investment needs, some of which may be as simple as trading speculative futures,
but most need a comprehensive electronic trading platform which allows them to
execute more sophisticated transactions.
   We
believe that OPEX improves the liquidity and transparency of natural gas and
other energy derivatives market by increasing number of participants in a market
in which they receive real-time market data.
   3
 Central
to OPEX is the trade-matching engine, which is designed to facilitate real-time
trading of derivative products irrespective of a particular market. Based on our
experience in trading and brokering OTC swaps and options, we devoted
significant attention to the user experience and user-interface ergonomics. In
designing the system, we were cognizant of the way traders currently execute
their trades and how they could comfortably transition to an electronic trading
platform. The outcome is a graphical user interface that is both simple and
intuitive to use.
   HOW
WE OPERATE
   We no
longer have revenue-generating operations since the third quarter of 2007. Our
management, and more specifically our Chief Executive Officer and President, is
responsible for seeking alternatives which would allow us to maximize our
resources, which are our cash and OPEX, while satisfying our financial
obligations. While we are trying to monetize the value of OPEX in pursuing
strategic arrangements with suitable takers pursuant to our revised strategy,
there are no assurances that we will be able to do so at acceptable
terms.
   At
December 31, 2008, we have one full-time employee.
   We keep
abreast of conditions in the energy trading market by receiving information
using a combination of technology, such as analytics software as well as market
data services, relevant business news from different wire services and
traditional broadcast.
   CLIENT
CONCENTRATION
   One of
our clients, Bank of Montreal, accounted for 24% of our revenues during 2007.
During May 2007, this client announced that it was suspending its relationship
with the Company and has not used the Company's services in connection with any
additional transactions since that time.
   COMPETITION
   The
energy derivatives market has many competitors involved in the electronic
trading of energy options. Capital investment for entry into the market is
relatively low. While there were no transaction on OPEX since May 2007, it
competes, with offerings from ICE and the Chicago Mercantile Exchange'
CME.
   As the
emerging market for electronic energy derivatives develops, more competitors are
likely to emerge.
   We
believe that the principal competitive factors in our market
include:
   ·
              access to a large number of users
      of an electronic trading
system;
  ·
              client service and
      support;
  ·
              service functionality, quality
      and performance of the electronic trading
  system;
  ·
              ease of use, reliability and
      security of electronic trading
system;
  ·
              establishing a significant sales
      force;
  ·
              ability to introduce new products
      to the market in a timely manner;
and
  ·
              pricing.
   We
currently differentiate from the competition by offering energy derivatives on
both the futures market and the OTC market on an electronic system. Our
electronic system is designed to offer a more comprehensive approach to trading
than the existing electronic platforms offer. However, our competitors have
significantly more resources than we do and a larger number of
users.
  
 4
  EMPLOYEES
   We
currently have one full-time employee. We also have a part-time consultant who
serves as our Chief Financial Officer. We believe that our relationship with our
employee and consultants is good considering the circumstances in which we
operate.
   PATENTS,
TRADEMARKS AND LICENSES
   We have
four patents pending at this time, most importantly those related to a system
and method for real-time trading over a computer network and a system and method
for trading selectable market transactions over a network
   We have
registered a trademark for "Optionable" and use OPEX as a service mark. Although
we have several patents pending which relate to our electronic trading system,
we do not solely depend on those patents to protect our intellectual property.
Furthermore, the benefit that would be afforded by those patents has not been
relied upon in our business plan, although we do feel that the patents would
benefit our position in the marketplace. We have taken various steps to protect
our intellectual property including non-disclosure agreements, confidentiality
agreements and other general precautions taken to keep the information
confidential.
   RESEARCH
AND DEVELOPMENT
   We
incurred approximately $660,000 and $1.1 million in expenses on research and
development during 2008 and 2007, respectively. Effective November 4, 2008, the
Company suspended the development of OPEX, but the Company intends to maintain
it.
   GOVERNMENT
REGULATION
   We gave
notice to the Commodity Futures Trading Commission ("CFTC") of our intention to
operate the OPEX electronic trading platform as an Exempt Commercial Market
("ECM"). ECMs are subject to certain information access rules established by the
CFTC. While the CFTC has filed a complaint against us on a separate matter- see
Item 3 Legal Proceedings, it has not notified the Company that it revoked our
license to operate OPEX as an ECM. In addition, there were no transactions on
OPEX during 2008.
 
 ITEM
1A. RISK FACTORS
   This
investment has a high degree of risk. Before you invest you should carefully
consider the risks and uncertainties described below and the other information
in this report. Each of the following risks may materially and adversely affect
our business, results of operations and financial condition. These risks may
cause the market price of our common stock to decline, which may cause you to
lose all or a part of the money you paid to buy our common stock
   RISKS
RELATED TO OUR BUSINESS AND INDUSTRY
   WE
MAY NOT BE ABLE TO CONTINUE TO OPERATE AS A GOING CONCERN
   The
Company believes it has sufficient funds to meet its obligations, based on its
internal projections, for at least the next twelve months. However, the Company
cannot guarantee that it will do so. If there are unforeseen expenses or
financial obligations which occur during that period, such as those related to
matters disclosed in Part I, Item 3- Legal Proceedings, the Company may not be
able to meet such obligations. Additionally, if the Company acquires a brokerage
or trading firm or a technology company which could be instrumental in the
Company's long-term growth, this could hamper the Company's ability to continue
as going concern, both from a short-term or a long-term perspective, and the
Company would have to resort to financing, through either debt or equity
placements, for the funding of either such acquisitions or unforeseen expenses
or financial obligations. There can be no assurance that any such financing
would be available on acceptable terms, or at all, especially in the light of
the pending litigation against the Company and recent economic
conditions.
   5
 AS
A RESULT OF THE APPARENT LOSS OF OUR MOST SIGNIFICANT CUSTOMER, A DECLINE IN
BUSINESS FROM OTHER BROKERAGE CUSTOMERS AND THE MUTUALLY AGREED DEPARTURES OF
FLOOR BROKERAGE PERSONNEL, WE ARE ATTEMPTING TO REVISE OUR STRATEGY. THERE CAN
BE NO ASSURANCE THAT THESE EFFORTS WILL BE SUCCESSFUL.
   Several
developments in 2007, including (i) the loss of our most significant customer,
Bank of Montreal, (ii) a decline in business from other brokerage customers, and
(iii) the mutually agreed departures of our floor brokerage personnel, among
other things, have adversely affected our ability to operate as a brokerage
services provider through traditional voice-brokerage and on the floor of the
NYMEX Holdings, Inc ("NYMEX"). In response, we are attempting to revise our
strategy to emphasize the marketing of OPEX to end-users through indirect
channels, such as through third-party brokers and other exchanges, and the
development and enhancement of OPEX for use by end-users in additional markets
(i.e., other then solely the energy derivatives markets). Historically, we
engaged primarily in voice-brokerage and had only recently introduced our OPEX
platform. Although the initial results of OPEX were promising, it had not yet
reached full market acceptance in the energy derivatives market. There is no
assurance that we will be able to effectively market OPEX to end-users through
indirect channels. There is also no assurance that we will be able to develop
the enhancements to OPEX necessary to make it suitable for use by end-users in
additional markets or, even if we do develop the necessary enhancements, that
end-users in those additional markets will accept OPEX.
   There is
no assurance that we will be able to identify potential acquisitions, negotiate
acquisitions on terms acceptable to us, or at all, or obtain the necessary
financing for any potential acquisitions that we may identify. If we do make
acquisitions or enter into joint ventures as part of our revised strategy, such
transactions will involve significant risks and challenges, including risks that
we may experience difficulty in the integration of the new businesses,
technologies and employees with our own, that the new businesses may divert
management's attention from other pressing matters and that we may not realize a
satisfactory return on any investment we may make in them.
 
 UNLESS
AND UNTIL WE ARE ABLE TO IMPLEMENT OUR STRATEGY, WE HAVE NO REVENUES AND NO
POTENTIAL SOURCES OF FUTURE REVENUE
 
 We have
recently suspended the development of our OPEX technology and have no operations
and no revenue source. Our attempts to restore business and generate revenues
have been hindered by litigation brought against the Company. Our initial
discussions with potential business partners have not progressed beyond an
indication of interest in our technology due to pending litigation against the
Company. There can be no assurance that we can expeditiously resolve all pending
litigations against the Company and after the resolution of the pending
litigation that we will be able to generate interest in our technology that
would materialize into an agreement upon terms that are satisfactory to our
board of directors.
 
 ALTHOUGH
WE HAVE HAD NO REVENUES, WE CONTINUE TO INCUR EXPENSES
 
 We have
not generated revenues since the third quarter 2007. However, we continue to
incur expenses, including salaries, auditing and legal expenses necessary to
maintain our reporting status and legal fees in connection with certain legal
proceedings. While our management estimates that we have enough funds for at
least the next twelve months, there can be no assurance that such funds will be
sufficient if we were to face any unanticipated expenses.
   WE
MAY LIQUIDATE AND DISTRIBUTE OUR ASSETS TO OUR SHAREHOLDERS.
   We did
not generate any revenues since the third quarter of 2007. Our management
continues to seek alternatives which would allow us to maximize our resources,
which are our cash and OPEX, while satisfying our financial obligations. While
we are trying to monetize the value of OPEX in pursuing strategic arrangements
with suitable takers pursuant to our revised strategy, there are no assurances
that we will be able to do so at acceptable terms. If we are not able to
maximize our resources, we may liquidate and distribute our assets to our
shareholders.
 
 6
 THE
US ATTORNEY’S OFFICE MAY SEEK TO SEIZE FUNDS WE HOLD AT ONE OR MORE FINANCIAL
INSTITUTIONS
 
 In
November 2008, the Assistant United States Attorney sought to seize one of the
Company’s bank accounts by a warrantless seizure. The bank account balance at
December 31, 2008 amounts to approximately $530,000. In December 2008, the
financial institution sent a notice asking that the funds held in this bank
account be transferred to a different financial institution. The warrantless
seizure lapsed in January 2009. The Company has not transferred the funds yet.
While the warrantless seizure lapsed, it is possible that the Assistant United
States Attorney may try to seize such funds by other means. It is possible that
the Assistant United States Attorney may try to seize other bank accounts we
hold. While the Company intends to vigorously defend this matter, there exists
the possibility that the Company may have to forfeit or disgorge some or all of
our cash.
  WE
ARE INVOLVED IN PENDING LEGAL PROCEEDING BROUGHT AGAINST US AND CERTAIN OF OUR
FORMER AND CURRENT DIRECTORS AND OFFICERS. WE ARE UNABLE TO PREDICT THE OUTCOME
OF THESE PROCEEDINGS AND CAN GIVE NO ASSURANCE THAT THE OUTCOME OF THESE
PROCEEDING WILL NOT HAVE A MATERIAL ADVERSE EFFECT ON US OR THAT OTHER
PROCEEDINGS WILL NOT BE INITIATED.
 
 On
November 18, 2008, a complaint was filed in the District Court for the Southern
District of New York by the Commodity Futures Trading Commission against us,
certain of our former employees, including our former Chief Executive Officer,
Kevin Cassidy and our former President and a current Director, Edward O’Connor ,
David Lee, a former Bank of Montreal trader, and Robert Moore, a former
executive managing director of BMO’s Commodity Derivatives Group alleging among
other things, violations of, Section 4c(b) of the Commodity Exchange Act, as
amended and Commission Regulations 33.10(a),(b) and (c).
   We are
unable to predict the outcome of this proceeding at this time and can give no
assurance that the outcome of these proceedings will not have a material adverse
effect on us or that there will not be other proceedings arising from these
matters.
   OUR
MANAGEMENT TEAM HAS BEEN AND WILL BE REQUIRED TO DEVOTE A SIGNIFICANT AMOUNT OF
TIME TO MATTERS RELATING TO LITIGATION AND RESPONDING TO GOVERNMENTAL
INQUIRIES.
   Our
management team and employees have devoted a significant amount of time to
matters relating to certain legal proceedings and to requests for documents and
information received from the CFTC, the SEC, the DOJ and the District Attorney's
Office. Defending these actions and responding to the government requests for
documents and information has required, and will continue to require,
significant time and attention from members of our current senior management
team and our Board of Directors. If the amount of time that our senior
management team is able to devote to developing and implementing our revised
strategy is significantly reduced as a result of these matters, it may have a
material adverse effect on our business.
   OUR
SUCCESS IN THE FUTURE WILL BE DEPENDENT UPON OUR ABILITY TO ATTRACT AND RETAIN
SKILLED REPLACEMENTS.
   Our
performance and future operating results are substantially dependent on the
continued service and performance of Thomas Burchill. Mr. Burchill was appointed
as our Chief Executive Officer and President in January 2009. To the extent that
the services of Mr. Burchill become unavailable, our business and prospects
would be adversely affected. Should we be required to do so, we do not know
whether we would be able to employ equally qualified persons to replace Mr.
Burchill. Moreover, we do not currently maintain "key man" insurance on any of
our executive officers or other key employees and do not intend to obtain this
type of insurance in the near future. If we are successful in implementing and
developing our revised strategy, we may require additional managerial,
administrative and support personnel. Competition for highly qualified personnel
is intense, and we can make no assurances that we can retain our key employees
or that we will be able to attract or retain qualified personnel in the future.
To the extent we have fewer financial resources available to us than our
competitors we may not be able to attract and retain a sufficient number of
qualified personnel. The loss of the services of any of our management or other
key employees and our inability to attract and retain other necessary personnel
could have a material adverse effect on our financial condition, operating
results, and cash flows.
   7
 WE
CANNOT BE CERTAIN THAT WE WILL BE ABLE TO PROTECT OUR INTELLECTUAL
PROPERTY.
   We have
patent applications pending, which are intended to protect certain of our
proprietary technology relating to OPEX. We have been cautious in seeking to
obtain patent protection for our products, since patents often provide only
narrow protection that may not prevent competitors from developing products that
function in a manner similar to those covered by our patents. If we are unable
to protect our intellectual property we may not be able to exploit its value and
may be unable to sell or license our technology. The failure to consummate an
agreement with a third party for our technology may result in the Company
winding up its operations.
   POTENTIAL
LIABILITY FOR INFRINGEMENT CLAIMS MIGHT DETER CLIENTS FROM USING OUR OPEX
SYSTEM.
   We could
be subject to intellectual property infringement claims by others. Potential
clients may be deterred from using our OPEX system for fear of infringement
claims. If, as a result, potential clients forego using our OPEX system, there
may be no demand for our applications and we may not be able to realize the
value we believe our technology has. Claims against us, and any resulting
litigation, should it occur in regard to any of our services and applications,
could subject us to significant liability for damages including treble damages
for willful infringement. In addition, even if we prevail, litigation could be
time-consuming and expensive to defend and could result in the diversion of our
time and attention. Any claims from third parties may also result in limitations
on our ability to use the intellectual property subject to these claims. Claims
that we are infringing the intellectual property rights of third parties could
have a negative effect on our business, revenues, financial condition and
results of operations.
   IF WE FAIL TO ENHANCE OUR OPEX SYSTEM BY INTRODUCING NEW FEATURES
AND FUNCTIONALITIES IN A TIMELY MANNER TO MEET CHANGING CLIENT REQUIREMENTS AND
EMERGING INDUSTRY TRENDS OR STANDARDS, OUR ABILITY TO GROW OUR BUSINESS WILL
SUFFER.
   The
market for electronic trading systems is characterized by rapidly changing
technologies and short product life cycles. These market characteristics are
heightened by the emerging nature of the Internet and the continuing trend of
companies from many industries to offer Internet-based applications and
services. The widespread adoption of the Internet, networking, electronic option
trading, or telecommunications technologies or other technological changes could
require us to incur substantial expenditures to modify or adapt our operating
practices or infrastructure. Our future success will depend in large part upon
our ability to:
   ·
              identify and respond to emerging
      technological trends in the
market;
  ·
              enhance our products by adding
      innovative features that differentiate services and applications from
      those of our competitors;
  ·
              acquire and license leading
      technologies;
  ·
              bring new services and
      applications to market and scale our business on a timely basis at
      competitive prices; and
  ·
              respond effectively to new
      technological changes or new product announcements by
      others.
  8
 Our
technology will not be competitive unless we introduce new features and
functionalities to our OPEX system that meet evolving industry standards and
client needs. In the future, we may not be able to address effectively the
compatibility and interoperability issues that arise as a result of
technological changes and evolving industry standards. The technical innovations
required for us to remain competitive are inherently complex, require long
development schedules and are dependent in some cases on sole source suppliers.
We will be required to continue to invest in research and development in order
to attempt to maintain and enhance our existing technologies and products, but
we may not have the funds available to do so. Even if we have sufficient funds,
these investments may not serve the needs of clients or be compatible with
changing technological requirements or standards. Most development expenses must
be incurred before the technical feasibility or commercial viability of new or
enhanced services and applications can be ascertained. Revenue from future
services and applications or enhancements to services and applications may not
be sufficient to recover the associated development costs.
  Effective
November 4, 2008, we suspended the development of OPEX.
   THE
TECHNOLOGY UNDERLYING OUR OPEX SYSTEM IS COMPLEX AND MAY CONTAIN UNKNOWN DEFECTS
THAT COULD HARM OUR REPUTATION, RESULT IN PRODUCT LIABILITY OR DECREASE MARKET
ACCEPTANCE OF OUR SERVICES AND APPLICATIONS.
   The
technologies underlying financial services and applications are complex and
include software that is internally developed. Software products using these
technologies may contain errors or defects, particularly when first introduced
or when new versions or enhancements are released. We may not discover software
defects that affect our current or new services and applications or enhancements
until after they are sold. Furthermore, because our services and applications
are designed to work in conjunction with various platforms and applications, we
are susceptible to errors or defects in third-party applications that can result
in a lower quality product for our clients. Because our clients depend on us for
digital media management, any interruptions could:
   ·
              damage our
      reputation;
  ·
              cause our clients to initiate
      product liability suits against
us;
  ·
              increase our product development
      resources;
  ·
              cause us to lose revenues;
      and
  ·
              delay market acceptance of our
      products.
   WE
FACE INTENSE AND INCREASING COMPETITION IN THE ELECTRONIC ENERGY DERIVATIVES
MARKET. IF WE DO NOT COMPETE EFFECTIVELY OR IF WE EXPERIENCE REDUCED MARKET
SHARE FROM INCREASED COMPETITION, OUR BUSINESS WILL BE HARMED.
   There are
several other well-financed companies who do or may compete with OPEX. Some of
the features of OPEX compete with some of ICE's offerings and the Chicago
Mercantile Exchange's CME.
  Substantially
all of our competitors have more capital, longer operating histories, greater
brand recognition, larger client bases and significantly greater financial,
technical and marketing resources than we do. These competitors may also engage
in more extensive development of their technologies, adopt more aggressive
pricing policies and establish more comprehensive marketing and advertising
campaigns than we can. Our competitors may develop products and service
offerings that we do not offer or that are more sophisticated or more cost
effective than our own. For these and other reasons, our competitors' products
and services may achieve greater acceptance in the marketplace than our own,
limiting our ability to gain market share and client loyalty and to generate
sufficient revenues to achieve a profitable level of operations. Our failure to
adequately address any of the above factors could harm our business and
operating results.
  9
 SOME STOCKHOLDERS, IF THEY ARE ABLE TO FORM A MAJORITY, MAY BE
ABLE TO TAKE STOCKHOLDER ACTIONS WITHOUT GIVING OTHER STOCKHOLDERS PRIOR NOTICE
AND WITHOUT GIVING SUCH OTHER STOCKHOLDERS A CHANCE TO VOTE ON THE MATTER AT A
STOCKHOLDER MEETING. YOU MAY, THEREFORE, BE UNABLE TO TAKE PREEMPTIVE MEASURES
THAT YOU BELIEVE ARE NECESSARY TO PROTECT YOUR INVESTMENT IN THE
COMPANY.
   Section
228 of the Delaware General Corporation Law and our Certificate of Incorporation
permits our stockholders to take any action which is otherwise required to be
taken, or is permitted to be taken, at an annual or special meeting of the
stockholders, without prior notice and without a vote of all the stockholders.
Instead of a vote, stockholder actions can be authorized by the written consents
to such actions, signed by the holders of the number of shares which would have
been required to be voted in favor of such action at a duly called stockholders
meeting. We would not be required to give prior notice to all stockholders of
actions taken pursuant to the written consents of the stockholders who
collectively form a majority.
   IF
WE FAIL TO REMAIN CURRENT IN OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET.
   Companies
trading on the Over-The-Counter Bulletin Board, such as we are , must be
reporting issuers under Section 12 of the Securities Exchange Act of 1934, as
amended, and must be current in their reports under Section 13, in order to
maintain price quotation privileges on the OTC Bulletin Board. If we fail to
remain current on our reporting requirements, we could be removed from the OTC
Bulletin Board. As a result, the market liquidity for our securities could be
severely adversely affected by limiting the ability of broker-dealers to sell
our securities and the ability of stockholders to sell their securities in the
secondary market. In addition, we may be unable to get re-listed on the OTC
Bulletin Board, which may have an adverse material effect on our
Company.
   OUR
COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE TRADING
MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK
CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
   The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
   ·
              that a broker or dealer approve a
      person's account for transactions in penny stocks;
    and
  ·
              the broker or dealer receive from
      the investor a written agreement to the transaction, setting forth the
      identity and quantity of the penny stock to be
      purchased.
 
 10
 In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
   ·
              obtain financial information and
      investment experience objectives of the person;
  and
  ·
              make a reasonable determination
      that the transactions in penny stocks are suitable for that person and the
      person has sufficient knowledge and experience in financial matters to be
      capable of evaluating the risks of transactions in penny
      stocks.
   The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
   ·
              sets forth the basis on which the
      broker or dealer made the suitability determination;
      and
  ·
              that the broker or dealer
      received a signed, written agreement from the investor prior to the
      transaction.
   Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
   Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
 
 ITEM
2.  DESCRIPTION OF PROPERTY
 
 Our
headquarters are located in Ossining, New York. The office consists of
approximately 250 square feet. Our headquarters were previously located in
Valhalla, New York. Our monthly rent amounts to $500 and our lease is renewable
monthly
 
 We
believe our space is adequate for our current and foreseeable future
operations.
 
 ITEM
3.  LEGAL PROCEEDINGS
 
 Regulatory Matters
 
 On
November 18, 2008, a complaint was filed in the United States District Court for
the Southern District of New York by the CFTC against the Company, former
employees of the Company, including its former Chief Executive Officer and its
former President and a current Director, Edward O’Connor, David Lee, a former
Bank of Montreal (“BMO”) trader (“Lee”), and Robert Moore, a former executive
managing director of BMO’s Commodity Derivatives Group.
 
 The
complaint alleges, among other things, that Lee, through the assistance of
Moore, and employees of the Company, engaged in a scheme to mis-mark Lee’s
natural gas options positions between at least May 2003 to May 2007, and
mis-value other natural gas option positions from October 2006 until May 2007.
The complaint further alleges that based upon the scheme, in April 2007, BMO
announced anticipated losses of approximately C$350 million and C$450
million.
 
 The CFTC
alleges, among other things, violations of, Section 4c(b) of the Commodity
Exchange Act, as amended (the “Act”) and Commission Regulations 33.10(a),(b) and
(c). The CFTC seeks an order of permanent injunction restraining and enjoining,
among others, the Company from directly or indirectly violating Section 6c(b) of
the Act and Commission Regulations 33.10(a), (b) and (c). The CFTC further seeks
an order directing, among others, the Company to pay civil monetary penalties in
an amount not to exceed $120,000 or triple the monetary gain for each violation
of the Act during the time period between October 23, 2000 and October 22, 2004
and $130,000 or triple the monetary gain for each violation of the Act on or
after October 23, 2004.
 
 11
 The
Company also understands that on November 18, 2008, a complaint was filed in the
United States District Court for the Southern District of New York by the
Securities and Exchange Commission (“SEC”) against Lee, Scott Connor, the
Company’s former President and a Director, Edward O’Connor and its former Chief
Executive Officer. The Company was not named in the SEC complaint. Like the
action brought by the CFTC, the complaint is based upon allegations that the
defendants engaged in a scheme to overvalue Lee’s commodity derivates trading
portfolio at BMO.
 
 The SEC
alleges causes of action against the Company’s former President and a Director,
Edward O’Connor, for violations of Sections 10(b), 13(a), 13(b)(2), 13(b)(5),
Rules 13b2-2 and 13a-14 of the Securities and Exchange Act of 1934 (the
“Exchange Act”), and Section 17(a) the Securities Act of 1933 (the “Securities
Act”). The complaint seeks a permanent injunction against, among others, Mr.
O’Connor and an order to pay civil penalties and disgorgement. The complaint
also seeks an order prohibiting, among others, Mr. O’Connor from acting as an
officer or director of a public company.
   Mark
Nordlicht vs Optionable, Inc.
   On
November 19, 2008 a complaint was filed by Mark Nordlict in the Delaware Court
of Chancery to require the Company to conduct its annual meeting. On December
30, 2008, the Court ordered that the Company hold an annual meeting on or before
March 31, 2009.
   Shareholder
Class Action Lawsuit
   On May
11, 2007, two lawsuits, captioned Alexander Fleiss v. Optionable Inc., Mark
Nordlicht, Kevin Cassidy, Edward J. O'Connor, Albert Helmig and Marc-Andre
Boisseau, 07 CV 3753 (LAK) ("Fleiss") and Robert Rastocky v. Optionable, Inc.,
Kevin Cassidy and Edward O'Connor, 07 CV 3755 (CLB) (“Rastocky”), were filed in
the United States District Court for the Southern District of New York.
Subsequently, five additional lawsuits were filed in the United States District
Court for the Southern District of New York. Rastocky was voluntarily dismissed.
The other lawsuits were consolidated under In re Optionable Securities
Litigation, 07 CV 3753 (LAK). The class action named as defendants the Company
and some of the Company’s past and present directors and officers, including
Mark Nordlicht, the former Chairman of the Board of Directors of the Company;
Kevin Cassidy, the former Chief Executive Officer and Vice-Chairman of the Board
of Directors of the Company; Edward J. O'Connor, the former President of the
Company and a current member of the Board of Directors; Albert Helmig, a former
member of the Board of Directors; and Marc-Andre Boisseau, the Chief Financial
Officer of the Company.
   The class
action sought unspecified damages arising from alleged violations of the federal
securities laws, including the Securities Exchange Act of 1934, 15 U.S.C. ss.
78a et seq., (the "Exchange Act"), and Rule 10b-5 under the Exchange Act, 17
C.F.R. ss. 240.10b -5.The complaint alleged, among other things, that during the
class period of January 22, 2007 to May 14, 2007, defendants failed to disclose
certain information in public filings and statements, made materially false and
misleading statements and misrepresentations in public filings and statements,
sold artificially inflated stock and engaged in improper deals, had an improper
relationship with and “schemed” with its customer Bank of Montreal ("BMO"), and
understated the Company's reliance on its relationship with BMO. The Complaint
alleged that while the Company's stock was trading at artificially inflated
prices, certain defendants sold shares of common stock of the
Company.
   On
September 15, 2008, Judge Kaplan granted the defendants’ motions to dismiss the
complaint and denied the plaintiffs’ request for leave to amend, without
prejudice to a motion for leave to amend, supported by a proposed amended
complaint. Plaintiffs’ subsequently filed a motion for a partial lifting of the
PSLRA discovery stay, which Defendants opposed. On October 20, 2008, the Court
denied Plaintiff’s motion in all respects, and a final Judgment of dismissal was
entered on October 23, 2008.
   12
  On
January 13, 2009, the plaintiff filed a motion pursuant to Rule 60(b) for relief
from the October 23, 2008 Final Judgment and seeking to file an amended
complaint
   The
actual costs that will be incurred in connection with these actions cannot be
quantified at this time and will depend upon many unknown factors.
   While the
Company intends to vigorously defend these matters, 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.
   Other
Matters
   Since May
2007, the Company has received requests for documents and information from the
CFTC, the SEC and the DOJ and the District Attorney's Office. Since that time,
the Company has complied, and continues to comply, with these requests for
documents and information.
 
 In
November 2008, the Assistant United States Attorney sought to seize one of the
Company’s bank accounts by a warrantless seizure. The bank account balance at
December 31, 2008 amounts to approximately $530,000. In December 2008, the
financial institution sent a notice asking that the funds held in this bank
account be transferred to a different financial institution. The warrantless
seizure lapsed in January 2009. The Company has not transferred the funds yet.
While the warrantless seizure lapsed, it is possible that the Assistant United
States Attorney may try to seize such funds by other means.
 
 ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 No matter
was submitted to a vote of security holders during the fourth quarter of the
fiscal year covered by this report.
 
 The
Company has scheduled its annual meeting of shareholders for March 31, 2009 at
10:00am at the Company’s offices at 95 Croton Avenue, Suite 32, Ossining, New
York.
 
 
 PART
II
 
 ITEM
5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
   Our
common stock is quoted on the Over-the-Counter Bulletin Board operated by the
National Association of Securities Dealers, Inc. Our shares are listed under the
symbol "OPBL."
   The
following table sets forth, for the fiscal quarters indicated, the high and low
closing prices per share of our common stock as reported on the Over-the-Counter
Bulletin Board. The quotations reflect inter dealer prices, without retail
mark-up, mark-down or commissions and may not represent actual transactions.
 
 Fiscal
      2008
                    Fiscal
      2007
                    Fiscal
      2006Quarter
      Ended
                    High
                    Low
                    High
      (2)
                    Low
      (2)
                    High
      (2)
                    Low
      (2)March
      31
                    $0.10
                    $0.046
                    $6.15
                    $5.85
                    $1.50
                    $0.90June
      30
                    $0.07
                    $0.041
                    $0.45
                    $0.40
                    $0.90
                    $0.50September
      30
                    $0.07
                    $0.028
                    $0.16
                    $0.13
                    $0.75
                    $0.50December
      31
                    $0
      .07
                    $0.011
                    $0.09
                    $0.06
                    $2.84
                    $0.50
 
 13
 At
February 10, 2009, the closing price for our common stock was
$0.018
   At
February 10, 2009, there were 52,428,203 shares of our common stock issued and
52,423,403 shares of our common stock outstanding. There are approximately 17
stockholders of record at February 10, 2009.
 
 The
transfer agent of our common stock is Continental Stock Transfer & Trust
Company, whose address is 17 Battery Place, New York, NY 10004. The phone number
of the transfer agent is (212) 509-4000.
 
 DIVIDENDS
 
 We have
not declared any dividends to date. We have no present intention of paying any
cash dividends on our common stock in the foreseeable future. The payment by us
of dividends, if any, in the future, rests within the discretion of our Board of
Directors and will depend, among other things, upon our earnings, our capital
requirements and our financial condition, as well as other relevant factors.
There are no restrictions in our articles of incorporation or bylaws that
restrict us from declaring dividends
 
 SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
 
 EQUITY
COMPENSATION PLAN INFORMATION
 
 The
following table shows information with respect to each equity compensation plan
under which our common stock is authorized for issuance at December 31,
2008:
 
 Plan
      category
                Number
      of securities
                  to
      be issued upon
                  exercise
      of
                  outstanding
      options,
                  warrants
      and rights
                Weighted
      average
                  exercise
      price of
                  outstanding
      options,
                  warrants
      and rights
                Number
      of securities
                  remaining
      available for future issuance under equity compensation plans (excluding
      securities reflected in column (a)(a)
                (b)
                (c)Equity
      compensation plans approved by security holders
                983,000
                $0.42
                6,344,000Equity
      compensation plans not approved by security holders
                -0-
                N/A
                -0-Total
                983,000
                $0.42
                6,344,000
 
  2004
STOCK OPTION PLAN
   We
adopted our 2004 Stock Option Plan in November 2004. The plan provides for the
grant of options intended to qualify as "incentive stock options" and options
that are not intended to so qualify or "nonstatutory stock options." The total
number of shares of common stock reserved for issuance under the plan is
7,500,000, subject to adjustment in the event of a stock split, stock dividend,
recapitalization or similar capital change.
   14
 The plan
is presently administered by our board of directors, which selects the eligible
persons to whom options shall be granted, determines the number of common shares
subject to each option, the exercise price therefor and the periods during which
options are exercisable, interprets the provisions of the plan and, subject to
certain limitations, may amend the plan. Each option granted under the plan is
evidenced by a written agreement between us and the optionee.
   Options
may be granted to our employees (including officers) and directors and certain
of our consultants and advisors.
   The
exercise price for incentive stock options granted under the plan may not be
less than the fair market value of the common stock on the date the option is
granted, except for options granted to 10% stockholders which must have an
exercise price of not less than 110% of the fair market value of the common
stock on the date the option is granted. The exercise price for nonstatutory
stock options is determined by the board of directors. Incentive stock options
granted under the plan have a maximum term of ten years, except for 10%
stockholders who are subject to a maximum term of five years. The term of
nonstatutory stock options is determined by the board of directors. Options
granted under the plan are not transferable, except by will and the laws of
descent and distribution.
 
 RECENT
SALES OF UNREGISTERED SECURITIES
 
 We have
not sold any equity securities during the fiscal year ended December 31, 2008
that were not registered under the Securities Act of 1933, as amended (the
"Securities Act").
 
 ITEM
6.  SELECTED FINANCIAL DATA
   N/A
 
 ITEM
7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
 
 The
following discussion should be read in conjunction with the consolidated
financial statements and the related notes that appear in this annual
report.
 
 RESULTS
OF OPERATIONS - YEAR ENDED DECEMBER 31, 2008 COMPARED TO YEAR ENDED DECEMBER 31,
2007
 Results
      of OperationsIncrease/
                                                            
                                                            
                                                            Increase/For
      the year ended
                                                            
                                                            
                                                            (Decrease)
                                                            
                                                            
                                                            (Decrease)December
      31,
                                                            
                                                            
                                                            in
      $ 2008
                                                            
                                                            
                                                            in
      % 20082008
                                                            
                                                            
                                                            2007
                                                            
                                                            
                                                            vs
      2007
                                                            
                                                            
                                                            vs
      2007Brokerage
      fees
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            8,786,850
                                                            
                                                            
                                                            $
                                                            (8,786,850
                                                            )
                                                            
                                                            
                                                            -100.0
                                                            %Brokerage
      fees-related parties
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            $
                                                            1,148,885
                                                            
                                                            
                                                            
                                                            (1,148,885
                                                            )
                                                            
                                                            
                                                            -100.0
                                                            %Incentives
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            $
                                                            3,285,058
                                                            
                                                            
                                                            
                                                            (3,285,058
                                                            )
                                                            
                                                            
                                                            -100.0
                                                            %Net
      revenues
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            13,220,793
                                                            
                                                            
                                                            
                                                            (13,220,793
                                                            )
                                                            
                                                            
                                                            -100.0
                                                            %Cost
      of revenues
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            7,798,438
                                                            
                                                            
                                                            
                                                            (7,798,438
                                                            )
                                                            
                                                            
                                                            -100.0
                                                            %Cost
      of revenues-related parties
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            30,013
                                                            
                                                            
                                                            
                                                            (30,013
                                                            )
                                                            
                                                            
                                                            -100.0
                                                            %-
                                                            
                                                            
                                                            
                                                            7,828,451
                                                            
                                                            
                                                            
                                                            (7,828,451
                                                            )
                                                            
                                                            
                                                            -100.0
                                                            %Gross
      profit
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            5,392,342
                                                            
                                                            
                                                            
                                                            (5,392,342
                                                            )
                                                            
                                                            
                                                            -100.0
                                                            %Operating
      expenses:Selling,
      general and administrative
                                                            
                                                            
                                                            2,111,379
                                                            
                                                            
                                                            
                                                            8,624,175
                                                            
                                                            
                                                            
                                                            (6,512,796
                                                            )
                                                            
                                                            
                                                            -75.5
                                                            %Impairment-considerable
      receivable from stockholder
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            145,771,878
                                                            
                                                            
                                                            
                                                            (145,771,878
                                                            )
                                                            
                                                            NMImpairment-intangible
      asset
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            1,085,610
                                                            
                                                            
                                                            
                                                            (1,085,610
                                                            )
                                                            
                                                            NMResearch
      and development
                                                            
                                                            
                                                            659,211
                                                            
                                                            
                                                            
                                                            1,094,188
                                                            
                                                            
                                                            
                                                            (434,977
                                                            )
                                                            
                                                            
                                                            -39.8
                                                            %Total
      operating expenses
                                                            
                                                            
                                                            2,770,590
                                                            
                                                            
                                                            
                                                            156,575,851
                                                            
                                                            
                                                            
                                                            (153,805,261
                                                            )
                                                            
                                                            NMOperating
      income
                                                            
                                                            
                                                            (2,770,590
                                                            )
                                                            
                                                            
                                                            (151,183,509
                                                            )
                                                            
                                                            
                                                            148,412,919
                                                            
                                                            
                                                            NMOther
      income (expense):Interest
      income
                                                            
                                                            
                                                            255,118
                                                            
                                                            
                                                            
                                                            388,757
                                                            
                                                            
                                                            
                                                            (133,639
                                                            )
                                                            
                                                            
                                                            -34.4
                                                            %Other
      expense
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (15,250
                                                            )
                                                            
                                                            
                                                            15,250
                                                            
                                                            
                                                            NMInterest
      expense-related parties
                                                            
                                                            
                                                            (383,894
                                                            )
                                                            
                                                            
                                                            (340,707
                                                            )
                                                            
                                                            
                                                            43,187
                                                            
                                                            
                                                            
                                                            12.7
                                                            %(128,776
                                                            )
                                                            
                                                            
                                                            32,800
                                                            
                                                            
                                                            
                                                            161,576
                                                            
                                                            
                                                            NMNet
      income before income tax
                                                            
                                                            
                                                            (2,899,366
                                                            )
                                                            
                                                            
                                                            (151,150,709
                                                            )
                                                            
                                                            
                                                            148,251,343
                                                            
                                                            
                                                            NMIncome
      tax benefit
                                                            
                                                            
                                                            468,566
                                                            
                                                            
                                                            
                                                            415,548
                                                            
                                                            
                                                            
                                                            53,018
                                                            
                                                            
                                                            
                                                            12.8
                                                            %Net
      income
                                                            
                                                            $
                                                            (2,430,800
                                                            )
                                                            
                                                            $
                                                            (150,735,161
                                                            )
                                                            
                                                            $
                                                            148,304,361
                                                            
                                                            
                                                            NMNM:  Not
      meaningful
  Revenues
 
 Revenues
during 2007 consisted primarily of fees earned from natural gas derivatives
transactions and related incentive arrangements.
 
 The
decrease in brokerage fees during 2008 when compared to 2007 is primarily due to
a decrease in the brokerage fees resulting from decreased volume of transactions
of natural gas derivatives traded on the OTC market on behalf of existing
clients during the current year periods. We have not generated any revenues
since the third quarter of 2007.
 
 The
decrease in brokerage fees-related party during 2008 when compared to 2007 is
primarily due to the fact that our agreement with Capital Energy Services, Inc.,
a related party, was effective during one month (i.e. January 2007). This
agreement was terminated January 31, 2007.
 
 15
 The
decrease in incentives earned during 2008 when compared to 2007 pursuant to an
agreement with a US exchange, NYMEX Holdings, Inc., a stockholder (the
“Investor”), was due to a higher volume of cleared OTC transactions handled by
us on such exchange during 2007. We have not generated any incentive revenues
since the second quarter of 2007.
 
 As a
result of the factors discussed above, we do not anticipate that we will
generate revenues that we traditionally generated from OPEX, voice-brokerage and
our floor operations for the remainder of 2009. We currently have no revenue
source and expect to generate revenues only if we are able to implement our
revised strategy.
 
 Cost
of revenues
 
 During
2007, cost of revenues consists primarily of compensation of personnel directly
associated with handling the natural gas derivative transactions on behalf of
our clients as well as expenses associated with our floor brokerage operations.
The decrease in cost of revenues in 2008 when compared to 2007 is primarily
attributable to the termination of employment of substantially all our brokers
during 2007, which reduced our compensation expenses (including salary,
commissions, and share-based payment) associated with the employment of such
brokers.
 
 We do not
expect that our cost of revenues for the remainder of 2009 will increase, unless
we implement our revised strategy which could change our business
model.
 
 Selling,
general, and administrative expenses
 
 Selling,
general, and administrative expenses consists primarily of legal fees, incurred
in connection with the Company’s attention to certain allegations made recently
and to our responses to and compliance with requests for documents and
information received from the United States Commodity Futures Trading Commission
(the “CFTC”), the United States Securities and Exchange Commission (the “SEC”),
the United States Department of Justice (the “DOJ”) and a grand jury subpoena
received from the New York County District Attorney’s office (the “District
Attorney’s Office”), or to handle certain matters which occur during the course
of our operations, and compensation of personnel supporting our operations. It
also includes the amortization of the consideration receivable from the Investor
and allowance for bad debt. The decrease in selling, general, and administrative
expenses during 2008 when compared to 2007 is primarily due to the
following:
 
 ·
              one-time
      amortization of the Consideration receivable from the Investor of
      approximately $3.3 million which was recorded during the second quarter of
      2007;
 ·
              decreased
      legal fees of approximately $1.4 million. The decrease in legal fees is
      primarily due to higher legal fees incurred during 2007 in connection with
      our attention to certain allegations, our responses to, and compliance
      with the governmental requests described above, and in connection with the
      NYMEX transaction, further decreased by the recording of insurance
      proceeds authorized by our insurance carrier during 2008 which
      approximated $639,000. The insurance proceeds consist of the reimbursement
      of certain legal fees we incurred in connection with legal proceedings
      disclosed in Item 3 of Part I of this Report. We did not have as many
      governmental requests during 2008 and we did not received insurance
      proceeds from our insurance carrier during
2007;
  ·
              one-time
      provision in June 2007 of approximately $640,000 in connection with our
      estimated incentives receivable from the Investor
  ;
  ·
              decreased
      compensation to our directors during 2008 when compared to 2007. This
      decrease is primarily due to a decreased rate paid to our directors during
      2008;
  ·
              decreased
      investor relation fees in connection with decreased efforts to position
      our company before the investors
community;
 ·
              decreased
      marketing expenses incurred in connection with the decreased marketing
      efforts to position our company before the traders
    community;
 
 16
 
 As a
result of the matters discussed above and in Item 3 of Part I1 of this Report,
we believe that our legal fees for 2009 will continue to constitute a large
share of our selling, general, and administrative expenses. We believe that our
legal fees may increase in 2009 when compared to 2008.
   Research
and development
 
 Research
and development expenses consist primarily of compensation of personnel and
consultants associated with the development and testing of our automated
electronic trading system. The decrease in research and development expenses
during 2008 when compared to the prior year period is primarily due to the
following:
 
 ·
              decreased
      number of software engineers used in the development of OPEX during 2008
      offset by increased compensation rate for existing software engineers and
      quality and assurance personnel working on electronic platform,
      OPEX.
 
 We expect
that our research and development expenses will decrease during 2009. Effective
November 4, 2008, the Company suspended the development of OPEX, but the Company
intends to maintain it. The Company is unable to determine if and when it will
resume the enhancement of features and functionalities of OPEX.
 
 Impairment-
Consideration receivable from Investor and Impairment- Intangible
Asset
 
 The
impairment- consideration receivable from the Investor and impairment-
intangible asset consists of one-time losses attributable to the lack of
perceived likely benefits from 1) the consideration the Investor had agreed to
provide to the Company pursuant to the Stock and Warrant Purchase Agreement and
2) the constructive rescission of the HQ Trading acquisition. The Stock and
Warrant Purchase Agreement and the HQ Trading acquisition both took place during
2007 and no similar expenses occurred 2008.
 
 Interest
income
 
 Interest
income consists primarily of interest earned on interest-bearing cash and cash
equivalents. The decrease in interest income during 2008 when compared to 2007
is primarily due to a decrease in interest rate we earned on our cash and cash
equivalents’ interest bearing balances.
 
 Interest
expense to related parties
 
 Interest
expense to related parties consists of interest charges associated with amounts
due to related parties, Mark Nordlicht, our former Chairman, and Edward
O’Connor, a Director. The increase in interest expense to related parties during
2008 is primarily due to the increase in basis on which the interest is imputed,
using the effective interest method.
 
 Income
tax
 
 Income
tax benefit consists of federal and state current and deferred income tax or
benefit based on our net income. The increase in income tax benefit during the
2008 when compared to 2007 is primarily due to larger taxable losses we incurred
during 2008 compared to 2007.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Our cash
balance as of December 31, 2008 amounts to approximately $9.0
million.
 
 17
 During
2008, we used cash from operating activities of approximately $945,000,
primarily resulting from:
   ·
              net
      loss of approximately $1.9 million, adjusted for the amortization of debt
      discount and depreciation of approximately
  $384,000;
 ·
              a
      decrease in prepaid income taxes assets resulting from the reimbursement
      during 2008 of the 2007 federal and state estimated tax payments offset by
      the current year tax benefits resulting from operating losses;
      and
 ·
              an
      increase in prepaid expenses of approximately $863,000 which primarily
      consists of the payment of additional retainers requested by law firms
      representing the Company, one of our directors, and our former chief
      executive officer in connection with certain legal matters disclosed in
      Item 3 of Part I of this report.
 ·
              An
      increase of approximately $98,000 of the due to stockholder, which
      consists of legal fees incurred and paid by Mark Nordlicht, a stockholder,
      in his defense in connection with certain legal matters disclosed in Item
      3 of Part I of this report, to whom the Company provides indemnification
      pursuant to its by-laws.
 
 During
2007, we generated cash from operating activities of approximately $2.4 million,
primarily resulting from:
   ·
              net
      loss of approximately $150.7 million, adjusted for the impairment of the
      consideration receivable from the Investor, the amortization of the
      consideration receivable from the Investor, and the fair value of
      warrants, options and shares issued during the period aggregating
      approximately $145.8 million, $3.3 million, and $4.2 million,
      respectively; and
 ·
              a
      decrease in accounts receivable and accounts receivable-related party of
      approximately $2.3 million, a decrease in incentive receivables from
      Investor of approximately $667,000 and a decrease in accrued compensation
      of $1.9 million due to a decline in revenues and associated expenses
      during the second half of the second quarter of
  2007;
 ·
              an
      increase in prepaid tax assets of $2.3 million resulting from the payment
      of estimated income taxes offset by a reduction of the anticipated income
      tax.
 
 During
2007, we used our cash generated from operating activities to acquire the
customer relationship of HQ Trading, a crude oil broker, for $400,000, acquired
trading rights on the NYMEX floor for $1.2 million, and incurred capital
expenditures aggregating approximately $241,000. We also disposed of a trading
right for $1,165,000.
 
 During
2007, we generated gross proceeds from the exercise of certain warrants and
options aggregating approximately $220,000.
 
 On May 30, 2006, our Board of Directors
authorized us to repurchase such number of shares of our common stock that
have an aggregate purchase
price not in excess of $200,000 at the rate of up to $50,000 worth of common
stock each quarter. The Company repurchased 4,800 shares at a cost aggregating
$2,506 since the commencement of the share repurchase program.We did not repurchase any shares during
2008.
   The Company has an outstanding
promissory note (the “Note”) issued to Mark Nordlicht, our co-founder and
Chairman until May 2007. The balance on the Note is approximately $5 million, is
non-interest bearing and is due in 2014. We have voluntary prepayment rights and
a requirement to prepay the outstanding balance on the Note with a portion of
the proceeds of any equity or debt financing exceeding $1 million. To date, the
Note is neither due, in default nor subject to any prepayment obligation of the
Company. Edward O’Connor, our co-founder and former President, has a
substantially similar promissory note with an outstanding principal balance of
approximately $500,000. On January 28, 2009, our Board of Directors established
a special committee of three directors to review and respond to Mark Nordlicht’s
repeated requests to renegotiate the Note. While the Note is not currently
payable or in default, the Company believes that it may be able to obtain a
favorable resolution to a number of continuing disputes with Mr. Nordlicht
regarding the satisfaction of the Note at a discount, the management and the
future direction of the Company.The special committee has commenced
negotiations with Mr. Nordlicht but there can be no assurance that a definitive
agreement will be achieved. Members of the special committee are Thomas
Burchill, Dov Rauchwerger and Andrew Samaan.
   GOING
CONCERN
   The
Company believes it has sufficient funds to meet its obligations, based on its
internal projections, for at least the next twelve months. However, the Company
cannot guarantee that it will do so. If there are unforeseen expenses or
financial obligations which occur during that period, such as those related to
matters disclosed in Part I, Item 3- Legal Proceedings, the Company may not be
able to meet such obligations. Additionally, if the Company acquires a brokerage
or trading firm or a technology company which could be instrumental in the
Company's long-term growth, this could hamper the Company's ability to continue
as a going concern, both from a short-term or a long-term perspective, and the
Company would have to resort to financing, through either debt or equity
placements, for the funding of either such acquisitions or unforeseen expenses
or financial obligations. There can be no assurance that any such financing
would be available on acceptable terms, or at all, especially in light of the
pending litigation against the Company and recent economic
conditions.
 
 18
 CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
   A summary
of significant accounting policies is included in Note 2 of the audited
financial statements included in this Annual 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:.
   Revenue
recognition
   During
2007, revenue is recognized when earned. Our revenue recognition policies are in
compliance with the SEC's Staff Accounting Bulletin ("SAB") No. 104 "Revenue
Recognition". The application of SAB No. 104 requires us to apply our judgment,
including whether our clients receive services over a period of
time.
   We
generally invoiced our clients monthly, for all transactions which have been
executed during such month. Revenues are recognized on the day of trade-trade
date basis. Our revenues derive from a certain predetermined fixed fee of the
transactions we execute on behalf of our clients. The fee is based on the volume
of financial instruments traded. We base our fees on oral and written contracts
and confirm the fees in writing upon the execution of each
transaction.
   During
2007, we also receive incentives from the New York Mercantile Exchange for the
volume of OTC transactions we submit to their clearing platforms on behalf of
our clients. The incentives are based on a percentage of the total revenues
received by the exchange attributable to our volume of transactions submitted to
the respective exchanges. We also apply our judgment when making estimates
monthly of such incentives based on the volumes of transactions submitted to the
respective exchanges and the exchanges' published revenues by type of
transaction.
   We,
pursuant to SAB 104, realized the incentive revenues realized or realizable when
all of the following criteria are met:
   1)
Persuasive evidence of an arrangement exists. We have a written separate
agreement with an exchange which has publicly published the initial terms of its
incentive program in 2003 which it modified in 2005 and which is offered to all
intermediaries in the select transactions;
   2)
Delivery has occurred or services have been rendered. Under arrangements with
the exchange, the incentives are earned on the day we submit transactions to the
respective exchanges based on the revenues generated from such transactions and
are no longer subject to minimum volume of transactions to the exchange. We
account for all transactions submitted to each exchange on a daily basis.
Accordingly, we are able to determine when the incentives are earned based on
the date we submit transactions to the exchange. We have no other obligations to
the exchange to earn the incentives;
   3)
"Seller's" price to the buyer is fixed or determinable. Based on the incentive
program terms of each exchange, their published prices for the type of
transactions we submit to them, and our transactions records, we are able to
determine an estimate for the revenues each exchange earns in connection with
the transactions it submits, and accordingly, the amount, if any of the
incentives we earn in connection with such transactions; and
   19
 4)
Collectability is reasonably assured. The exchange has paid us timely on
incentives earned from 2004 through May 2007. The Company intends to enforce the
payment of any incentives receivable.
 
 Accounts and incentive receivable
and related allowance for doubtful accounts.
   Accounts
receivable and incentive receivable are reported at net realizable value. We
have established an allowance for doubtful accounts based upon factors
pertaining to the credit risk of specific customers, historical trends, and
other information. Delinquent accounts are written-off when it is determined
that the amounts are uncollectible.
 
 Share-based
payment
   We
account for share-based payments in accordance with SFAS No. 123(R), Share-Based
Payment. Under the fair value recognition provisions of this statement,
share-based compensation cost is measured at the grant date based on the value
of the award and is recognized as expense over the vesting period. Determining
the fair value of share-based awards at the grant date requires judgment,
including estimating expected volatility. In addition, judgment is also required
in estimating the amount of share-based awards that are expected to be
forfeited. If actual results differ significantly from these estimates,
stock-based compensation expense and our results of operations could be
materially impacted.
 
 Impairment
of intangible assets
   SFAS No.
142, Goodwill and Other Intangible Assets, requires that goodwill be tested for
impairment on an annual basis and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of an
intangible asset below its carrying value. These events or circumstances could
include a significant change in the relationship with the contracting party,
business climate, legal factors, operating performance indicators, or
competition. Application of the intangible asset impairment test requires
judgment, including the determination of the fair value of each intangible
asset. The fair value of each intangible asset is estimated based on the
consideration given by us to acquire the intangible asset(s). This requires
significant judgment including the estimation of expected volatility if the
Company issued common share equivalent as consideration. Changes in our
estimates of undiscounted cash flows related to each intangible asset could
materially affect the determination of the impairment for each intangible
asset.
 
 Contingencies
   The
outcomes of legal proceedings and claims brought against us are subject to
significant uncertainty. SFAS No. 5, Accounting for Contingencies, 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 we evaluate, among other factors, the degree of
probability of an unfavorable outcome and the ability to make a reasonable
estimate of the amount of loss. Changes in these factors could materially impact
our financial position or our results of operations.
 
 RECENT
PRONOUNCEMENTS
 
 The FASB
issued FASB Statement No. 141 (revised 2007), Business Combinations,
Statement 141(R ) requires the acquiring entity in a business combination to
recognize all (and only) the assets acquired and liabilities assumed in the
transaction; establishes the acquisition-date fair value as the measurement
objective for all assets acquired and liabilities assumed; and requires the
acquirer to disclose to investors and other users all of the information they
need to evaluate and understand the nature and financial effect of the business
combination. FASB No.141 R is effective for fiscal years beginning after
December 15, 2008. The Company does not believe that FAS No. 141 R will have any
impact on its financial statements.
 
 20
 The FASB
issued FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements. Statement
No.160 requires all entities to report noncontrolling (minority) interests in
subsidiaries in the same way—as equity in the consolidated financial statements.
Moreover, Statement 160 eliminates the diversity that currently exists in
accounting for transactions between an entity and noncontrolling interests by
requiring they be treated as equity transactions. FASB No.160 is effective for
fiscal years beginning after December 15, 2008. The Company does not believe
that FAS No. 160 will have any impact on its financial
statements.
   In March
2008, the FASB issued FASB No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133,which requires
additional disclosures about the objectives of the derivative instruments and
hedging activities, the method of accounting for such instruments under SFAS No.
133 and its related interpretations, and a tabular disclosure of the effects of
such instruments and related hedged items on our financial position, financial
performance, and cash flows. SFAS No. 161 is effective for the Company beginning
January 1, 2009. Management believes that, for the foreseeable future, this
Statement will have no impact on the financial statements of the Company once
adopted.
 
 In May
2008, FASB issued FASB Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principles.The new standard is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for non-governmental entities. We are currently evaluating the effects,
if any, that SFAS No. 162 may have on our financial reporting.
  ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISKS
  N/A
 ITEM
8.  FINANCIAL STATEMENTS.
 
 All
financial information required by this Item is attached hereto at the end of
this report beginning on page F-1 and is hereby incorporated by
reference.
 
 ITEM
9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
 None
 
 ITEM
9A(T).  CONTROLS AND PROCEDURES.
 
 Evaluation
of Disclosure Controls and Procedures
   As of
December 31, 2008, our management our President and our Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures pursuant
to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Based upon that evaluation, our President and our
Chief Financial Officer concluded that, as of December 31, 2008, 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 President and our Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
   Changes
in Internal Control Over Financial Reporting
   During
the quarter ended December 31, 2008, there were no changes in our internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
   21
 Management's
Annual Report on Internal Control Over Financial Reporting
   Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as such term is defined in Exchange Act Rule
13a - 15(f). Our internal control system was designed to provide reasonable
assurance to our management and the Board of Directors regarding the preparation
and fair presentation of published financial statements. All internal control
systems, no matter how well designed have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation. Our management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2008. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") in Internal Control - Integrated Framework - Guidance for
Smaller Public Companies (the COSO criteria). Based on our assessment we believe
that, as of December 31, 2008, our internal control over financial reporting is
effective based on those criteria.
   This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting. Our
management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in this annual
report.
 
 ITEM
9B.  OTHER INFORMATION.
 
 None.
 
 PART
III
 
 ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
 
 The
following table sets forth information about our executive officers, key
employees and directors as of February 10, 2009.
 
 Name
                  Age
                  Position
                  Date
      of Election
                    Or
      Appointment as a
                    DirectorThomas
      Burchill
                  67
                  Chief
      Executive Officer, President, and Director
                  November
      2007Marc-Andre
      Boisseau
                  44
                  Chief
      Financial Officer
                  n/aEdward
      O’Connor
                  55
                  Director
                  March
      2001Dov
      Rauchwerger
                  31
                  Director
                  November
      2007Andrew
      Samaan
                  41
                  Director
                  January
      2009
  22
 Thomas F. Burchill has served
as one of directors since November 2007. Mr. Burchill worked at Hearst, ABC and
Viacom, serving, beginning in 1984, as the first President and Chief Executive
Officer of Lifetime Television, owned by the three companies. Between 1993 and
2001, Mr. Burchill, served as Chairman and Chief Executive Officer of Petry
Media Corp., was responsible for reengineering that company with computer
technology initiatives and subsequently oversaw the acquisition of, and
successful integration of, a competitor, John Blair Co. Since 2001, Mr. Burchill
has provided leadership or advisory assistance to a number of early stage
companies that serve the media sector, including Mitra Technologies, a traffic
and billing software firm, and SB3 Inc., a media focused business intelligence
firm and Venaca, Inc., a digital asset management company. Mr. Burchill has been
active in a number of industry organizations, including service as Chairman of
the Cable Television Advertising Bureau and as a member of the Board of
Directors of both the Television Bureau of Advertising and the International
Radio and Television Society. Currently, he serves as Chairman and CEO of
Mediastar Ventures LLC, an advisory firm. Mr. Burchill holds degrees from Holy
Cross College and the Columbia University Graduate School of
Business.
   Marc-Andre Boisseau has served
as our Chief Financial Officer since December 2004. Since January 2002,as
President of Boisseau, Felicione & Associates, Inc., he has served as an
advisor to small and medium publicly traded and private companies on financial,
tax and accounting matters. Between January 2000 and December 2001, he served as
Vice-President Finance of DataCore Software, Inc., a privately held software
developer. Prior to that, he served as Principal Accounting Officer (from May
1997 to December 1999) and Vice President Controller (from January 1, 1998 to
December 1999) of Citrix Systems, Inc. a publicly traded software developer. Mr.
Boisseau is a certified public accountant. Mr. Boisseau graduated with a BA
degree in Business Administration in 1987 from the University of
Montreal.
   Edward J. O'Connor has served
as a director since March 2001. Mr. O'Connor previously served as our CEO
between March 2004 and October 2005 and as our President between March 2001 and
January 2009 . Since December 1996 to early 2007, Mr. O'Connor has served as a
director and periodically as a managing director of Capital Energy Services, LLC
(formerly Orion Energy Services, LLC), which was an energy options brokerage
business on the NYMEX. While serving as our President, Mr. O'Connor's primary
responsibilities included negotiating and entering into contracts for our
business and accounting for our funds. Mr. O'Connor graduated from Georgetown
University in 1977 with a BS degree in Business Administration.
 
 Dov Rauchwerger has served as
one of our directors since November 2007 and has been involved in all aspects of
business as a business owner and manager, from marketing, development and
negotiations to financing and human resources. Mr. Rauchwerger re-built the
electronics business of Adi-Aviv Electronics, an electronic wholesale and
distribution business, where he served as Vice President from 2000 to 2001 and
Managing Partner from 2001 to 2007. In February 2007, Mr. Rauchwerger founded,
and continues to serve as the Managing Partner of, Northern Lights Electronics,
a full service consumer electronics wholesaler, distributor and reseller. Mr.
Rauchwerger graduated magnum cum laude with a Bachelor of Arts degree from
Rollins College in May 1998.
 
 Andrew Samaan has served as
one of our directors since January 2009. Mr. Samaan is an attorney with
expertise in capital formation, transaction analysis, negotiation and execution.
Mr. Samaan advises clients on corporate transactions, and various other
transactions from both a financial and legal perspective. Mr. Samaan also
advises entities and individuals involved in the sports industry on a variety of
legal matters, including the representation of investor groups and owners in the
acquisition and sale of minor league sports franchises. Aside from his expertise
in representing investors and owners, Mr. Samaan has extensive experience in
corporate transactional work. He has worked in excess of $5 billion in mergers
and acquisitions transactions and issuance of corporate securities on behalf of
U.S. and international corporations. Mr. Samaan has advised new media companies
in capital formation, intellectual property matters and on-going
operations.
 
 Mr.
Samaan currently works as Principal at Columbia Sports Group, a financial
advisory firm specializing in professional minor league sports organization,
which he joined in October 2008., Mr. Samaan worked in various high level
positions from April 1998 to September 2008 for Venaca, Inc., a media technology
company. Additionally, Mr. Samaan worked for Prudential Securities Inc. from May
1997 to April 1999, where he provided middle market companies with sell side,
buy side and defense advisory services. Mr. Samaan also worked as a corporate
securities lawyer in New York and London for Brown & Wood, LLP and provided
counsel on the issuance of corporate securities to U.S. and international
corporations.
 
 23
 Mr.
Samaan earned a Bachelor of Arts degree in Political Science from Loyola College
and his Juris Doctor/MBA from Fordham University. He is a member of the American
Bar Association, the New York State Bar Association and the New York City Bar
Association. Mr. Samaan is licensed to practice law in New York, Connecticut and
the District of Columbia.
 
 Director
Nominees
 
 On
February 6, 2009, the Board of Directors nominated Mr. Boisseau, Mr. Burchill,
Mr. O’Connor and Mr. Samaan to be its candidates for the Board of Directors at
the 2009 annual meeting of stockholders.
   DIRECTOR
INDEPENDENCE, COMMITTEES OF THE BOARD OF DIRECTORS
   Two of
our members of our Board of Directors, Dov Rauchwerger and Andrew Samaan are
"independent" within the meaning of Nasdaq Marketplace Rule 4200. We have not
established any committees, including an Audit Committee, a Compensation
Committee, a Nominating Committee, or any committee performing a similar
function. The functions of those committees are being undertaken by the entire
board as a whole. Due to the size of the Board and the Company’s limited
resources, our Board of Directors believes that the establishment of such
committees of the Board is unnecessary and could be considered more form than
substance.
 
 On January 28, 2009, our Board of
Directors established a special committee of three directors to review and
respond to Mark Nordlicht’s repeated requests to renegotiate a promissory note
issued by the Company to Mr. Nordlicht on March 22, 2004 (the “Note”). The Note
matures in 2014 and currently has an outstanding balance of approximately $5
million. While the Note is not currently payable or in default, the Company
believes that it may be able to obtain a favorable resolution to a number of
continuing disputes with Mr. Nordlicht regarding the satisfaction of the Note at
a discount, the management and the future direction of the Company. Mr.
Nordlicht was one of the Company’s founders and is currently a major
stockholder. The special
committee has commenced negotiations with Mr. Nordlicht but there can be no
assurance that a definitive agreement will be achieved. Members of the special
committee are Thomas Burchill, Dov Rauchwerger and Andrew Samaan, each of whom
confirmed that they are independent of Mr. Nordlicht.
 
 FAMILY
RELATIONSHIPS
   There are
no family relationships among our executive officers and directors.
   SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
   We are
required to identify each person who was an officer, director or beneficial
owner of more than 10% of our registered equity securities during our most
recent fiscal year and who failed to file on a timely basis reports required by
Section 16(a) of the Securities Exchange Act of 1934.
   To our
knowledge, based solely on review of these filings and written representations
from certain of the reporting persons, we believe that during the fiscal year
ended December 31, 2008, our officers, directors and significant stockholders
have timely filed all required forms under Section 16(a) of the Exchange
Act.
   24
 Code
of Business Conduct and Ethics
   We have
adopted a Code of Business Conduct and Ethics to provide guiding principles to
all of our employees. Our Code of Business Conduct and Ethics does not cover
every issue that may arise, but it sets out basic principles to guide our
employees and provides that all of our employees must conduct themselves
accordingly and seek to avoid even the appearance of improper behavior. Any
employee which violates our Code of Business Conduct and Ethics will be subject
to disciplinary action, up to an including termination of his or her employment.
Generally, our Code of Business Conduct and Ethics provides guidelines
regarding:
   ·
              compliance
      with laws, rules and regulations,
  ·
              conflicts
      of interest,
  ·
              insider
      trading,
  ·
              corporate
      opportunities,
  ·
              competition
      and fair dealing,
  ·
              discrimination
      and harassment,
  ·
              health
      and safety,
  ·
              record
      keeping,
  ·
              confidentiality,
  ·
              protection
      and proper use of company assets,
  ·
              payments
      to government personnel,
  ·
              waivers
      of the Code of Business Conduct and
Ethics,
  ·
              reporting
      any illegal or unethical behavior,
and
  ·
              compliance
      procedures.
   In
addition, we have also adopted a Code of Ethics for our Chief Executive Officer
and Senior Financial Officers. In addition to our Code of Business Conduct and
Ethics, our CEO and senior financial officers are also subject to specific
policies regarding:
   ·
              disclosures
      made in our filings with the SEC,
  ·
              deficiencies
      in internal controls or fraud involving management or other employees who
      have a significant role in our financial reporting, disclosure or internal
      controls,
  ·
              conflicts
      of interests, and
  ·
              knowledge
      of material violations of securities or other laws, rules or regulations
      to which we are subject.
   A copy of
the Code of Ethics is filed as an exhibit to our annual report for the fiscal
year ended December 31, 2005 as Exhibit 14.1. The Code of Ethics is also posted
on our website under Governance Documents under the investor relations section
of our website: www.optionable.com
 
 25
 ITEM
11.  EXECUTIVE COMPENSATION.
   The following table summarizes all
compensation recorded by us in each of the last two completed fiscal years for
our principal executive officer, each other executive officer serving as such
whose annual compensation exceeded $100,000 and up to two additional individuals
for whom disclosure would have been made in this table but for the fact that the
individual was not serving as an executive officer of our company at December
31, 2008. The value attributable to any option awards is computed in accordance
with FAS 123R.
 
 Name
      and Principal Position
                    Year
                    Salary
                      ($)
                    Bonus
                      ($)
                    Stock
      Awards
                    Option
                      Awards
                      ($)
                    Non-Equity
      Incentive Plan Compensation
                      ($)
                    Non-Qualified
      Deferred Compen-sation
                    All
      Other Compensation
                      ($)
                    Total
                      ($)Edward
      O’Connor
                      President
      and Director (1)(6)
                    2008
                      2007
                    200,000
                      200,000
                    0
                      0
                    0
                      0
                    0
                      0
                    0
                      0
                    0
                      0
                    16,703
                      15,511
                    216,703
                      215,511Kevin
      Cassidy
                      CEO,
      Vice-Chairman, and Director (2)(3)
                    2008
                      2007
                    0
                      150,000
                    0
                    0
                      187,672
                    0
                      248,750
                    0
                      454,967
                    0
                      0
                    0
                      5,016
                    0
                      1,046,405Albert
      Helmig
                      Executive
      Chairman
                      and
      Director (4)
                    2008
                      2007
                    0
                      397,000
                    0
                      0
                    0
                      0
                    0
                      0
                    0
                      0
                    0
                      0
                    0
                      0
                    0
                      397,000Marc-Andre
      Boisseau
                      Chief
      Financial Officer
                    2008
                      2007
                    121,306
                      185,327
                    0
                      0
                    0
                      0
                    0
                      0
                    0
                      0
                    0
                      0
                    0
                      0
                    121,306
                      185,327Thomas
      Schnell (5)(6)
                    2008
                      2007
                    0
                      107,416
                    0
                      0
                    0
                      0
                    0
                      0
                    0
                      888,524
                    0
                      0
                    0
                      11,575
                    0
                      1,007,515
 
 (1) Mr.
O'Connor served as our principal executive officer from November 6, 2007 through
January 28, 2009.
 (2) Mr.
Cassidy served as our principal executive officer, Chief Executive Officer, Vice
Chairman and Director between October 30, 2005 and May 12, 2007.
 (3) Mr.
Cassidy's compensation included30,689 and 268,083 shares of common stock issued
during 2007 and 2006, respectively. It included 1,200,000 warrants issued to
Pierpont Capital, Inc., exercisable at $0.95 and for which we recognized
$120,000 and $240,000 in compensation expenses during 2007 and 2006,
respectively, pursuant to FAS 123 (R ). It also included the fair value of
65,000 options for which we recognized $128,750 in compensation expenses during
2007. Additionally, the Company paid, on behalf of Mr. Cassidy, a life insurance
and health insurance premium, which are included in other
compensation.
 (4) Mr.
Albert Helmig has served as our principal executive officer and Executive
Chairman between May 11 and November 6, 2007.
 (5) The
other compensation of Mesrrs. O'Connor and Schnell represent the health
insurance premium paid by the Company on their behalf.
 (6) Mr.
Schnell was a broker and was not an executive officer of the Company. Mr.
Schnell resigned on September 14, 2007.
 
 
 26
  EMPLOYMENT
AGREEMENTS
   On March
1, 2001, we entered into an employment agreement with Edward O'Connor, one of
our directors who previously served as our President. The agreement was amended
on April 1, 2004.The terms of the agreement, as amended, provide that we would
employ Mr. O'Connor for a term of five years with the duties of Chief Executive
Officer with an annual salary of $200,000 per year. If we terminate Mr.
O'Connor's employment without "cause" or if Mr. O'Connor terminates his
employment with "good reason" (as both terms are defined in Mr. O'Connor's
employment agreement), we are required to pay him a lump sum equal to nine
months' base salary. Following termination of employment for any reason, other
than expiration of the term of employment, Mr. O'Connor has agreed not to engage
in an electronic OTC business in competition with us for a 90 day period,
provided we pay him bi-monthly installments of $8,333.33 and provide full health
benefits during the 90 day period. In October 2005, as discussed below, we
continued to employ Mr.O'Connor as our President with the same compensation
package as when he was our Chief Executive Officer. On January 28, 2009, Edward
O’Connor resigned as President effective immediately and will continue to serve
as a Director of the Company until such time as his successor is duly nominated
and elected. In connection with Mr. O’Connor’s resignation, the Company and Mr.
O’Connor entered into a Separation Agreement (the “Separation Agreement”)
pursuant to which we agreed to provide Mr. O’Connor with a monthly severance in
the amount of $2,083.33 (net of applicable withholding) for twelve consecutive
months. Pursuant to the terms of the Separation Agreement, we agreed to maintain
sufficient resources to indemnify Mr. O’Connor in any threatened or pending
action, suit or proceeding brought against him by reason of the fact that he was
an officer or director or similar capacity of the Company. The Separation
Agreement also contains mutual non-disparagement, mutual release, non-compete
and confidentiality provisions. Mr. O’Connor recused himself from the Board vote
to approve his Separation Agreement.
   We have a
consulting agreement with Mr. Boisseau, who serves as our Chief Financial
Officer. The verbal agreement provides that we compensate him at $300 per hour,
since May 14, 2007. The rate per hour between January 1 and March 6, 2007,
amounted to $145 per hour and between March 7 and May 13, 2007, $152 per hour.
This agreement may be terminated at will by both parties.
 
 On
January 28, 2009, in connection with the appointment of Mr. Burchill to serve as
President and CEO we entered into an employment agreement with Mr. Burchill
dated January 28, 2009. The Employment Agreement provides for an annual salary
of $150,000 and a year-end incentive pay of up to 100% of the base salary based
upon criteria to be established by the Board of Directors. The Employment
Agreement also provides for a signing bonus of $30,000 and the grant of an
option to purchase 250,000 shares of the Company’s common stock at a price of
$0.016, which is equal to at least 100% of the closing price of the Company’s
stock on January 28, 2009. The Employment Agreement may be terminated at will by
either party upon 30 days notice, except that no such notice is required if
terminated by the Company for cause as defined in the Employment Agreement. The
Employment Agreement also provides for the payment of severance in the amount of
six months base salary and benefits, plus the pro rata amount of any incentive
pay that the Board may give based upon a criteria to be determined by the Board,
if Mr. Burchill resigns for good reason, as defined in the Employment Agreement,
or if the Company terminates for any reason other than cause, as defined in the
Employment Agreement.
   Outstanding
Equity Awards at Fiscal Year-End Table.
 
 The
following table sets forth information with respect to grants of options to
purchase our common stock to the named executive officers at December 31,
2008.
  None
      27
 Director
Compensation
 
 The
following table sets forth with respect to the named directors, compensation
information inclusive of equity awards and payments made for the fiscal year
ended December 31, 2008.
   Name
      (a)
                
                Fees
      Earned or Paid in Cash ($) (b)
                
                Stock
      Awards ($) (c)
                
                Option
      Awards ($) (d)
                
                Non-Equity
      Incentive Plan Compensation ($) (e)
                
                Change
      in Pension Value and Nonqualified Deferred Compensation Earnings
      (f)
                
                All
      Other
                  Compensation
      ($) (g)
                
                Total
      ($) (h)Thomas
      Burchill
                
                100,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                100,000Dov
      Rauchwerger
                
                25,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                25,000
   Director
Compensation
   During
November 2007, the Company's Board of Directors approved compensation to be paid
to the Messrs. Burchill and Rauchwerger in return for their service on the
Board. The Board also approved a letter agreement with each of Messrs. Burchill
and Rauchwerger which sets forth their compensation for their service on the
Board. The Company will pay Mr. Burchill $100,000 as annual compensation to be
paid in 12 equal monthly payments. The Company will pay Mr. Rauchwerger $25,000
as annual compensation to be paid in 12 equal monthly installments. The
Company’s Board of Directors has also approved a letter agreement which provides
for an annual compensation to Mr. Samaan of $25,000 payable in 12 equal monthly
payments. During November 2007, the Board also approved a grant of 250,000
options to each of Messrs. Burchill and Rauchwerger. 50,000 options of each of
such grant vested upon the grant and the remainder will vest at a rate of 50,000
options on each six month anniversary of the grant through November 26, 2009.
The options expire on the five year anniversary of the grant. The Company
entered into a stock option agreement with Messrs. Burchill and Rauchwerger in
the form approved by the Board (each, a "Stock Option Agreement").
   All of
our directors are reimbursed for their reasonable expenses for attending board
and board committee meetings


Item
12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
 
 The
following table sets forth, as of February 10, 2009, the number of and percent
of our common stock beneficially owned by:
   ·
              all
      directors and nominees, naming
them,
  ·
              our
      executive officers,
  ·
              our
      directors and executive officers as a group, without naming them,
      and
  ·
              persons
      or groups known by us to own beneficially 5% or more of our common
      stock:
   We
believe that all persons named in the table have sole voting and investment
power (or shares such powers with his or her spouse) with respect to all shares
of common stock beneficially owned by them.
   28
 A person
is deemed to be the beneficial owner of securities if that person has the power
to vote or dispose of such securities or if that person can acquire such
securities within 60 days from February 10, 2009 upon the exercise of options,
warrants, convertible securities or other rights. Each beneficial owner's
percentage ownership is determined by assuming that options, warrants or
convertible securities that are held by him, but not those held by any other
person, and which are exercisable within 60 days of February 10, 2009 have been
exercised and converted.
   Title
      of Class
                                                    Name
      and address of
                                                      Beneficial
      Owner
                                                    Number
      of Shares
                                                      Beneficially
      Owned
                                                    Percent
      of Total*Common
      Stock
                                                    Edward
      O’Connor (1)
                                                      95
      Croton Avenue
                                                      Suite
      32
                                                      Ossining,
      NY 10562
                                                    3,854,130
                                                    7.4%Common
      Stock
                                                    Marc-Andre
      Boisseau
                                                      95
      Croton Avenue
                                                      Suite
      32
                                                      Ossining,
      NY 10562
                                                    0
                                                    0.0%Common
      Stock
                                                    Thomas
      Burchill (2)
                                                      95
      Croton Avenue
                                                      Suite
      32
                                                      Ossining,
      NY 10562
                                                    200,000
                                                    0.4%Common
      Stock
                                                    Dov
      Rauchwerger (2)
                                                      95
      Croton Avenue
                                                      Suite
      32
                                                      Ossining,
      NY 10562
                                                    150,000
                                                    0.3%Common
      Stock
                                                    Mark
      Nordlicht
                                                      159
      Wykagil Terrace
                                                      New
      Rochelle, NY 10804
                                                    8,190,150
                                                    15.6%Common
      Stock
                                                    Nymex
      Holdings, Inc.
                                                      One,
      North End Avenue
                                                      World
      Financial Center
                                                      New
      York, NY 10282
                                                    10,758,886
                                                    20.52%Common
      Stock
                                                    All
      Executive Officers and Directors as a Group (4 persons )
                                                    4,154,130
                                                    8.0%
   * Based
upon 52,428,203 shares outstanding as of February 10, 2009
 
 (1)
Includes 2,682,201 shares owned by Ridgecrest Capital Corp., Inc., a corporation
wholly owned by Mr. O'Connor, 901,929 shares owned by Mr. O'Connor's daughter
Kathleen O'Connor and 901,929 shares owned by Mr. O'Connor's daughter Erin
O'Connor. Mr. O’Connor disclaims beneficial ownership of his daughters’
shares.
 
 (2)
Includes shares issuable pursuant to the exercise of stock options exercisable
within 60 days.
 
 29
 
 ITEM
13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
   During
April 2005, we modified the terms of agreement under which we initially owed
$5,762,753, $765,000 and $765,000 to Mark Nordlicht, our Chairman of the Board,
Kevin Cassidy, our Chief Executive Officer, and Edward O'Connor, our President,
respectively. The modified terms provide that, among other things, in the event
of a Capital Raise-defined as we raising more than $1,000,000 additional equity
or debt financing, the interest rate accrued after such event is reduced from
12% to 4.68%. Additionally, the modified terms provide that we may make
principal repayments towards the due to Chairman of the Board, the due to its
Chief Executive Officer, and the due to related party amounting to approximately
25% of its cash flows from operating cash flows less capital expenditures.
During 2006, we modified the terms of the agreements to allow prepayments at our
discretion.
   We were
party to a Master Services Agreement with CES pursuant to which we provide
brokerage services on the floor of the New York Mercantile Exchange . Edward J.
O'Connor, our former President and a director, is a 50% stockholder of CES.
Kevin P. Cassidy our former Chief Executive Officer until May 2007, is the
Managing Director of CES. Pursuant to this arrangement, we were paying to CES a
minimum annual fixed fee of $50,000 and assume all expenses directly incurred by
CES's associated floor brokerage services. Additionally, we owed to CES
$1,525,000 payable on April 1, 2014. However, upon a Capital Raise, we will pay
up to 10.67% of the amount raised during the Capital Raise, up to $762,500, to
CES, with the remaining principal and accrued interest of 12% from the date of
the Capital Raise payable on April 1, 2014.
   During
April 2005, CES assigned its rights to the Company's liability of $1,525,000
equally to Edward O'Connor and Kevin Cassidy, co-owners of CES. Subsequently,
during April 2005, the Company entered into modifications of the terms of the
amounts due from it to Mark Nordlicht, Edward O'Connor and Kevin Cassidy. The
modified terms provide that, among other things, in the event of a Capital
Raise, the interest rate accrued after such event is reduced from 12% to 4.68%.
Additionally, the Company may make principal repayments towards such liabilities
amounting to approximately 25% of its quarterly cash flows from operating
activities less capital expenditures.
   Pursuant
to this arrangement, our share of revenues and expenses of the floor brokerage
services amounted to approximately $901,000 and $15,000, respectively, during
2007. We have received $1.5 million from CES in connection with such floor
brokerage services during 2007,. In April 2007, the Company reimbursed CES
approximately $165,000 for commissions to a broker that CES paid on the
Company's behalf. All obligations pursuant to this arrangement have been
satisified as of December 31, 2007 This agreement was terminated in January 2007
and our floor operations were assumed by one of our subsidiaries, OPEX
International, Inc.
   The
Company has recognized revenues from brokerage commissions of approximately
$253,000 and $3,000 during 2007 from Platinum Partners, L.P. and Fenmore
Holdings LLC, respectively, entities in which Mark Nordlicht is also the
managing partner or a stockholder. All obligations from such related parties
have been satisfied at December 31, 2007.
   Jules
Nordlicht, the father of the Company's former Chairman of the Board, leased to
us a seat on the exchange through which CES maintained its floor operations. We
assumed the cost of the lease in April 2006 and renewed it in December 2006
through June 2007. We terminated this agreement effective April 1, 2007. The
lease provided for monthly payments of $5,000 through June 30, 2007. The amount
paid pursuant to the lease amounted to $15,000 during 2007.
   30
 We also
received incentives from NYMEX, a stockholder (the "Investor"). The incentives
are earned based on a percentage of the total revenues received by the exchange
attributable to our volume of OTC market transactions submitted to the
respective exchanges. Under this incentive program offered by NYMEX, 25% of the
revenues from NYMEX ClearPort are allocated to an intermediary incentive pool.
At the end of each quarter, the qualifying intermediaries, including us, receive
their pro-rata share based on the volume for which they were responsible. There
is no minimum volume requirement in order to participate. The Company recognized
revenues from incentives amounting to approximately $3.3 million during 2007.
The Company received approximately $2.0 million from the Investor, pursuant to
such incentive arrangement during 2007. NYMEX owes us approximately $641,000 at
December 31, 2008 and, after several requests, have not indicated to us whether
they will ever satisfy their obligations to us or when.
   On April
10, 2007, we, Mark Nordlicht, our former Chairman of the Board, Kevin Cassidy,
our former Vice Chairman and Chief Executive Officer, Edward O'Connor, our
former President and a Director, (together with Mr. Nordlicht and Mr. Cassidy,
the "Founding Stockholders"), and NYMEX Holdings, Inc. (the "Investor") entered
into a definitive stock and warrant purchase agreement (the "Stock and Warrant
Purchase Agreement").
   Pursuant
to the terms of the Stock and Warrant Purchase Agreement, Mr. Nordlicht, Mr.
Cassidy and Mr. O'Connor sold to the Investor, 7,000,000, 1,905,000 and
1,853,886 shares, respectively, of common stock of the Company. This aggregate
of 10,758,886 shares of common stock (the "Purchased Shares") represented 19% of
the then outstanding shares of common stock on a fully diluted basis (without
giving effect to the Warrant, as defined and discussed below). The purchase
price paid by the Investor for the Purchased Shares was $2.69 per share.
Additionally, pursuant to the Stock and Warrant Purchase Agreement, we
physically issued to the Investor the Warrant, as defined and described below,
in consideration of the Investor's agreement (i) to develop with us a marketing
plan, which plan will detail proposed expenditures by the Investor and joint
activities; (ii) subject to regulatory requirements, to provide space for up to
twenty of our brokers on the Investor's trading floor; and (iii) to host our
electronic trading platform, OPEX, in the Investor's data center and provide us
with computer and networking hardware, software, bandwidth and ancillary
infrastructure and services reasonably necessary to interconnect OPEX with the
Investor's clearing system market gateway to trading and clearing services.
Additionally, we agreed to exclusively clear all OTC products through the
Investor's clearing system for a period of ten years (provided that the Investor
continues to offer clearance for a particular product through its clearing
system) in consideration for additional fees to be paid by the Investor to
us.
   The
warrant issued by us (the "Warrant") permitted the Investor to purchase a number
of shares of common stock sufficient to increase the Investor's ownership of the
Company's common stock to an amount not to exceed 40% of the Company's then
outstanding common stock on a fully diluted basis, based on the assumption that
the Investor has retained ownership of the Purchased Shares and any shares of
common stock previously issued to the Investor upon a partial exercise of the
Warrant. The Warrant is exercisable at any time and from time to time prior to
October 10, 2008 at an exercise price per share equal to $4.30 (the "Exercise
Price"). The Warrant does not contain a cashless exercise feature. The Exercise
Price is subject to certain customary adjustments to protect against
dilution.
   In
connection with the consummation of the transactions contemplated by the Stock
and Warrant Purchase Agreement , the Company, the Investor and the Founding
Stockholders also entered into an Investor Rights Agreement, also dated April
10, 2007 (the "Investor Rights Agreement"), pursuant to which, for so long as
the Investor owns at least 5,379,443 shares of common stock:
   (a) the
Investor is entitled to designate one person (reasonably acceptable to the
Company) that we are required to nominate as a member of the our board of
directors (the "Investor Director");
   (b) each
of the Founding Stockholders are required to vote their shares in favor of the
election of the Investor's designee as one our directors;
   31
 (c) the
Investor is required to vote its shares in favor of each individual nominated
for election as a member of our board of directors by our board of directors, by
our nominating committee or such other ad hoc committee as may be acting in such
nominating role;
   (d)
subject to certain permitted threshold amounts, the consent of the Investor
Director (which may not be unreasonably withheld) is required before we may take
certain actions, including (1) issuances of shares of a class of stock ranking
senior to the common stock, (2) acquisitions of businesses or assets, (3) entry
into related party transactions, (4) the declaration or payment of dividends or
distributions on or with respect to, or the optionable redemption of, capital
stock or the issuance of debt and (5) entry into any business which is not
similar, ancillary or related to any of the businesses in which we are currently
engaged;
   (e) each
of the Founding Stockholders and the Investor have certain rights of first
refusal to purchase or subscribe for their pro rata percentage of shares in
certain subsequent sales by us of common stock and/or certain other securities
convertible into or exchangeable for common stock;
   (f) each
of the Founding Stockholders and the Investor have certain rights of first
refusal with respect to proposed sales of our common stock by the others;
and
   (g)
before they may accept any offer by an independent third party to acquire fifty
percent (50%) or more of the total voting power of our common stock, the
Founding Stockholders and we are required to provide notice of such offer to the
Investor and permit the Investor a period of 10 days to make its own
offer.
   The
Investor Rights Agreement additionally requires the Investor to refrain from
purchasing any additional shares of our common stock, with certain limited
exceptions, until April 10, 2008.
   The
Company and the Investor also entered into a registration rights agreement,
dated April 10, 2007 (the "Registration Rights Agreement"), pursuant to which,
among other things, we have provided the Investor, subject to standard
exceptions, with (a) unlimited "piggyback" rights subject to standard
underwriter lock-up and cutback provisions and (b) the right to two demand
registrations for underwritten offerings or take downs off of a shelf
registration statement, provided that (i) a minimum of $5,000,000 of our common
stock is offered in such demand registration or take down and (ii) we will not
be obligated to effectuate more than one underwritten offering pursuant to a
demand registration by the Investor in any six-month period. In addition, if we
are eligible to register our securities on Form S-3 (or any successor form then
in effect), the Investor will be entitled to unlimited registrations on Form S-3
(or any successor form then in effect), including shelf registrations, provided
that (a) a minimum of $5,000,000 of common stock is offered in the S-3
registration and (b) we will not be obligated to effect more than two S-3
registrations in any twelve month period. An S-3 registration will not count as
a demand registration, unless such registration is for an underwritten offering
or an underwritten take down off of an existing, effective shelf registration
statement.
   As a
condition to the Investor's obligation to consummate the transactions
contemplated by the Stock and Warrant Purchase Agreement, Mr. Nordlicht executed
an agreement, dated April 10, 2007 (the "Waiver"), waiving any obligation on the
part of the Company to make any prepayment of principal, or to begin paying
interest upon amounts due to Mr. Nordlicht, under the Loan Agreement between him
and the Company, dated March 2004, as a result of any exercise by the Investor
of the Warrant. Also as a condition to the Investor's obligation to consummate
the transactions contemplated by the Stock and Warrant Purchase Agreement, Mr.
Cassidy and the Company entered into an Amended and Restated Employment
Agreement and Mr. O'Connor entered into a Non-Competition Agreement, dated April
10, 2007, with the Company, pursuant to which Mr. O'Connor agreed not to
disclose or use the Company's confidential information and, for a period of nine
months following the termination of Mr. O'Connor's employment, not to compete
with the Company or solicit certain customers of the Company.
   Pursuant
to our final agreements with the Investor in April 2007, we physically issued to
the Investor warrants which will permit the Investor to purchase a number of
shares of common stock sufficient to increase its ownership to an amount not to
exceed 40% of our then outstanding common stock on a fully diluted basis, based
on the assumption that the Investor has retained ownership of the Purchased
Shares and any shares of common stock previously issued to the Investor upon a
partial exercise of the Warrant. The Warrant will be exercisable from time to
time for a period of 18 months from the closing date of the final agreement at
an exercise price per share equal to $4.30 (the "Exercise Price"). The Exercise
Price will be subject to certain customary adjustments to protect against
dilution.
   32
 The
number of warrants issued to NYMEX may increase or decrease from time to time
until October 2008, depending on whether we issue additional shares, options,
and warrants, repurchase treasury shares, or certain outstanding options and
warrants expire or become unexercisable. Because the number of shares will vary
from time to time, the fair value of the warrants issued pursuant to our
agreement and the related amortization may also vary from time to time, until
October 2008.
   Following
the occurrence of the events which are subject of the matters discussed in Item
1 of Part II of this Report "Legal Proceedings," we have not agreed with the
Investor on the joint marketing and technology initiatives discussed, above.
Additionally, the Investor indicated in a Schedule 13D it filed with the SEC on
July 6, 2007, with respect to its holdings of equity securities of the Company,
that it was now re-considering its potential joint marketing and technology
initiatives with the Company. As a result, the Investor and the Company have not
developed the contemplated joint marketing and technology
initiatives.
   The sale
of the Purchased Shares by the Founding Stockholders in an agreement in which
the Company would benefit from the Consideration constitutes a shared-based
payment transaction. As such, the Company established that the fair value of the
Purchased Shares is more reliably measurable than the Consideration from the
Investor.
   The fair
value of the Consideration attributable to the Purchased Shares represents the
difference between the market value of the Purchased Shares at the date of the
Stock and Warrant Purchase Agreement, as quoted on the Over-the-Counter Bulletin
Board, and the disposition proceeds of the Purchased Shares. The fair value of
the Consideration at April 10, 2007 amounted to $49,490,876 and was initially
recorded as capital contribution from the Founding Stockholders.
   The fair
value of the Consideration attributable to the Warrant amounted to
$99,594,000.
   However,
at June 30, 2007, based upon the statements made by the Investor, the Company
was unable to assert that it would receive any of the benefits initially
contemplated by the Stock and Warrant Purchase Agreement. Accordingly, the
Company has recorded a charge to its statement of operations amounting to
approximately $145.8 million, at June 30, 2007.
   Pursuant
to an agreement providing for the reimbursement of certain administrative
expenses for services provided to a coffee bean roaster, Sleepy Hollow Coffee
Roasters, Inc. ("Sleepy Hollow"), a company owned by Edward J. O'Connor and by
Kevin P. Cassidy, we charged an administrative fee of $8,000 to Sleepy Hollow
during 2007. We provided such services to Sleepy Hollow to ensure that Edward
O'Connor and Kevin Cassidy can focus as much time and efforts as possible on our
operations. This agreement was terminated by both parties effective June 30,
2007.
  At
December 31, 2008, we owe approximately $98,000 to a Mark Nordhlicht for certain
legal fees incurred and paid by him in connection with legal matters for which
he is entitled to be indemnified.
 
 ITEM
14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.
   The firm
Sherb & Co., LLP, independent registered accounting firm, has audited our
financial statements for the years ended December 31, 2008 and 2007. The Board
of Directors has appointed Sherb & Co. to serve as our registered accounting
firm for the 2008 year-end audit and to review our quarterly financial reports
for filing with the Securities and Exchange Commission during fiscal year 2009.
The following table shows the fees paid or accrued by us for the audit and other
services provided by Sherb & Co. for fiscal year 2008 and 2007.
   33
  2008
                            
                            
                            2007Audit
      Fees (1)
                            
                            $
                            75,000
                            
                            
                            $
                            78,000Audit-Related
      Fees
                            
                            $
                            --
                            
                            
                            $
                            --Tax
      Fees
                            
                            $
                            --
                            
                            
                            $
                            --All
      Other Fees (2)
                            
                            $
                            --
                            
                            
                            $
                            2,580Total
                            
                            $
                            75,000
                            
                            
                            $
                            80,580
 
 (1) Audit
fees represent fees for professional services provided in connection with the
audit of our annual financial statements and review of our quarterly financial
statements and audit services provided in connection with other statutory or
regulatory filings.
 
 (2) All
Other Fees represent edgarization services related to the certain statutory and
regulatory filings.
 
 AUDIT
COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
 
 The board
of directors acts as the audit committee, and consults with respect to audit
policy, choice of auditors, and approval of out of the ordinary financial
transactions.
 
 ITEM
15.  EXHIBITS.
 
 Exhibit
      No.
                  
                  Description3.1
                  
                  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 Incorporatin 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
                  
                  Lease
      Agreement between 24 South Third Avenue Corp. and 60 3rd
      Ave. Corp., as Lessor, and Optionable, Inc., as Lessee, dated October 3,
      2001 (incorporated by reference to Exhibit 10(i) to the
    SB-2)10.2
                  
                  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 (incorporatedby
      reference to Exhibit 10(ii)(a) to the
SB-2)                         34
  10.3
                        
                        Addendum
      to Master Services Agreement (incorporated by reference to Exhibit
      10(ii)(b) to the SB-2)10.4
                        
                        Amendment
      to Master Services Agreement (incorporated reference to the Registrant's
      Current Report on Form 8-K, dated as of April 10, 2006)10.5
                        
                        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)10.6
                        
                        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)10.7
                        
                        Superseding
      Option Order Flow Agreement, dated as of March 2, 2005 (incorporated by
      reference to Exhibit 10(iii)(b) to the SB-2)10.8
                        
                        Employment
      Agreement, as amended, between the Company and Edward J. O'Connor
      (incorporated by reference to Exhibit 10(iv) (a) to the
    SB-2)10.9
                        
                        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")10.10
                        
                        Form
      of Incentive Stock Option Agreement(incorporated by reference to Exhibit
      4.2 to the
S-8)
 
 10.11
              
              Nonstatutory
      Stock Option Agreement(incorporated by reference to Exhibit 4.3 to the
      S-8)10.12
              
              Prepaid
      Commission Agreement, dated February 3, 2003, between the Company and Mark
      Nordlicht (incorporated by reference to Exhibit 10(vi) to the
      SB-2).10.13
              
              Revolving
      Credit Facility Agreement, dated June 5, 2003, between the Company and
      Platinum Value
                Arbitrage
      Fund LP(incorporated by reference to Exhibit 10(vii)(a) to the
      SB-2)10.14
              
              $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)10.15
              
              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)10.16
              
              Loan
      Agreement, dated February 13, 2004, between the Company and Mark Nordlicht
      (incorporated by reference to Exhibit 10(ix)(a) to the
    SB-2)10.17
              
              $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)10.18
              
              $250,000
      Promissory Note Extension Agreement, dated September 9, 2004 (incorporated
      by reference to Exhibit 10(ix)(c) to the SB-2)10.19
              
              Loan
      Agreement, dated March 8, 2004, between the Company and Mark Nordlicht
      (incorporated by reference to Exhibit 10(x)(a) to the
  SB-2)10.20
              
              $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)                         35
  10.21
                                                                                                        
                                                                                                        $50,000
      Promissory Note Extension Agreement, dated September 9, 2004 (incorporated
      by reference to Exhibit 10(x)(c) to the SB-2)10.22
                                                                                                        
                                                                                                        Loan
      Agreement, dated March 22, 2004, between the Company and Mark Nordlicht
      (incorporated by reference to Exhibit 10(xi)(a) to the
    SB-2)10.23
                                                                                                        
                                                                                                        $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)10.24
                                                                                                        
                                                                                                        Addendum
      to Loan Agreement, dated March 22, 2004 (incorporated by reference to
      Exhibit 10(xi)(c) to the SB-2)10.25
                                                                                                        
                                                                                                        Addendum
      to Promissory Note, dated March 22, 2004 (incorporated by reference to
      Exhibit 10(xi)(d) to the SB-2)10.26
                                                                                                        
                                                                                                        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)10.27
                                                                                                        
                                                                                                        $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)10.28
                                                                                                        
                                                                                                        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)10.29
                                                                                                        
                                                                                                        Service
      and Repurchase Agreement (incorporated by reference to the Registrant's
      Current Report on Form 8-K, dated as of January 31,
200710.30
                                                                                                        
                                                                                                        Code
      of Business Conduct and Ethics (Incorporated by reference to the
      Registrant’s Form 10-KSB for the fiscal year ended December 31,
      2007)10.31
                                                                                                        
                                                                                                        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,
      2007.10.32
                                                                                                        
                                                                                                        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, 2007.10.33
                                                                                                        
                                                                                                        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).10.34
                                                                                                        
                                                                                                        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)10.35
                                                                                                        
                                                                                                        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)                                          36
 10.36
                                                                                                        
                                                                                                        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)10.37
                                                                                                        
                                                                                                        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)10.38
                                                                                                        
                                                                                                        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)10.39
                                                                                                        
                                                                                                        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)10.40
                                                                                                        
                                                                                                        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).10.41
                                                                                                        
                                                                                                        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).10.42
                                                                                                        
                                                                                                        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).10.43
                                                                                                        
                                                                                                        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).10.44
                                                                                                        
                                                                                                        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).10.45
                                                                                                        
                                                                                                        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)10.46
                                                                                                        
                                                                                                        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)10.47
                                                                                                        
                                                                                                        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)21*
                                                                                                        
                                                                                                        Subsidiaries
      of the Company.31.1*
                                                                                                        
                                                                                                        Certification
      by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
      of the Exchange Act31.2*
                                                                                                        
                                                                                                        Certification
      by Interim Chief Financial Officer, required by Rule 13a-14(a) or Rule
      15d-14(a) of the Exchange Act32.1*
                                                                                                        
                                                                                                        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 Code32.2*
                                                                                                        
                                                                                                        Certification
      by Interim Chief 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
 37


SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on February 17,
2009.








Optionable,
      Inc.By:
            /s/
      Thomas BurchillThomas
      BurchillChief
      Executive Officer, Presidentand
      Director (Principal Executive Officer)By:
            /s/
      Marc Andre-BoisseauMarc
      Andre-BoisseauChief
      Financial Officer
              (Principal
      Financial and Accounting Officer)





Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the date
indicated:






Signature
            
            Title
            
            Date/s/ Marc-Andre Boisseau
              Marc-Andre
      Boisseau
            
            Chief
      Financial Officer
            
            February
      17, 2009/s/ Thomas Burchill
              Thomas
      Burchill
            
            Chief
      Executive Officer, President, and Director
            
            February
      17, 2009/s/ Edward O’Connor
              Edward
      O’Connor
            
            Director
            
            February
      17, 2009/s/ Dov Rauchwerger
              Dov
      Rauchwerger
            
            Director
            
            February
      17, 2009/s/ Andrew Samaan
              Andrew
      Samaan
            
            Director
            
            February
      17, 2009






38
 
 
 OPTIONABLE,
INC.
 
 INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 
 
 Report
      of Independent Registered Public Accounting Firm
                          F-1Balance
      Sheet
                          F-2Statements
      of Operations
                          F-3Statement
      of Stockholders' Equity (Deficit)
                          F-4Statements
      of Cash Flows
                          F-5Notes
      to Financial Statements
                          F-6
      to F-41
 Report
of Independent Registered Public Accounting Firm
 
  To the
Board of Directors and Stockholders
 Optionable,
Inc.
 
 We have
audited the accompanying consolidated balance sheets of Optionable, Inc. as of
December 31, 2008 and 2007, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the years ended
December 31, 2008 and 2007. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
  In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Optionable, Inc. at
December 31, 2008 and 2007, and the consolidated results of its
operations and its cash flows for each of the years ended December 31,
2008 and 2007, in conformity with U.S. generally accepted accounting
principles.
  As
discussed in Note 1 to the consolidated financial statements, the Company’s
recurring losses from operations raise substantial doubt about its ability to
continue as a going concern. Management’s plans as to these matters also are
described in Note 1. The December 31, 2008 financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
 
 
 
 /s/ Sherb & Co.,
LLP
 Certified
Public Accountants
 New York,
New York
 February
12, 2009
   F-1
  OPTIONABLE,
      INC.CONSOLIDATED
      BALANCE SHEETS
  December
      31,2008
                                
                                
                                2007ASSETSCurrent
      Assets:Cash
      and cash equivalents
                                
                                $
                                8,974,282
                                
                                
                                $
                                9,919,727Recoverable
      income taxes
                                
                                
                                958,294
                                
                                
                                
                                2,281,432Deferred
      tax assets
                                
                                
                                -
                                
                                
                                
                                281,356Prepaid
      expenses
                                
                                
                                1,269,827
                                
                                
                                
                                387,636Total
      current assets
                                
                                
                                11,202,403
                                
                                
                                
                                12,870,151Property
      and equipment, net of accumulated depreciation of $731,518 and
      $569,712at
      December 31, 2008 and 2007, respectively
                                
                                
                                -
                                
                                
                                
                                186,231Other
      assets
                                
                                
                                -
                                
                                
                                
                                19,900Total
      assets
                                
                                $
                                11,202,403
                                
                                
                                $
                                13,076,282LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable and accrued expenses
                                
                                $
                                420,590
                                
                                
                                $
                                392,398Due
      to stockholder
                                
                                
                                97,907
                                
                                
                                
                                -Income
      tax payable
                                
                                
                                83,555
                                
                                
                                
                                -602,052
                                
                                
                                
                                392,398Due
      to stockholder, net of unamortized discount of $2,610,270 and
      $2,956,314at
      December 31, 2008 and 2007, respectively
                                
                                
                                2,426,240
                                
                                
                                
                                2,088,196Due
      to director, net of unamortized discount of $355,126 and
      $400,976at
      December 31, 2008 and 2007, respectively
                                
                                
                                153,571
                                
                                
                                
                                107,721Other
      liabilities
                                
                                
                                -
                                
                                
                                
                                59,367Total
      liabilities
                                
                                
                                3,181,863
                                
                                
                                
                                2,647,682Stockholders'
      Equity:Preferred
      Stock; $.0001 par value, 5,000,000 shares authorized, none
      issuedand
      outstanding at December 31, 2008 and 2007
                                
                                
                                -
                                
                                
                                
                                -Common
      stock; $.0001 par value, 100,000,000 shares authorized,52,428,203
      issued and  52,423,403 outstanding  at December 31,
      2008 and 2007
                                
                                
                                5,242
                                
                                
                                
                                5,242Additional
      paid-in capital
                                
                                
                                162,766,096
                                
                                
                                
                                162,743,356Treasury
      stock at cost, 4,800 shares
                                
                                
                                (2,506
                                )
                                
                                
                                (2,506
                                )Accumulated
      deficit
                                
                                
                                (154,748,292
                                )
                                
                                
                                (152,317,492
                                )Total
      stockholders’ equity
                                
                                
                                8,020,540
                                
                                
                                
                                10,428,600Total
      liabilities and stockholders’ equity
                                
                                $
                                11,202,403
                                
                                
                                $
                                13,076,282
  See
      Notes to Financial
Statements.
   F-2
 OPTIONABLE,
      INC.CONSOLIDATED
      STATEMENTS OF
OPERATIONS
  For
      the year endedDecember
      312008
                                              
                                              
                                              2007Revenues:Brokerage
      fees
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              8,786,850Brokerage
      fees-related parties
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,148,885Incentives-stockholder
                                              
                                              
                                              -
                                              
                                              
                                              
                                              3,285,058Net
      revenues
                                              
                                              
                                              -
                                              
                                              
                                              
                                              13,220,793Cost
      of revenues
                                              
                                              
                                              -
                                              
                                              
                                              
                                              7,798,438Cost
      of revenues-related parties
                                              
                                              
                                              -
                                              
                                              
                                              
                                              30,013-
                                              
                                              
                                              
                                              7,828,451Gross
      profit
                                              
                                              
                                              -
                                              
                                              
                                              
                                              5,392,342Operating
      expenses:Selling,
      general and administrative
                                              
                                              
                                              2,111,379
                                              
                                              
                                              
                                              8,624,175Impairment-consideration
      receivable from stockholder
                                              
                                              
                                              -
                                              
                                              
                                              
                                              145,771,878Impairment-intangible
      asset
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,085,610Research
      and development
                                              
                                              
                                              659,211
                                              
                                              
                                              
                                              1,094,188Total
      operating expenses
                                              
                                              
                                              2,770,590
                                              
                                              
                                              
                                              156,575,851Operating
      loss
                                              
                                              
                                              (2,770,590
                                              )
                                              
                                              
                                              (151,183,509
                                              )Other
      income (expense):Interest
      income
                                              
                                              
                                              255,118
                                              
                                              
                                              
                                              388,757Other
      expense
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (15,250
                                              )Interest
      expense to related parties
                                              
                                              
                                              (383,894
                                              )
                                              
                                              
                                              (340,707
                                              )(128,776
                                              )
                                              
                                              
                                              32,800Loss
      before income tax
                                              
                                              
                                              (2,899,366
                                              )
                                              
                                              
                                              (151,150,709
                                              )Income
      tax benefit
                                              
                                              
                                              468,566
                                              
                                              
                                              
                                              415,548Net
      loss
                                              
                                              $
                                              (2,430,800
                                              )
                                              
                                              $
                                              (150,735,161
                                              )Basic
      earnings per common share
                                              
                                              $
                                              (0.05
                                              )
                                              
                                              $
                                              (2.88
                                              )Diluted
      earnings per common share
                                              
                                              $
                                              (0.05
                                              )
                                              
                                              $
                                              (2.88
                                              )Basic
      weighted average commonshares
      outstanding
                                              
                                              
                                              52,423,403
                                              
                                              
                                              
                                              52,320,030Diluted
      weighted average common shares outstanding
                                              
                                              
                                              52,423,403
                                              
                                              
                                              
                                              52,320,030
  See
      Notes to Financial
Statements.
  F-3
 OPTIONABLE,
      INC.STATEMENT
      OF CHANGES IN STOCKHOLDERS' EQUITYFrom
      January 1, 2007 to December 31,
2008
   TreasuryCommon
      Stock
                                
                                
                                Additional
                                
                                
                                Stock,
                                
                                
                                AccumulatedShares
                                
                                
                                $
                                
                                
                                Paid-in
      Capital
                                
                                
                                at
      Cost
                                
                                
                                Deficit
                                
                                
                                TotalBalance
      at January 1, 2007
                                
                                
                                51,669,714
                                
                                
                                $
                                5,167
                                
                                
                                $
                                8,469,567
                                
                                
                                $
                                (2,506
                                )
                                
                                $
                                (1,582,331
                                )
                                
                                $
                                6,889,897Fair
      value of warrants issued to related party
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                120,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                120,000Fair
      value of share-based payments issued to shareholder
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                149,084,876
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                149,084,876Fair
      value of warrants issued to acquire intangible asset
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                756,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                756,000Fair
      value of options
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                3,911,401
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                3,911,401Exercise
      of warrants
                                
                                
                                550,000
                                
                                
                                
                                55
                                
                                
                                
                                184,945
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                185,000Exercise
      of options
                                
                                
                                173,000
                                
                                
                                
                                17
                                
                                
                                
                                34,583
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                34,600Fair
      value of shares issued for compensation  to chief executive
      officer
                                
                                
                                30,689
                                
                                
                                
                                3
                                
                                
                                
                                181,984
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                181,987Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (150,735,161
                                )
                                
                                
                                (150,735,161
                                )Ending
      balance, December 31, 2007
                                
                                
                                52,423,403
                                
                                
                                
                                5,242
                                
                                
                                
                                162,743,356
                                
                                
                                
                                (2,506
                                )
                                
                                
                                (152,317,492
                                )
                                
                                
                                10,428,600Fair
      value of options
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                22,740
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                22,740Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (2,430,800
                                )
                                
                                
                                (2,430,800
                                )Ending
      balance, December 31, 2008
                                
                                
                                52,423,403
                                
                                
                                $
                                5,242
                                
                                
                                $
                                162,766,096
                                
                                
                                $
                                (2,506
                                )
                                
                                $
                                (154,748,292
                                )
                                
                                $
                                8,020,540
    See
      Notes to Financial
Statements
  F-4
 OPTIONABLE,
      INC.CONSOLIDATED
      STATEMENTS OF CASH
FLOWS
  For
      the year endedDecember
      31,2008
                                              
                                              
                                              2007Cash
      flows from operating activities:Net
      loss
                                              
                                              $
                                              (2,430,800
                                              )
                                              
                                              $
                                              (150,735,161
                                              )Adjustments
      to reconcile net loss to net cash (used in) provided byoperating
      activities:Depreciation
                                              
                                              
                                              161,806
                                              
                                              
                                              
                                              112,508Amortization
      of debt discount
                                              
                                              
                                              383,894
                                              
                                              
                                              
                                              340,707Amortization
      of consideration receivable from stockholder
                                              
                                              
                                              -
                                              
                                              
                                              
                                              3,383,387Provision
      for doubtful accounts
                                              
                                              
                                              (35,368
                                              )
                                              
                                              
                                              646,622Fair
      value of warrants and options
                                              
                                              
                                              22,740
                                              
                                              
                                              
                                              4,025,716Fair
      value of shares issued to chief executive officer
                                              
                                              
                                              -
                                              
                                              
                                              
                                              187,672Loss
      on sale of trading right
                                              
                                              
                                              -
                                              
                                              
                                              
                                              15,250Impairment-consideration
      receivable from stockholder
                                              
                                              
                                              -
                                              
                                              
                                              
                                              145,771,879Impairment-
      intangible asset
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,085,610Changes
      in operating assets and liabilities:Accounts
      receivable
                                              
                                              
                                              35,368
                                              
                                              
                                              
                                              2,095,131Accounts
      receivable-related parties
                                              
                                              
                                              -
                                              
                                              
                                              
                                              182,338Due
      from related party
                                              
                                              
                                              -
                                              
                                              
                                              
                                              488,273Incentives
      receivable from stockholder
                                              
                                              
                                              -
                                              
                                              
                                              
                                              666,912Prepaid  and
      other assets
                                              
                                              
                                              (862,291
                                              )
                                              
                                              
                                              (323,474
                                              )Other
      receivable
                                              
                                              
                                              -
                                              
                                              
                                              
                                              150,000Accounts
      payable and accrued expenses
                                              
                                              
                                              (6,751
                                              )
                                              
                                              
                                              258,772Due
      to stockholder
                                              
                                              
                                              97,907
                                              
                                              
                                              
                                              -Income
      tax payable
                                              
                                              
                                              83,555
                                              
                                              
                                              
                                              (1,454,246
                                              )Deferred
      tax assets
                                              
                                              
                                              281,356
                                              
                                              
                                              
                                              (281,356
                                              )Recoverable
      income taxes
                                              
                                              
                                              1,323,139
                                              
                                              
                                              
                                              (2,281,433
                                              )Accrued
      compensation
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (1,891,885
                                              )Net
      cash (used in) provided by operating activities
                                              
                                              
                                              (945,445
                                              )
                                              
                                              
                                              2,443,222Cash
      flows used in investing activities:Acquisition
      of intangible asset
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (400,000
                                              )Acquisition
      of trading rights
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (1,180,250
                                              )Proceeds
      from disposition of trading right
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,165,000Purchases
      of property and equipment
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (241,238
                                              )Net
      cash used in investing activities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (656,488
                                              )Cash
      flows from financing activities:Proceeds
      from issuance of shares of subsidiary
                                              
                                              
                                              -
                                              
                                              
                                              
                                              5,100Repurchase
      of shares of subsidiary
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (5,100
                                              )Proceeds
      from exercise of options
                                              
                                              
                                              -
                                              
                                              
                                              
                                              34,600proceeds
      from exercise of warrants
                                              
                                              
                                              -
                                              
                                              
                                              
                                              185,000Net
      cash provided by financing activities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              219,600Net
      (decrease) increase in cash
                                              
                                              
                                              (945,445
                                              )
                                              
                                              
                                              2,006,334Cash,
      beginning of year
                                              
                                              
                                              9,919,727
                                              
                                              
                                              
                                              7,913,393Cash,
      end of year
                                              
                                              $
                                              8,974,282
                                              
                                              
                                              $
                                              9,919,727Supplemental
      disclosures of cash flow information:Cash
      paid for income taxes
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              3,750,000Cash
      paid for interest
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -Noncash
      investing and financing activities:Fair
      value of warrants issued in connection with the acquisition of intangible
      asset
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              756,000Disposition
      of property and equipment in connection withcancellation
      of lease
                                              
                                              $
                                              24,425
                                              
                                              
                                              $
                                              -
  See
      Notes to Financial
Statements.
 F-5






OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
1-Organization, Description of Business and Going Concern
 
 Optionable,
Inc. (the "Company") was formed in Delaware in February 2000 and offers
trading and brokerage services to brokerage firms, financial institutions,
energy traders, and hedge funds nationwide. The Company's operations
are located in the New York metropolitan area. The Company offers its services
through an automated electronic trading platform, OPEX.
 
 Developments
since May 2007
 
 Several
developments since May 2007, such as a statement made by the Company's most
significant customer, such customer's suspension of its business relationship
with the Company, the matters discussed in Note 11, together with the combined
succession of events since then have had a significant adverse impact on its
business, including current and, likely, future results of operations and
financial condition and have impacted the Company's ability to continue to
operate as a brokerage services provider through traditional voice-brokerage and
on the floor of a US exchange. Effective November 4, 2008, the Company suspended
the development of OPEX, but the Company intends to maintain it. Consequently,
the Company is formulating a revised strategy to:
 
 1)
              seek
      advice from investment bankers as to whether it should sell its
      technology;
 (2)
              license
      its technology to joint ventures with other brokerage or software
      development firms;
 (3)
              to
      merge with another company, with a preference to combine with an operating
      brokerage firm;
 
 The
Company is also considering whether it should satisfy its existing obligations
with current creditors and distribute its remaining assets to its
stockholders.
 
 The
Company has not generated revenues since the third quarter of 2007. The Company
believes that if it merges with existing brokerage firms, it may be able to
maximize the value of its intangible assets. While the Company is in discussions
for strategic transactions with certain brokerage firms from time to time, none
of such discussions have materialized into an agreement with any of these
parties. The Company cannot guarantee that it will be able to enter into a
strategic transaction with a third party in the foreseeable future.
 
 While the
Company believes that it is likely that we will it have to sell its technology,
it is currently unable to determine whether it will continue to have any
significant continuing involvement in the development or operations of OPEX or
the brokerage operations of a brokerage firm with which it may combine its
operations.
 
 
 F-6
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
1-Organization, Description of Business and Going Concern-Continued
 
 Going
Concern
   The
Company believes it has sufficient funds to meet its obligations, based on its
internal projections, for at least the next twelve months. However, the Company
cannot guarantee that it will do so. If there are unforeseen expenses or
financial obligations which occur during that period, such as those that could
result from matters discussed in Note 11, the Company may not be able to meet
such obligations. Additionally, if the Company enters in a transaction with a
brokerage or trading firm or a technology company which could be instrumental in
the Company's long-term growth, this could hamper the Company's ability to
continue as a going concern, both from a short-term or a long-term perspective,
and the Company may have to resort to financing, through either debt or equity
placements, for the funding of either such acquisitions or unforeseen expenses
or financial obligations. There can be no assurance that any such financing
would be available on acceptable terms, or at all, especially in light of the
pending litigation against the Company and the current economic
conditions.
 
 
 
 
 F-7
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
2- Summary of Significant Accounting Policies
  Principles
of consolidation
 
 The
accompanying consolidated financial statements include the results of operations
of Opex International, Inc. and Hydra Commodity Services, Inc. for the years
ended December 31, 2008 and 2007. All material inter-company accounts
and transactions between the Company and its subsidiaries have been eliminated
in consolidation.
 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 2008 and 2007, the Company has reached 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 exceeding the FDIC insurance limit amount to $
7.3 million and $9.7 million at December 31, 2008 and 2007,
respectively.
 
 Customer
Concentration
 
 One of
the Company's customers accounted for approximately 24% of its revenues
during 2007. During May 2007, this customer announced that it was suspending its
relationship with the Company and that customer has not used the Company's
services in connection with any additional transactions since that
time.
 
 Product
Concentration
 
 All of
the Company's revenues were derived from fees earned from energy derivatives
transactions and related incentives provided by a United States exchange.
 
 Allowance
for Doubtful Accounts
 
 The
Company has established an allowance for doubtful accounts for its accounts and
incentives receivable based upon factors pertaining to the credit risk of
specific customers, historical trends, and other information. Delinquent
accounts are written-off when it is determined that the amounts are
uncollectible.
 
 
 F-8
 OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
2- Summary of Significant Accounting Policies-Continued
 
 Fair
Value of Financial Instruments
 
 The
carrying value of cash and cash equivalents, recoverable income taxes, and
accounts payable and accrued expenses approximate their fair value due to their
short-term maturities. The carrying amounts of due to Stockholder and due to
Director approximate their fair value based on the Company's incremental
borrowing rate.
 
 Property
and Equipment
 
 Property
and equipment are recorded at cost and are depreciated on a straight-line basis
over their estimated useful lives of three to five years. Maintenance and
repairs are charged to expense as incurred. Significant renewals and betterments
are capitalized.
 
 Depreciation
expense amounted to approximately $161,000 and $113,000 during 2008 and 2007,
respectively.
 
 Effective
November 4, 2008, the Company has suspended the development of its technology
and has depreciated the remaining carrying value of its computer equipment
associated with the development of such technology. Additionally, the Company
has disposed of its furniture to its former landlord in partial consideration of
the cancellation of its lease. The Company paid $95,000 to its former landlord
to cancel the lease during 2008.
 
 Software
Development Costs
 
 Costs
incurred in the research and development of software products are expensed as
incurred until technological feasibility has been established. After technological
feasibility is established, any additional costs are capitalized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting
for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed".
Costs of maintenance and customer support will be charged to expense when
related revenue is recognized or when those costs are incurred, whichever occurs
first. The Company believes that the current process for developing software
is essentially completed concurrently with the establishment of technological
feasibility; accordingly, no software development costs have been capitalized
at December 31, 2008 and 2007, respectively.
 
 Income
Taxes
 
 Income
taxes are accounted for in accordance with SFAS No. 109, "Accounting for Income
Taxes". SFAS No. 109 requires the recognition of deferred tax assets
and
 
 F-9
 OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
2- Summary of Significant Accounting Policies-Continued
 
 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, SFAS No. 109 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.
 
 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 983,000 and 1,363,000 at
December 31, 2008 and 2007, respectively. The outstanding warrants amounted to
100,000 and 19,426,000 at December 31, 2008 and 2007, respectively. The options
and warrants outstanding at December 31, 2008 and 2007, respectively, have been
excluded from the computation of diluted earnings per share due to their
antidilutive effect.
  F-10
 OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
2- Summary of Significant Accounting Policies-Continued
 
 Revenue
Recognition
 
 During
2007, revenue was recognized when earned. The Company's revenue recognition
policies are in compliance with the Securities and Exchange Commission's ("SEC")
Staff Accounting Bulletin ("SAB") No. 104 "Revenue Recognition".
 
 The
Company generally invoices its customers monthly, for all transactions which have been
executed during such month. Revenues are recognized on the day of trade-trade
date basis. The Company's revenues derive from a certain predetermined
fixed fee of the transactions it executes on behalf of its customers.
The fee is based on the volume of financial instruments traded. The Company
bases its fees on oral and written contracts and confirms the fees in writing
upon the execution of each transaction.
 
 The
Company also receives incentives from a United States exchange for the volume of
transactions conducted by the Company using their platform. The incentives
are based on a percentage of the total revenues received by the exchange
attributable to the Company's volume of transactions submitted to the exchange.
The Company estimates monthly such incentives based on the volumes of daily
transactions submitted to the exchange using the day of trade-trade date basis,
and the exchange's published revenues by type of transactions. The Company,
pursuant to SAB 104, recognizes the incentive revenues realized or realizable
when all of the following criteria are met:
 
 1)
persuasive evidence of an arrangement exists. The exchange has publicly published
the terms of its incentive program in 2003 which is offered to all intermediaries
in the select transactions;
 
 2)
delivery has occurred or services have been rendered. Under arrangements with the
exchange, the incentives are earned on the day the Company submits transactions
to the exchange based on the revenues generated from such transactions
and are no longer subject to a minimum transaction volume. The Company
accounts for all transactions submitted to the exchange on a daily basis.
Accordingly, the Company is able to determine when the incentives
are
  
 F-11
 OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
2- Summary of Significant Accounting Policies-Continued
 
 earned
based on the date it submits transactions to the exchange. The Company has no
other obligations to the exchange to earn the incentives;
 
 3)
"seller's" price to the buyer is fixed or determinable. Based on the incentive
program terms of the exchange, its published prices for the type of transactions
the Company submits to it, and the Company's transactions records, the
Company is able to estimate the revenues the exchange earns in connection with the
transactions the Company submits, and accordingly, the amount, if any, of the
incentives the Company earns in connection with such transactions;
and
 
 4)
collectibility is reasonably assured. The exchange has paid the Company timely on
incentives earned from 2004 through May 2007. The Company intends to enforce
the payment of any incentives receivable under the incentive
program.
 
 Impairment
of Long-Lived Assets
 
 The
Company reviews long-lived assets for impairment whenever circumstances and situations
change such that there is an indication that the carrying amounts may not be
recovered. In such circumstances, the Company will estimate the future cash
flows expected to result from the use of the asset and its eventual disposition.
Future cash flows are the future cash inflows expected to be generated
by an asset less the future outflows expected to be necessary to obtain
those inflows. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, the Company
will recognize an impairment loss to adjust to the fair value of the asset.
 
 Share-Based
Payments
 
 In
December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No.
123(R), "Share-Based Payment," which replaces SFAS No. 123 and supersedes APB
Opinion No. 25. Under SFAS No. 123(R), companies are required to measure the costs of
share-based compensation arrangements based on the grant-date fair value and
recognize the costs in the financial statements over
 
 
 F-12
 
 OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
2- Summary of Significant Accounting Policies-Continued
 
 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 SFAS No. 123(R) and certain SEC rules and
regulations and provides the staff's views regarding the valuation of share-based
payment arrangements for public companies. SFAS No. 123(R) permits public
companies to adopt its requirements using one of two methods. On April 14, 2005,
the SEC adopted a new rule amending the compliance dates for SFAS 123(R).
Companies may elect to apply this statement either prospectively, or on a
modified version of retrospective application under which financial statements for prior
periods are adjusted on a basis consistent with the pro forma disclosures
required for those periods under SFAS 123. Effective January 1, 2006, the
Company has fully adopted the provisions of SFAS No. 123(R) and related
interpretations as provided by SAB 107 prospectively. As such, 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. The Company applies this statement prospectively.
 
 The
Company accounts for share-based payments awarded to the NYMEX Holdings, Inc.
(the “Investor”) pursuant to FAS No. 123R and Emerging Issue Task Force Release
No.96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services".
Share-based payments awarded to the Investor, including those awarded by another
holder of an economic interest in the Company as compensation for services to
the Company, are share-based payments transactions. The Company measures the
fair value of the equity instruments to the Investor using the stock price and
other measurement assumptions as of the earlier of either of the following: 1)
the date at which a commitment for performance, as defined, by the counterparty
to earn the equity instruments is reached, or 2) the date at which the counterparty's
performance is complete. The fair value of the equity instruments amounts to the
carrying value of the consideration receivable from the Investor and is
recognized over the agreed-upon terms of the consideration, which is at most 10
years. The Company evaluates the carrying value of the consideration receivable
from the Investor at each measurement date.
 
 
 F-13
 OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
2- Summary of Significant Accounting Policies-Continued
 
 Segment
reporting
 
 The
Company operates in one segment, brokerage services. The Company's chief operating
decision-maker evaluates the performance of the Company based upon revenues
and expenses by functional areas as disclosed in the Company's statement
of operations.
 
 Recent
Pronouncements
 
 The FASB
issued FASB Statement No. 141 (revised 2007), Business Combinations, Noncontrolling Interests in
Consolidated Financial Statements. Statement 141(R requires the acquiring
entity in a business combination to recognize all (and only) the assets acquired
and liabilities assumed in the transaction; establishes the acquisition-date
fair value as the measurement objective for all assets acquired and liabilities
assumed; and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect of the business combination. FASB No.141 R is effective for fiscal years
beginning after December 15, 2008. The Company does not believe that FAS No. 141
R will have any impact on its financial statements.
 
 The FASB
issued FASB Statement No. 160, Noncontrolling Interests in
Consolidated Financial StatementsStatement No.160 requires all entities
to report noncontrolling (minority) interests in subsidiaries in the same way—as
equity in the consolidated financial statements. Moreover, Statement 160
eliminates the diversity that currently exists in accounting for transactions
between an entity and noncontrolling interests by requiring they be treated as
equity transactions. FASB No.160 is effective for fiscal years beginning after
December 15, 2008. The Company does not believe that FAS No. 160 will have any
impact on its financial statements.
 
  The FASB
issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133,which requires additional disclosures about the objectives of the
derivative instruments and hedging activities, the method of accounting for such
instruments under SFAS No. 133 and its related interpretations, and a tabular
disclosure of the effects of such instruments and related hedged items on our
financial position, financial performance, and cash flows. SFAS No. 161 is
effective for the Company beginning January 1, 2009. Management believes that,
for the foreseeable future, this Statement will have no impact on the financial
statements of the Company once adopted.
 
 
 F-14
 
 OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 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 in connection
with legal proceedings which are described in Note 11- Litigation and
contingencies.
 
 Note
4-Due from Related Party
 
 In April
2004, under the Master Services Agreement, as amended on April 12, 2005,
with a related party, Capital Energy Services, Inc., the Company agreed to pay
certain fixed and variable fees and support services to such related party entity,
partly owned by its former Chief Executive Officer and by an Executive Officer
in exchange for a share of revenues of the floor brokerage services of the
related party. The Company has agreed to pay a fixed fee in the amount of $50,000
per year. This agreement was terminated on January 31, 2007.
 
 The
Company's share of revenues of the floor brokerage services amounted to approximately
$901,000 during 2007. The Company's share of expenses of the floor brokerage
services amounted to approximately $15,000 during 2007. The Company has received
approximately $105,000 from the related party in connection with such floor
brokerage services during 2007. Additionally, in April 2007, the Company
reimbursed the related party approximately $165,000 for commissions paid to a
broker that such related party paid on the Company’s behalf.
 
 The
Company recognized its share of revenues of the floor brokerage services based on
the commissions earned for such services which are recognized on the day of
the trade-trade date basis.
 
 The
father of the Company's former Chairman of the Board leases to the Company a seat on
the exchange through which Capital Energy maintains its floor operations.
The Company assumed the cost of the lease in April 2006 and renewed it in
December 2006 through June 2007. The Company terminated this agreement effective
April 1, 2007. The lease provided for monthly payments of $5,000 through
June 30, 2007. The amount paid pursuant to the lease amounted to $15,000 during
2007.
 
 Note
5-Trading rights
 
 During
March 2007, the Company acquired two trading rights for an aggregate amount of
approximately $1,180,250, allowing it to operate on the floor of a United
States exchange. During 2007, the Company sold its trading rights for
$1,165,000, generating a loss of approximately $15,000 which is included in
other expenses.
  F-15
 OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
6-Agreement with NYMEX Holding, Inc.
 
 On April
10, 2007, the Company and its former Chairman of the Board, its former Vice
Chairman and Chief Executive Officer, and its former President and a Director,
(the "Founding Stockholders") and the Investor entered into a definitive stock
and warrant purchase agreement (the "Stock and Warrant Purchase Agreement") and
consummated the transactions contemplated thereby.
 
 Pursuant
to the terms of the Stock and Warrant Purchase Agreement, the Investor purchased
10,758,886 shares of the Company's common stock ("Common Stock") from the
Founding Stockholders (the "Purchased Shares") representing 19% of the then outstanding
shares of common stock on a fully diluted basis (without giving effect to
the Warrant, as defined and discussed below). Additionally, pursuant to the
Stock and Warrant Purchase Agreement, the Company issued to the
Investor a Warrant, as defined and described below, in consideration of the Investor's
agreement (the "Consideration"):
 
 1. to
develop a marketing plan, which plan was to detail proposed expenditures
by the Investor and joint activities;
 
 2.
subject to regulatory requirements, to provide space for up to twenty of
the Company's brokers on the Investor's trading floor;
 
 3. to
host the Company's OPEX electronic trade matching and brokerage
system ("OPEX") in the Investor's data center and provide
the Company with computer and networking hardware, software,
bandwidth and ancillary infrastructure and services reasonably
necessary to interconnect OPEX with the Investor's ClearPort
market gateway to trading and clearing services; and
 
 4.
Additionally, the Company agreed to exclusively clear all over-thecounter
("OTC") products through the Investor's NYMEX ClearPort
clearing system for a period of ten years (provided that the
Investor continues to offer clearance for a particular product
through the NYMEX ClearPort clearing system) in consideration
for additional fees to be paid by the Investor to the
Company.
 
 
 F-16
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
6-Agreement with NYMEX Holding, Inc.-continued
 
 The terms
of the warrant issued by the Company (the "Warrant"), as contemplated in the
Stock and Warrant Purchase Agreement, permit the Investor to purchase a number
of shares of Common Stock sufficient to increase the Investor's ownership of the
Company's Common Stock to an amount not to exceed 40% of the Company's then
outstanding Common Stock on a fully diluted basis, based on the assumption that
the Investor has retained ownership of the Purchased Shares and any shares of
Common Stock previously issued to the Investor upon a partial exercise of the
Warrant. The Warrant could be exercisable at any time and from time to time
prior to October 10, 2008 at an exercise price per share equal to $4.30 (the
"Exercise Price"). The Warrant does not contain a cashless exercise feature. The
Exercise Price is subject to certain customary adjustments to protect against
dilution.
 
 Following
the occurrence of the events which are the subject of the matters discussed in
Note 11 "Litigation," the Company and the Investor have not agreed upon the
aforementioned joint marketing and technology initiatives. Additionally, the
Investor indicated in a Schedule 13D it filed with the SEC on July 6, 2007, with
respect to its holdings of equity securities of the Company, that it was now
re-considering its potential joint marketing and technology initiatives with the
Company. As a result, the Investor and the Company have not developed the
contemplated joint marketing and technology initiatives.
   The sale
of the Purchased Shares from the Founding Stockholders in an agreement in which
the Company would benefit from the Consideration constitutes a share-based
payment transaction. As such, the Company established that the fair value of the
Purchased Shares is more reliably measurable than the Consideration from the
Investor.
    The fair
value of the Consideration attributable to the Purchased Shares represents the
difference between the market value of the Purchased Shares at the date of the
Stock and Warrant Purchase Agreement, as quoted on the Over-the-Counter Bulletin
Board, and the disposition proceeds of the Purchased Shares. The fair value of
the Consideration at April 10, 2007 amounted to $49,490,876 and was initially
recorded as capital contribution from the Founding Stockholders.
    The fair
value of the Consideration attributable to the Warrant amounted to $99,594,000.
The fair value of the Warrant is based on the Black Scholes Model using the
following assumptions: exercise price: $4.30; market value: $7.29; term: 1.5
years; risk-free interest rate: 4.89%; expected volatility: 128%; expected
dividend rate: 0%.
    The
Company recognized an amortization expense of approximately $3.3 million in
connection with the Consideration during 2007.
   F-17
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
6-Agreement with NYMEX Holding, Inc.-continued
   However,
at June 30, 2007, based upon the statements made by the Investor, the Company
was unable to assert that it would receive any of the benefits initially
contemplated by the Stock and Warrant Purchase Agreement. Accordingly, the
Company has recorded a charge to its statement of operations amounting to
approximately $145.8 million during 2007.
   The
Company earned incentives revenues of approximately $3.3 million and received
approximately $3.1 million from the Investor during 2007.
 
 The
Company has also provided for an allowance for doubtful accounts for the
incentives receivable from the Investor of approximately $640,000 at December
31, 2008 and 2007, respectively.
 
 Note
7- Intangible Asset
 
 During
March 2007, the Company acquired the customer list of HQ Trading, an energy
derivatives brokerage firm, and assumed its continued operations. The Company
acquired such assets to expand its customer base and provide a critical mass
entry in the crude oil options market. The terms of the agreement provided,
among other things, the following:
 
 ·
              $400,000
      payable to the owners of HQ Trading upon execution of final
      agreement;
 
 ·
              $400,000
      payable to the owners of HQ Trading in September
  2008;
 
 ·
              $400,000
      payable to the owners of HQ Trading in March
  2010;
 
 ·
              900,000
      warrants with an exercise price of $5 per share and expiring in March
      2012, of which 300,000 are exercisable immediately and 600,000 become
      exercisable in March 2008 if the continued operations of HQ Trading
      generate revenues exceeding $1.2 million for the 12-month period following
      the final agreement.
 
 
 
 F-18
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
7- Intangible Asset-Continued
 
 The
aggregate value assigned to the consideration amounted to $1,156,000 and is as
follows:
 
 ·
              The
      cash consideration amounts to
$400,000.
 
 ·
              The
      fair value of the 300,000 warrants exercisable at the date of the
      agreement amounts to $756,000, based on the Black Scholes Model, using the
      following assumptions: exercise price of $5, market value of $5, risk-free
      interest rate of 4.54%, expected volatility of 52%, expected dividend
      rate: 0%, term: 5 years
 
 The
expected volatility was based on the average historical volatility of comparable
publicly-traded companies considering the Company's period of observable
historical data is shorter than the terms of the warrants.
 
 The fair
value of the consideration was assigned to customer relationships and was
amortized over a period of three years. The Company recognized approximately $70,000
during 2007 and is included as selling, general and administrative expenses in
the accompanying consolidated statement of income.
 
 During
May 2007, following the occurrence of the events which are the subject of the
matters discussed in Note 11, "Litigation", the former owners of HQ Trading
agreed to unwind the acquisition. As part of the unwinding, the former owners of
HQ Trading released the Company from its obligations related to the two payments
of $400,000 payable in September 2008 and March 2010 and agreed to the
cancellation of the 900,000 warrants. The former owners of HQ Trading retained
the $400,000 which was paid upon execution of the final agreement. Both parties
retained the right to use the HQ Trading customer list. Accordingly, the Company
did not recognize the fair value of the remaining 600,000 warrants and the two
payments of aggregating $800,000.
 
 At June
30, 2007, the Company believed that, following the separation agreement with the
former owners of HQ Trading effective May 2007, the carrying value of the client
list acquired in March 2007 has been impaired. The Company is currently unable
to assert that it will derive any benefit from this client list in the
foreseeable future. Accordingly, it has recorded a charge to its statement of
operations amounting to the carrying value at June 30, 2007, which amounted to
approximately $1.1 million.
 
 
 
 F-19
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
8-Due to Related Parties
 
 The terms
and amounts of due to related parties at December 31, 2008 and 2007 are as
follows:
 
 Due to
Stockholder and former Chairman of the Board, 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 the private placement which closed in
September 2004 ("Capital Raise"), the Company will repay its former Chairman
of the Board up to 39.33% of the Capital Raise, up to $2,810,877, with the
remaining balance and accrued interest of 4.68% from the date of the Capital
Raise due on March 12, 2014:
  As
      ofDecember
      31,
                                        
                                        
                                        December
      31,2008
                                        
                                        
                                        2007$
                                        5,044,510
                                        
                                        
                                        $
                                        5,044,510Discount,
      using initial implied rate of 12%:
                                        
                                        
                                        (2,610,270
                                        )
                                        
                                        
                                        (2,956,314
                                        )$
                                        2,426,240
                                        
                                        
                                        $
                                        2,088,196
  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:
  As
      ofDecember
      31,
                                    
                                    
                                    December
      31,2008
                                    
                                    
                                    2007$
                                    508,697
                                    
                                    
                                    $
                                    508,697Discount,
      using initial implied rate of 12%:
                                    
                                    
                                    (355,126
                                    )
                                    
                                    
                                    (400,976
                                    )$
                                    153,571
                                    
                                    
                                    $
                                    107,721
  During
April 2005, the Company modified the terms of its due to related
parties.
 
 
 F-20
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
8-Due to Related Parties-Continued
 
 The
modified terms provide that, in the event of a Capital Raise, among other
things, the annual interest rate accrued after such event is reduced from 12% to
4.68%. Additionally, the modified terms provide that the Company may make
principal repayments towards the due to a stockholder and former Chairman of the
Board and the due to Director amounting to approximately 25% of its cash flows
from operating cash flows less capital expenditures. During April 2006, the
Company modified the terms of its due to related parties to allow the Company to
make principal repayments at its discretion.
 
 As a
condition to the Investor's obligation to consummate the transactions
contemplated by the Stock and Warrant Purchase Agreement, the Company's former
Chairman of the Board executed an agreement, dated April 10, 2007 (the
"Waiver"), waiving any obligation on the part of the Company to make any
prepayment of principal, or to begin paying interest upon amounts due to the
Company's former Chairman of the Board, under the Loan Agreement between him and
the Company, dated March 22, 2004, as a result of any exercise by the Investor
of the Warrant.
 
 The
amortization of the discount on the due to related parties amounted to
approximately $384,000 and $341,000 during 2008 and 2007,
respectively.
 
 The
Company provided administrative services to a related party, an entity owned by the
Company's former Chief Executive Officer and a Director. The Company charged
approximately $8,000 during 2007. This agreement was terminated by both parties
effective June 30, 2007.
 
 The
Company has recognized revenues of approximately $250,000 during 2007 from two
related parties, entities in which one of its stockholders and former Chairman
of the Board is also the managing director.
 
 At
December 31, 2008, the Company owes approximately $98,000 to a Stockholder for
certain legal fees incurred and paid by such Stockholder for matters discussed
in Note 11 of the financial statements.
  
 F-21
 OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
10- Stockholders' Equity
 
 During
2007 the Company issued 30,689 shares of common stock, respectively, to its
former Chief Executive Officer. The fair value of such shares issued amounted to
approximately $182,000, based on the quoted price of the Company's common stock
at the date of issuance. The shares were issued pursuant to the employment
agreement between the Company and its former Chief Executive
Officer.
 
 Stock
Compensation Plan
 
 During
November 2004, the Company adopted the 2004 Stock Option Plan ("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 or a compensation committee. The maximum
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. The options outstanding
vest over periods of up to eighteen months.
 
 During
2008 and 2007, the Company recorded share-based payment expenses amounting to
approximately $23,000 and $4.0 million, respectively, in connection with all
options outstanding at the respective measurement dates. The amortization of
share-based payment was recorded in cost of revenues during 2007 and in selling,
general, and administrative expenses during 2008.
 
 The fair
value of the options is based on the Black Scholes Model using the following
assumptions :
  2007Exercise
      price:
                                              $0.0918-$7.17Market
      price at date of grant:
                                              $0.0918-$7.17Volatility:
                                              40-52%Expected
      dividend rate:
                                              0%Expected
      terms:
                                              3-3.3
      yearsRisk-free
      interest rate:
                                              3.07%-4.54%
  The
expected volatility was based on the average historical volatility of comparable
publicly-traded companies considering the Company's period of observable
historical data is shorter than the terms of the options.
 
 
 F-22
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
10- Stockholders' Equity-continued
 
 A summary
of the activity during 2008 and 2007 of the Company’s stock option plan is
presented below:
  Weighted
                                                      
                                                      
                                                      
                                                      AggregateAverage
                                                      
                                                      
                                                      
                                                      IntrinsicOptions
                                                      
                                                      
                                                      Exercise Price
                                                      
                                                      
                                                      
                                                      ValueOutstanding
      at January 1, 2007
                                                      
                                                      
                                                      941,000
                                                      
                                                      
                                                      $
                                                      0.26Granted
                                                      
                                                      
                                                      2,325,000
                                                      
                                                      
                                                      
                                                      0.36Exercised
                                                      
                                                      
                                                      123,000
                                                      
                                                      
                                                      
                                                      0.20Expired
      or cancelled
                                                      
                                                      
                                                      1,730,000
                                                      
                                                      
                                                      
                                                      -Outstanding
      at December 31, 2007
                                                      
                                                      
                                                      1,363,000
                                                      
                                                      
                                                      
                                                      0.36Granted
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -Exercised
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -Expired
      or cancelled
                                                      
                                                      
                                                      (380,000
                                                      )
                                                      
                                                      
                                                      0.26Outstanding
      at December 31, 2008
                                                      
                                                      
                                                      983,000
                                                      
                                                      
                                                      $
                                                      0.46
                                                      
                                                      
                                                      $
                                                      -Exercisable
      and vested at December 31, 2008
                                                      
                                                      
                                                      783,000
                                                      
                                                      
                                                      $
                                                      0.56
                                                      
                                                      
                                                      $
                                                      -
   
 F-23
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
10- Stockholders' Equity-continued
 
 The
weighted-average remaining contractual term of the options are as
follows:
 
 Options
outstanding at December 31, 2008:
 
 Weighted-average
      remaining contractual term
                Number
      of options
                Weighted-average
      exercise priceEarlier
      of termination for cause or death
                283,000
                $1.314.26
      years
                700,000
                0.10
 
 Options
exercisable and vested at December 31, 2008:
 
 Weighted-average
      remaining contractual term
                Number
      of options
                Weighted-average
      exercise priceEarlier
      of termination for cause or death
                283,000
                $1.317.1
      years
                500,000
                0.14
 
 
 The
following activity occurred under our plan:
  2008
                                          
                                          
                                          2007Weighted-average
      grant-date fair value of options granted
                                          
                                          
                                          N/A
                                          
                                          
                                          $
                                          2.44Aggregate
      intrinsic value of options exercised
                                          
                                          
                                          N/A
                                          
                                          
                                          $
                                          966,850Fair
      value of options recognized as expense:
                                          
                                          $
                                          22,000
                                          
                                          
                                          $
                                          3,911,401
  The total
compensation cost related to nonvested options not yet recognized amounted
to approximately $15,000 at December 31, 2008 and the Company expects that it
will be recognized over the following weighted-average period of 8 months.
 
 
 F-24
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
10- Stockholders' Equity-continued
 
 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 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.
 
 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.
 
 
 
 F-25
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
10- Stockholders' Equity-continued
 
 Performance-based
Warrants
 
 The
Company has issued warrants to a company wholly-owned by its former Chief
Executive Officer. The warrants are exercisable in tranches of up to 400,000
warrants beginning December 31, 2005 and every six-month thereafter, upon
reaching certain brokerage milestones by two of the Company’s
customers.
 
 The fair
value of the warrants issued in 2006 is based on their fair value at the time of grant.
The fair value of the warrants is based on the Black Scholes Model using the
following assumptions:
  Exercise
      price:
                        $0.95Market
      price at date of grant:
                        $0.95Volatility:
                        57%Expected
      dividend rate:
                        0%Risk-free
      interest rate:
                        5.13%
  The
expected volatility was based on the average historical volatility of comparable
publicly-traded companies considering the Company's period of observable
historical data is shorter than the terms of the warrants.
 
 
 F-26
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
10- Stockholders' Equity-continued
 
 A summary
of the activity during 2008 and 2007 of the warrants issued to the Company’s
former Chief Executive Officer is presented below:
  WeightedAverageWeighted
                                        
                                        
                                        
                                        RemainingAverage
                                        
                                        
                                        
                                        ContractualWarrants
                                        
                                        
                                        Exercise Price
                                        
                                        
                                        
                                        Terms (years)Outstanding
      at January 1, 2007
                                        
                                        
                                        1,
      450,000
                                        
                                        
                                        $
                                        0.72Granted
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Exercised
                                        
                                        
                                        550,000
                                        
                                        
                                        
                                        0.34Expired
      or cancelled
                                        
                                        
                                        (200,000
                                        )
                                        
                                        
                                        0.95Outstanding
      at December 31, 2007
                                        
                                        
                                        800,000
                                        
                                        
                                        
                                        0.95Granted
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Exercised
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Expired
      or cancelled
                                        
                                        
                                        (800,000
                                        )
                                        
                                        
                                        0.95Outstanding,
      vested,and
      exercisable  at December 31, 2008
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        
                                        N/A
  The
following activity occurred with respect to the performance-based
warrants:
  2007Weighted-average
      grant-date fair value of warrants granted
                                                N/AAggregate
      intrinsic value of warrants exercised
                                                $3,172,500Fair
      value of warrants recognized as expense:
                                                $120,000
   Other
warrants
 
 During March 2007, the Company issued warrants to
the owners of HQ Trading, in connection
with the Company's purchase of the HQ Trading customer relationships. The terms
of the warrants are as follows:
 
 ·
              900,000
      warrants with an exercise price of $5 per share and expiring in March
      2012,
      of which 300,000 are exercisable immediately and 600,000 warrants become
      exercisable in March 2008 if the continued operations of HQ Trading
      generate revenues exceeding $1.2 million for the 12-month period following
      the final agreement.
    F-27
 OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
10- Stockholders' Equity-continued
 
 All of
these warrants were cancelled in May 2007 in connection with the unwinding
of the HQ Trading transaction.
 
 During 2007, the Company issued
warrants to a US exchange ( See Note 5-Agreement with NYMEX Holding,
Inc)The terms of the
warrant issued by the Company (the "Warrant"), as contemplated in the Stock and
Warrant Purchase Agreement, permit the Investor to purchase a number of shares
of Common Stock sufficient to increase the Investor's ownership of the Company's
Common Stock to an amount not to exceed 40% of the Company's then outstanding
Common Stock on a fully diluted basis, based on the assumption that the Investor
has retained ownership of the Purchased Shares and any shares of Common
Stock previously issued to the Investor upon a partial exercise of the Warrant.
The Warrant could be exercisable at any time and from time to time prior to
October 10, 2008 at an exercise price per share equal to $4.30 (the "Exercise
Price"). The Warrant does not contain a cashless exercise feature. The Exercise
Price is subject to certain customary adjustments to protect against dilution.
The warrants expired in October 2008.
 
 Investor
Rights and Registration Agreements
 
 In
connection with the consummation of the transactions contemplated by the Stock and
Warrant Purchase Agreement, the Company, the Investor and the Founding Stockholders
also entered into an Investor Rights Agreement, also dated April 10, 2007
(the "Investor Rights Agreement"), pursuant to which, for so long as the
Investor owns at least 5,379,443 shares of Common Stock:
 
 (a) the
Investor is entitled to designate one person (reasonably acceptable to the
Company) that the Company is required to nominate as a member of the Company's
board of directors (the "Investor Director");
 
 (b) each
of the Founding Stockholders are required to vote their shares in favor of the
election of the Investor's designee as a director of the Company;
  (c) the
Investor is required to vote its shares in favor of each individual nominated
for election as a member of the Company's board of directors by the nominating
committee of the Company;
 
 (d)
subject to certain permitted threshold amounts, the consent of the Investor Director
(which may not be unreasonably withheld) is required before the Company may take
certain actions, including (1) issuances of shares of a class of stock ranking
senior to the Common Stock, (2) acquisitions of businesses or assets, (3) entry
into related party transactions, (4) the declaration or payment of
   F-28
 OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
10- Stockholders' Equity-continued
 
 dividends
or distributions on or with respect to, or the optional redemption of, capital
stock or the issuance of debt and (5) entry into any business which is not
similar, ancillary or related to any of the businesses in which the Company is
currently engaged;
 
 (e) each
of the Founding Stockholders and the Investor have certain rights of first
refusal to purchase or subscribe for their pro rata percentage of shares in
certain subsequent sales by the Company of Common Stock and/or certain other securities
convertible into or exchangeable for Common Stock;
 
 (f) each
of the Founding Stockholders and the Investor have certain rights of first
refusal with respect to proposed sales of Common Stock by the others;
and
 
 (g)
before they may accept any offer by an independent third party to acquire fifty
percent (50%) or more of the total voting power of the Common Stock or voting
stock of the Company, the Founding Stockholders and the Company are required
to provide notice of such offer to the Investor and permit the Investor a period
of 10 days to make its own offer.
 
 The
Company and the Investor also entered into a registration rights agreement, dated
April 10, 2007 (the "Registration Rights Agreement"), pursuant to which, among
other things, the Company has provided the Investor, subject to standard exceptions,
with (a) unlimited "piggyback" rights subject to standard underwriter
lock-up and cutback provisions and (b) the right to two demand registrations
for underwritten offerings or take downs off of a shelf registration
statement, provided that (i) a minimum of $5,000,000 of Common Stock is
offered in such demand registration or take down and (ii) the Company will not
be obligated to effectuate more than one underwritten offering pursuant to a
demand registration by the Investor in any six-month period. In addition, if the
Company is eligible to register its securities on Form S-3 (or any successor
form then in effect), the Investor will be entitled to unlimited registrations
on Form S-3 (or any successor form then in effect), including shelf
registrations, provided that (a) a minimum of $5,000,000 of Common Stock is
offered in the S-3 registration and (b) the Company will not be obligated to effect
more than two S-3 registrations in any twelve month period. An S-3 registration
will not count as a demand registration, unless such registration is for an
underwritten offering or an underwritten take down off of an existing, effective
shelf registration statement.
  
 F-29
 OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
10- Stockholders' Equity-continued
 
 On May
14, 2007, the Investor Director resigned and the Investor has stated that it has no
current plans to fill the vacancy created by the Investor Director's resignation.
 
 Note
11- Litigation and Contingencies
 
 Regulatory
Matters
 
 On
November 18, 2008, a complaint was filed in the United States District Court for
the Southern District of New York by the Commodity Futures Trading Commission
(the “CFTC”) against the Company, current and former employees of the Company,
including its former Chief Executive Officer and its former President and a
Director, Edward O’Connor, David Lee, a former Bank of Montreal (“BMO”) trader
(“Lee”), and Robert Moore, a former executive managing director of BMO’s
Commodity Derivatives Group.
 
 The
complaint alleges, among other things, that Lee, through the assistance of
Moore, and employees of the Company, engaged in a scheme to mis-mark Lee’s
natural gas options positions between at least May 2003 to May 2007, and
mis-value other natural gas option positions from October 2006 until May 2007.
The complaint further alleges that based upon the scheme, in April 2007, BMO
announced anticipated losses of approximately C$350 million and C$450
million.
 
 The CFTC
alleges, among other things, violations of, Section 4c(b) of the Commodity
Exchange Act, as amended (the “Act”) and Commission Regulations 33.10(a),(b) and
(c). The CFTC seeks an order of permanent injunction restraining and enjoining,
among others, the Company from directly or indirectly violating Section 6c(b) of
the Act and Commission Regulations 33.10(a), (b) and (c). The CFTC further seeks
an order directing, among others, the Company to pay civil monetary penalties in
an amount not to exceed $120,000 or triple the monetary gain for each violation
of the Act during the time period between October 23, 2000 and October 22, 2004.
And $130,000 or triple the monetary gain for each violation of the Act on or
after October 23, 2004.
 
 The
Company also understands that on November 18, 2008, a complaint was filed in the
United States District Court for the Southern District of New York by the
Securities and Exchange Commission (“SEC”) against Lee, Scott Connor, the
Company’s former President and a Director, Edward O’Connor and its former Chief
Executive Officer. The Company was not named in the SEC complaint. Like the
action brought by the CFTC, the complaint is based upon allegations that the
defendants engaged in a scheme to overvalue Lee’s commodity derivates trading
portfolio at BMO.
 
 
 F-30
 
 OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
11- Litigation and Contingencies
 
 The SEC
alleges causes of action against the Company’s former President and a Director,
Edward O’Connor, for violations of Sections 10(b), 13(a), 13(b)(2), 13(b)(5),
Rules 13b2-2 and 13a-14 of the Securities and Exchange Act of 1934 (the
“Exchange Act”), and Section 17(a) the Securities Act of 1933 (the “Securities
Act”). The complaint seeks a permanent injunction against, among others, Mr.
O’Connor and an order to pay civil penalties and disgorgement. The complaint
also seeks an order prohibiting, among others, Mr. O’Connor from acting as an
officer or director of a public company.
   Shareholder
Class Action Lawsuit
   On May
11, 2007, two lawsuits, captioned Alexander Fleiss v. Optionable Inc., Mark
Nordlicht, Kevin Cassidy, Edward J. O'Connor, Albert Helmig and Marc-Andre
Boisseau, 07 CV 3753 (LAK) ("Fleiss") and Robert Rastocky v. Optionable, Inc.,
Kevin Cassidy and Edward O'Connor, 07 CV 3755 (CLB), were filed in the United
States District Court for the Southern District of New York. Subsequently, five
additional lawsuits were filed in the United States District Court for the
Southern District of New York as follows: one on May 16, 2007, Jagdish Patel v.
Optionable Inc., Kevin Cassidy, and Edward J. O'Connor, 07 CV 3845 (LAK)
("Patel"); two on May 17, 2007, Peters v. Optionable, Inc., Mark Nordlicht,
Kevin P. Cassidy, Edward J. O'Connor, Albert Helmig, and Marc-Andre Boisseau, 07
CV 3877 (LAK) ("Peters"); and Manowitz v. Optionable Inc., Kevin Cassidy, Edward
J. O'Conner, and Mark Nordlicht, 07 CV 3884 (UA) ("Manowitz"); one on May 24,
2007, Glaubach v. Optionable Inc., Kevin Cassidy, Mark Nordlicht, Edward J.
O'Connor, Albert Helmig, and Marc-Andre Boisseau; 07 CV 4085 (LAK) ("Glaubach");
and one on June 22, 2007, Bock v. Optionable Inc., Kevin Cassidy, Mark
Nordlicht, Edward J. O'Connor, Albert Helmig, and Marc-Andre Boisseau, 07 CV
5948 (LAK) ("Bock"). Each of the lawsuits names the Company as a defendant and
some of the lawsuits name as defendants all or certain of the directors and
officers of the Company during the time period referenced. The directors and
officers of the Company named as defendants include Mark Nordlicht, the former
Chairman of the Board of Directors of the Company; Kevin Cassidy, the former
Chief Executive Officer and Vice-Chairman of the Board of Directors of the
Company; Edward J. O'Connor, the former President of the Company and member of
the Board of Directors; Albert Helmig, a member of the Board of Directors during
the relevant time period; and Marc-Andre Boisseau, the Chief Financial Officer
of the Company. By Order dated May 24, 2007, Rastocky was voluntarily
dismissed.
   By Orders dated June 20, 2007 and July
3, 2007, Fleiss, Patel, Peters, Manowitz and Glaubach were consolidated under In
re Optionable Securities Litigation, 07 CV 3753 (LAK). . By Order November 20,
2007, Judge Kaplan granted the motion of KLD Investment Management, LLC to serve
as Lead Plaintiff and approved its choice of counsel, Kahn Gauthier Swick,
LLC.
   F-31
  
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
11- Litigation and Contingencies-continued
 
  On
January 17, 2008, Lead Plaintiff filed a Consolidated Amended Class Action
Complaint (“Complaint.”) The Complaint seeks unspecified damages arising from
alleged violations of the federal securities laws, including the Securities
Exchange Act of 1934, 15 U.S.C. ss. 78a et seq., (the "Exchange Act"), and Rule
10b-5 under the Exchange Act, 17 C.F.R. ss. 240.10b-5. The Complaint alleges,
among other things, that during the class period of January 22, 2007 to May 14,
2007, defendants failed to disclose certain information in public filings and
statements, made materially false and misleading statements and
misrepresentations in public filings and statements, sold artificially inflated
stock and engaged in improper deals, had an improper relationship with and
“schemed” with its customer Bank of Montreal ("BMO"), and understated the
Company's reliance on its relationship with BMO. The Complaint alleges that
while the Company's stock was trading at artificially inflated prices, certain
defendants sold shares of common stock of the Company.
   On
February 15, 19, and 20, 2008 the Company and individual defendants Nordlicht,
Cassidy, Helmig, O’Connor and Boisseau filed motions to dismiss the Complaint.
On April 1 and 4, 2008 , Plaintiffs filed their oppositions to the Defendants'
motions. On April 3, 2008 Judge Kaplan ordered the individual defendants to file
only a single joint reply memorandum in response to Plaintiffs' oppositions. On
April 22, 2008 the Company filed its reply memorandum of law in support of its
motion to dismiss the Complaint, and the individual defendants filed their joint
reply memorandum of the same.
    On
September 15, 2008, Judge Kaplan granted Defendant’s motions to dismiss the
amended complaint and denied Plaintiffs’ request for leave to amend, without
prejudice to a motion for leave to amend, supported by a proposed amended
complaint. Plaintiffs’ subsequently filed a motion for a partial lifting of the
PSLRA discovery stay, which Defendants opposed. On October 20, 2008, the Court
denied Plaintiff’s motion in all respects, and a final Judgment of dismissal was
entered on October 23, 2008.
   On
January 13, 2009, the plaintiff filed a motion pursuant to Rule 60(b) for relief
from the October 23, 2008 Final Judgment and seeking to file an amended
complaint.
 
  The
actual costs that will be incurred in connection with these actions cannot be
quantified at this time and will depend upon many unknown factors.
 
 
 
 F-32
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
11- Litigation and Contingencies-continued
 
 Claim
from the Company’s former Chief Executive Officer
 
 On
October 15, 2007, the Company received a letter from the Company's former Chief
Executive Officer in which he states, among other things, that the Company is in
breach of
certain obligations pursuant to an Amended and restated Employment
Agreement, dated April 10, 2007, and the Company should:
 
 1)
              continue
      to pay him his base salary, amounting to $25,000 permonth
      for fiscal 2007, $325,000 for fiscal 2008, and $350,000 forfiscal
      2009;
 2)
              continue
      to pay him a cash consideration equal to 5% of theCompany's
      revenues and a stock consideration equal to 2% of theCompany's
      revenues. The aggregate value of the unpaidconsideration
      based on the Company's revenues amounted toapproximately
      $289,000 at September 30, 2007;
 3)
              Continue
      to provide to him health, welfare, and pension planbenefits
      as well as the payment of an annual premium for his lifeinsurance
      through October 2009.
   Possible
seizure of a bank account
 
 In
November 2008, the Assistant United States Attorney sought to seize one of the
Company’s bank accounts by a warrantless seizure. The bank account balance at
December 31, 2008 amounts to approximately $530,000. In December 2008, the
financial institution sent a notice asking that the funds held in this bank
account be transferred to a different financial institution. The warrantless
seizure lapsed in January 2009. The Company has not transferred the funds yet.
While the warrantless seizure lapsed, it is possible that the Assistant United
States Attorney may try to seize such funds by other means.
 
 While the
Company intends to vigorously defend these matters, 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.
 
 
 
 F-33
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
12-Income Taxes
 
  The
components of the benefit for income taxes are as follows:
  2008
                                                    
                                                    
                                                    
                                                    2007Current:Federal
                                                    
                                                    $
                                                    876,661
                                                    
                                                    
                                                    $
                                                    103,833State
                                                    
                                                    
                                                    (126,849)
                                                    
                                                    
                                                    
                                                    30,359Total
      current
                                                    
                                                    
                                                    749,812
                                                    
                                                    
                                                    
                                                    134,192Deferred:Federal
                                                    
                                                    
                                                    (221,545)
                                                    
                                                    
                                                    
                                                    221,245State
                                                    
                                                    
                                                    (60,111)
                                                    
                                                    
                                                    
                                                    60,111(281,356)
                                                    
                                                    
                                                    
                                                    281,356Total
      benefit (provision) for income taxes
                                                    
                                                    $
                                                    468,566
                                                    
                                                    
                                                    $
                                                    415,548
   
    
 F-34
   OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
12-Income Taxes-Continued
   A
reconciliation of the Company’s effective tax rate to the statutory federal rate
is as follows:
   2008
                                      
                                      
                                      2007Federal
      statutory taxes
                                      
                                      
                                      (
      35.0
                                      %)
                                      
                                      
                                      (35.0
                                      )%State
      income taxes, net of federal tax benefit
                                      
                                      
                                      (
      5.7
                                      )
                                      
                                      
                                      (5.7
                                      )Change
      in valuation allowance
                                      
                                      
                                      18.9
                                      
                                      
                                      
                                      -Permanent
      differences
                                      
                                      
                                      5.6
                                      
                                      
                                      
                                      40.5(16.2
                                      )%
                                      
                                      
                                      (0.2
                                      )%
  The tax
effects of principal temporary differences between the carrying amount of assets
and their tax bases are summarized below.
 
 Management
believes it is more likely than not that it will be able to offset certain
deductions associated with these deferred tax assets to its prior or future
years’ taxable income:
 
 The
components of the deferred tax assets are as follows:
 
 December
      31,
                            
                            
                            December
      31,2008
                            
                            
                            2007Allowance
      for bad debt
                            
                            $
                            260,865
                            
                            
                            $
                            259,502Accrued
      expenses
                            
                            
                            48,840
                            
                            
                            
                            -State
      income tax carryforward
                            
                            
                            225,949
                            
                            
                            
                            -Intangible
      assets, net of amortization
                            
                            
                            143,807
                            
                            
                            
                            154,660679,461
                            
                            
                            
                            414,162Valuation
      Allowance
                            
                            
                            (679,461
                            )
                            
                            
                            (132,806
                            )Total
      deferred tax assets- current
                            
                            $
                            -
                            
                            
                            $
                            281,356
 
 
 F-35
  OPTIONABLE,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
12-Income Taxes-Continued
 
 The
recoverable income tax amounting to approximately $1.0 million is recoverable
from applications for carryback refund from the Company’s 2006 federal tax
returns.
 
 The
Company has net operating losses of approximately $2.6 million for both federal
and state tax purposes.
 
 The
valuation allowance of deferred tax assets increased by approximately $547,000
and $132,000 during 2008 and 2007, respectively.
 
 Note
13- Subsequent Events
 
 During
January 2009, Edward O’Connor resigned as President of The Company and remained
a member of the Board of Directors.
 
 During
January 2009, the Company issued 250,000 options to its Chief Executive Officer.
The exercise price of the options amounts to $0.016 per share and vest over the
four years.
 
 During
February 2009, the Company issued 250,000 options to a director. The exercise
price amounts of the options amounts to $0.025 per share and vest over 18
months.


F-36