UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549





FORM 10-Q





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





For the quarterly period ended March 31, 2010.





or





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





For the transition period from ___________ to ___________





Commission File Number: 000-51837





OPTIONABLE, INC.

(Exact Name of Registrant as Specified in Its Charter)





Delaware

52-2219407(State or Other Jurisdiction of Incorporation or

(IRS Employer Identification No.)Organization)1230 Avenue of the Americas, Seventh Floor, New York, NY

10020(Address of Principal Executive Offices)

(Zip Code)





(914) 773-1100





(Registrant’s Telephone Number Including Area Code)




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




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




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




Large Accelerated Filero

Accelerated FileroNon-accelerated Filero

Smaller reporting companyý




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ýNo o




The number of outstanding shares of the registrant’s Common Stock as of May 14, 2010 is 48,328,328.




1




OPTIONABLE, INC.
 INDEX
 
 PART I: FINANCIAL INFORMATIONITEM 1:
FINANCIAL STATEMENTS (Unaudited)Consolidated Balance Sheets
3Consolidated Statements of Operations
4Consolidated Statements of Cash Flows
5Notes to the Consolidated Financial Statements
6ITEM 2:
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS
17ITEM 3 :
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
21ITEM 4:
CONTROLS AND PROCEDURES
21PART II: OTHER INFORMATIONITEM 1:
LEGAL PROCEEDINGS
21ITEM 1A :
RISK FACTORS
22ITEM 2:
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
22ITEM 3:
DEFAULTS UPON SENIOR SECURITIES
22ITEM 4:
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
23ITEM 5:
OTHER INFORMATION
23ITEM 6:
EXHIBITS
23SIGNATURES
24


2




OPTIONABLE, INC.CONSOLIDATED BALANCE SHEETS  March 31,


December 31,2010


2009ASSETS

(Unaudited)


(Audited)Current Assets:Cash and cash equivalents

$
4,314,416


$
4,231,534Recoverable income taxes


152,245



933,662Prepaid expenses


1,196,710



1,194,296Total current assets


5,663,371



6,359,492Total assets

$
5,663,371


$
6,359,492LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Accounts payable and accrued expenses

$
546,978


$
608,270Total current liabilities


546,978



608,270Due to director, net of unamortized discount of $289,550 and $303,461at March 31, 2010 and December 31, 2009, respectively

$
219,145



205,236Total liabilities


766,123



813,506Stockholders' Equity:Preferred Stock; $.0001 par value, 5,000,000 shares authorized, none issuedand outstanding at March 31, 2010 and December 31, 2009


-



-Common stock; $.0001 par value, 100,000,000 shares authorized,52,428,203 issued and  48,328,328 outstanding at March 31, 2010 and December 31, 2009


5,242



5,242Additional paid-in capital


162,785,629



162,784,691Treasury stock at cost, 4,099,875 shares


(47,552
)


(47,552
)Accumulated deficit


(157,846,071
)


(157,196,395
)Total stockholders’ equity


4,897,248



5,545,986Total liabilities and stockholders’ equity

$
5,663,371


$
6,359,492
   See notes to unaudited consolidated financial statements  3
 OPTIONABLE, INC.CONSOLIDATED STATEMENTS OF OPERATIONS  For the three-month period endedMarch 312010


2009(Unaudited)


(Unaudited)Operating expenses:Selling, general and administrative

$
786,612


$
1,062,815Total operating expenses


786,612



1,062,815Operating loss


(786,612
)


(1,062,815
)Other income (expense):Interest income


2,933



27,685Interest expense to related parties


(13,909
)


(116,058
)(10,976
)


(88,373
)Loss before income tax


(797,588
)


(1,151,188
)Income tax benefit (provision)


147,912



(478,622
)Income tax benefit (provision)


147,912



(478,622
)Net loss

$
(649,676
)

$
(1,629,810
)Basic loss per common share

$
(0.01
)

$
(0.03
)Diluted loss per common share

$
(0.01
)

$
(0.03
)Basic weighted average commonshares outstanding


48,328,328



50,921,876Diluted weighted average common shares outstanding


48,328,328



50,921,876




See notes to unaudited consolidated financial statements





4





OPTIONABLE, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS  For the period endedMarch 31,2010


2009(Unaudited)


(Unaudited)Cash flows from operating activities:Net loss

$
(649,676
)


(1,629,810
)Adjustments to reconcile net loss to net cash provided by (used in)operating activities:Amortization of debt discount


13,909



116,058Fair value of options


938



6,310Changes in operating assets and liabilities:Prepaid  and other assets


(2,414
)


-Other current assets


-



16,277Accounts payable and accrued expenses


(61,292
)


120,539Due to stockholder


-



(97,907
)Income tax payable


-



395,067Recoverable income taxes


781,417



49,306Net cash provided by (used in) operating activities


82,882



(1,024,160
)Cash flows used in investing activities:Purchase of notes receivable


-



(60,000
)Net cash used in investing activities


-



(60,000
)Cash flows from financing activities:Repurchase of shares of common stock






(45,046
)Principal repayment of due to stockholder






(2,529,954
)Net cash used by financing activities


-



(2,575,000
)Net increase/(decrease) in cash


82,882



(3,659,160
)Cash, beginning of period


4,231,534



8,974,282Cash, end of period

$
4,314,416


$
5,315,122Supplemental disclosures of cash flow information:Cash paid for income taxes

$
-


$
-Cash paid for interest

$
-


$
-




See notes to unaudited consolidated financial statements





5




OPTIONABLE, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)






Note 1-Organization, Description of Business and Going Concern




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





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 our largest customer together with the combined succession of events since then. In addition, the matters discussed in Item 1 of Part II 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.





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





6


OPTIONABLE, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)






Going Concern




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





Principles of consolidation





The accompanying consolidated financial statements include the results of operations of Opex International, Inc. and Hydra Commodity Services, Inc. for the three-month period ended March 31, 2009. These subsidiaries were dissolved in December 2009 and January 2010, respectively.  All material intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.




Basis of Presentation




The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and the footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2010 is not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2010.






7




OPTIONABLE, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)






Note 2- Summary of Significant Accounting Policies




Cash and Cash Equivalents




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




Concentration of Credit Risks




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




The Company's cash and cash equivalents accounts are held at financial institutions and are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000 between January 2007 and October 2008 and $250,000 for interest-bearing accounts and an unlimited amount for noninterest-bearing accounts after October 2008. During the three-month periods ended March 31, 2010 and March 31, 2009, 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 amounted to $1.6 million and $937,000 at March 31, 2010 and December 31, 2009, respectively.




Fair Value of Financial Instruments




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





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





Level 1:
Observable inputs such as quoted market prices in active markets for identical assets or liabilitiesLevel 2:
Observable market-based inputs or unobservable inputs that are corroborated by market dataLevel 3:
Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.





The Company did not have any Level 2 or Level 3 assets or liabilities as of March 31, 2010 and December 31, 2009, with the exception of its due to director.  The carrying amount of the due to director at March 31, 2010 and December 31, 2009 approximate the fair value based on the rate at which the Company was able to settle its due to stockholder in February 2009.





8
 
 OPTIONABLE, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


Cash and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of March 31, 2010 and December 31, 2009, respectively. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.





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





Income Taxes




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





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 1,233,000 at March 31, 2010 and December 31, 2009, respectively. The outstanding warrants amounted to 100,000 at March 31, 2010 and December 31, 2009. The options and warrants outstanding at March 31, 2010 and December 31, 2009, respectively, have been excluded from the computation of diluted earnings per share due to their antidilutive effect.




9


OPTIONABLE, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)






Note 2- Summary of Significant Accounting Policies-continued




Stock Compensation





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





Contingencies





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





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





Recent Accounting Pronouncements





-
On June 5, 2003, the United States Securities and Exchange Commission (“SEC”) adopted final rules under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), as amended by SEC Release No. 33-9072 on October 13, 2009. Commencing with its annual report for the year ending December 31, 2007, the Company has been required to include a report of management on its internal control over financial reporting. The internal control report must include a statement of:





10




OPTIONABLE, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





·
Management’s responsibility for establishing and maintaining adequate internal control over its financial reporting;·
Management’s assessment of the effectiveness of its internal control over financial reporting as of year- end; and·
The framework used by management to evaluate the effectiveness of the Company’s internal control over financial reporting.





Furthermore, the Company is required to file the auditor’s attestation report separately on the Company’s internal control over financial reporting on whether it believes that the Company has maintained, in all material respects, effective internal control over financial reporting.





During 2009 and the first quarter of 2010, FASB has issued a number of updates to its accounting standards codification, none of which are expected to significantly impact the Company’s presentation or accounting treatment for a particular event or transactions.





Note 3- Prepaid expenses




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





Note 4- Notes receivable




The Company purchased five notes receivable aggregating $60,000 from its former chief technology officer and an affiliate during the three-month period ended March 31, 2009.  The notes can be either redeemed in cash or in kind for services performed, at the Company’s option.





The Company did not receive payment on the first four notes, extended their maturity to January 2010 and believes that it is unlikely that it will collect on the remaining notes and has provided for an allowance for doubtful accounts on all the notes at March 31, 2010.





Note 5-Due to Related Parties




The terms and amounts of due to related parties at March 31, 2010 and December 31, 2009 are as follows:





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





11


OPTIONABLE, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)






March 31,

December 31,2010

2009$
508,697


$
508,697Discount, using initial implied rate of 12%


(289,552
)


(303,461
)$
219,145


$
205,236




During April 2005, the Company modified the terms of its due to related parties. 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.





The amortization of the discount on the due to related parties amounted to approximately $14,000 and $116,000 during the three-month periods ended March 31, 2010 and 2009, respectively.





Note 6- Stockholders' Equity




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 twenty-four months.





The amortization of share-based payment was recorded in selling, general, and administrative expenses during such periods.





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





The fair value of the options granted during the three-month period ended March 31, 2009 is based on the Black Scholes Model using the following assumptions:




Exercise price :
$0.016 - $0.025Market price at date of grant :
$0.016 - $0.025Volatility :
104.5%Expected dividend rate:
0%Expected terms:
3.3 yearsRisk-free interest rate:
1.22 – 1.44%





12
 
 OPTIONABLE, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)


The following activity occurred under our plan:




Three-month periods ended March 31,2010


2009Weighted-average grant-date fair value of options granted


N/A


$
0.95Fair value of options recognized as expense:

$
938


$
6,310





The total compensation cost related to nonvested options not yet recognized amounted to approximately $3,000 at March 31, 2010 and the Company expects that it will be recognized over the following weighted-average period of 10 months.





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





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.








13




OPTIONABLE, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




Note 7- Litigation and Contingencies




Regulatory Matters




Commodity Futures Trading Commission v. Cassidy et al.





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





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





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





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





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





Claims from former employee





On December 9, 2009, Scott Connor, a co-defendant in the BMO action, filed cross-claims against the Company.  Connor claims rights to indemnity and contribution from the Company for any liability he may have to BMO.  He also lays claims of breach of contract, quantum meruit, and unjust enrichment, on the basis of an allegation that the Company failed to pay him the full amount of salary and commissions that was due to him for 2007.  The court has postponed the Company's response to Connor’s cross-claims until it has resolved the motions to dismiss filed by the Company and by the other defendants in the BMO action.




14


OPTIONABLE, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Note 7- Litigation and Contingencies-continued





Claim from the Company’s former Chief Executive Officer





On October 15, 2007, and as subsequently reiterated, 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 per month for fiscal 2007, $325,000 for fiscal 2008, and $350,000 for fiscal 2009;





2)   continue to pay  him a  cash  consideration  equal  to 5% of the Company's revenues and a stock  consideration  equal to 2% of the Company's   revenues.   The   aggregate   value  of  the   unpaid consideration   based  on  the  Company's  revenues  amounted  to approximately $289,000 at September 30, 2007; and





3)   continue to provide to him health, welfare, and pension plan benefits as well as the payment of an annual premium for his life insurance through October 2009.





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





Note 8-Income Taxes




The components of the benefit (provision) for income taxes are as follows:




Three month period ended


Three month period endedMarch 31, 2010
March 31, 2009Current and deferred:Federal

$
147,912


$
(478,622
)State


( -
)


( -
)Total benefit (provision) for income taxes

$
147,912


$
(478,622
)







15


OPTIONABLE, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)







A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows:




Three-month period ended March 31,2010

2009Federal statutory taxes


(35.0
)%


(35.0
)%State income taxes, net of federal tax benefit


(5.7
)%


(5.7
)Utilization of state net operating loss


5.7
%


5.7Temporary difference


16.5
%


-Permanent differences (taxable gain on extinguishment of due to Stockholder in 2009)


-



76.5(18.5
)%


41.5
%




The recoverable income tax amounting to approximately $150,000 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.




Note 9 – Subsequent Events




In accordance with ASC 855, “Subsequent Events” the Company evaluated subsequent events after the balance sheet date of March 31, 2010 through May 14, 2010, which is the date the financial statements were issued.




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




16




OPTIONABLE, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)






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





Overview




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





The Company has not generated any revenues since the third quarter of 2007 as a result of the suspension of the business relationship by its largest customer and the succession of events since then. In addition, the matters discussed in Note 11 and Item 1 of Part II of this Report "Legal Proceedings" have had a significant adverse impact on its business and future results of operations and financial condition.





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





GOING CONCERN





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




17





Three-month Periods Ended March 31, 2010 and 2009




Results of Operations(Unaudited)Increase/


Increase/For the period ended


(Decrease)


(Decrease)March 31,


in $ 2010


in % 20102010


2009


vs 2009


vs 2009Operating expenses:Selling, general and administrative


786,612



1,062,815



(276,203
)


-26.0
%Total operating expenses


786,612



1,062,815



(276,203
)


-26.0
%Operating loss


(786,612
)


(1,062,815
)


276,203



-26.0
%Other income (expense):Interest income


2,933



27,685



(24,752
)


-89.4
%Interest expense-related parties


(13,909
)


(116,058
)


(102,149
)


-88.0
%(10,976
)


(88,373
)


(77,397
)


87.6
%Net loss before income tax


(797,588
)


(1,151,188
)


353,600



-30.7
%Income tax benefit (provision)


147,912



(478,622
)


626,534


NMNet Loss

$
(649,676
)

$
(1,629,810
)

$
980,134



60.1
%NM:  Not meaningful




Selling, general, and administrative expenses




Selling, general, and administrative expenses consists primarily of legal fees, incurred in connection with the Company’s attention to matters described in Part II, Item 1- Legal Proceedings, expenses incurred in connection with the handling of certain matters which occur during the course of our operations and compensation of personnel supporting our operations.




The decrease in selling, general and administrative expenses during the three month period ending March 31, 2010, when compared to the prior year period is primarily due to the following:




- Lower legal fees were incurred in connection with the number of litigations handled during the three month period ending March 31, 2010 and due to the timing of legal fees incurred in connection with our annual meeting of stockholders in March 2009 and the satisfaction of our obligations to Mark Nordlicht, a stockholder and our former Chairman of the Board, which occurred in February 2009.




18




As a result of the matters discussed above and in Item 1 of Part II of this Report, we believe that our legal fees for 2010 will continue to constitute a large share of our selling, general, and administrative expenses.




Interest income




Interest income consists primarily of interest earned on interest-bearing cash and cash equivalents. The decrease in interest income during the  three-month period ended March 31, 2010 when compared to the prior year period is primarily due to a decrease in interest rate we earned as well as a lower weighted average interest-bearing cash balance.




Interest expense to related parties




Interest expense to related parties consists of interest charges associated with amounts due to related parties, including Mark Nordlicht, our former Chairman of the Board and Edward O’Connor, our former President and current Director. The decrease in interest expense to related parties during the three-month period ended March 31, 2010 is primarily due to a higher weighted average debt balance outstanding during the three-month period ended March 31, 2009.  No such loss occurred during 2010.




Income tax




Income tax benefit/expense consists of federal and state current and deferred income tax or benefit based on our net income. The variation in income tax provision during the three-month period ended March 31, 2010 when compared to the income tax benefits expense we incurred during the comparable prior year periods is primarily due to a tax gain of $2.5 million we incurred on the satisfaction of the due to Mark Nordlicht, offset by taxable losses resulting from our expenses.




LIQUIDITY AND CAPITAL RESOURCES




Our cash balance as of March 31, 2010 amounts to approximately $4.3 million.





During the three-month period ended March 31, 2010, we generated cash from operating activities of approximately $83,000, primarily resulting from:





·
net loss of approximately $650,000 and


·
a decrease  in recoverable taxes of approximately $780,000 resulting from the receipt of approximately $930,000 in tax refund, offset by an accrual of approximately $150,000





During the three-month period ended March 31, 2009, we used cash for operating activities of approximately $1.0 million, primarily resulting from:





·
net loss of approximately $1.6 million, adjusted for the amortization of debt discount of approximately $116,000 and $162,000;·
a decrease  in recoverable income taxes resulting from the reimbursement during 2009 of the 2007 federal and estimated tax payments offset by the current year tax benefits resulting from operating losses; and


·
An decrease 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 1 of Part 2 of this report, to whom the Company provides indemnification pursuant to its by-laws.





During the three-month period ended March 31, 2009, we used cash in investing activities, resulting from purchases of three notes receivable aggregating $60,000, which were written-off during the same period;





19





During the three-month period ended March 31,2009, we satisfied our obligations of approximately $5.0 million to Mark Nordlicht, and repurchased 4,095,075 shares of our common stock for a consideration aggregating $2,575,000.





CRITICAL ACCOUNTING POLICIES AND ESTIMATES





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





Contingencies





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





In determining whether a loss should be accrued the Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. While the Company believes that it will continue to incur losses from such legal proceedings, it is unable to make a reasonable estimate of the amount of loss.  Changes in these factors could materially impact our financial position or our results of operations.




Recent Accounting Pronouncements




On June 5, 2003, the United States Securities and Exchange Commission (“SEC”) adopted final rules under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), as amended by SEC Release No. 33-9072 on October 13, 2009. Commencing with its annual report for the year ending December 31, 2007, the Company has been required to include a report of management on its internal control over financial reporting. The internal control report must include a statement of:





·
Management’s responsibility for establishing and maintaining adequate internal control over its financial reporting;·
Management’s assessment of the effectiveness of its internal control over financial reporting as of year- end; and·
The framework used by management to evaluate the effectiveness of the Company’s internal control over financial reporting.





Furthermore, the Company is required to file the auditor’s attestation report separately on the Company’s internal control over financial reporting on whether it believes that the Company has maintained, in all material respects, effective internal control over financial reporting.





During 2009 and the first quarter 2010, FASB has issued a number of updates to its accounting standards codification, none of which are expected to significantly impact the Company’s presentation or accounting treatment for a particular event or transactions.




20





ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




n/a




ITEM 4. CONTROLS AND PROCEDURES




Evaluation of Disclosure Controls and Procedures





As of March 31, 2010, our President and Chief Executive Officer and our Principal 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 Chief Executive Officer and our Principal Financial Officer concluded that, as of March 31, 2010, 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 Chief Executive Officer and our Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.





Changes in Internal Controls Over Financial Reporting





There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  However, until we appoint a replacement Chief Financial Officer, we may be unable to comply with our own written internal controls policies and procedures, including those relating to separation of duties, review of reports and other work performed by our assistant controller, review and adoption of accounting policies and principles, maintenance of financial reporting competencies and performance of ongoing monitoring evaluations.





Effective April 1, 2010, we no longer have a Chief Financial Officer, who was responsible for managing and monitoring our financial reporting and certain operational controls.  This results in a lapse in our internal controls over financial reporting.  We will consider alternatives to mitigate any negative impact on our internal controls over financial reporting resulting from the Chief Financial Officer’s termination.  This could include hiring a new Chief Financial Officer or outsourcing our financial reporting obligations and certain operational controls to a third party. We will consider the cost and benefits associated with such alternatives.  Until we evaluate such alternatives, we may encounter problems or delays in completing activities necessary to make an assessment of our internal controls over financial reporting. As a result, investor confidence and share value may be negatively impacted. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.




PART 2 OTHER INFORMATION




ITEM 1. Legal Proceedings




Commodity Futures Trading Commission v. Cassidy et al.





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





21





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





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





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





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





Claims from former employee





On December 9, 2009, Scott Connor, a co-defendant in the BMO action, filed cross-claims against the Company.  Connor claims rights to indemnity and contribution from the Company for any liability he may have to BMO.  He also lays claims of breach of contract, quantum meruit, and unjust enrichment, on the basis of an allegation that the Company failed to pay him the full amount of salary and commissions that was due to him for 2007.  The court has postponed the Company's response to Connor’s cross-claims until it has resolved the motions to dismiss filed by the Company and by the other defendants in the BMO action.




ITEM 1A. RISK FACTORS




N/A




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




None




ITEM 3. DEFAULTS UPON SENIOR SECURITIES




None




22





ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




None




ITEM 5.  OTHER INFORMATION




None




ITEM 6. EXHIBITS




31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934*31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934*32.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350*32.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350*




*Filed herewith




23





SIGNATURES






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








May 14, 2010Optionable, Inc.By:
/s/ Thomas F. BurchillThomas F. BurchillChief Executive Officer and President(Principal Executive Officer)