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

The Company was a defendant to one legal proceeding, from its largest shareholder, Chicago Mercantile Exchange/ New York Mercantile Exchange, which was settled on May 22, 2014.

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 Company’s management is seeking out possible business transactions and new relationships in areas unrelated to brokerage services. The Company’s future depends on its ability to execute such business transactions and new relationships and there is no assurance it will be able to do so. If the Company fails for any reason, it may 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. The Company's September 30, 2014 unaudited financial statements do not include any adjustments that might result from the outcome of this uncertainty.

OPTIONABLE, INC.

NOTES TO CONDESNED 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 and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. 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 and nine month periods ended September 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2014. The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, which was filed with the SEC on March 24, 2014.

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 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. 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.

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 CONDENSED 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:

The Company did not have any Level 2 or Level 3 assets or liabilities as of September 30, 2014 and December 31, 2013, 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 September 30, 2014 and December 31, 2013.

Cash and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of September 30, 2014 and December 31, 2013, 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.

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. 

OPTIONABLE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

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 treasury stock method). The outstanding options amounted to 4,733,000 and 2,883,000 shares at September 30, 2014 and 2013. The outstanding warrants amounted to 0 at September 30, 2014 and 2013. The options and warrants outstanding at September 30, 2014 and 2013, 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.

Contingencies

None.

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 on its financial position, results of operations or cash flows.

Note 3-Due to Related Parties and Related Party Transaction

The terms and amounts of due to related parties at September 30, 2014 and December 31, 2013, respectively, are as follows:

One of the Company’s former 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, 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:

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 $0 and $14,155 during the three-month periods ended September 30, 2014 and 2013, respectively and $12,828 and $41,227 during the nine-month periods ended September 30, 2014 and 2013, respectively.

On April 10, 2013, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Mark Nordlicht, a current stockholder of the Company (the “Subscriber”), pursuant to which the Company sold to the Subscriber an aggregate of 35,500,000 shares of the Company’s common stock, par value $.001 (the “Securities”), at a purchase price of $0.02 per share (the “Purchase Price”), for a total offering amount, before Offering related expenses, of $710,000 (the “Offering”). The Offering closed immediately following the execution and delivery of the Purchase Agreement by the Company and the Subscriber. After giving effect to the Offering, there are 83,833,128 shares of Common Stock outstanding and options to purchase an aggregate of 2,883,000 shares of Common Stock outstanding.

Effective upon the closing of the Offering, Brad O’Sullivan, Matthew Katzeff, Ed O’Connor and Andrew Samaan resigned as directors of the Company, the number of directors constituting the Company’s full Board of Directors was reduced to two and Dov Rauchwerger and Neil Osrof were elected to fill the vacancies created by such resignations.  Mr. Rauchwerger was also elected as the Chief Executive Officer and Chief Financial Officer of the Company. Subsequently, Matthew Katzeff was reappointed Chief Financial Officer.

Note 4- Stockholders’ Equity

On May 22, 2014, Optionable, Inc. (the “Company”) entered into a Settlement Agreement (the “Agreement”) with Mark Nordlicht (“Nordlicht”) and CME Group, Inc. (“CME”) (Nordlicht, together with the Company, the “Optionable Parties,” and the Optionable Parties together with CME, the “Parties,” and each, a “Party”) which sets for the agreement for the final terms of settlement and dismissal of the lawsuit entitled CMEG NYMEX Holdings, Inc. v. Optionable, Inc. et al., No. 09-CV-3677 (S.D.N.Y.) (the “Litigation”). Pursuant to the Agreement, Nordlicht agrees to make a settlement payment to CME on or before June 3, 2014, and CME agrees to return to the Company 10,758,886 shares of common stock issued by the Company to it in 2007 (described in Note 5- Litigation and Contingencies). The Company accounted the return of 10,758,886 shares as treasury stock.

On July 21, 2014, in a transaction exempt from registration under Section 4(2) of the Securities Act of 1933, the Company executed an agreement to sell 1,000,000 shares of its restricted common stock to an insider at a purchase price of $0.03 per share for a total aggregate purchase price of $30,000. In addition, on September 4, 2014, in a transaction exempt from registration under Section 4(2) of the Securities Act of 1933, the Company executed an agreement to sell 11,000,000 shares of its restricted common stock to an insider at a purchase price of $0.02 per share for a total aggregate purchase price of $220,000. As of September 30, 2014, $30,000 had been funded and the shares will be transferred upon the completion of the entire agreed upon fundings. The receipt of $30,000 was accounted as stock subscription in the accompanying balance sheet as of September 30, 2014. 

As of September 30, 2014 and December 31, 2013, there were 14,853,961 and 4,095,075 shares of treasury stock, respectively.

As of September 30, 2014 and December 31, 2013, there were 87,928,203 shares issued and 73,074,242 and 83,833,128 shares of common stock issued and outstanding, respectively.

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 CONDENSED FINANCIAL STATEMENTS

(Unaudited)

During the three-month periods ended September 30, 2014 and 2013, the Company recorded share-based payment expenses amounting to approximately $72,639 in 2014, and $1,557 in 2013, respectively, and $74,489 and $5,970 for the nine-month periods ended September 30, 2014 and 2013, respectively 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.

During the nine-month period ended September 30, 2014, the Company granted 1,850,000 options in September 2014, as follows: 750,000 options were granted to each of CEO Dov Rauchwerger and CFO Matthew Katzeff and 350,000 options were granted to former Director Neil Osrof.

OPTIONABLE, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

The following activity occurred under our plan:

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.

Note 5- Litigation and Contingencies

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

CMEG NYMEX Inc. (“NYMEX”) filed the operative complaint in this litigation on April 10, 2009.  The complaint alleges, among other things, that Optionable, certain of its former officers and directors, and other defendants defrauded NYMEX in connection with NYMEX’s purchase of $28.9 million of shares of Optionable common stock pursuant to a Stock and Warrant Purchase Agreement (“SWPA”).  On May 22, 2014, (the Company entered into a Settlement Agreement (the “Agreement”) with Mark Nordlicht (“Nordlicht”) and CME Group, Inc. (“CME”) (Nordlicht, together with the Company, the “Optionable Parties,” and the Optionable Parties together with CME, the “Parties,” and each, a “Party”) which sets for the agreement for the final terms of settlement and dismissal of the lawsuit entitled CMEG NYMEX Holdings, Inc. v. Optionable, Inc. et al., No. 09-CV-3677 (S.D.N.Y.) (the “Litigation”). Pursuant to the Agreement, Nordlicht agrees to make a settlement payment to CME on or before June 3, 2014, and CME agrees to return to the Company 10,758,886 shares of common stock issued by the Company to it in 2007. The Agreement calls for full mutual releases and on the date of payment by Nordlicht to CME, the Parties shall file for an order dismissing the Litigation with prejudice. The sums were paid on June 3, 2014, and full releases delivered. 

The Company is subject to certain legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity. There was no outstanding litigation as of September 30, 2014.

Note 6 – Subsequent Events

In accordance with ASC 855, “Subsequent Events” the Company evaluated subsequent events after the balance sheet date for disclosure or recognition purposes. On July 21, 2014, in a transaction exempt from registration under Section 4(2) of the Securities Act of 1933, the Company executed an agreement to sell 1,000,000 shares of its restricted common stock to an insider at a purchase price of $0.03 per share for a total aggregate purchase price of $30,000. In addition, on September 4, 2014, in a transaction exempt from registration under Section 4(2) of the Securities Act of 1933, the Company executed an agreement to sell 11,000,000 shares of its restricted common stock to an insider at a purchase price of $0.02 per share for a total aggregate purchase price of $220,000. In addition to the $30,000 that was funded during the three months ended September 30, 2014, $12,000 was funded on October 10, 2014, $10,000 was funded on October 21, 2014, and $10,000 was funded on October 23, 2014. The shares will be transferred upon the completion of the entire agreed upon fundings.