January 19, 2005
Mail Stop 0409
Edward J. O`Connor
Optionable, Inc.
555 Pleasantville Road
South Building, Suite 110
Briarcliff Manor, New York 10510
Re: Optionable, Inc.
Registration Statement on Form SB-2 Filed December 22, 2004
Registration No. 333-121543
Dear Mr. O`Connor:
We have reviewed your filing and have the following comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. Supplementally, please provide us with any pictures, graphics
or
artwork that will be used in the prospectus.
2. Supplementally, please provide your analysis as to why OPEX is
not
an "alternative trading system" as defined in Rule 300 of the
Exchange Act. Please include a discussion of the impact of your
stated strategy to expand beyond the energy options markets.
3. Supplementally, please provide your analysis as to why the OPEX
is
an "exempt commercial market" subject to CFTC regulation. Please
include a discussion of the impact of your stated strategy to
expand
beyond the energy options markets.
4. Please disclose your website.
Cover Page
5. Please revise the cover page to include a price or a pricing
range
for the sale of your securities by the selling shareholders until
your securities are listed on a national securities exchange or
quoted on the quotation system of a national securities
association.
We refer to the requirement in Schedule A, paragraph 16, and Item
501(a)(9)(iv) of Regulation S-B.
6. Please revise your reference to the OTCBB to state that you
intend
to have your shares quoted on the bulletin board.
Prospectus Summary, page 1
Business, page 1
7. Please disclose whether you are a registered broker-dealer.
8. Please revise to clearly disclose how you currently generate
revenues from each of the businesses in which you are currently
engaged and how you expect to generate revenues after the launch
of
OPEX. In this connection, we note your disclosure in MD&A that
you
earn incentives pursuant to agreements with two exchanges. Please
revise to briefly identify the exchanges and the nature of the
incentives. Further, we note your disclosure in the business
section
that you pay brokerage commissions to CES out of the revenues
earned
from the floor business. Please revise to briefly describe such
fees.
9. Please revise here to briefly describe and in the business
section
to more fully describe the nature of the "commodity derivatives"
underlying your current brokerage business and those that you
expect
will trade on your OPEX system. In this connection, we note your
disclosure in the business section that your focus is on the "OTC
market for financially settled energy options." Please revise to
explain the nature of these options.
10. Please revise here to briefly describe the nature and
mechanics
of your commodity derivatives brokerage business, commodity
derivatives services on the floor of the NYMEX and the trading and
brokerage support services. In this connection, please revise to
disclose that your floor brokerage operations were launched in
April
2004.
11. Please revise to disclose the percentage ownership of
management.
Risk Factors, page 6
12. Please include a risk factor regarding your indebtedness.
13. Please include a risk factor discussing potential regulatory
risks, if any.
We must obtain growth in our revenues in order to realize benefits
of
our business plan, page 6
14. Please revise the heading and the discussion to discuss only
one
risk and to more concisely discuss the risk being presented. It
appears from the discussion that you are focusing on the risks
regarding gaining market acceptance of your OPEX system that is
still
under development. Please revise or advise.
Our business plan calls for OPEX to be a major contributor to our
success. OPEX is still in the development stage, might never be
launched, or might not be successful when launched, page 7
15. Please revise to disclose the nature of the "difficulties and
setbacks usually encountered in developing new software." Please
consider whether you have already disclosed those risks in other
risk
factors and, if so, please revise to avoid repetitive disclosure.
16. Please revise to disclose when you expect the OPEX system to
be
launched.
History of losses and limited operating history make it difficult
for
you to evaluate our business and your investment, page 7
17. Please revise the heading and the narrative disclosure to
quantify your losses for the last two years, your accumulated
deficit
and the fact that you have a going concern opinion. In light of
the
fact that you have at least three full years of financial
statements
please revise the heading and the narrative disclosure to reflect
that you have sustained losses in the businesses in which you are
currently engaged and that it is because of your plan to enter
into a
new line of business that may make an evaluation of your business
difficult rather than that you have a limited operating history.
Our quarterly financial results will continue to fluctuate making
it
difficult to forecast our operating results, page 7
18. Please revise to provide separate risk factor disclosure for
each
risk identified in the bullet points and to explain in further
detail
the relationship between each bullet point and fluctuations in
your
operating results. Further, consider whether the disclosure in
the
last paragraph of this risk factor regarding meaningful quarterly
comparisons due to an unproven business model duplicates earlier
risk
factor disclosure, and if this is the case, please eliminate any
redundancy.
Because we may continue to incur net losses, we may not be able to
implement our business strategy and the price of our stock may
decline, page 8
19. It is unclear whether the bullet points are additional risks
or
whether they are meant to mitigate the risk being presented. If
they
include additional risks, such as the risk that you will need to
respond to competitive developments in the option trading industry
and to eliminate any redundant disclosure with other risk factors.
We note for example only, that you have provided another risk
factor
dealing with the risk that you may need to raise additional
capital.
If the bullet points are meant to mitigate the risk presented,
please
revise to eliminate mitigating factors from the risk factor
section.
Further, please revise the heading to more accurately convey the
risk
being presented.
20. Please disclose that you suspended the development and
implementation of OPEX for a year in part because of your negative
cash flows. If this is the crux of the risk you are presenting,
please revise to present this in the heading and the first few
sentences of the narrative. Consider combining this disclosure
with
the risk factor on page 13 discussing the risk that "We may not
attain positive cash flow."
Our pricing model for our products and services is unproven and
may
be less than anticipated, which may harm our gross margins, page 8
21. Please revise to identify each product and service for which
your
pricing model is unproven and identify each product and service
whose
pricing model depends on the duration of the agreement.
We cannot be certain that we will be able to protect our
intellectual
property, and we may be found to infringe on proprietary rights of
others, which could harm our business, page 9
22. We note your disclosure that you cannot assure investors that
measures that you take to protect your intellectual property will
be
successful. Please revise to clarify whether you own any patents
or
copyrights and what measures you expect to take to protect your
intellectual property.
23. Please disclose the settlement of the dispute with your
software
developer.
We may rely on strategic relationships to promote our OPEX system
and
for access to licensed technology; if we fail to develop, maintain
or
enhance these relationships, our ability to serve our customers
and
develop new features and functionalities could be harmed, page 10
24. Please revise to more specifically explain the nature of the
"strategic relationships" on which you will rely to promote your
OPEX
system and explain the statement that you may need to develop
relationships "to adapt to changing technologies." Further,
please
limit your use of the term "partner" unless you have an agreement
in
which you share profits and losses. Instead, please more
specifically describe the nature of the relationship to which you
refer.
We depend on our relationship with Capital Energy Services to
maintain our floor brokerage operations, page 12
25. Please revise to disclose your management`s affiliation with
CES.
We face intense competition in the electronic energy options
market..., page 12
26. We note your statement that "here are several other well
financed
companies who do or may compete with us, including..." Please
revise
to distinguish those companies that currently compete with you
with
those who may compete with you and identify in which lines of
businesses they compete or may compete.
Dependence on outside clearinghouses for increased revenue, page
13
27. We note your statement that you "expect significant growth
based
on the availability of OTC Clearing." Please delete mitigating
language from the risk factor section. In this connection, please
note that if you retain this projection in the prospectus you
should
include a detailed explanation of the basis for this statement.
The continued operations of our business are dependent on the
performance and continued service of our executive officers and
key
employees, and our ability to attract and retain skilled
personnel,
page 14
28. Please disclose how your financial condition impacts your
ability
to retain and attract employees.
We may need additional financing which may not be available and,
if
available, might only be available on unfavorable terms, page 14
29. Please disclose that substantially all of your financing has
been
provided by Mr. Nordlicht and discuss whether you will be
dependent
on him for future financing.
Use of Proceeds, page 16
30. We note your statement that you intend to use any proceeds
from
the exercise of the warrants and options for working capital and
general corporate purposes. Please note that if you intend to use
such proceeds in connection with the resumption of development of
your electronic trading system, we would not consider such use to
be
working capital or general corporate purposes. Please revise or
advise.
Selling Stockholders, page 18
31. We note your disclosure that certain of the Selling
Stockholders
have material relationships with you. Please confirm that all
such
relationships have been disclosed in the footnotes.
32. We note that you have registered 31,431,026 shares, including
1,300,000 shares underlying outstanding warrants and options.
Please
reflect the shares underlying these options and warrants in the
table.
33. We note that some of the Selling Stockholders listed are not
natural persons. Please identify the natural persons with voting
or
investment control of these entities. Please supplementally
confirm
that these entities are neither broker-dealers nor affiliates
thereof.
Plan of Distribution, page 21
34. Please provide the disclosures regarding expenses required by
Item 511 of Regulation S-B.
Management`s Discussion and Analysis of Plan of Operations, page
23
35. The "Management`s Discussion and Analysis of Financial
Condition
and Results of Operations" section should present an analysis of
the
company`s business as seen through the eyes of management,
including
known trends, demands and commitments that may impact future
financial condition or operating performance. Please
significantly
revise this section to provide an analysis of these issues and
other
items which management believes may have a material impact on your
future financial condition or operating performance. You may find
an
"overview" section an appropriate place for this information. For
additional guidance, refer to Commission Release No. 33-8350 (Dec.
19, 2003).
36. Please include disclosure regarding the additional work
necessary
to complete the development of OPEX, the dollar amount estimated
to
be required to pay for such work and the expected source of
financing. Please provide similar disclosure regarding the launch
of
OPEX.
Results of Operations for Fiscal Year Ended December 31, 2003 and
2002, page 23
37. Please disclose why management believes there was a decrease
in
the volume of energy derivatives transactions handled by you on
behalf of your customers in 2003. In particular, please disclose
whether this decrease is attributed to market issues, competition
or
operational issues.
Results of Operations for the Nine-Month Period Ended September
30,
2004 and 2003, page 25
38. Please discuss why the imputed rate of the amount due to
related
parties grew from 5% to 12%.
39. Please clarify how a temporary discontinuation of your
software
development efforts in 2003 has led to a decrease in research and
development costs in 2004.
Liquidity and Capital Resources, page 27
40. Instead of using terms like "one of our stockholders" or "a
related party," please identify the person by name and title.
41. Please disclose the purchaser or class of purchasers of your
$1
million private placement.
42. Please include disclosure regarding your material commitments
for
capital expenditures. Refer to Item 303(b)(1)(iii) of Regulation
S-
B.
43. Please explain in further detail how issuance of common stock
allowed you to fund an increase in accounts and other receivables.
44. Expand to indicate how you accounted for the forfeiture of
compensation and the impact on the financial statements.
Description of Business, page 28
45. Please add additional disclosure regarding your brokerage
operations, including how you market your services and an overview
of
your strategy for this business.
46. Please revise to discuss the material terms of your agreements
with the exchanges under which you realize incentives.
47. Please revise to describe how your fees are determined for
each
of your services and the range of such fees. Further, please
describe how you will determine fees in connection with your
operation of OPEX.
Business Partners, page 30
48. Please provide disclosure regarding why you need to enter into
an
agreement with CES in order to trade on the NYMEX and additional
detail regarding the services that CES provides.
49. Please disclose what is included in "gross receipts of the
floor
business."
Customer Concentration, page 31
50. Please revise to identify the material customers to which you
refer.
Directors, Executive Officers, Promoters and Control Persons, page
33
51. Please include the dates Mr. Boisseau served as CAO and
Controller for Citrix.
Executive Compensation, page 35
52. Please include additional details on the terms of Mr.
O`Connor`s
amended employment agreement.
Certain Relationships and Related Party Transactions, page 38
53. Please disclose the basic terms of the loans provided by Mr.
Nordlicht.
54. Please briefly describe the business of Sleepy Hollow Coffee
Roasters and disclose why you provide it services.
55. We note your prepaid commission agreements with Mr. Nordlicht
and
Platinum. In a supplemental response, please tell us what
services
these prepaid commissions related to and how you accounted for
prepaid commissions received. Please cite relevant authoritative
accounting literature wherever necessary.
56. Please revise to disclose the percentage ownership Mr.
O`Conner
holds in CES.
57. Please revise to describe here the material terms of the
consulting agreement with Mr. Cassidy and the warrants issued to
Pierpont Capital, an entity owned by Mr. Cassidy, rather than
providing a cross-reference to the business section. Please
include
disclosure of the consideration paid for the warrants by Pierpont
Capital.
Market for Common Equity, page 41
58. Please include a 2004 compensation plan table as required by
Item
201(d) of Regulation S-B.
Legal Proceedings, page 43
59. Please disclose your May 2004 settlement with your former
legal
counsel.
Financial Statements
Notes to the Financial Statements - December 31, 2003 and 2002,
pages
F-7 - F-16
60. We note from your business description on pages 5 and 6 that
you
are involved in four separate businesses. In a supplemental
response, please tell us what consideration you gave to providing
segment disclosure about these businesses. Reference is made to
SFAS
131.
61. We note from your disclosure on page 32 that you hold rights
to
patents pending and own at least one trademark. In a supplemental
response, please tell us what consideration you gave to including
disclosures about these intangible assets within the financial
statements pursuant to SFAS 142.
Note 3 - Summary of Significant Accounting Policies, pages F-7 -
F-12
Fair Value of Financial Instruments, page F-8
62. In a supplemental response, please tell us how you determined
that the carrying value of your notes payable approximate fair
value
based on comparable interest rates.
Software Development Costs, page F-8 - F-9
63. We note your statement, "After technological feasibility is
established, any additional costs are capitalized in accordance
with
SFAS 86." In a supplemental response, please clarify and provide
your basis under SFAS 86 that supports this statement.
Revenue Recognition, page F-11
64. Please describe in greater detail when you consider revenue to
be
earned for transactions.
Note 6 - Commitments, page F-14
65. Please include total aggregate minimum lease payments for 2009
and thereafter. Reference is made to SFAS 13.
Balance Sheet for the Year Ended September 30, 2004, page F-17
66. Please tell us what consideration you gave to making the "Due
to
Stockholder" line item consistent with the "Notes Payable and
related
accrued interest to a related party" line item on the December 31,
2003 balance sheet. It appears that these two items are payable
to
the Chairman of the Board.
Notes to the Financial Statements - September 30, 2004 and 2003,
pages F-20 - F-33
Note 3 - Summary of Significant Accounting policies, pages F-21 -
F-
26
Revenue Recognition, page F-25
67. In a supplemental response, please describe in more detail
your
incentive arrangements with United States Exchanges.
Specifically,
please address how you determine that these incentives are earned
in
accordance with SAB 104, when they are recognized as revenue, and
any
transaction fees paid by your company to the exchanges.
Note 4 - Due to Stockholder, pages F-26 - F-27
68. Please describe in further detail the "restructuring"
mentioned,
how it affected the amount payable to your Chairman, and include
information similar to the information provided on page 39 within
"Certain Relationships and Related Party Transactions."
Note 5 - Other Related Party Transaction, page F-28
69. Please expand to include disclosure of your revenue
recognition
policies with respect to the revenue sharing agreement with a
related
party, implemented in April of 2004.
Note 7: Stockholder`s Deficit, page F-30
70. Please explain why you will be able to cancel the warrants.
Part II
Item 26
71. Please disclose the exemption relied upon in the private
placement of your shares to Jackson Steinem, Inc.
Exhibits
72. Please file a copy of your legality opinion or provide us with
a
draft, so that we have an opportunity to review it. Please also
file
any material agreements required to be filed under Item 601 of
Regulation S-B.
* * * *
As appropriate, please amend your registration statement
in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert this action as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Matthew Maulbeck at (202) 942-1905 or Donna
DiSilvio, Branch Chief, at (202) 942-1852 if you have questions
regarding comments on the financial statements and related
matters.
Please contact Michael McTiernan, Attorney-Advisor, at (202) 824-
5445
or the undersigned at (202) 942-1766 with any other questions.
Sincerely,
Elaine Wolff
Branch Chief
cc: Kenneth S. Goodwin, Esq. (via facsimile)
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Optionable, Inc.
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