optionable_10q-063012.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2012.

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

For the transition period from ___________ to ___________

Commission File Number: 000-51837

OPTIONABLE, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

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

(914) 773-1100

(Registrant’s Telephone Number Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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). Yes ☒ No ☐

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

Large Accelerated Filer ☐		Accelerated Filer ☐
Non-accelerated Filer ☐		Smaller reporting company ☒

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

The number of outstanding shares of the registrant’s Common Stock as of August 6, 2012 is 48,333,128.

OPTIONABLE, INC.

INDEX

PART I: FINANCIAL INFORMATION

ITEM 1:	FINANCIAL STATEMENTS (Unaudited)	4

	Balance Sheets	4

	Statements of Operations	5

	Statements of Cash Flows	6

	Notes to the Financial Statements	7

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

ITEM 3:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20

ITEM 4:	CONTROLS AND PROCEDURES	20

PART II: OTHER INFORMATION

ITEM 1:	LEGAL PROCEEDINGS	21

ITEM 1A :	RISK FACTORS	21

ITEM 2:	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21

ITEM 3:	DEFAULTS UPON SENIOR SECURITIES	21

ITEM 5:	OTHER INFORMATION	21

ITEM 6:	EXHIBITS	22

SIGNATURES		27

OPTIONABLE, INC.

CONSOLIDATED BALANCE SHEETS

	June 30 2012			December 31, 2011
	(Unaudited)			(Audited)
ASSETS
Current Assets:
Cash and cash equivalents	$	640,883		$	1,290,282
Refundable income taxes		-
Prepaid expenses		40,000			40,000
Total current assets		680,883			1,330,282


Total assets	$	680,883		$	1,330,282

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable and accrued expenses	$	215,333		$	110,460
		215,333			110,460

Due to director, net of unamortized discount of $94,142 and $118,167 at June 30, 2012 and December 31, 2011, respectively		414,555			390,530
Total liabilities		629,888			500,990

Stockholders' Equity:
Preferred Stock; $.0001 par value, 5,000,000 shares authorized, none issued and outstanding at June 30, 2012 and December 31, 2011		-			-
Common stock; $.0001 par value, 100,000,000 shares authorized, 52,423,403 issued and 48,323,528 outstanding at June 30, 2012 and December 31, 2011		5,242			5,242
Additional paid-in capital		162,812,724			162,805,110
Treasury stock at cost, 4,095,075 shares at June 30, 2012 and December 31, 2011		(47,552	)		(47,552	)
Accumulated deficit		(162,719,419	)		(161,933,508	)

Total stockholders’ equity		50,995			829,292

Total liabilities and stockholders’ equity	$	680,883		$	1,330,282

See Notes to Consolidated Financial Statements.

OPTIONABLE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the three months ended						For the six months ended
	June 30,						June 30,
	2012			2011			2012			2011
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Operating expenses:
Selling, general and administrative	$	309,580		$	381,203		$	763,316		$	1,360,744

Total operating expenses		309,580			381,203			763,316			1,360,744

Operating loss		(309,580	)		(381,203	)		(763,316	)		(1,360,744	)

Other income (expense):
Interest income		476			4,143			1,431			9,207
Interest expense to related parties		(12,192	)		(10,820	)		(24,025	)		(21,321	)
		(11,716	)		(6,677	)		(22,594	)		(12,114	)

Loss before income tax benefit		(321,296	)		(387,880	)		(785,910	)		(1,372,858	)

Income tax benefit		-			-			-			-

Net loss	$	(321,296	)	$	(387,880	)	$	(785,910	)	$	(1,372,858	)

Basic loss per common share	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.03	)

Diluted loss per common share	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.03	)

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

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

See Notes to Consolidated Financial Statements.

OPTIONABLE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the six months ended
	June 30,
	2012			2011
	(Unaudited)			(Unaudited)

Cash flows from operating activities:
Net loss	$	(785,910	)	$	(1,372,858	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount		24,025			21,322
Write Down of Debt Discount		-			83,120
Share-based compensation expense		7,614			3,270
Changes in operating assets and liabilities:
Prepaid and other assets		-			317,033
Accounts payable and accrued expenses		104,872			181,319
Recoverable income taxes		-			-

Net cash used in operating activities		(649,399	)		(766,794	)

Net cash used in investing activities		-			-

Net cash used in financing activities		-			-

Net decrease in cash		(649,399	)		(766,794	)

Cash, beginning of period		1,290,282			3,054,598

Cash, end of period	$	640,883		$	2,287,804

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

Cash paid for interest	$	-		$	-

Noncash investing and financing activities:	$	-		$	-

See Notes to Consolidated Financial Statements.

OPTIONABLE, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1-Organization, Description of Business and Going Concern

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

The Company has not generated any revenues since the third quarter of 2007 as a result of the termination of the business relationship by its largest customer and the succession of events since then. The litigation matters listed below and discussed in Note 6 have had a significant adverse impact on its business and future results of operations and financial condition.

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

The Company is a defendant to several legal proceedings, one from its largest shareholder, Chicago Mercantile Exchange/ New York Mercantile Exchange (“NYMEX”), and a second 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 and former chairman. Additionally, the Company’s former chief executive officer and former president are defendants in a claim made by the Securities and Exchange Commission.

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, the Company’s obligations under its indemnification obligations and additional legal expenses incurred by the Company could exceed the Company’s resources. The legal proceedings also negatively impact the Company’s ability to enter into strategic transactions with other companies. The Company’s future depends on its ability to satisfactorily resolve the aforementioned legal issues and there is no assurance it will be able to do so. If the Company fails for any reason, it would not be able to continue as a going concern and could potentially be forced to seek relief through a filing under the US Bankruptcy Code.

OPTIONABLE, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and the footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the six and three-month periods ended June 30, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2012. The accompanying consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 which was filed on March 23, 2012.

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. The Federal Deposit Insurance Corporation ("FDIC") insured up to $100,000 between January 2007 and October 2008. After October 2008, it insured up to $250,000 for interest-bearing accounts and an unlimited amount for noninterest-bearing accounts after October 2008. During 2011 and 2010, the Company had bank balances exceeding the FDIC insurance limit. While the Company periodically evaluates the credit quality of the financial institutions in which it holds deposits, it cannot reasonably alleviate the risk associated with the sudden failure of such financial institutions. The Company’s cash and cash equivalents held at financial institutions exceeded the FDIC insurance limit amount at June 30, 2012 and December 31, 2011, respectively.

Fair Value of Financial Instruments

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

OPTIONABLE, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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

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

The Company did not have any Level 2 or Level 3 assets or liabilities as of June 30, 2012 and December 31, 2011, with the exception of its due to director. The Company deems that the carrying value of the due to director approximates the fair value as of June 30, 2012 and December 31, 2011.

Cash and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of June 30, 2012 and December 31, 2011, 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 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.

OPTIONABLE, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Use of Estimates

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

Basic and Diluted Earnings per Share

Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common shares and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of stock options and warrants (calculated using the modified-treasury stock method). The outstanding options amounted to 2,883,000 and 2,183,000 at June 30, 2012 and 2011, respectively. The outstanding warrants amounted to 0 at June 30 2012 and 2011. The options and warrants outstanding at June 30, 2012 and 2011, respectively, have been excluded from the computation of diluted earnings per share due to their antidilutive effect.

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.

OPTIONABLE, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Contingencies

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

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

Recent Accounting Pronouncements

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

Note 3- Prepaid expenses

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

OPTIONABLE, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 4-Due to Related Parties

The terms and amounts of due to related parties at June 30, 2012 and December 31, 2011, respectively, are as follows:

One of the Company’s current board members and former president is entitled to a payment of $508,697 (the “Principal Amount”), plus interest, if applicable, upon the following terms. In the event that the Company secures financing of at least $1,000,000 (the “Capital Raise”), this person will be entitled to a payment equal to the lesser of (i) 12.5% of the Capital Raise, (ii) $381,250, and (iii) any unpaid Principal Amount. In the event that upon a Capital Raise, the entire Principal Amount has not been repaid, then this person shall be issued a promissory note (the “Capital Raise Note”) in the principal amount of any then unpaid Principal Amount remaining after the payments described in the preceding sentence. The Capital Raise Note shall be due and payable on April 1, 2014 and shall bear interest at a rate of 4.68% annually. In the event that no Capital Raise shall have occurred prior to April 1, 2014, then the unpaid Principal Amount shall be due and payable as of such date. This liability is recorded on the Company’s balance sheets as follows:

	June 30, 2012				December 31, 2011
		$	508,697			$	508,697
Discount, using initial implied rate of 12%			(94,142	)			(118,167	)
		$	414,555			$	390,530

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 $24,025 and $21,322 during the six-month periods ending June 30, 2012 and 2011, respectively.

Note 5- Stockholders' Equity

Stock Compensation Plan

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

OPTIONABLE, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

During the six-month periods ending June 30, 2012 and 2011, respectively, the Company recorded share-based payment expenses amounting to approximately $7,614 and $3,270, in connection with all options outstanding at the respective measurement dates. The amortization of share-based payment was recorded in selling, general and administrative during such periods.

The Company granted 500,000 options in March 2011, as follows: 100,000 options were granted to each of CEO Brad O'Sullivan, CFO Matthew Katzeff, Director Andrew Samaan, Director and former President Edward O’Connor and Comptroller Michael Templeton. These were the only options granted during the six-month period ended June 30, 2011.

The Company granted 600,000 options in May 2012, as follows: 200,000 options were granted to each of CEO Brad O'Sullivan and CFO Matthew Katzeff and 100,000 options were granted to each of Director Andrew Samaan and Director and former President Edward O’Connor. These were the only options granted during the six-month period ended June 30, 2012.

The fair value of the options granted during the six-month period ended June 30, 2012 and 2011 is based on the Black Scholes Model using the following assumptions:

	600,000 Options Issued On May 2, 2012			500,000 Options Issued On March 1, 2011

Exercise price:	$	0.022		$	0.020

Market price at date of grant:	$	0.022		$	0.020

Volatility:		123	%		162	%

Expected dividend rate:		0	%		0	%

Expected terms: (years)		5			5

Risk-free interest rate:		0.82	%		2.12	%

OPTIONABLE, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

The following activity occurred under our plan:

	Six-month periods ended June 30,
	2012		2011

Weighted-average grant-date fair value of options granted	$	0.022	$	0.020

Fair value of options granted	$	11,001	$	9,335

The total compensation cost related to nonvested options not yet recognized amounted to approximately $16,800 and $6,900 at June 30, 2012 and 2011, respectively, and the Company expects that it will be recognized over the following weighted-average period of 12 months.

If any options granted under the 2004 Plan, as amended, 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 and nonstatutory 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 incentive stock options up to three months after their employment termination or one year after their death or permanent and total disability. With respect to the current directors and officers of the Company, their nonstatutory stock options do not expire until the second year anniversary of their resignation from the Company for Good Reason or termination without Cause (as these terms are defined in the Plan), or upon the occurrence of certain other events. The 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.

OPTIONABLE, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 6- Litigation and Contingencies

CMEG NYMEX Inc. v. Optionable, Inc. et. al. Civ. No. 09-03677 (S.D.N.Y.)

On April 10, 2009, NYMEX filed the operative complaint in this litigation. The complaint alleged, among other things, that Optionable, certain of its former officers and directors and one current director, and other defendants defrauded NYMEX in connection with NYMEX’s purchase of $28.9 million of shares of Optionable stock pursuant to a Stock and Warrant Purchase Agreement (“SWPA”). NYMEX seeks damages in excess of $28.5 million based on the following causes of action against the Company: violations of Section 10(b) of the Securities Exchange Act; breach of contract and warranty; aiding and abetting common law fraud; and negligent misrepresentation. The Company has denied the allegations in the Complaint. On September 6, 2011, the Company filed counterclaims against NYMEX alleging, among other things, that NYMEX breached its obligations under the SWPA. The counterclaims seek unspecified damages based on the following causes of action: breach of contract; breach of the covenant of good faith and fair dealing; and refusal to pay amounts due and owed of over $740,000. NYMEX filed a motion for partial summary judgment in support of its claims, and the Company also filed a motion for summary judgment in support of its claims. Both motions are still pending. The Company is unable to predict the outcome of this litigation.

Bank of Montreal v. Optionable, Inc. et al. Civ. No. 09-07557 (S.D.N.Y.)

On August 28, 2009, BMO filed the operative complaint in this litigation. The complaint alleges, among other things, that the Company, certain of its former and current officers and directors, and other defendants conspired to defraud BMO in connection with large monetary losses experienced by BMO as a result of natural gas option trades made by one of its former employees. BMO seeks unspecified damages based on the following causes of action: fraud; negligent misrepresentation; aiding and abetting fraud; aiding and abetting breach of fiduciary duty; and breach of contract. The Company has denied the allegations in the Complaint. On September 6, 2011, the Company filed counterclaims against BMO alleging, among other things, that BMO launched an unlawful campaign to blame the Company for the losses BMO incurred due to its own fault. The counterclaims seek unspecified damages based on three, separate tortious interference causes of action. BMO filed a motion to dismiss the Company’s counterclaims which is still pending. 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 Matter, filed cross-claims against the Company. Mr. Connor claimed rights to indemnity and contribution from the Company for any liability he may have to Bank of Montreal. He also brought 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 “Disputed Claims”). The Company filed a motion to dismiss the Disputed Claims on November 15, 2010. Pursuant to a Memorandum Decision and Order dated August 12, 2011, the United States District Court for the Southern District of New York granted the Company’s motion to dismiss the Disputed Claims.

OPTIONABLE, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

SEC Matter

On November 18, 2008, the Securities and Exchange Commission filed a complaint against the Company’s former Chief Executive Officer, Kevin Cassidy, its former President (and current Director), Edward O’Connor, and its former employee Scott Connor in the United States District Court for the Southern District of New York. The complaint claims that Cassidy and Mr. O’Connor are liable for violations of Rules 10b-5, 12b-20, 13a-1, 13a-14, 13a-16, 13b2-1, and 13b2-2 and Section 10(b), Section 13(a), Section 13(b)(2) and Section 13(b)(5) of the Exchange Act and Section 17(a) of the Securities Act. The complaint demands, among other things, that Mr. Cassidy and Mr. O’Connor disgorge their alleged ill-gotten gains, be permanently enjoined from certain activities, pay civil penalties, be prohibited from being an officer or director of any issuer that has registered securities or an issuer that is required to file reports pursuant to Section 15(d) of the Exchange Act.

While the Company intends both to defend itself vigorously against these claims and cross-claims and to prosecute its own counterclaims, 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.

Indemnification Obligations

As a result of their involvement in the matters described in this Note 6, the Company may have indemnification obligations to certain of its past directors and officers and a current board member and former president. The amounts, if any, and timing of such indemnification obligations with respect to such individuals is indeterminable. Therefore, the Company’s financial statements reflect as expenses only those indemnification obligations it has been able to quantify and determined to be payable during the relevant accounting period.

Note 7 – Subsequent Events

In accordance with ASC 855, “Subsequent Events” the Company evaluated subsequent events after the balance sheet date for disclosure or recognition purposes.

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

Overview

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

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

The Company is a defendant in two significant legal proceedings, one brought by its largest stockholder, Chicago Mercantile Exchange/ New York Mercantile Exchange (“NYMEX”), and another brought by 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; the Company’s former chief executive officer; and the Company’s former chairman. Additionally, one of the Company’s current board members and former president and the Company’s former chief executive officer are defendants in a claim made by the Securities and Exchange Commission.

The Company has exhausted its insurance policy for the current litigation matters described in Note 6 to the Financial Statements. As a result of this and the fact that the Company has not generated any revenues since the third quarter of 2007, the Company cash reserves, liquidity and capital resources likely will continue to decrease in the coming reporting cycles. Going forward litigation expenses will no longer be covered by insurance.

GOING CONCERN

Results of Operations

	For the three months ended June 30,						Increase/ (Decrease) in $ 2012			Increase/ (Decrease) in % 2012			For the six months ended June 30,						Increase/ (Decrease) in $ 2012			Increase/ (Decrease) in % 2012
	2012			2011			vs 2011			vs 2011			2012			2011			vs 2011			vs 2011

Operating expenses:
Selling, general and administrative		309,580			381,203			(71,623	)		-18.8	%		763,316			1,360,744			(597,428	)		-43.9	%
Total operating expenses		309,580			381,203			(71,623	)		-18.8	%		763,316			1,360,744			(597,428	)		-43.9	%

Operating loss		(309,580	)		(381,203	)		71,623			-18.8	%		(763,316	)		(1,360,744	)		597,428			-43.9	%

Other income (expense):
Interest income		751			4,143			(3,392	)		-81.9	%		1,431			9,207			(7,776	)		-84.5	%
Interest expense-related parties		(12,192	)		(10,820	)		1,372			12.7	%		(24,025	)		(21,321	)		2,704			12.7	%
		(11,441	)		(6,677	)		4,764			71.3	%		(22,594	)		(12,114	)		10,480			86.5	%

Net loss before income tax		(321,021	)		(387,880	)		66,859			-17.2	%		(785,910	)		(1,372,858	)		586,948			-42.8	%

Income tax benefit		-			-			-			0.0	%		-			-			-			0.0	%

Net loss	$	(321,021	)	$	(387,880	)	$	(66,859	)		-17.2	%	$	(785,910	)	$	(1,372,858	)	$	(586,948	)		-42.8	%

NM: Not meaningful

General and administrative expenses

General and administrative expenses consists primarily of legal fees, incurred in connection with the Company’s attention to matters described in Note 6 to the Financial Statements and other matters, 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 of $597,428 in general and administrative expenses during the six-month period ended June 30, 2012, in comparison to the comparable period in 2011, is due primarily to a $557,126 decrease in legal fees and the further realization of general cost reduction strategies implemented by current management, non-recurrence of the deferral of certain expenses for earlier periods being deferred to the six-month period ended June 30, 2011. Legal expenses were $359,318 and $916,444 for the six-month period ended June 30, 2012 and June 30, 2011, respectively.

As a result of the matters discussed above, we believe that our legal fees for 2012 will continue to constitute a large share of our general and administrative expenses.

Interest income

Interest income consists primarily of interest earned on interest-bearing cash and cash equivalents. The decrease in interest income during the six-month period ended June 30, 2012, in comparison to the comparable period in 2011, is primarily due to the decrease in cash and cash equivalents.

Interest expense to related parties

Interest expense to related parties consists of interest charges associated with amounts due to related parties. As of June 30, 2012, the only remaining related party note payable is due to Edward O’Connor, a Director and former President. The increase in interest expense to related parties during the six-month period ended June 30, 2012, in comparison to the comparable period in 2011, is due to the amortization of the discount. See Note 4 to Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Our cash balance as of June 30, 2012 amounts to $640,883.

During the six-month period ended June 30, 2012, we used cash for operating activities of $649,399, resulting from the net loss incurred by the Company of $785,910, adjusted for:

	·	the amortization of debt discount of $24,025 and share-based compensation expense of $7,614;
	·	an increase in accounts payable and accrued expenses of $104,872.

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

Recent Accounting Pronouncements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based upon an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), our Chief Executive Officer and our Principal Financial Officer concluded that, as of June 30, 2012, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, including ensuring that such material information is accumulated and communicated to our Chief Executive Officer and our Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

PART II: OTHER INFORMATION

ITEM 1. Legal Proceedings

Except as described in Note 6 to the financial statements, during the six-month period ended June 30, 2012, there were no material developments to the Company’s legal proceedings described in Note 6 to Financial Statements. Reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2011 for the most recent disclosure by the Company of its legal proceedings.

ITEM 1A. RISK FACTORS

Not applicable.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.		Description

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

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

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

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

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

3.6		Certificate of Amendment to the Certificate of Incorporation of Optionable, Inc., dated June 9, 2004 (incorporated by reference to Exhibit 3.1(i)(f) to the SB-2).

3.7		Amended and Restated By-laws of Optionable, Inc. (incorporated by reference to the registrant's Current Report on Form 8-K, dated as of June 25, 2010 and filed on June 28, 2010)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.56		Stock Option Agreement dated as of May 2, 2012, by and between Optionable, Inc. and Brad P. O’Sullivan (incorporated by reference to the registrant's Quarterly Report on Form 10-Q, dated as of May 14, 2012).

10.57		Stock Option Agreement dated as of May 2, 2012, by and between Optionable, Inc. and Matthew Katzeff (incorporated by reference to the registrant's Quarterly Report on Form 10-Q, dated as of May 14, 2012.)

10.58		Stock Option Agreement dated as of May 2, 2012, by and between Optionable, Inc. and Edward O’Connor (incorporated by reference to the registrant's Quarterly Report on Form 10-Q, dated as of May 14, 2012.)

10.59		Stock Option Agreement dated as of May 2, 2012, by and between Optionable, Inc. and Andrew Samaan (incorporated by reference to the registrant's Quarterly Report on Form 10-Q, dated as of May 14, 2012.)

10.60*		Stock Option Agreement dated as of May 3, 2011, by and between Optionable, Inc. and Andrew Samaan

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

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

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

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

101.INS**		XBRL INSTANCE
101.SCH**		XBRL TAXONOMY EXTENSION SCHEMA
101.CAL**		XBRL TAXONOMY EXTENSION CALCULATION
101.DEF**		XBRL TAXONOMY EXTENSION DEFINITION
101.LAB**		XBRL TAXONOMY EXTENSION LABELS
101.PRE**		XBRL TAXONOMY EXTENSION PRESENTATION

* Filed herewith

**XBRL Information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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.

August 10, 2012

	Optionable, Inc.



	By:	/s/ Brad P. O’Sullivan

		Brad P. O’Sullivan

		Chief Executive Officer

		(Principal Executive Officer)