--------------------------------------------------------------------------------

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10 - KSB

          [X]  ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
               EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2006

          [_]  TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
               EXCHANGE ACT OF 1934

                  For the transition period from _____ to _____

                         Commission file number 0-25159

                                   LION, INC.
                 (Name of Small Business Issuer in its charter)

          WASHINGTON                                       91-2094375
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

4700-42ND AVE. SW, SUITE 430, SEATTLE, WA                           98116
 (Address of principal executive offices)                        (Zip code)

                                (206) 577 - 1440
                          (Issuer's telephone number)

         Securities registered under Section 12 (b) of the Exchange Act

                                      None

      Securities registered pursuant to Section 12 (g) of the Exchange Act

                         Common Stock - $.001 par value

         Check whether the issuer is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. [ ]


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<PAGE>


         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10 -
KSB or any amendment to this Form 10 - KSB. [ ]

         Indicate by check mark whether the  registrant  is a shell  company (as
defined in rule 12b-2 of the Exchange Act). Yes [ ] No [X]

         State issuer's revenues for its most recent fiscal year   $13,710,000

         The aggregate market value of the voting common stock held by
non-affiliates of the Company as of March 12, 2007 was approximately $8,605,585
based upon 33,098,402 shares held by such persons and the closing bid price of
$.26 per share on that date. Shares of common stock held by each officer and
director and by each person who owns 10% or more of the outstanding common stock
have been excluded because these people may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for any other purpose.

         On March 12, 2007, approximately 38,624,272 shares of the Company's
common stock were outstanding.


                      DOCUMENTS INCORPORATED BY REFERENCE:

         No documents are incorporated by reference.

         Transitional Small Business Disclosure Format (check one):
            Yes [ ]    No [X]

                                       ii

<PAGE>


                                   LION, INC.

                                   FORM 10-KSB

                   For the Fiscal Year Ended December 31, 2006

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                   Page
<S>  <C>                                                                                              <C>
PART I
ITEM 1.            Description of Business                                                            1
ITEM 2.            Description of Property                                                            8
ITEM 3.            Legal Proceedings                                                                  9
ITEM 4.            Submission of Matters To a Vote of Security Holders                                9

PART II
ITEM 5.            Market for Common Equity, Related Stockholder Matters and Purchases of
                   Equity Securities                                                                10
ITEM 6.            Management's Discussion and Analysis                                             11
ITEM 7.            Financial Statements                                                             31
ITEM 8.            Changes In and Disagreements With Accountants on Accounting and
                   Financial Disclosure                                                             54
ITEM 8A            Controls and Procedures                                                          54
ITEM 8B            Other Information                                                                54

PART III
ITEM 9.            Directors, Executive Officers, Promoters, Control Persons and
                   Corporate Governance; Compliance with Section 16(a) of the Exchange
                   Act                                                                              55
ITEM 10.           Executive Compensation                                                           60
ITEM 11.           Security Ownership of Certain Beneficial Owners and Management and
                   Related Stockholder Matters                                                      65
ITEM 12.           Certain Relationships and Related Transactions, and Director
                   Independence                                                                     67
ITEM 13.           Exhibits                                                                         68
ITEM 14.           Principal Accounting Fees and Services                                           70
                   Signatures                                                                       71
</TABLE>


                                      iii
<PAGE>


                                     PART I


ITEM 1.    DESCRIPTION OF BUSINESS

         LION, Inc. (the "Company" or "LION"), a Washington corporation,
provides online mortgage leads and advanced business solutions that streamline
the mortgage loan fulfillment process in the mortgage industry. Through its
subsidiary, Tuttle Risk Management Services LLC ("TRMS"), LION provides hands-on
mortgage pipeline risk management for financial institutions that originate and
then sell loans into the secondary market. From Leads to Loans to Capital
Markets, LION offers consistent, integrated business solutions to consumers,
mortgage brokers, realtors, originators and lenders. LION provides an integrated
technology platform offering online loan productivity, mortgage pipeline hedging
and risk management, software development and data communications tools through
its LockPoint Xtra(R), Pipeline Tools, and Risk Management Services product
lines.

         LION maintains executive offices at 4700-42nd Ave. SW, Suite 430,
Seattle Washington 98116. Our telephone number is 206-577-1440. We maintain a
website at www.lionmts.com. Our SEC reports can be accessed through the investor
relations section of our website. There we make available, free of charge, our
annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports
on Form 8-K and any amendments to those reports as soon as reasonably
practicable after we electronically file such material with, or furnish to, the
Securities and Exchange Commission ("SEC"). These reports are also available
from the SEC website at www.sec.gov. The information found on our website is not
part of this or any other report we file with or furnish to the SEC.

CUSTOMERS, PRODUCTS AND SERVICES

         Our product groupings are organized to align our business objectives by
product with the customers we serve. More specifically, we are organized into
three product groups focused on Leads, Loans and Capital Markets.

         The Leads product group is comprised of Mortgage 101.

         MORTGAGE 101 is an interactive service provided through LION's
www.mortgage101.com consumer portal which connects potential mortgage applicants
with a network of mortgage lenders who offer mortgage programs, rates and
services. Mortgage 101 also provides education to home buyers and owners through
informative articles, interactive calculators and real-time rate comparison
technology. This product is one of the leading sources of leads for real estate
financing by mortgage originators and is a preferred platform for them to market
to their customers. This product group generates revenue from our pay-per-lead
program, participation by our customers in our rate and directory listings
offerings, and ad banners.

         MORTGAGE 101 PRODUCT INITIATIVES FOR 2007. We are expanding the scope
of Mortgage 101 to embody a more traditional Internet advertising model which
will include strategic vertical partnerships providing other consumer related
financial services. This will largely be achieved through the introduction of a
redesign of our existing Mortgage 101 portal scheduled for release in second
quarter 2007. The site redesign will direct consumer traffic more efficiently to
those areas that generate revenue and benefit our vertical partners. We have
just executed one such vertical partner agreement in the area of auto finance.
Among the other verticals that we are exploring or have




                                       1
<PAGE>

begun negotiating with potential partners are real estate, including valuation
tools, realtor leads, and home listings; financial management; and home services
to name a few. Each may have several sub components such as the opportunity to
explore a variety of insurance options, that will enrich a consumer's experience
and generate transactional opportunities for them to pursue interests and needs
that are both linked to the mortgage process and stand apart from it. In
addition, we will engage a national advertising firm to handle our media
placement within the Mortgage 101 site.

         The Loans product group is comprised of LION Pro, Retail Websites,
LockPoint Xtra(R), and our Precision marketing productivity suite ("Precision
MTS"), which combines the best features of all three products in addition to
Pipeline Tools interest rate risk management software for midsized mortgage
originators.

         LION PRO, used by mortgage brokers nationwide, consists of LION Loan
Search, LoanLink (subprime loan exchange platform), News Now (high-value market
data) and Ratesheets on Demand (aggregated mortgage ratesheets). It is packaged
and often private labeled for both large companies and origination teams along
with individual or small mortgage brokers. Through this password protected
product, originators can access one of the nation's largest databases of
wholesale mortgage rate, fee, and program information to instantly price any
mortgage loan. This database is updated daily for 77 regions nationwide and
includes 69 participating lenders. Revenues from the LION Pro product line are
generated from mortgage brokers and originators subscribing to the service,
origination teams private-labeling this service for their own companies, and
from participating lenders.

         LION PRO PRODUCT INITIATIVE FOR 2007 - PRECISION ACCESS. In February
2007, a redesign of our LION Pro Corporate offering, now known as Precision
Access, has extended full access to lockable loan pricing and loan program
search within a customer's own private database. Precision Access is fully
integrateable with and upgradeable to our more robust Precision MTS product.

         LION PRO PRODUCT INITIATIVE FOR 2007 - PRECISION PRO. We are currently
redesigning and updating a more robust broker portal for Lioninc.com. This
business-to-business Internet portal is scheduled for release in second quarter
2007. This newly formatted broker portal will not only feature its highly
popular market commentary and Rate Sheets on Demand modules, but will also
include an improved Loan Link feature, which will help brokers match hard to
place loans with niche lenders. The new portal will feature an improved loan
search function utilizing a new database of expanded lender program and pricing
information to offer real time product eligibility and pricing for prime, alt A
and many of the most popular niche loan programs available. The pricing engine
will also provide the ability for brokers, working with participating lenders,
to receive price locking confirms. Many of the advanced mortgage tools currently
offered in our Precision MTS product will be extended to our broker customers
through this new portal. The new portal will include a more enhanced traditional
advertising model for participating lenders and vendors. We will engage a
national advertising firm for the new lioninc.com portal to handle our media
placement for this advertising model.

         RETAIL WEBSITES are offered to mortgage companies and individual
originators to help educate consumers about mortgages, market their services to
borrowers, build brand identity, generate more business, efficiently connect
with service providers and better serve their borrowers. This product is
intended to create and foster relationships between consumers and mortgage
originators while enabling mortgage companies and originators to more
efficiently manage their online production



                                       2
<PAGE>

channel and maximize the business value received from their online operations.
Both template and custom design solutions deliver a combination of standard and
custom content to over 2,900 websites. Revenues are generated from website set
up and monthly hosting fees along with fees for related functionality tools.

         RETAIL WEBSITES PRODUCT INITIATIVE FOR 2007 - NEW TEMPLATE PRODUCT. We
are upgrading our retail website template business to a new platform that
integrates many tools and features available through our Precision MTS product
suite. In addition to providing users with a more feature rich, price
competitive product, the offering will allow users full management of all
content in their site. Users will also be able to use their website as a portal
for communicating to their managers, employees, and business partners in a
secure environment, increasing the efficiency of their processes. The user
directed nature of our redesign will minimize direct support necessary from us.
We will be launching the new website product during second quarter 2007.

         LOCKPOINT XTRA(R) ("LPX") is a Point-of-Sale and back office suite of
products that provide rate distribution, float registration, real-time
risk-based pricing and rate locking capabilities in a customer's website, loan
center or call center environment. The LockPoint Xtra(R) service is provided to
lenders, investors and conduits that are LION licensees and delivers the ability
to maintain their product and pricing rules and expressions, and to publish
risk-based lockable loan prices to their customer base via LPX client
applications. Revenues are generated from implementation fees, recurring monthly
billings based on locked loan amount volumes with monthly minimums which may
vary from customer to customer, and custom development services.

         PRECISION MARKETING PRODUCTIVITY SUITE ("PRECISIONMTS") is a complete
marketing, pricing and delivery solution for retail, wholesale and correspondent
mortgage origination channels. This product suite streamlines the loan
fulfillment process and reduces the cost of originating a loan by creating a
centralized platform to manage a company's products and pricing. The product
suite features corporate wholesale and retail websites, online advertising, lead
generation, loan productivity tools, a product eligibility and pricing engine,
mortgage pipeline hedging and risk management, software development and data
communications tools. Lenders have the flexibility to acquire a powerful turnkey
mortgage marketing and price distribution system or install each component
separately to accommodate an organization's growing needs.

         The Capital Markets product group includes our Pipeline Tools
technology and TRMS' Risk Management Services.

         PIPELINE TOOLS ("PT") is a complete risk management and pipeline
tracking system that provides financial institutions with the tools necessary to
manage interest rate risk. PT tracks and examines current loan inventory, which
allows lenders to extrapolate and manipulate data to make more informed trading
decisions. Typical users of PT include secondary marketing executives, traders,
risk managers, pricing desks and shipping managers. Revenues are generated from
implementation fees, recurring monthly billings based on loan amount volumes
with monthly minimums which may vary from customer to customer, and custom
development services.

         RISK MANAGEMENT SERVICES are provided by TRMS, a registered Commodity
Trading Advisor. The services are structured to provide mortgage pipeline risk
management for mortgage companies and savings and loan associations that seek to
originate and then sell loans into the secondary mortgage market. The solutions
are tailored to firms that lack capital market expertise and



                                       3
<PAGE>

offer a wide array of services under the managed account umbrella that include
pricing, best execution analysis, rate sheet generation, policy and procedure
formulation, trading and investor relations assistance. Clients leverage the
"second set of eyes" provided by TRMS to validate their day-to-day secondary
marketing decisions or to outsource significant aspects of the secondary
marketing role to TRMS rather than developing the primary capability to fill
these roles within their organizations. Revenues are generated from recurring
monthly billings based on closed loan amount volumes with monthly minimums which
may vary from customer to customer.

SALES AND MARKETING

         Our principal customer base consists of mortgage brokers, lenders
(wholesale, retail and correspondent), and industry affiliates. Our sales and
marketing efforts are as follows:

         SALES FORCE. We maintain two professional sales groups in our Denver
and Gig Harbor offices with regional sales representatives covering both coasts.
Each group is targeted toward a specific market segment representing
corresponding product offerings. With our Precision Marketing Productivity
Suite, each sales group has the opportunity to sell this product, creating
better synergies and up sell opportunities across all product lines. The sales
associates are compensated on a commission basis largely derived from setup and
hosting fees. Initial sales efforts are made through a combination of outbound
calls following a marketing campaign, inbound phone inquires, and brokers who
register online for services. For our more complex products with longer sales
cycles, formal presentations are made through customer site visits or by
multimedia conferencing achieved via the Internet.

         TRADE SHOWS. The Company attends a number of tradeshows each year
sponsored by state and national mortgage brokers and mortgage banking
associations. We exhibit at most of these shows as well as participate as guest
speakers and industry panelists. In conjunction with utilizing booth space on
the trade floor, we secure additional meeting space for more formal
presentations. The majority of these customer meetings are set up prior to each
show. Appointments are acquired through a combination of direct mail campaigns
and initial sales calls. These shows are predominately attended by mortgage
brokers, lenders, industry affiliates and technology companies.

         PRESS RELEASES AND OTHER PRESS COVERAGE. We issue press releases on
product launches, new product releases, new customer acquisitions and
achievement of certain milestones. We also have been the subject of published
reviews of mortgage technology products, quoted in trade journals and have been
the subject of articles written about the Company.

         SPEAKING ENGAGEMENTS. Representatives of the Company from time to time
speak at other industry functions not connected to trade shows.

         CONSUMER INTERNET ADVERTISING. In purchasing a home, the first Internet
web site that consumers typically visit is a real estate listing or related
site. In refinancing, the consumer typically finds Internet sites by searching a
web portal. To attract these consumers to our network of sites, we purchase
banner advertising and content placement on real estate sites and consumer
portals.

         REALTOR MARKETING. We provide a free content package for real estate
and related sites. The free content delivers a Mortgage Center with
Mortgage101.com technology with live rates,



                                       4
<PAGE>

interactive calculators, an extensive library, and online applications with the
"look and feel" of the real estate site.

         LISTING WITH SEARCH ENGINES. We have arranged to be listed in all major
"search engines." The URLs of the network of consumer sites appear if the user
enters key words such as "mortgage" or "mortgage interest rates."

RESEARCH AND DEVELOPMENT

         We develop our own proprietary software for providing products and
services to our customers. These efforts are funded primarily through
operations. Research and development expense was approximately $2,238,000 and
$2,392,000 for 2006 and 2005, respectively.

COMPETITION

         LION is a leading competitor in the highly diverse and competitive
field of providing technology, products and services to the mortgage industry.
The diversity of LION's customer constituency and the breadth of its offerings,
coupled with the fact that most of LION's competitors are privately held
companies that publish limited information about their performance, limit the
number of companies against which LION can compare itself in a meaningful way.

         Many of LION's competitors target one or perhaps two verticals within
the mortgage fulfillment space. LION serves a number of verticals and
distinguishes itself through its ability to streamline the mortgage fulfillment
process while providing the tools and technology to enhance the ability of its
customers to market themselves to potential customers.

         LION markets itself to retail borrowers through its Mortgage101.com
Internet portal, sells directly to mortgage brokers through a telephonic and
email sales effort, markets to realtors directly and through third parties and
sells to mortgage originators and lenders through a professional sales staff.

         The market for Internet-based products and services remains intensely
competitive, continually evolving, and subject to rapid technological change. We
expect competition to intensify and increase in the future. Additionally, we
expect to face competition from various e-commerce businesses and other
companies targeting both consumers and businesses, whether or not they focus on
our business model.

         Our competitors may include companies with longer operating histories,
greater market presence and name recognition, and with larger customer bases and
greater financial, technical and marketing resources than we have. These
companies could be strong competitors if they decided to develop a focused
business effort in our Internet space. Furthermore, to the extent that our
products achieve market acceptance, competitors can be expected to offer
competitive products or embark on pricing strategies, which, if successful,
could have a material adverse effect on the results of our operations and
financial condition.

         The consumer mortgage arena is intensely competitive. Well capitalized
companies spend millions of dollars marketing to the consumer to achieve brand
awareness. Consumers search the Internet looking for information and will
commonly shop two to three companies before making a



                                       5
<PAGE>

decision. Also, consumers prefer to "shop globally and buy locally." Our network
of consumer sites delivers value to consumers on both issues. As an unbiased
source of rate and fee information provided by local brokers, our network of
consumer sites has become a leading mortgage portal destination when measured by
reported consumer traffic.

         The broker home page development market is as competitive and is
comprised of a few strong competitors. In addition, several industry affiliates,
such as the Loan Origination Software providers, participate in the market. The
market also consists of small, local web companies who provide services for a
wide range of industries. These small, local web companies generally do not have
the ability to provide mortgage brokers current technology specific to the
mortgage industry. We license mortgage brokers the technology that allows a
developer to facilitate a local relationship. The industry affiliates who have
entered the market view broker home page development as an ancillary product. We
have the ability to deliver competitive technology and aggressive advertising
campaigns. In addition, the broker home page product benefits from the market
share resulting from our product and service offerings.

         The field of competitors providing sophisticated lender pricing
solutions that compete with our LockPoint Xtra(R) product has been expanded.
LockPoint Xtra(R) provides hosted pricing capabilities coupled with loan
application capture interfaces. It is differentiated from competitive products
by integration of pricing interfaces with its central price engine. Our Pipeline
Tools product provides a risk management and a pipeline tracking system. The
technology is coupled with hosted services and does not offer a licensed
software version. Several direct competitors offer hosted or licensed pipeline
risk management technology. The market for licensed technology is comprised of
large vendors with expertise in the complexities of setting conversion
parameters and risk assessment algorithms.

         The Capital Markets group competes against a number of firms that
provide similar technologies, analytics and services to those offered by the
LION. Competition in the Pipeline Tools segment of the market is to a large
extent driven by client perceptions regarding the quality of financial analytics
provided, product price and the scope and functionality of the Pipeline Tools
product offering. Scope, in this case, refers to products that have the ability
to extend beyond traditional pipeline risk management and can offer solutions in
areas such as asset/liability management, servicing hedging and accounting
interface. Given the complexity of developing and supporting the analytics
required to quantify pipeline risk management, we compete against a handful of
firms in the Pipeline Tools only space.

         Competition in the risk management services space is intense and the
intensity shows little sign of abating. This competition is to some extent a
consequence of the relatively low barriers to entry the industry presents and
the fact that most meaningful intellectual property is in the public realm. In
addition to full-blown competitors who offer both software and advisory
services, there exists a cottage industry of hedge advisors who have little to
offer in the way of proprietary software but who are intimately involved in
advising their clients on daily operations and secondary marketing matters.


                                       6
<PAGE>


GOVERNMENT REGULATION

         Our mortgage pipeline risk management services are provided by TRMS, a
Commodity Trading Advisor registered with the Commodity Futures Trading
Commission and the National Futures Association. Commodity Trading Advisors are
subject to detailed disclosure, reporting, and recordkeeping requirements. The
U.S. commodity markets are subject to on-going and substantial regulatory
changes, and we cannot predict what statutory, administrative or exchange
imposed restrictions, if any, may become applicable to or adversely affect TRMS
in the future.

         Our other operations are subject to general business regulations and
laws, as well as regulations and laws specifically governing the Internet and
e-commerce. Existing and future laws and regulations could impede the growth of
the Internet or other online services which in turn could decrease the demand
for our products and services, increase the cost of doing business, or otherwise
have an adverse effect on our business, operating results or financial
condition. These regulations and laws may cover taxation, user privacy, data
protection, pricing, content, copyrights, distribution, electronic contracts and
other communications, consumer protection, the provision of online payment
services, broadband Internet access, and the characteristics and quality of
products and services not currently subject to direct regulation by any
government agency. Other than regulations applicable to businesses generally,
there are currently few laws or regulations directly applicable to access to or
commerce on the Internet. However, the applicability to the Internet of existing
laws governing issues such as property ownership, sales and other taxes, libel
and personal privacy is developing. We cannot predict the impact, if any, that
future regulation or regulatory changes might have on our business. Unfavorable
resolution of these issues may harm our business, diminish the demand for our
products and services or increase our cost of doing business.

PROPRIETARY RIGHTS

         We rely on a combination of copyright and trademark laws, trade
secrets, software security measures, license agreements and nondisclosure
agreements to protect our proprietary technology and software products. We have
a variety of registered Internet domain names. Regulations governing domain
names may not protect our trademarks and similar proprietary rights. We may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon, or diminish the value of our trademarks and other proprietary
rights. We currently have federally registered trademarks on LockPoint Xtra(R),
Lockpoint(R) and Ratesheet Plus(R) and one pending patent; "User Interface for
On-line Real Estate Service."

         Policing unauthorized use of our proprietary rights is inherently
difficult, and we may not be able to determine the existence or extent of any
such unauthorized use. The protection of our intellectual property may require
the expenditure of significant financial and managerial resources. Moreover, we
cannot be certain that the steps we take to protect our intellectual property
will adequately protect our rights or that others will not develop substantially
equivalent or superseding proprietary technology, or that equivalent products
will not be marketed in competition with our products, thereby substantially
reducing the value of our proprietary rights. Furthermore, there can be no
assurance that any confidentiality agreements between us and our employees or
any license agreements with our customers will provide meaningful protection of
our proprietary information in the event of any unauthorized use or disclosure
of such proprietary information.

                                       7
<PAGE>


         Although we believe that our trademarks and proprietary technology do
not and will not infringe patents or violate proprietary rights of others, it is
possible that our trademark and proprietary rights may not be valid or that
other parties may claim that we infringed their proprietary rights. In the event
our products infringe proprietary rights of others, we may be required to modify
the design of our products, change the name of products or obtain a license.
There can be no assurance we will be able to do so in a timely manner, upon
acceptable terms and conditions, or at all. The failure to do any of the
foregoing could have a material adverse effect upon us. In addition, there can
be no assurance that we will have the financial or other resources necessary to
enforce or defend an intellectual property infringement or proprietary rights
violation action. Moreover, if our products infringe patents, trademarks or
proprietary rights of others, we could, under certain circumstances, become
liable for damages, which could have a material adverse effect on us.

EMPLOYEES

         At December 31, 2006, we had 113 employees of which 108 were full-time.
There are 9 commissioned marketing associates. Our future success will depend,
in part, on our ability to continue to attract, retain and motivate highly
qualified technical and management personnel, particularly highly skilled
technical engineers involved in new product development. From time to time, we
may employ independent consultants or contractors to support our research and
development, marketing, customer service and administrative organizations. Our
employees are not represented by any collective bargaining unit, and we have
never experienced a work stoppage. We believe relations with our employees are
good.


ITEM 2.   DESCRIPTION OF PROPERTY

         Our executive offices are located in Seattle, Washington, where we
currently lease approximately 8,274 square feet. We have the right to use this
space for computer information services and related business uses. The lease
expires on July 31, 2007. There is no renewal option. Management is negotiating
a renewal of the lease and also seeking alternate locations within close
proximity of our existing executive offices. We foresee no problems in finding
alternative space when needed, upon commercially reasonable terms.

         For sales, marketing and website development efforts, we lease
approximately 8,053 square feet in Denver, Colorado. This lease expires November
30, 2007.

         For research and development, computer information services, product
support, sales, and related business use, we lease 8,376 square feet in Gig
Harbor, Washington. This lease expires March 31, 2009.

         For risk management services, computer information services, research
and development, product support, and related business use, we lease 7,534
square feet in San Rafael, California. The lease expires July 17, 2010.

         All leases are operating leases. We believe that our current facilities
are adequate and suitable for their current use, and that additional facilities
will be available, when needed, upon commercially reasonable terms. We also
believe that all of the leased space and all property maintained within are
adequately insured.

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<PAGE>



ITEM 3.   LEGAL PROCEEDINGS

         We are not a party to any material legal proceedings.


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

         There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended December 31, 2006.



                                       9
<PAGE>

                                     PART II


ITEM 5.   MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF
          EQUITY SECURITIES.

MARKET INFORMATION

         The Company's common stock trades on the OTC Bulletin Board under the
symbol "LINN." The range of high and low bid prices for the Company's common
stock for each quarter during the two most recent fiscal years is as follows:
<TABLE>
<CAPTION>

       Fiscal Year Ended December 31,             2006                       2005
                                             -----------------         ------------------
                                             HIGH          LOW         HIGH          LOW
                                             -----        -----        -----        -----
<S>                                          <C>          <C>          <C>          <C>
       First Quarter                         $0.41        $0.30        $0.47        $0.31
       Second Quarter                         0.50         0.30         0.41         0.25
       Third Quarter                          0.36         0.24         0.36         0.23
       Fourth Quarter                         0.35         0.25         0.39         0.27
</TABLE>

        This table reflects the range of high and low bid prices for our common
stock during the indicated periods, as published by the OTC Bulletin Board. The
quotations merely reflect the prices at which transactions were proposed, and do
not necessarily represent actual transactions. Prices do not include retail
markup, markdown or commissions.

         There were approximately 1,366 holders of record of our common stock as
of March 12, 2007. Most shares of our common stock are held by brokers and other
institutions on behalf of shareholders.

DIVIDEND POLICY

         We have not paid dividends on our common stock since our inception.
Dividends on common stock are within the discretion of the Board of Directors
and are payable from profits or capital legally available for that purpose. Our
current policy is to retain any future earnings to finance the operations and
growth of our business. Accordingly, we do not anticipate paying any dividends
on common stock in the foreseeable future.

 RECENT SALES OF UNREGISTERED SECURITIES

         On November 11, 2005, we issued 20,417 shares of common stock to a
director who exercised stock options at $0.27. On December 11, 2006, the board
determined that the options had been granted outside of the Company's equity
compensation plans, and the issuance was deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act as a
transaction by an issuer not involving any public offering. The recipient was an
accredited investor, had access to all material information concerning our
Company, and acquired the securities for investment. The securities are subject
to appropriate trading restrictions on transferability.


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<PAGE>


 ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

         LION, Inc. is a provider of online lead generation and advanced
business solutions that streamline the mortgage loan fulfillment process. From
Leads to Loans to Capital Markets, LION offers consistent, integrated business
solutions to consumers, brokers, realtors, originators and lenders. LION also
provides an integrated technology platform offering online loan productivity,
mortgage pipeline hedging and risk management, software development and data
communication tools.

         Our financial performance did not meet our expectations for 2006 as
revenue, operating results and cash flow were heavily impacted by challenging
conditions in mortgage lending markets. Our financial results were impacted by
more than just challenging market conditions, however. For the last couple of
years we have concentrated our resources on the consolidation of our
acquisitions and the need to substantially upgrade our technology into a
scalable platform to enable us to develop and link a robust set of products and
services. This was an undertaking of competitive necessity to meet the
challenges of a rapidly changing mortgage industry, and more recently, to
preserve our options in a consolidating industry. The mortgage lending
environment has come under stiff pressure as we have done this. Higher interest
rates, falling refinance activity, rising home loan delinquency and foreclosure
rates, and industry pressure on sub prime lending, combined to exert pressures
on the lenders and brokers we serve. Annual mortgage loan origination fell from
a peak of $3.8 trillion in 2003 to an estimated $2.7 trillion in 2006, a decline
of almost 30%. On a national level, the housing sector experienced a recession
in 2006 with an 8% drop in existing-home sales and a 17% drop in new home sales.
The pressures on the mortgage industry and on our business have been mounting
for some time. In addition, operating performance for 2006 was affected by costs
related to the pursuit and analysis of strategic alternatives. Our discussion
below reflects what we have done and what we intend to do to defend our current
position and promote growth.

LEADS PRODUCT GROUP AND 2007 PLANS

         Revenue from our Leads product group, comprised of Mortgage 101,
increased 5% in 2006 compared to the prior year. This is mostly due to the
advertising revenues we derive from rate and directory listings as well as from
ad banners. Our pay per lead model was flat year over year and actually
decreased during the last half of 2006. This was indicative of lower loan
volumes, increased competition and industry lead quality concerns. We continue
to attract heavy consumer traffic to our Mortgage101.com Internet portal due to
strong search engine placement attributable to being number 1 or 2 or 3 on
Google, MSN, Yahoo, Alta Vista, and Ask.com for keyword search "mortgage." An
internal review of our performance resulted in our concluding that a bolder
strategy would be necessary if we are to optimize our high level of consumer
traffic, though not to the exclusion of lead generation, as an important
component of our Mortgage 101 consumer portal.

         To better leverage the large number of consumers attracted to Mortgage
101, we have initiated a strategic shift in the front end of our business model
to implement a portal based strategy to include a more traditional Internet
advertising model and expand to other consumer finance verticals. This shift
will provide us an opportunity to attract more consumers, generate incremental
mortgage leads as well as leads for our strategic partners from which we will
financially benefit. This will largely be achieved through a significant
redesign of our existing Mortgage 101 portal scheduled for


                                       11
<PAGE>

release in second quarter 2007, as well as through strategically selected
vertical partners to extend our offerings beyond mortgage finance. We have just
executed such an agreement with a leading auto finance company as the inaugural
partner. Included among the other verticals that we are exploring or are
negotiating with potential partners are real estate, including valuation tools,
realtor leads, and home listings; financial management; home services and
others. Each may have several sub components such as the opportunity to explore
a variety of insurance needs that will enrich a consumer's experience and
generate opportunities for them to pursue interests and needs that are both
linked to the mortgage process and stand apart from it.

         To benefit from increased traffic and make more effective use of
available advertising space, we have engaged a national advertising firm to
handle our media placement. In addition, adding breadth to our search engine
optimization capability is integral to our successful expansion into additional
consumer finance verticals. To strengthen our efforts we have entered into an
agreement to leverage third party expertise to augment the success that our
existing search engine optimization efforts have had in securing high organic
search engine placement.

LOANS PRODUCT GROUP AND 2007 PLANS

         Revenue from our Loans product group decreased 15% in 2006 compared to
the prior year. We continue to see contraction in our mortgage broker customer
base for LION Pro and Retail Websites which we believe to be a result of higher
interest rates, lower loan origination volumes, and increased competition. Our
revenues from LockPoint Xtra(R) decreased year over year due to the loss of
several large LPX customers during 2005 as a result of our decision 2 years ago
to reposition our LockPoint Xtra(R) pricing engine business as a more middle
market offering known as Precision MTS. Since its introduction, we have gained
traction and have seen our third consecutive quarter over quarter revenue
increase in the product, which we believe to be sustainable. Sales of our
Precision MTS products continue to improve. We added 17 new customers in 2006.
In addition to a healthy pipeline of new customer prospects, we are beginning to
see some of our existing customers upgrade from the entry level offerings.

         We are in the process of making strategic changes to our Loans product
group. A recent redesign of our LION Pro Corporate offering, now known as
Precision Access, has extended full access to lockable loan pricing and loan
program search within our customer's own private database. Precision Access is
fully integrateable with and upgradeable to Precision MTS. During second quarter
2007, our LION Pro search engine product for mortgage brokers will be enhanced
with an improved loan search feature utilizing a new multi-lender database
containing more types of loan programs and more guideline requirements which
will help the broker find exactly the type of loan program and pricing to fit
their borrowers needs, and forward the loan information to a participating
lender to obtain commitment.

         The template version of our Retail Website product will also be
replaced during second quarter 2007 with a more price competitive product
offering greater functionality and will integrate many of the features and tools
available through Precision MTS.

         In addition, our business-to-business Internet portal, Lioninc.com,
will be redesigned to accommodate the changes for LION Pro and Retail Websites
and also allow us to take advantage of a more traditional advertising model. As
stated earlier for Mortgage 101, we will engage a national advertising firm that
will also assist us with media placement for the Lioninc.com portal. The

                                       12
<PAGE>

Lioninc.com redesign will include an e-commerce application to facilitate
purchase and delivery of our more commoditized LION Pro and template Retail
Website products which will allow our customers to order, pay for and use these
products immediately after point of sale, requiring less of our resources and
development time to maintain.

         To leverage the success we had in 2006 with Precision MTS, we are
simultaneously turning our attention to strengthening and expanding our sales
force to capture the significant opportunities that we believe are available in
the marketplace. We have recently hired a new Vice President of national sales
to spearhead this effort. The new sales strategy will include the addition of
regional sales representatives supported by a series of marketing campaigns
timed with the launch of our new products during 2007 to accelerate the sales
process.

CAPITAL MARKETS PRODUCT GROUP AND 2007 PLANS

         Our Capital Markets product group generated 5% higher revenue during
fourth quarter 2006 compared to the previous quarter, but still experienced a
16% decline in revenue year over year. Our risk management businesses rest on a
solid foundation, but sharp declines in industry mortgage volume have adversely
affected the fees we collect in connection with the variable pricing component
of our pricing structure. Our customers originated billions of dollars fewer in
mortgage loans in 2006 when compared to 2005, resulting in the top line
performance we experienced during the year.

         While we don't expect the disarray in sub prime lending to have a
significant direct impact on many of our lender clients, the prospect of credit
tightening, collapsing spreads, constricted warehouse lines and other issues is
casting a pall over the market, and it would not be a surprise to see some
lenders becoming more conservative as the ripple effect of rising delinquency
and foreclosure rates and collapse of many subprime lenders plays itself out.
This could mean more lenders relying on best execution for delivery of their
loan production for a time rather than an interest rate risk management
strategy.

         We have hired a strong senior sales executive to bolster our capital
markets sales group. As a result, we have begun to see our prospect pipeline
expand, and we expect to add to our customer base over the year at an
accelerating rate. In addition, if loan production increases either seasonally
or due to shifts in market conditions in general, our Capital Markets product
group is positioned to benefit from such an increase.


                                       13
<PAGE>


CONDENSED RESULTS (dollars in thousands, except per share data)

                                                         For the year ended
                                                            December 31,
                                                        ------------------------
                                                           2006          2005
                                                        -----------  -----------

Revenues                                                 $ 13,702      $ 15,789
Operating expenses                                         14,956        15,878
                                                         --------      --------
     Operating loss                                        (1,254)          (89)
Other income - net                                             95             1
                                                         --------      --------
     Loss before tax                                       (1,159)          (88)
Income tax expense                                           (161)          (14)
                                                         --------      --------
          Net loss                                       $ (1,320)     $   (102)
                                                         ========      ========

Net loss per common share, basic and diluted             $   (.03)     $   --
                                                         ========      ========

         Revenue for 2006 totaled $13.7 million and decreased 13% from $15.8
million for 2005 as a result of continued contraction in loan origination
volumes in the mortgage industry and increased competition. Operating expenses
for 2006 decreased 6% to $15.0 million compared to $15.9 million for 2005 due to
our continuing efforts to consolidate and streamline our operations. We reported
a net loss for the year of $1.3 million or $.03 per share compared to a net loss
of $102,000 for 2005. The loss for 2006 was primarily due to a reduction in
revenues for all product lines with the exception of Mortgage 101. For a
comparison of our operating results to the prior year, see the discussion below.


DETAILED RESULTS OF OPERATIONS

REVENUES (dollars in thousands)
<TABLE>
<CAPTION>
                                                      For the year
                              --------------------------------------------------------------
                                      2006                2005                Change
                              ------------------   ------------------   --------------------
<S>                           <C>            <C>   <C>            <C>   <C>              <C>
Leads                         $ 1,870        13%   $ 1,781        11%   $    89          5%
Loans                           5,722        42%     6,764        43%    (1,034)       (15)%
Capital Markets                 6,110        45%     7,244        46%    (1,134)       (16)%
                              -------   -------    -------   -------    -------    -------

      Total revenues          $13,702       100%   $15,789       100%   $(2,079)       (13)%
                              =======   =======    =======   =======    =======    =======
</TABLE>

         Our product groupings are organized to align our business objectives by
product with the customers we serve. These product groups are Leads, Loans, and
Capital Markets.

LEADS

         Our Leads product group comprised 13% and 11% of total revenue for the
years ended December 31, 2006 and 2005, respectively. This product group, which
consists of Mortgage 101, generates revenue from our pay-per-lead program,
participation by our customers in rate and directory listings, and ad banners.
Revenue for 2006 was $1.9 million, up 5% compared to 2005. While the advertising
model portion of Mortgage 101, which includes rate and directory listings and ad
banners, was up year over year, the pay per lead revenue was flat compared to
the prior year and actually had declining revenues over the last half of the
year. This is indicative of lower loan volumes, increased


                                       14
<PAGE>

competition and industry lead quality concerns. We continue to attract heavy
consumer traffic to our Mortgage101.com Internet portal due to strong search
engine placement attributable to being number 1 or 2 or 3 on Google, MSN, Yahoo,
Alta Vista, and Ask.com for keyword search "mortgage."

LOANS

         Our Loans product group, comprised of LION Pro, Retail Websites,
LockPoint Xtra(R) and PrecisionMTS, accounted for approximately 42% and 43% of
total revenue for the years ended December 31, 2006 and 2005, respectively.
Revenue for 2006 totaled $5.7 million, down 15% compared to $6.8 million for the
prior year. The decrease in revenue for the Loans product group continued to
narrow quarter over quarter. This is due to the third consecutive quarter over
quarter growth in our Precision MTS product suite since we repositioned our
pricing engine business within our LockPoint Xtra(R) product line to a more
middle market offering. We anticipate the growth in Precision MTS quarter over
quarter to be sustainable throughout 2007. The growth in Precision MTS was
offset by a decrease in LION Pro and Retail Website revenues due to the
contraction of mortgage broker customers as a result of the rising interest rate
environment and decreasing loan origination volumes.

CAPITAL MARKETS

         Our Capital Markets product group, comprised of our Pipeline Tools
technology, which is part of our software, services and lead generation segment,
and risk management services provided by our TRMS segment, combined for
approximately 45% and 46% of total revenue for the years ended December 31, 2006
and 2005, respectively. Revenue for 2006 totaled $6.1 million, a decrease of 6%
from $7.2 million in the prior year due to the variable pricing component of our
pricing structure related to lower loan origination volumes for our risk
management customer base.


OPERATING EXPENSES (dollars in thousands)
<TABLE>
<CAPTION>
                                                2006                2005
                                        -------------------  -------------------
                                                      % of                 % of                     %
                                          Amount      Rev     Amount       Rev      Change      Change
                                        --------   --------  --------  ---------  ---------  ----------
<S>                                     <C>            <C>   <C>            <C>   <C>             <C>
Direct costs                            $ 6,077        44%   $ 6,338        40%   $  (261)        (4)%
Selling and marketing                     2,184        16%     2,526        16%      (342)       (14)%
General and administrative                4,012        29%     4,089        26%       (77)        (2)%
Research and development                  2,238        16%     2,392        15%      (154)        (6)%
Depreciation and amortization               445         3%       533         3%       (88)       (16)%
                                        -------   -------    -------   -------    -------    -------
      Total operating expenses          $14,956       109%   $15,878       101%   $  (922)        (6)%
                                        =======   =======    =======   =======    =======    =======
</TABLE>


                                       15
<PAGE>


DIRECT COSTS

         Direct costs are comprised primarily of website fulfillment, technology
infrastructure support, product and contract support, product deployment, and
TRMS trading desk and support services. For 2006, direct costs were $6.1
million, down 4% from $6.3 million for the prior year. This decrease is a result
of our efforts over the last 2 years to reposition our pricing engine business
within our LockPoint Xtra(R) product line to a more middle market offering
through our Precision MTS product suite. This change has allowed us to reduce
the level of resources necessary to support and maintain the LockPoint Xtra(R)
product line. In addition, during that time we have been consolidating our IT
infrastructure resources and datacenters resulting in reduced IT and
telecommunications infrastructure costs. The decrease was offset by an increase
in rent related to our San Rafael office as the lease did not go into effect
until mid-2005. Most of the cost reductions came from the LION operations as
direct costs associated with the TRMS operation were relatively unchanged from
the prior year.

SELLING AND MARKETING

         Selling and marketing expenses are comprised primarily of advertising
and marketing costs, sales salaries and related support costs. For 2006, selling
and marketing expenses decreased to $2.2 million, down 14% from $2.5 million for
the prior year. The decreases were due primarily to a restructuring of our sales
force and marketing resources and a reduction in advertising for Mortgage 101
leads due to reliance on organic generation of traffic in the Mortgage 101
portal.

GENERAL AND ADMINISTRATIVE

         General and administrative expenses are comprised primarily of
management and administrative salaries and related costs, legal and audit fees,
outside consulting services, certain telecommunications expenses, occupancy
costs, and other administrative related expenses. For 2006, general and
administrative expenses decreased 2% to $4.0 million from $4.1 million for the
previous year. This decrease was due primarily to expenses during the first half
of 2005 related to Sarbanes-Oxley Section 404 compliance efforts and
nonrecurring severance payments and during 2006, the improvement in bad debt
experience and reduced business taxes due to lower revenues. These decreases
were offset by costs associated with various strategic undertakings during 2006
totaling $219,000, the settlement and legal fees related to the Company's use of
third-party intellectual property totaling $181,000, and an increase in rent in
our California office due to the lease being in effect for all of 2006 compared
to only half of the previous year.

RESEARCH AND DEVELOPMENT

         Research and development expenses are comprised primarily of
engineering salaries and related costs. For 2006, research and development
expenses decreased to $2.2 million compared to $2.4 million in the prior year.
The reduction reflects our consolidation efforts related to product development
and the relocation of research and development efforts into one location.

DEPRECIATION AND AMORTIZATION

         The decrease in depreciation and amortization expense for 2006 compared
to the prior year is the result of certain equipment, computers and software
being fully depreciated at the end of 2005.

                                       16
<PAGE>


INTEREST EXPENSE AND INTEREST INCOME

         For 2006, interest expense decreased to $79,000 from $86,000 in the
prior year. It is comprised of interest on 10% promissory notes which were paid
off in mid-February 2005, 8% promissory notes totaling $972,000 related to the
TRMS acquisition, and various debt related to capitalized leases.

         For 2006, interest income and other increased to $174,000 compared to
$87,000 for the prior year. The increase is due to additional funds that were
invested along with a rising interest rate environment during most of 2006.
Investments during 2006 had maturities or fixed interest rates of one to three
months so as to take advantage of rising short term interest rates.

INCOME TAX EXPENSE

         The income tax expense for 2006 was $161,000 compared to $14,000 for
the prior year. The (14)% effective tax rate for 2006 is primarily due to
payment of certain minimum state LLC fees and taxes and the recording of full
deferred tax valuation allowances totaling $150,000 due to the uncertainty of
realization. The (16)% effective tax rate for 2005 is primarily due to payment
of certain minimum state LLC fees and taxes.

         Realization of deferred tax assets is primarily dependent upon the
Company reporting taxable income prior to expiration of net operating losses. At
December 31, 2005, the Company had net deferred income tax assets of $150,000,
which were the result of an income tax benefit recorded in the prior year, and
which represented a portion of its net operating loss carryforwards that Company
management determined was more likely than not to be realized by offsetting
future taxable income. During the fourth quarter of 2006, the Company recognized
income tax expense of $150,000 as a result of increasing the deferred tax
valuation allowance, such that the allowance is in the full amount of deferred
tax assets.


                                       17
<PAGE>



OPERATING SEGMENTS

         We have two operating segments, TRMS and the integrated software,
services and lead generation businesses in which we are engaged. TRMS is a
registered Commodity Trading Advisor and generates revenues through hands-on
delivery of Risk Management Services, while LION's other combined operations
generate revenues primarily for sales of software related products and services.
Intercompany revenues represent fees for Pipeline Tools technology and services
purchased by TRMS from its parent, LION, which are generally accounted for at
current market prices and are eliminated in consolidation. Condensed operating
segment information is as follows (in thousands):
<TABLE>
<CAPTION>
                                                    For the year
                                                 ended December 31,
                                                ---------------------
                                                   2006       2005
                                                --------   ----------
<S>                                             <C>         <C>
Revenue
     LION                                       $  8,017    $  9,300
     TRMS                                          5,685       6,489
                                                --------    --------
          Total revenue                         $ 13,702    $ 15,789
                                                ========    ========

Operating income (loss)
     LION                                       $ (1,168)   $   (389)
     TRMS                                            (86)        300
                                                --------    --------
          Total operating income (loss)         $ (1,254)   $    (89)
                                                ========    ========
</TABLE>

         LION revenue for 2006 declined 14% compared to the prior year. While
Mortgage 101 was up slightly year over year due to its advertising related
revenues, the pay per lead revenue was flat and trending down the last half of
the year. This was indicative of lower loan volumes, increased competition and
industry lead quality. Revenue decreased year over year for our other LION
products. The decreases were due primarily to the consolidation of our mortgage
broker customer base for LION Pro and Retail Websites as a result of the rising
interest rate environment and lower loan origination volumes, the planned
repositioning of our LockPoint Xtra(R) product line to a more middle market
offering, and lower mortgage origination levels by our Pipeline Tools customer
base. Our Precision MTS product has seen its third consecutive quarter over
quarter revenue increase which we believe to be sustainable.

         TRMS revenue for 2006 declined 12% compared to the previous year. While
our risk management business rests on a solid foundation, a sharp decline in
industry mortgage volume has adversely affected the fees we collect in
connection with the variable pricing component of our pricing structure.

         While LION was able to lower its operating costs by approximately
$500,000 in 2006 compared to the prior year, it did record an operating loss of
$1.2 million primarily as a result of lower revenues. The decrease in operating
expenses was a result of lower direct costs as a result of lower resources
needed to support and maintain our enterprise level LPX product and
consolidation of our IT telecommunications infrastructure; a decrease in selling
and marketing expenses due primarily to a restructuring of our sales force and
marketing resources and a reduction in advertising for Mortgage 101 leads due to
reliance on organic generation of traffic in the Mortgage 101 portal; a decrease
in general and administrative expenses due primarily to expenses during the
first half of 2005 related to Sarbanes-Oxley section 404 compliance efforts and
nonrecurring severance payments,


                                       18
<PAGE>

improvement in our bad debt experience and reduced business taxes due to lower
revenues; and a decrease in research and development as a result of our
consolidation efforts related to product development and the relocation of
research and development efforts into one location.

         TRMS had an operating loss in 2006 compared to operating income in the
prior year which was primarily attributable to lower revenues discussed above.
TRMS also decreased its operating expenses for 2006 compared to 2005 primarily
due to a restructuring of the sales function and improvement in bad debt
experience. Various selling and marketing expenses for TRMS are anticipated to
grow in 2007 as we continue to restructure and expand our sales and marketing
initiatives.


FINANCIAL POSITION

         At December 31, 2006, we had approximately $3.8 million in cash, cash
equivalents, short-term investments, and restricted cash. Historically, we have
funded our activities primarily from cash provided by operations. Non-cash items
are comprised primarily of depreciation and amortization and stock-based
compensation expense. The change in cash and cash equivalents is as follows (in
thousands):
                                                           2006       2005
                                                         -------    -------

   Net loss                                              $(1,320)   $  (102)
   Non-cash items                                            725        766
   Changes in working capital                                 61       (199)
                                                         -------    -------
   Net cash (used in) provided by operating activities      (534)       465
                                                         -------    -------

   Purchase of available-for-sale securities - net          (100)      (800)
   Purchase of property and equipment and other             (141)      (447)
                                                         -------    -------
   Net cash used in investing activities                    (241)    (1,247)
                                                         -------    -------

   Restricted cash for letter of credit                     --         (280)
   Other net uses of cash for financing activities            (9)       (85)
                                                         -------    -------
   Net cash used in financing activities                      (9)      (365)
                                                         -------    -------

   Net decrease in cash and cash equivalents                (784)    (1,147)
   Cash and cash equivalents at beginning of year          3,371      4,518
                                                         -------    -------
   Cash and cash equivalents at end of year              $ 2,587    $ 3,371
                                                         =======    =======



OPERATING ACTIVITIES

         During 2006, cash from operating activities decreased due to operating
losses from reduced revenues, payments on strategic undertakings, settlement of
a an unasserted possible claim relating to the Company's use of third-party
intellectual property, and decreases in accounts payable due to our normal
business operating cycle. This decrease was offset primarily by increases in
payments on customer contracts.

         During 2005, cash from operating activities increased due primarily to
increases in payments on accounts receivable. This increase was offset by
payments of incentive bonuses accrued in fourth quarter 2004, payments related
to compliance activities mandated by Section 404 of Sarbanes-Oxley,


                                       19
<PAGE>

severance expenses related to a second quarter headcount reduction to take
advantage of the efficiencies made possible by progress we made in integrating
our acquisitions, and decreases in deferred revenue from the loss of a large LPX
contract due to our repositioning to a more middle market offering.

INVESTING ACTIVITIES

         During 2006, investing activities used cash of $241,000, which
consisted of the purchase of short-term available-for-sale securities totaling
$100,000 with the remainder of the increase due to upgrades to computer hardware
and software.

         During 2005, investing activities used cash of approximately $1.2
million, which primarily consisted of the net purchase of short-term
available-for-sale securities totaling $800,000 with the remainder of the
increase due to upgrades to computer hardware and software and capital
expenditures on our new lease space for our California operations which
consolidated our TRMS, Pipeline Tools and IT infrastructure groups.

FINANCING ACTIVITIES

         During 2006, financing activities primarily related to payments on
capitalized lease obligations related to the acquisition of application and
database software, computers, servers, furniture and telecommunications systems
upgrades which were offset by proceeds from the exercise of stock options.

         During 2005, net cash used in financing activities totaled $365,000
which included $280,000 of cash that was restricted for a letter of credit
related to the office lease for our California operations, payoff of our 10
percent promissory notes totaling approximately $193,000 related to the TRMS
acquisition, and payments on capitalized lease obligations related to the
acquisition of application and database software, computers, servers, furniture
and telecommunications systems upgrades. This was offset by proceeds received
from the exercise of stock options during the year totaling approximately
$171,000.

OVERALL LIQUIDITY AND CAPITAL RESOURCES

         We believe that our existing cash, cash equivalents, short-term
investments and cash generated from operations will be sufficient to satisfy our
growth plans and capital expenditure needs throughout 2007. As a result of our
new product plans for 2007, our capital expenditure program will be increased to
cover upgrades to our datacenters that deliver our products and services over
the Internet. In addition, we will have an expanded sales and marketing effort
that will coincide with our planned product launches throughout the year. Our
notes payable to various TRMS shareholders totaling $972,000 are also coming due
in October 2007. Although we are currently not a party to any agreement or
letter of intent with respect to investments in, or acquisitions of, other
businesses, products, services or technologies, we continue to pursue strategic
alternatives including sale of some or all of the Company's assets, partnering
or other collaboration agreements, or a merger or other strategic transaction.
There can be no assurance that the exploration of strategic alternatives will
result in any agreements or transactions, or that, if completed, any agreements
or transactions will be successful or on attractive terms. The Company does not
intend to disclose developments with respect to this process unless and until
the evaluation of strategic alternatives has been completed. We may


                                       20
<PAGE>

need to raise additional capital through future financing to the extent
necessary to fund such activities or simply to fund future operations if cash
from operating activities is insufficient. Additional financing may not be
available at all or on terms favorable to us.


AGGREGATE CONTRACTUAL OBLIGATIONS

         The following table represents the Company's total contractual
obligations as of December 31, 2006. See "Note 3 - Long-term Obligations" and
"Note 5 - Commitments and Contingencies" in the Company's "Notes to Financial
Statements" below for additional information.

                                               Payments Due by Period
                                     -------------------------------------------
                                              Less Than
                                     Total      1 Year    1-3 Years   4-5 Years
                                     -------  ----------  ---------   ----------
(in thousands)
Contractual Obligations
   Long-term debt                     $  972     $  972     $   --       $ --
                                                                         ----
   Capital lease obligations              13          5          8         --
   Operating lease obligations         1,400        699        624         --

                                      ------     ------     ------       ----
Total contractual obligations         $2,385     $1,676     $  632       $ --
                                      ======     ======     ======       ====


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States of America
requires us to make a number of estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. Our estimates are based
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. The reporting of results of our
operations and financial condition in the preparation of our financial
statements could differ significantly from our estimates under different
assumptions and conditions. Significant estimates include allowances for
doubtful accounts, long-lived assets valuation, estimated useful lives and
recoverability, realizability of deferred tax assets, and the allocation of
purchase price.

         We believe that the following discussion addresses our most critical
accounting policies, which are those that are most important to the portrayal of
our financial condition and results of operations and require our most
difficult, subjective, and complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. For a
summary of our significant accounting policies, including the critical
accounting policies discussed below, see Note 1, Description of Business and
Summary of Significant Accounting Policies, to our consolidated financial
statements.

         REVENUE RECOGNITION

         We recognize revenue from product sales or services rendered when the
following four revenue recognition criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred or services have been provided, the
selling price is fixed or determinable, and collectibility is

                                       21
<PAGE>

reasonably assured. For multiple-element arrangements, the Company applies
Emerging Issues Task Force ("EITF") Issue 00-21, REVENUE ARRANGEMENTS WITH
MULTIPLE DELIVERABLES that meet the following criteria: the delivered item has
value to the customer on a standalone basis; there is objective and reliable
evidence of the fair value of undelivered items; and delivery of any undelivered
item is probable.

          In certain hosting arrangements where the customer has the option to
take possession of the software at any time during the hosting period without
significant penalty and it is feasible for the customer to either run the
software on its own hardware or contract with another party unrelated to us to
host the software, we account for the licensing of software in accordance with
American Institute of Certified Public Accountants (AICPA) Statement of Position
(SOP) 97-2, SOFTWARE REVENUE RECOGNITION.

         Revenue from services is generally determined based on time and
materials or monthly subscription fees. Revenue for services is recognized as
the services are performed.

         DEFERRED TAXES

         We account for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." In accordance with SFAS No. 109, deferred tax
assets arise from the tax benefit of amounts expensed for financial reporting
purposes but not yet deducted for tax purposes and from unutilized tax credits
and net operating loss carry forwards. We evaluate our deferred tax assets on a
regular basis to determine if a valuation allowance is required. To the extent
it is determined the recoverability of the deferred tax assets is not more
likely than not, we will record a valuation allowance against deferred tax
assets.

         Realization of the net deferred tax asset is dependent on generating
sufficient taxable income prior to expiration of net operating loss
carryforwards. At December 31, 2006, the Company had net operating loss
carryforwards for federal and state income tax purposes of approximately $4.1
million and $700,000, respectively, available to offset future income which
expire in 2018 through 2024. The Company has established a valuation allowance
of approximately $1.6 million as of December 31, 2006, the full amount of
deferred tax assets. Utilization of these carryforwards could be limited due to
a change of control in the Company's ownership as defined by the Internal
Revenue Code Section 382.

         IMPAIRMENT OF GOODWILL

         We periodically assess goodwill for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable, in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."
This statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net undiscounted cash
flows expected to be generated by the asset or other valuation methods. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets.



                                       22
<PAGE>



RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In June 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
48"). This interpretation clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with SFAS
No. 109." This Interpretation prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This Interpretation also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. Management is in the process
of evaluating the requirements of FIN 48. The final determination of the impact
of this interpretation has not been completed.

         In September 2006, the FASB issued SFAS No. 157, "Fair Value
Measurements," which establishes guidelines for measuring fair value and expands
disclosures regarding fair value measurements. SFAS No. 157 does not require any
new fair value measurements, but rather it eliminates inconsistencies in the
guidance found in various prior accounting pronouncements. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. Earlier adoption
is encouraged provided financial statements, including for interim periods, for
that fiscal year have not been issued. Although we are still evaluating the
potential effects of SFAS No. 157, the adoption is not expected to have a
material impact on the Company's financial position, results of operations, or
cash flows.

         In September 2006, the Securities and Exchange Commission released
Staff Accounting Bulletin No. 108, "Quantifying Financial Statement
Misstatements" ("SAB No. 108"). SAB No. 108 gives guidance on how errors, built
up over time in the balance sheet, should be considered from a materiality
perspective and corrected. SAB No. 108 provides interpretive guidance on how the
effects of the carryover or reversal of prior year misstatements should be
considered in quantifying a current year misstatement. SAB No. 108 represents
the SEC Staff's views on the proper interpretation of existing rules and as such
has no effective date. The adoption of SAB No. 108 did not have a material
impact on the Company's financial position, results of operations, or cash
flows.

         In October 2006, the FASB issued FASB Staff Position No. 123(R)-5,
"Amendment of FASB Staff Position FAS 123(R)-1." The FSP amends FSP 123(R)-1 for
equity instruments that were originally issued as employee compensation and then
modified, with such modification made to the terms of the instrument solely to
reflect an equity restructuring. In such circumstances, no change in the
recognition or the measurement date of those instruments will result if both of
the following conditions are met: a. There is no increase in fair value of the
award (or the ratio of intrinsic value to the exercise price of the award is
preserved, that is, the holder is made whole), or the antidilution provision is
not added to the terms of the award in contemplation of an equity restructuring;
and b. All holders of the same class of equity instruments (for example, stock
options) are treated in the same manner. It is not expected that FSP 123(R)-5
will have a material impact on the Company's financial position, results of
operations, or cash flows.

         In October 2006, the FASB issued FASB Staff Position No. 123(R)-6
"Technical Corrections of FASB No. 123R" ("FSP 123(R)-6"). FSP 123(R)-6 amends
certain provisions of SFAS 123(R) relating to, among other things, the
definition of short-term inducement. The provisions of this FSP are to be
applied in the first reporting period beginning after the FSP is posted to the
FASB website.


                                       23
<PAGE>

It is not expected that the application of the provisions of FSP 123(R)-6 will
have a significant impact on the Company's financial position, results of
operations, or cash flows.

         In December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2
"Accounting for Registration Payment Arrangements" (FSP EITF 00-19-2"), which
addresses an issuer's accounting and disclosures relating to registration
payment arrangements. Inasmuch as the Company does not have any such
registration payment arrangements, it is not expected that adoption of the
provision of FSP EITF 00-19-2 will have a significant impact on the Company's
financial position, results of operations, or cash flows.


FACTORS THAT MAY AFFECT FORWARD-LOOKING STATEMENTS

         This Annual Report on Form 10-KSB contains statements that are
forward-looking. These statements are based on current expectations and
assumptions that are subject to risks and uncertainties. All statements that
express expectations and projections with respect to future matters may be
affected by changes in the Company's strategic direction, as well as
developments beyond the Company's control. We cannot assure you that our
expectations will necessarily come to pass. Actual results could differ
materially because of issues and uncertainties such as those discussed below and
elsewhere in this report, including the sections entitled "Competition,"
"Proprietary Rights," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." These factors, among others, may adversely
impact and impair our business and should be considered in evaluating our
financial outlook.

WE HAVE A LIMITED HISTORY OF PROFITS AND OUR FUTURE PROFITABILITY REMAINS
UNCERTAIN. IN ADDITION, FINANCIAL RESULTS FOR ANY PARTICULAR PERIOD WILL NOT
PREDICT RESULTS FOR FUTURE PERIODS.

         We are working toward a goal of revenue growth and sustained
profitability. Annual revenues decreased to $13.7 million in 2006 from $15.8
million in 2005. We had ten consecutive quarters of profitability beginning with
the third quarter of 2002 through the fourth quarter of 2004, but incurred a net
loss for each of the first two quarters of 2005 before returning to
profitability in the third and fourth quarters of 2005. We recorded a net loss
of $1.3 million for 2006 compared to a net loss of $102,000 in the prior year.

         Our prospects must be considered in view of the risks, expenses and
difficulties frequently encountered by companies in continually evolving
markets, including uncertainty of revenues, markets, and profitability. We
cannot assure you that we will be successful in addressing these risks or that
we can be operated profitably, which depends on many factors, including the
success of our marketing program, control of expense levels and the success of
our business model and activities. Our future operating results will depend on a
variety of factors, including those discussed in the other factors set forth
below.

WE ARE LARGELY DEPENDENT ON KEY PERSONNEL WHO MAY NOT CONTINUE TO WORK FOR US.

         We are substantially dependent on the continued services of our key
personnel, including our officers, engineers and other significant employees.
These individuals have acquired specialized knowledge and skills with respect to
LION. We are continuing to create the redundancies that will reduce the reliance
on these individuals. Furthermore, we have not entered into employment

                                       24
<PAGE>

agreements with these significant employees except for our executive officers.
If any of these individuals were to leave LION unexpectedly, we could face
substantial difficulty in hiring qualified successors and could experience a
loss in productivity while any such successor obtains the necessary training and
experience. Our 2005 Stock Incentive Plan provides us flexiblity to attract and
retain the best available employees. We expect that we will need to attract,
train, retain and motivate additional technical, managerial, marketing and
customer support personnel. Competition for these personnel may be intense,
particularly for individuals with suitable experience. We face the risk that if
we are unable to attract and integrate new personnel, or retain and motivate
existing personnel, our business will be adversely affected.

WE ARE SUBSTANTIALLY DEPENDENT ON A LIMITED NUMBER OF SIGNIFICANT CUSTOMERS.

         Our success depends on our ability to expand, retain and enhance our
advanced business solution customers. Our expanded product line through the
acquisition of Ignition assets and TRMS carries with it the risk that our
revenues may be dependent on a limited number of significant customers, rather
than a broad-based broker and customer network. Our larger customer contracts,
which involve our LPX/Precision, Pipeline Tools and TRMS hedging services,
typically have renewable successive one- and two-year terms. Revenue from these
contracts comprised approximately 50% of our total revenue for 2006.

         There can be no assurance that the existing customers will renew their
contracts, or that we will be able to attract new customers at rates sufficient
to maintain a stable or growing revenue base. If we are unsuccessful in
enrolling new customers to equalize any attrition we might have with existing
customers, or to offset a decline in transactional volume, our overall share of
the advanced business solution market could be reduced, and consequently our
business operating results and financial condition may be materially adversely
affected.

OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

         We have multiple site capacity for the delivery of our products and
services. We have in place comprehensive data tape backup procedures for our
operational and administrative databases. Our replication software provides a
high level of hardware backup for the database by duplicating our database
across several powerful servers. However, despite protective measures, our
operations could be vulnerable to damage from floods, fire, earthquakes, power
loss, telecommunications failures, break-ins, terrorism, and similar events. The
prospect of such unscheduled interruptions is possible in the foreseeable
future, and we are unable to predict their occurrence, duration or cessation.

         Despite the implementation of security measures which are constantly
updated, our systems may be vulnerable to unauthorized access, computer viruses
and other disruptive problems. We could experience interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. Unauthorized access might lead to interruptions,
delays or cessation in service to subscribers or deter potential subscribers.
Although we intend to constantly update industry-standard security measures,
these measures have been circumvented in the past, and there can be no assurance
that measures we adopt will not be circumvented in the future. We do not carry
sufficient business interruption insurance to compensate us for losses that may
occur as a result of any of these events. Eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to our subscribers, which could have a materially adverse
affect on our business, operating results and financial condition.


                                       25
<PAGE>


OUR BUSINESS DEPENDS ON INCREASING USE OF THE INTERNET BY USERS SEARCHING FOR
INFORMATION, ADVERTISERS MARKETING PRODUCTS AND SERVICES AND WEB SITES SEEKING
TO EARN REVENUE TO SUPPORT THEIR WEB CONTENT. IF THE INTERNET INFRASTRUCTURE
DOES NOT GROW AND IS NOT MAINTAINED TO SUPPORT THESE ACTIVITIES, OUR BUSINESS
WILL BE HARMED.

         Our success will depend on the continued growth and maintenance of the
Internet infrastructure. This includes maintenance of a reliable network
backbone with the necessary speed, data capacity and security for providing
reliable Internet services. Internet infrastructure may be unable to support the
demands placed on it if the number of Internet users continues to increase, or
if existing or future Internet users access the Internet more often or increase
their bandwidth requirements. In addition, viruses, worms and similar programs
may harm the performance of the Internet. The Internet has experienced a variety
of outages and other delays as a result of damage to portions of its
infrastructure, and it could face outages and delays in the future. These
outages and delays could reduce the level of Internet usage as well as our
ability to provide our solutions.

GOVERNMENT REGULATION

         Our mortgage pipeline risk management services are provided by TRMS, a
Commodity Trading Advisor registered with the Commodity Futures Trading
Commission and the National Futures Association. Commodity Trading Advisors are
subject to detailed disclosure, reporting, and recordkeeping requirements. The
U.S. commodity markets are subject to on-going and substantial regulatory
changes, and we cannot predict what statutory, administrative or exchange
imposed restrictions may become applicable to or adversely affect TRMS in the
future.

         Our other operations are subject to general business regulations and
laws, as well as regulations and laws specifically governing the Internet and
e-commerce. Existing and future laws and regulations may impede the growth of
the Internet or other online services, which in turn could decrease the demand
for our products and services, increase the cost of doing business, or otherwise
have an adverse effect on our business, operating results or financial
condition. These regulations and laws may cover taxation, user privacy, data
protection, pricing, content, copyrights, distribution, electronic contracts and
other communications, consumer protection, the provision of online payment
services, broadband Internet access, and the characteristics and quality of
products and services not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses generally.
There are currently few laws or regulations directly applicable to access or do
commerce on the Internet. However, the applicability to the Internet of existing
laws governing issues such as property ownership, sales and other taxes, libel
and personal privacy is developing. We cannot predict the impact, if any, that
future regulation or regulatory changes might have on our business. Unfavorable
resolution of these issues may harm our business, diminish the demand for our
products and services or increase our cost of doing business.

WE ARE EXPERIENCING A DOWNTURN IN REVENUE DUE TO CHALLENGING CONDITIONS IN THE
MORTGAGE INDUSTRY, AND THESE INDUSTRY TRENDS MAY CONTINUE.

         We experienced declining revenues and cash flows in 2006, which we
attribute to challenging conditions in mortgage lending markets which, in turn,
exert pressure on the lenders and brokers we serve. The mortgage lending
environment is facing higher interest rates, falling refinance activity, rising
home loan delinquency and foreclosure rates, industry pressure on sub prime
lending and consolidations. Annual mortgage loan origination fell from a peak of
$3.8 trillion in 2003 to an estimated $2.7 trillion in 2006, a decline of almost
30%. On a national level, the housing sector


                                       26
<PAGE>

experienced a recession in 2006 with an 8% drop in existing-home sales and a 17%
drop in new home sales. These factors may continue to affect the mortgage
industry and adversely affect our revenues, and we cannot predict with accuracy
how our quarterly and annual financial results will be impacted.

IF WE DO NOT CONTINUE TO INNOVATE AND PROVIDE PRODUCTS AND SERVICES THAT ARE
USEFUL TO OUR USERS AND CUSTOMERS, WE MAY NOT REMAIN COMPETITIVE, AND OUR
REVENUES AND OPERATING RESULTS COULD SUFFER.

         Our success depends on providing products and services that our users
and customers use for a high quality Internet experience, and we face
substantial competitive challenges in the changing mortgage industry and in each
of our vertical markets. For the last two years, we have sought to substantially
upgrade our technology into a scalable platform to enable us to develop and link
a more robust set of products and services. Our competitors are constantly
developing innovations in web search, web functionality, and online advertising
along with providing information to people. As a result, we must continue to
invest significant resources in research and development in order to enhance our
technology and our existing products and services and introduce new high-quality
products and services that our users and customers can easily and effectively
use. If we are unable to ensure that our users and customers have a high quality
experience with our products and services, then these users and customers may
become dissatisfied and move to other competitors' products. In addition, if we
are unable to predict user and customer preferences or industry changes, or if
we are unable to modify our products and services on a timely basis, we may lose
users and customers. Our operating results would also suffer if our innovations
are not responsive to the needs of our users and customers, are not
appropriately timed with market opportunity or are not effectively brought to
market. As technology continues to develop, our competitors may be able to offer
results that are, or that are perceived to be, substantially similar or better
than those generated by our products and services. This may force us to expend
significant resources in order to remain competitive.

WE ARE REQUIRED TO EVALUATE OUR INTERNAL CONTROL OVER FINANCIAL REPORTING UNDER
SECTION 404 OF THE SARBANES OXLEY ACT OF 2002, AND ANY ADVERSE RESULTS FROM SUCH
EVALUATION COULD RESULT IN A LOSS OF INVESTOR CONFIDENCE IN OUR FINANCIAL
REPORTS AND HAVE AN ADVERSE EFFECT ON OUR STOCK PRICE.

         On December 15, 2006, the U.S. Securities and Exchange Commission
("SEC") extended the date by which non-accelerated filers such as LION must
begin filing a report by management assessing the effectiveness of the Company's
internal controls in their annual reports as required by Section 404(a). The
compliance date for non-accelerated filers moved from fiscal years ending on or
after July 15, 2007 to fiscal years ending on or after December 15, 2007. The
SEC also extended the date by which non-accelerated filers must begin to comply
with the Section 404(b) requirements to include an auditor's attestation report
on internal controls in their annual reports, until the first annual report for
a fiscal year ending on or after December 15, 2008.

         In general, we are assessing the effectiveness of our internal controls
over financial reporting on an account by account basis as a part of our
on-going accounting and financial reporting review process in order to comply
with the Section 404, which requires our management to assess the effectively of
our existing internal controls for the fiscal year ending December 31, 2007.
This effort includes documenting, evaluating the design of, and testing the
effectiveness of our internal controls over financial reporting. We intend to
continue to refine and improve our internal controls on an on-going basis.
During this process, we may identify items for review or deficiencies in our
system of internal controls over financials reporting that may require
strengthening or remediation.

                                       27
<PAGE>


         The Committee of Sponsoring Organizations of the Treadway Commission
(COSO) provides a framework for companies to assess and improve their internal
control systems. The Public Company Accounting Oversight Board's Auditing
Standard No. 2 ("Auditing Standard No. 2") provides the professional standards
and related performance guidance for auditors to attest to, and report on,
management's assessment of the effectiveness of internal control over financial
reporting under Section 404. Management's assessment of internal controls over
financial reporting requires management to make subjective judgments and,
particularly because Standard No. 2 is newly effective, some of the judgments
will be in areas that may be open to interpretation and therefore the report may
be uniquely difficult to prepare, and our auditors may not agree with
management's assessments. We are still performing the system and process
documentation and evaluation needed to comply with Section 404, which is both
costly and challenging.

         During this process, if our management identifies one or more material
weaknesses in our internal control over financial reporting, we will be unable
to assert such internal control is effective. If we are unable to assert that
our internal control over financial reporting is effective as of December 31,
2007 (or if our auditors are unable to attest that our management's report is
fairly stated or they are unable to express an opinion on the effectiveness of
our internal controls at December 31, 2008), we could lose investor confidence
in the accuracy and completeness of our financial reports, which would have an
adverse effect on our stock price.

         We cannot be certain as to the timing of completion of our evaluation,
testing and any required remediation due in large part to the fact that there is
very little precedent available by which to measure compliance with the new
Auditing Standard No. 2. If we are not able to complete our assessment under
Section 404 in a timely manner, we would be unable to conclude that our internal
control over financial reporting is effective as of December 31, 2007.

OUR INTELLECTUAL PROPERTY RIGHTS ARE VALUABLE, AND ANY INABILITY TO PROTECT THEM
COULD REDUCE THE VALUE OF OUR PRODUCTS, SERVICES AND BRAND.

         We rely on a combination of copyright and trademark laws, trade
secrets, software security measures, license agreements and nondisclosure
agreements to protect our proprietary technology and software products. We have
a variety of registered Internet domain names. Regulations governing domain
names may not protect our trademarks and similar proprietary rights. We may be
unable to prevent third parties from acquiring domain names that are similar to,
infringe upon, or diminish the value of our trademarks and other proprietary
rights. We currently have federally registered trademarks on LockPoint Xtra(R),
Lockpoint(R), and Ratesheet Plus(R) and one pending patent; "User Interface for
On-line Real Estate Service."

         Policing unauthorized use of our proprietary rights is inherently
difficult, and we may not be able to determine the existence or extent of any
such unauthorized use. The protection of our intellectual property may require
the expenditure of significant financial and managerial resources. Moreover, we
cannot be certain that the steps we take to protect our intellectual property
will adequately protect our rights or that others will not develop substantially
equivalent or superseding proprietary technology, or that equivalent products
will not be marketed in competition with our products, thereby substantially
reducing the value of our proprietary rights. Furthermore, there can be no
assurance that any confidentiality agreements between us and our employees or
any license agreements with our customers will provide meaningful protection of
our proprietary information in the event of any unauthorized use or disclosure
of such proprietary information.

                                       28
<PAGE>


         Although we believe that our trademarks and proprietary technology do
not and will not infringe patents or violate proprietary rights of others, it is
possible that our trademark and proprietary rights may not be valid or that
other parties may claim that we infringed their proprietary rights. In the event
our products infringe proprietary rights of others, we may be required to modify
the design of our products, change the name of products or obtain a license.
There can be no assurance we will be able to do so in a timely manner, upon
acceptable terms and conditions, or at all. The failure to do any of the
foregoing could have a material adverse effect upon us. In addition, there can
be no assurance that we will have the financial or other resources necessary to
enforce or defend an intellectual property infringement or proprietary rights
violation action. Moreover, if our products infringe patents, trademarks or
proprietary rights of others, we could, under certain circumstances, become
liable for damages, which could have a material adverse effect on us.

ALLIANCES, MERGERS AND ACQUISITIONS COULD RESULT IN OPERATING DIFFICULTIES,
DILUTION AND OTHER HARMFUL CONSEQUENCES.

         Our industry has experienced significant consolidation, and we
regularly review and evaluate strategic opportunities, including those
identified internally by us as well as unsolicited third party proposals that we
may receive from time to time. We may engage in discussions seeking ways to
enhance our prospects through partnerships, alliances and mergers and
acquisitions. In the last couple of years, for example, we have consummated two
acquisitions. It is possible that nothing may result from our exploration or
that we may acquire, be acquired or enter into some other strategic
relationship, and that in consummating or further exploring such avenues, we may
incur additional costs. Furthermore, we may enter into letters of intent and
other non-definitive agreements that do not culminate in a completed
transaction, engage in contract negotiations, or incur due diligence expenses
which affect our quarterly earnings prior to or without entering into a material
definitive agreement required to be disclosed publicly. The negotiation or
consummation of any of these transactions could be material to our financial
condition and results of operations. In addition, the process of integrating an
acquired company, business or technology may create unforeseen operating
difficulties and expenditures and is risky. The areas where we may face risks
include:

         o  The need to implement or remediate controls, procedures and policies
            appropriate for a public company at companies that prior to the
            acquisition lacked these controls, procedures and policies.

         o  Diversion of management time and focus from operating our business
            to alliance, merger or acquisition integration challenges.

         o  Cultural challenges associated with integrating employees from the
            acquired company into the acquiring organization.

         o  Retaining employees from the businesses acquired.

         o  The need to integrate each company's accounting, management
            information, human resource and other administrative systems to
            permit effective management.

         The anticipated benefit of many of these strategic relationships may
not materialize. Future alliances, mergers or acquisitions or dispositions could
result in potentially dilutive issuances of our


                                       29
<PAGE>

equity securities, the incurrence of debt, contingent liabilities or
amortization expenses, or write-offs of goodwill, any of which could harm our
financial condition. Future acquisitions may require us to obtain additional
equity or debt financing, which may not be available on favorable terms or at
all.

THE TRADING PRICE FOR OUR COMMON STOCK IS AND MAY CONTINUE TO BE VOLATILE.
         The Company's  common stock trades on the OTC Bulletin  Board under the
symbol "LINN." The trading price of our common stock has been historically
volatile and will likely continue to be volatile. The trading price of our
common stock may fluctuate widely in response to various factors, some of which
are beyond our control. These factors include:

         o  Quarterly variations in our results of operations or those of our
            competitors.

         o  Announcements by us or our competitors of strategic relationships,
            alliances, mergers or acquisitions, new products, significant
            contracts, commercial relationships or capital commitments.

         o  Disruption to our operations or our data centers.

         o  The emergence of new sales channels in which we are unable to
            compete effectively.

         o  Our ability to develop and market new and enhanced products on a
            timely basis.

         o  Commencement of, or our involvement in, litigation.

         o  Any major change in our board or management.

         o  Changes in governmental regulations or in the status of our
            regulatory approvals.

         o  Recommendations by securities analysts or changes in earnings
            estimates.

         o  Announcements by our competitors of their earnings that are not in
            line with analyst expectations.

         o  The volume of shares of common stock available for public sale.

In addition, the OTC Bulletin Board, stock market in general, and the market for
technology companies in particular, have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of those companies. These broad market and industry factors may
seriously harm the market price of our common stock, regardless of our actual
operating performance.



                                       30
<PAGE>



ITEM 7.   FINANCIAL STATEMENTS

The following consolidated financial statements of LION, Inc. are included in
Item 7:

         Report of Independent Registered Public Accounting Firm
         Consolidated Balance Sheets
         Consolidated Statements of Operations
         Consolidated Statement of Stockholders' Equity
         Consolidated Statements of Cash Flows
         Notes to Consolidated Financial Statements


                                       31
<PAGE>





             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders
LION, Inc.

We have audited the accompanying consolidated balance sheets of LION, Inc. and
Subsidiary as of December 31, 2006 and 2005, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LION, Inc. and
Subsidiary as of December 31, 2006 and 2005, and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

/s/ Grant Thornton LLP

Seattle, Washington
March 27, 2007



                                       32
<PAGE>


                            LION, Inc. and Subsidiary
                           Consolidated Balance Sheets
                                  December 31,
                        (In thousands, except share data)

                                     ASSETS
<TABLE>
<CAPTION>
                                                                                                           2006             2005
                                                                                                       ----------         ----------
<S>                                                                                                    <C>                <C>
Current assets
    Cash and cash equivalents                                                                           $  2,587           $  3,371
    Short-term investments - available for sale securities                                                   900                800
    Accounts receivable, less allowance for doubtful accounts of
       $67 and $100 in 2006 and 2005, respectively                                                         1,101              1,161
    Deferred income taxes                                                                                     --                 16
    Prepaid expenses and other                                                                               530                448
                                                                                                        --------           --------

         Total current assets                                                                              5,118              5,796

Property and equipment, net                                                                                  555                844
Goodwill                                                                                                   2,590              2,590
Deferred income taxes                                                                                         --                134
Other assets                                                                                                 224                325
                                                                                                        --------           --------
                                                                                                        $  8,487           $  9,689
                                                                                                        ========           ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
    Accounts payable                                                                                    $    162           $    212
    Accrued salaries and benefits                                                                            708                709
    Accrued liabilities                                                                                      267                249
    Current maturities of long-term obligations                                                              977
                                                                                                                                 23
    Deferred revenue                                                                                         631                649
                                                                                                        --------           --------
         Total current liabilities                                                                         2,745              1,842

Long-term obligations, less current maturities                                                                 8                972
                                                                                                        --------           --------
             Total liabilities                                                                             2,753              2,814
                                                                                                        --------           --------

Commitments and contingencies                                                                                --                  --
                                                                                                        --------           --------

Stockholders' equity
    Preferred stock, par value $.001 per share; authorized
        5,000,000 shares; none issued or outstanding                                                         --                  --
    Common stock, par value $.001 per share; authorized 50,000,000 shares;
       38,614,272 and 38,463,822 issued and outstanding
         at December 31, 2006 and 2005, respectively
                                                                                                              39                 38
    Additional contributed capital                                                                        14,269             14,091
    Accumulated deficit
                                                                                                          (8,574)            (7,254)
                                                                                                        --------           --------
                                                                                                           5,734              6,875
                                                                                                        --------           --------
                                                                                                        $  8,487           $  9,689
                                                                                                        ========           ========
</TABLE>



              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       33
<PAGE>


                            LION, Inc. and Subsidiary
                      Consolidated Statements of Operations
                             Year ended December 31,
                      (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                                     2006                     2005
                                                                                                   --------                --------
<S>                                                                                                <C>                     <C>
Revenues                                                                                           $ 13,702                $ 15,789
                                                                                                   --------                --------
Expenses
      Direct costs                                                                                    6,077                   6,338
      Selling and marketing                                                                           2,184                   2,526
      General and administrative                                                                      4,012                   4,089
      Research and development                                                                        2,238                   2,392
      Depreciation and amortization                                                                     445                     533
                                                                                                   --------                --------
               Total expenses                                                                        14,956                  15,878
                                                                                                   --------                --------
               Operating loss                                                                        (1,254)                    (89)

Other income (expense)
      Interest expense                                                                                  (79)                    (86)
      Interest income and other                                                                         174                      87
                                                                                                   --------                --------

               Loss before income tax                                                                (1,159)                    (88)

Income tax expense                                                                                     (161)                    (14)
                                                                                                   --------                --------

               Net loss                                                                            $ (1,320)               $   (102)
                                                                                                   ========                ========


Net loss per common share - basic and diluted                                                      $   (.03)               $     --
                                                                                                   ========                ========

Weighted average number of shares - basic and diluted                                                38,502                  37,983
                                                                                                   ========                ========
</TABLE>







              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       34
<PAGE>



                            LION, Inc. and Subsidiary
                 Consolidated Statement of Stockholders' Equity
                     Years ended December 31, 2006 and 2005
                        (In thousands, except share data)

<TABLE>
<CAPTION>

                                                                       Common stock       Additional
                                                                -----------------------  contributed    Accumulated
                                                                  Shares       Amount      capital        Deficit       Total
                                                                ----------   ----------   ----------   ----------    ----------
<S>                                                             <C>          <C>          <C>          <C>           <C>
Balance at December 31, 2004                                    37,431,537   $       37   $   13,730   $   (7,152)   $    6,615
Issuance of common stock in conjunction with exercise
  of stock options                                                 989,285            1          170           --           171
Employee compensation from stock options and restricted stock       43,000           --          191           --           191
Net loss for the year                                                   --           --           --         (102)         (102)
                                                                ----------   ----------   ----------   ----------    ----------
Balance at December 31, 2005                                    38,463,822           38       14,091       (7,254)        6,875
Issuance of common stock in conjunction with exercise
  of stock options                                                 140,450            1           15           --            16
Employee compensation from stock options and restricted stock       10,000           --          163           --           163
Net loss for the year                                                   --           --           --       (1,320)       (1,320)
                                                                ----------   ----------   ----------   ----------    ----------
Balance at December 31, 2006                                    38,614,272   $       39   $   14,269   $   (8,574)   $    5,734
                                                                ==========   ==========   ==========   ==========    ==========
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       35
<PAGE>



                            LION, Inc. and Subsidiary
                      Consolidated Statements of Cash Flows
                             Year ended December 31,
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                                           2006              2005
                                                                                                         -------            -------
<S>                                                                                                      <C>                <C>
Cash flows from operating activities
    Net loss                                                                                             $(1,320)           $  (102)
    Adjustments to reconcile net loss to net cash provided by
        (used in) operating activities
          Depreciation and amortization                                                                      445                533
          Change in allowance for doubtful accounts                                                          (33)                42
          Stock options and restricted stock expense                                                         163                191
          Deferred income taxes                                                                              150                 --
          Changes in assets and liabilities
              Accounts receivable                                                                             93                639
              Accounts payable                                                                               (50)               (83)
              Accrued salaries and benefits                                                                   (1)              (293)
              Accrued liabilities                                                                             18                (84)
              Deferred revenue                                                                               (18)              (401)
              Other assets                                                                                    19                 23
                                                                                                         -------            -------
                  Net cash provided by (used in) operating activities                                       (534)               465
                                                                                                         -------            -------

Cash flows from investing activities
    Purchase of available-for-sale securities                                                               (100)            (1,200)
    Sale of available-for-sale securities                                                                     --                400
    Capitalized software development costs                                                                   (13)               (40)
    Purchases of property and equipment                                                                     (128)              (407)
                                                                                                         -------            -------
                  Net cash used in investing activities                                                     (241)            (1,247)
                                                                                                         -------            -------

Cash flows from financing activities
    Restricted cash for letter of credit                                                                      --               (280)
    Payments on long-term obligations                                                                        (25)              (256)
    Proceeds from issuance of common stock on exercise of stock
       options                                                                                                16                171
                                                                                                         -------            -------
                  Net cash used in financing activities                                                       (9)              (365)
                                                                                                         -------            -------
Net decrease in cash and cash equivalents                                                                   (784)            (1,147)
Cash and cash equivalents at beginning of year                                                             3,371              4,518
                                                                                                         -------            -------
Cash and cash equivalents at end of year                                                                 $ 2,587            $ 3,371
                                                                                                         =======            =======

Supplemental cash flow information and non-cash investing and financing
    activities:
        Cash paid for interest                                                                           $    79            $    92
        Cash paid for income taxes                                                                       $    20            $    76
        Equipment acquired under capital lease                                                           $    15            $    --
</TABLE>





              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       36
<PAGE>


                     LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 1 - Description of business and summary of significant accounting policies

DESCRIPTION OF BUSINESS - LION, Inc. (the "Company" or "LION"), a Washington
corporation, provides online mortgage leads and advanced business solutions that
streamline the mortgage loan fulfillment process in the mortgage industry.
Through its subsidiary, Tuttle Risk Management Services LLC ("TRMS"), LION
provides hands-on mortgage pipeline risk management for financial institutions
that originate and then sell loans into the secondary market. From Leads to
Loans to Capital Markets, LION offers consistent, integrated business solutions
to consumers, mortgage brokers, realtors, originators and lenders. LION provides
an integrated technology platform offering online loan productivity, mortgage
pipeline hedging and risk management, software development and data
communications tools through its LockPoint Xtra(R), Pipeline Tools, and Risk
Management Services product lines.

A summary of significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows.

USE OF ESTIMATES - In preparing consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates include allowances for doubtful
accounts, long-lived assets valuation, estimated useful lives and recoverability
and realizability of deferred tax assets.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of LION, Inc. and its wholly-owned subsidiary, TRMS LLC. All
significant intercompany accounts and transactions have been eliminated.

CASH AND CASH EQUIVALENTS - The Company considers all highly-liquid instruments
purchased with a remaining maturity of three months or less to be cash
equivalents.

SHORT-TERM INVESTMENTS - The Company's short-term investments consist primarily
of Auction Rate Securities. These securities are variable rate securities with
underlying interest rates that reset periodically (7-28 days) based on a Dutch
auction. At the reset date, the holders can choose to hold their securities at
the rate determined by auction or opt out of the investment. These securities
are classified as available-for-sale. Available-for-sale securities with
remaining maturities of less than one year and those identified by management at
time of purchase for funding operations in less than one year are classified as
short-term.

REVENUE RECOGNITION - LION generates revenue throughout the mortgage loan
origination and fulfillment process. Subscription revenues are generated from
mortgage brokers and agents who are provided electronic access to a database of
mortgage offerings from LION's proprietary network of lenders throughout the
United States. LION also generates revenue from advertisers who pay marketing
fees for ad banners, web site promotion, and lead generation. Additionally, fees
are earned related to mortgage originator and lender web site development and
hosting. Revenues from the LockPoint Xtra(R), Pipeline Tools, and Risk
Management Services product lines are generated primarily from transaction fees
on closed and locked loan volumes as well as fees for related website
development and implementation.


                                       37
<PAGE>


                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 1 - Description of business and summary of significant accounting
policies - continued

The Company accounts for its software products with external licensing in
accordance with Statement of Position 97-2, "Software Revenue Recognition, and
Staff Accounting Bulletin 104, Revenue Recognition in Financial Statements."
Revenue from licensing fees relating to the use of the LockPoint Xtra(R) product
is recognized when all elements of the contract have been delivered to the
customer. Revenue from monthly recurring charges from use of the Pipeline Tools
and Risk Management Services products is recognized in the period in which the
service is provided.

Revenue is recognized from product sales or services provided when the following
four revenue recognition criteria are met: persuasive evidence of an arrangement
exists, delivery has occurred or services have been provided, the selling price
is fixed or determinable, and collectibility is reasonably assured. For
multiple-element arrangements, the Company applies Emerging Issues Task Force
("EITF") Issue 00-21, "Revenue Arrangements with Multiple Deliverables," that
meet the following criteria: the delivered item has value to the customer on a
standalone basis; there is objective and reliable evidence of the fair value of
undelivered items; and delivery of any undelivered item is probable.

Subscription and service fees are recognized as revenue over the respective
subscription periods or when services are provided. Revenue from services is
generally determined based on time and materials. Deferred revenue is recorded
on prepaid subscriptions and on advance billings or cash received for contracts
that have undelivered elements.

ACCOUNTS RECEIVABLE - The Company's accounts receivable are due from companies
in the mortgage industry, including lenders and mortgage brokers. Credit is
extended to most customers, and generally collateral is not required. Payments
for accounts receivable are due upon receipt of the invoice, or in some cases
may be due within 15 to 60 days depending on the products or services provided.

Accounts receivable are stated at amounts due from customers net of an allowance
for doubtful accounts. Accounts outstanding longer than the contractual payment
terms are considered past due. The Company determines its allowance by
considering a number of factors, including the length of time accounts
receivable are past due, the Company's previous loss history, the customer's
current ability to pay its obligation to the Company, and the condition of the
general economy and the industry as a whole. The Company writes off accounts
receivable when they become uncollectible, and payments subsequently collected
on such accounts are credited to the allowance for doubtful accounts.

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation and amortization. Maintenance and repairs are expensed
as incurred. Depreciation and amortization are provided for in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives of 3 to 5 years for computer hardware and software and 5
years for equipment on a straight-line basis. Leasehold improvements are
amortized over the lives of the respective leases or the service lives of the
improvements, whichever is shorter.



                                       38
<PAGE>


                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 1 - Description of business and summary of significant accounting
policies - continued

CAPITALIZED SOFTWARE DEVELOPMENT COSTS - The Company accounts for internally
developed software costs in accordance with SOP 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." Capitalized
software development costs, intended for internal use, approximated $13,000 and
$40,000 for the years ended December 31, 2006 and 2005, respectively. These
costs are included in computer software in property and equipment and are
amortized over three years.

GOODWILL - Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill
and Other Intangible Assets," provides that goodwill should not be amortized,
but should rather be reviewed at least annually to assess recoverability. This
statement requires that goodwill and long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net discounted cash
flows expected to be generated by the asset or other valuation methods. If such
assets are considered to be impaired, impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the asset's fair
value.

In accordance with SFAS 142, the Company tests goodwill for impairment at the
reporting unit level on an annual basis. The Company has determined that it has
two reporting units, consisting of LION and TRMS. SFAS 142 requires a two-step
goodwill impairment test whereby the first step, used to identify potential
impairment, compares the fair value of a reporting unit with its carrying amount
including goodwill. If the fair value of a reporting unit exceeds its carrying
amount, goodwill is considered not impaired, thus the second step of the
goodwill impairment test used to quantify impairment is unnecessary. Company
management has estimated that the fair values of the Company's reporting units
to which goodwill has been allocated exceed their carrying amounts.
Circumstances have not changed since the test for impairment on June 30, 2006,
and accordingly no provision for impairment is deemed necessary.

NET LOSS PER COMMON SHARE - Basic loss per common share is based on the weighted
average number of shares outstanding during each period. Diluted share
calculations for 2006 and 2005 exclude options to purchase 6,090,417 and
3,789,867 shares, respectively, due to their anti-dilutive effect.

ADVERTISING COSTS - Advertising costs are expensed as incurred. Advertising
expense was approximately $728,000 and $798,000 for 2006 and 2005, respectively.

RESEARCH AND DEVELOPMENT COSTS - All expenditures for research and development
costs are expensed as incurred. These expenses consist of costs incurred for
proprietary research and include related salaries and benefits, contract and
other outside service fees, and facilities and overhead costs.



                                       39
<PAGE>



                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 1 - Description of business and summary of significant accounting
policies - continued

INCOME TAXES - The Company accounts for income taxes in accordance with SFAS
109, "Accounting for Income Taxes." In accordance with SFAS No. 109, deferred
tax assets arise from the tax benefit of amounts expensed for financial
reporting purposes, but not yet deducted for tax purposes and from unutilized
tax credits and net operating loss carry forwards. The Company records deferred
income tax assets and liabilities based upon differences between financial
statement and income tax bases of assets and liabilities using enacted income
tax rates. Deferred tax assets are evaluated on a regular basis to determine if
a valuation allowance is required. To the extent it is determined the
recoverability of deferred tax assets is not considered more likely than not, a
valuation allowance against deferred tax assets is recorded. Income tax expense
is comprised of taxes paid and payable for the period and change during the
period in net deferred income tax assets and liabilities.

STOCK-BASED COMPENSATION - Prior to January 1, 2006, the Company adopted the
fair value recognition provision of SFAS No. 123, "Accounting for Stock-Based
Compensation," prospectively, to all employee awards granted on or after January
1, 2003, pursuant to SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure." Compensation expense is based on the fair value of
the options at grant date utilizing the Black Scholes model for estimating fair
value and is recognized over the vesting period of the options.

Effective January 1, 2006, the Company adopted the provisions of SFAS No.
123(R), and applied the provisions of Staff Accounting Bulletin ("SAB") No. 107,
"Share-Based Payment," using the modified-prospective transition method.
Compensation expense recognized includes the estimated expense for stock options
granted on and subsequent to January 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of SFAS No. 123(R), and the
estimated expense for the portion vesting in the period for options granted
prior to, but not vested as of December 31, 2005, based on the grant date fair
value estimated in accordance with the original provisions of SFAS No. 123.
Further, as required under SFAS No. 123(R), forfeitures are estimated for
share-based awards that are not expected to vest. Results for prior periods have
not been restated, as provided for under the modified-prospective method.



                                       40
<PAGE>

                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 1 - Description of business and summary of significant accounting
policies - continued

FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of financial instruments
are determined in accordance with SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," which requires that the Company disclose the fair value
of its financial instruments for which it is practicable to estimate fair value.
The carrying amounts of cash and cash equivalents, short-term investments,
accounts receivables, prepaid expenses and other current assets, accounts
payable, accrued salaries and benefits, and accrued liabilities meeting the
definition of a financial instrument approximate fair value because of the short
term maturity of these instruments. The fair value of long-term obligations,
including the current portion, approximates fair value based on the incremental
borrowing rate currently available to the Company for loans with similar terms
and maturities.

CONCENTRATION OF CREDIT RISK - Cash is held in interest bearing or demand
deposit bank accounts. Short-term investments are comprised of marketable debt
securities. The Company and its subsidiary maintain cash balances and short-term
investments at several financial institutions. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to $100,000. Uninsured
balances aggregated approximately $3.5 million and $4.2 million at December 31,
2006 and 2005, respectively. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on cash
and cash equivalents and short-term investments, as these deposits and
investments are held by high credit quality financial institutions.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - In June 2006, the FASB issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" ("FIN 48"). This interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS No. 109." This
Interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. This Interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. While Company management is in the process of
evaluating FIN 48 as it relates to the Company's tax positions for purposes of
determining the effect, if any, that the adoption of FIN 48 will have, Company
management believes that adoption of FIN 48 will not have a significant impact
on the Company's financial position, results of operations or cash flows.


In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which establishes guidelines for measuring fair value and expands disclosures
regarding fair value measurements. SFAS No. 157 does not require any new fair
value measurements, but rather it eliminates inconsistencies in the guidance
found in various prior accounting pronouncements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007. Earlier adoption is encouraged
provided financial statements, including for interim periods, for that fiscal
year have not been issued. Although we are still evaluating the potential
effects of SFAS No. 157, the adoption is not expected to have a material impact
on the Company's financial position, results of operations, or cash flows.


                                       41
<PAGE>


                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 1 - Description of business and summary of significant accounting
policies - continued

In September 2006, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 108, "Quantifying Financial Statement Misstatements"
("SAB No. 108"). SAB No. 108 gives guidance on how errors, built up over time in
the balance sheet, should be considered from a materiality perspective and
corrected. SAB No. 108 provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in
quantifying a current year misstatement. SAB No. 108 represents the SEC Staff's
views on the proper interpretation of existing rules and as such has no
effective date. The adoption of SAB No. 108 did not have a material impact on
the Company's financial position, results of operations, or cash flows.

In October 2006, the FASB issued FASB Staff Position No. 123(R)-5, "Amendment of
FASB Staff Position FAS 123(R)-1." The FSP amends FSP 123(R)-1 for equity
instruments that were originally issued as employee compensation and then
modified, with such modification made to the terms of the instrument solely to
reflect an equity restructuring. In such circumstances, no change in the
recognition or the measurement date of those instruments will result if both of
the following conditions are met: a. There is no increase in fair value of the
award (or the ratio of intrinsic value to the exercise price of the award is
preserved, that is, the holder is made whole), or the antidilution provision is
not added to the terms of the award in contemplation of an equity restructuring;
and b. All holders of the same class of equity instruments (for example, stock
options) are treated in the same manner. The application of the provisions of
FSP 123(R)-5 did not have a material impact on the Company's financial position,
results of operations, or cash flows.

In October 2006, the FASB issued FASB Staff Position No. 123(R)-6 "Technical
Corrections of FASB No. 123R" ("FSP 123(R)-6"). FSP 123(R)-6 amends certain
provisions of SFAS 123(R) relating to, among other things, the definition of
short-term inducement. The provisions of this FSP are to be applied in the first
reporting period beginning after the FSP is posted to the FASB website. The
application of the provisions of FSP 123(R)-6 did not have a significant impact
on the Company's financial position, results of operations, or cash flows.

In December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2
"Accounting for Registration Payment Arrangements" (FSP EITF 00-19-2"), which
addresses an issuer's accounting and disclosures relating to registration
payment arrangements. Inasmuch as the Company does not have any such
registration payment arrangements, it is not expected that adoption of the
provision of FSP EITF 00-19-2 will have a significant impact on the Company's
financial position, results of operations, or cash flows.

RECLASSIFICATIONS - Certain prior year amounts on the balance sheet have been
reclassified to conform to current year presentation.


                                       42
<PAGE>



                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 2 - Property and Equipment

Property and equipment consists of the following as of December 31 (in
thousands):

                                                           2006     2005
                                                          ------   ------
         Computer equipment                               $  991   $  869
         Computer software                                 1,983    1,956
         Equipment                                           428      427
         Leasehold improvements                              102      102
                                                          ------   ------
                                                           3,504    3,354
         Less accumulated depreciation and amortization    2,949    2,510
                                                          ------   ------

                                                          $  555   $  844
                                                          ======   ======

Fixed assets acquired under capital leases approximated $241,000 and $227,000 at
December 31, 2006 and 2005, respectively, and related accumulated amortization
approximated $220,000 and $187,000 at December 31, 2006 and 2005, respectively.


Note 3 - Long-term Obligations

The Company's long-term obligations are comprised of the following at December
31 (in thousands):
<TABLE>
<CAPTION>
                                                                                          2006         2005
                                                                                         ------       ------
<S>                                                                                       <C>         <C>
         Notes payable to various TRMS shareholders at a fixed interest rate of 8%;
               interest is accrued and payable annually with the principal and
               unpaid accrued interest due in October 2007                                $972        $972

         Capital lease obligations payable in monthly installments of $1,301 at a
               fixed rate of 15.9%; final payments due at various dates through
               January 2006                                                                 --           1

         Capital lease obligations payable in monthly installments of $115 at a
                fixed rate of 1%; final payment due May 2006                                --           1

         Capital lease obligations payable in monthly installments of $3,209 at a
                fixed rate of 12%; final payment due July 2006                              --          21

         Capital lease obligations payable in monthly installments of $474 at a
                fixed rate of 9.5%; final payment due July 2009                             13          --
                                                                                          ----        ----
                                                                                           985         995
         Less current maturities                                                           977          23
                                                                                          ----        ----

                                                                                          $  8        $972
                                                                                          ====        ====
</TABLE>


                                       43
<PAGE>


                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 3 - Long-term Obligations - continued

Following is a schedule of annual minimum payments under such obligations (in
thousands):
<TABLE>
<CAPTION>
                                                                Capital            Note
               Year ending December 31,                         Leases            Payable            Total
    ---------------------------------------------------        ----------         -------            ------

<S>                                                               <C>               <C>               <C>
                      2007                                        $  6              $972              $978
                      2008                                           6                --                 6
                      2009                                           3                --                 3
                                                                                    ----              ----
          Total minimum payments                                     15              972               987
         Less amount representing interest                           2                --                 2
                                                                  ----              ----              ----
         Net principal payments                                   $ 13              $972              $985
                                                                  ====              ====              ====
</TABLE>


At December 31, 2006, the Company had $280,000 of restricted cash, $100,000 of
which is classified as current and included in prepaid expenses and other and
the remainder included in other long-term assets. The restricted cash is
collateral for an irrevocable letter of credit with respect to a lease for the
Company's San Rafael, California office space. The cash is held in custody by
the bank that issued the letter of credit, is restricted as to withdrawal or
use, and is currently invested in money market funds. In January 2007, the
letter of credit was reduced to $180,000. In July 2008, the letter of credit may
be cancelled and replaced by a security deposit equal to the then current
monthly rent.


Note 4 - Income taxes

Income tax expense is comprised of the following for the years ended December 31
(in thousands):

                                                    2006          2005
                                                   ------       -------

         Federal - deferred                        $(150)        $  --
         State - current                             (11)          (14)
                                                   -----         -----

                 Total                             $(161)        $ (14)
                                                   =====         =====

Income tax expense reconciled to the tax computed at the statutory federal rate
was as follows for the years ended December 31 (in thousands):

                                                         2006     2005
                                                       -------   ------

         Tax benefit at statutory rate                  $ 380    $  30
         State income taxes                               (11)     (14)
         State income tax benefit                          40       --
         Non-deductible expenses                          (16)     (15)
         Other                                             20      (20)
         (Increase) decrease in valuation allowance      (574)       5
                                                        -----    -----
              Total                                     $(161)   $ (14)
                                                        =====    =====


                                       44
<PAGE>


                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 4 - Income taxes - continued

The components of deferred taxes are as follows at December 31 (in thousands):

                                                      2006       2005
                                                   --------    --------
         Deferred tax assets:
             Intangible assets                      $    14    $    17
             Accrued liabilities                         78         94
             Allowance for doubtful accounts             24         36
             Stock based compensation                   121         66
             Net operating loss carryforwards         1,431      1,054
                                                    -------    -------
                  Total deferred tax assets           1,668      1,267
         Deferred tax liabilities:
             Depreciation                                28         51
                                                    -------    -------
                                                      1,640      1,216

         Valuation allowance                         (1,640)    (1,066)
                                                    -------    -------

                                                    $    --    $   150
                                                    =======    =======

At December 31, 2006, the Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $4.1 million and
$700,000, respectively, available to offset future income which expire in 2018
through 2026. Utilization of these carryforwards could be limited due to a
change of control in Company ownership as defined by the Internal Revenue Code
Section 382.

The valuation allowance was increased by $574,000 for 2006 and decreased by
$5,000 for 2005. Realization of deferred tax assets is primarily dependent upon
the Company reporting taxable income prior to expiration of net operating
losses. At December 31, 2005, the Company had net deferred income tax assets of
$150,000, which were the result of an income tax benefit recorded in the prior
year, and which represented a portion of its net operating loss carryforwards
that Company management determined was more likely than not to be realized by
offsetting future taxable income. During the fourth quarter of 2006, the Company
recognized income tax expense of $150,000 as a result of increasing the deferred
tax valuation allowance, such that the allowance is in the full amount of
deferred tax assets.



                                       45
<PAGE>



                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 5 - Commitment and Contingencies - continued

The Company conducts a portion of its operations in leased facilities under
operating lease agreements. Various leases provide for payment of taxes and
other expenses by the Company. Rent expense for leased facilities approximated
$906,000 and $830,000 for 2006 and 2005, respectively. The following is a
schedule of minimum annual rental payments under such operating leases, which
expire at various dates through April 2010 (in thousands):

                   Year ending December 31,
                             2007                         $     699
                             2008                               361
                             2009                               263
                             2010                                77
                                                          ---------

                Total minimum payments required           $  1,400
                                                          =========

The Company from time to time is involved in certain legal matters arising
during the normal course of business. In the opinion of management, the outcome
of these matters will not have a material effect on the Company's financial
position or results of operations.

In December 2006, the Company entered into a three-year employment agreement
with its Chief Executive Officer. The employment agreement provides for an
initial annual salary of $250,000 and may include a bonus. In the event
employment is terminated by the Company without cause, the officer will be
entitled to a severance payment of 50% of annual compensation. The officer is
also entitled to receive, at the Company's expense, continuation of medical,
dental and disability benefits for 6 months following termination without cause.

In June 2004, the Company entered into employment agreements with its President
and Chief Financial Officer, which provide for initial annual salaries of
$150,000 and $135,000, respectively. Each agreement has a term of three years
and provides that the compensation will include a base and may include a bonus.
In the event that employment is terminated by the Company without cause, they
will be entitled to a severance payment of 50% of annual compensation. The
officers are also entitled to receive, at the Company's expense, continuation of
medical, dental and disability benefits for 6 months following termination
without cause.

Note 6 - Stock-based compensation

The Company maintains two stock equity incentive plans under which it may grant
non-qualified stock options, incentive stock options or restricted stock to
employees, non-employee directors and consultants.

In 1998, the Company established the 1998 Stock Option Plan (the "1998 Plan")
under which 15 million shares have been reserved for issuance as incentive stock
options and non-qualified stock options. The 1998 Plan allows the Company to
grant options to employees for up to 50,000 shares of common stock per employee.
Employee directors are eligible to receive option grants and direct stock
issuances.



                                       46
<PAGE>



                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 6 - Stock-based compensation - continued

In 2005, the Company established the 2005 Stock Incentive Plan (the "2005 Plan")
under which 5 million shares have been reserved for issuance as incentive stock
options, non-qualified stock options, restricted stock awards, restricted stock
units and stock appreciation rights. Not more than 2.5 million shares may be
used for restricted stock awards and restricted stock units. In 2005, the
Company began granting employees restricted stock awards in addition to stock
options. The stock award program offers employees the opportunity to earn shares
of stock over time rather than options that give employees the right to purchase
stock at a set price. Restricted stock awards are grants that entitle the holder
to shares of common stock as the award vests. The restricted stock unit awards
require no payment from the employee and compensation cost is recorded based on
the market price on the grant date and is recorded equally over the vesting
period of four years.

Non-employee directors receive as an initial grant options to purchase 50,000
shares of common stock, exercisable at not less than the fair market value of
the Company's common stock on the day of grant. Thereafter, non-employee
directors receive automatic option grants each year to purchase 50,000 shares of
common stock upon their reelection at the annual meeting of shareholders.
Non-employee chairs of the audit and compensation committees receive an
automatic option grant each year to purchase an additional 25,000 shares of
common stock. Options granted to non-employee directors generally vest quarterly
over one year and generally expire in four years from the date of grant. Options
granted to employees vest quarterly over four years beginning at the date of
grant and generally expire 10 years from the date of grant. All outstanding
stock options are non-qualified stock options. The Company issues new shares of
common stock upon exercise of stock options.

Stock options to purchase the Company's common stock are granted at prices at
the fair market value on the date of grant. Compensation expense is recognized
only for those options expected to vest, with forfeitures estimated at the date
of grant based on the Company's historical experience and future expectations.
Prior to the adoption of SFAS No. 123(R), the effect of forfeitures was not
included as a compensation expense assumption and was not material.

The fair value of option grants with service conditions are estimated using the
Black-Scholes option pricing model. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options, which have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, particularly for the
expected term and expected stock price volatility. The Company's employee stock
options have characteristics significantly different from those of traded
options, and changes in the subjective input assumptions can materially affect
the fair value estimate. While estimates of fair value and the associated charge
to earnings may materially affect the Company's results of operations, it has no
impact on cash flow. Because Company stock options do not trade on a secondary
exchange, employees do not derive a benefit from holding stock options unless
there is an increase in the market price above the grant price of the Company's
stock. Such an increase in stock price would benefit all shareholders
commensurately.

The expected term of the options represents the estimated period of time until
exercise and is based on historical experience of similar awards, giving
consideration to the contractual terms, vesting schedules and expectations of
future option holder behavior. Expected stock price volatility is based
exclusively on historical volatility of the Company's common stock. The
risk-free interest rate is based on the implied yield available on U.S. Treasury
zero-coupon issues with an equivalent remaining term. The Company has not paid
dividends in the past and does not have any plans to pay any dividends in the
future.



                                       47
<PAGE>


                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 6 - Stock-based compensation - continued

The assumptions used to value option grants for the years ended December 31,
2006 and 2005 are as follows:

                                             Year ended December 31,
                                        ----------------------------------
                                             2006              2005
                                        ----------------  ----------------

         Expected life (in years)         2.5 to 6.25           4.0
         Volatility                        74 - 113%           125%
         Risk free interest rate          4.6 - 5.1%        3.7 - 4.2%
         Dividend yield                        -                 -


On December 11, 2006, the Company's Board of Directors granted
performanced-based stock options to its Chief Executive Officer. The stock
options were granted in four tranches that vest only if the average closing
price of the Company's common stock over a preceding 20-day period hits the
relevant target price for that tranche within 10 years from the date of grant.
The fair value and derived service periods were determined by a third party
valuation expert using a Monte Carlo model to simulate the Company's stock
prices for the performance period with the following assumptions: expected
volatility of approximately 75%; risk-free interest rate of 4.56%; expected life
of 10 years; and, a zero percent dividend yield.

The following table sets forth the summary of option activity under our stock
option plans for the year ended December 31, 2006:
<TABLE>
<CAPTION>
                                                                   Weighted
                                                                    average           Weighted           Aggregate
                                                  Number of        exercise           remaining          intrinsic
                                                   shares            price         contractual life        value
                                                --------------    ------------    -------------------   -------------
<S>                                                 <C>             <C>               <C>               <C>
    Outstanding at beginning of year                3,789,867       $   0.22
    Granted                                         2,549,167           0.30
    Forfeited                                        (108,167)          0.21
    Exercised                                        (140,450)          0.11
                                                --------------    ------------

    Outstanding at end of year                      6,090,417       $   0.26          6.7 years         $ 531,000
                                                ==============    ============    ===================   =============

    Options vested or expected to vest at
      end of year                                   4,774,122       $   0.25          6.1 years         $ 451,000
                                                ==============    ============    ===================   =============

    Options exercisable at end
      of year                                       3,152,817       $   0.24          4.6 years         $ 353,000
                                                ==============    ============    ===================   =============
</TABLE>


The weighted average grant date fair value per share of options granted in 2006
and 2005 was $.30 and $.22, respectively.

The aggregate intrinsic value is based on the Company's closing stock price of
$0.33 as of the last business day of the year ended December 31, 2006, which
would have been received by the optionees had all in-the-money options been
exercised on that date. As of December 31, 2006, total unrecognized stock-based
compensation expense related to unvested stock options was approximately
$484,000, which is expected to be recognized over a weighted average period of
approximately 2 years. The aggregate fair value of vested options outstanding as
of December 31, 2006 was $762,000.


                                       48
<PAGE>


                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 6 - Stock-based compensation - continued

Following is a summary of the Company's stock options outstanding at December
31, 2006:
<TABLE>
<CAPTION>
                             Outstanding options                                       Options exercisable
  --------------------------------------------------------------------------    ----------------------------------
                                          Weighted          Weighted                                 Weighted
                                          average       average remaining                            average
   Exercise price          Number          price         contractual life          Number         exercise price
  ------------------    -------------    -----------    --------------------    -------------    -----------------
<S>                        <C>              <C>              <C>                  <C>                 <C>
  $  .04 - $  .25          2,894,000        $  0.19          5.5 years            2,386,900           $   0.19
  $  .26 - $  .50          2,971,417        $  0.30          8.1 years              559,667           $   0.34
  $  .51 - $  .61            225,000        $  0.59          2.8 years              206,250           $   0.60
                        -------------                                           -------------
                           6,090,417        $  0.26          6.7 years            3,152,817           $   0.24
                        =============                                           =============
</TABLE>


The following table sets forth the summary of restricted stock activity under
our 2005 Plan for the year ended December 31, 2006:
<TABLE>
<CAPTION>
                                                                                         Weighted
                                                                                          average
                                                                         Number of    grant-date fair
                                                                          shares           value

<S>                                                                       <C>             <C>
    Restricted shares outstanding at beginning of year, nonvested         40,313          $   .32
    Granted                                                               25,000              .30
    Vested                                                                (7,000)             .32
    Forfeited                                                            (15,000)             .33
                                                                         -------          -------

    Restricted shares outstanding at end of year, nonvested               43,313          $   .31
                                                                         =======          =======

</TABLE>

The following shares of common stock have been reserved for issuance under the
Company's stock-based compensation plans as of December 31, 2006:
<TABLE>
<CAPTION>
                                                                 1998 Plan         2005 Plan            Total
                                                              ---------------    --------------    ---------------
<S>                                                             <C>                  <C>             <C>
    Outstanding share based compensation awards                 5,790,417            300,000          6,090,417
    Underlying shares available for grant                         648,311          4,647,000          5,295,311
                                                              ---------------    --------------    ---------------

   Total                                                        6,438,728          4,947,000         11,385,728
                                                              ===============    ==============    ===============
</TABLE>


Total stock-based compensation expense recognized in the consolidated statement
of operations is as follows (in thousands):
<TABLE>
<CAPTION>
                                                          Years ended December 31,
                                                      ---------------------------------
                                                           2006              2005
                                                      ---------------   ---------------

<S>                                                     <C>               <C>
    Stock option expense                                $     160         $     190
    Restricted stock expense                                    3                 1
                                                      ---------------   ---------------

    Total stock-based compensation expense              $     163         $     191
                                                      ===============   ===============
</TABLE>


                                       49
<PAGE>


                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 6 - Stock-based compensation - continued

Prior to January 1, 2006, the Company accounted for all employee awards granted
on or after January 1, 2003 using the fair value recognition provision of SFAS
No. 123. The following table illustrates the effect on net loss and net loss per
share for 2005 if the Company had applied the fair value recognition provisions
of SFAS No. 123 to all employee awards (in thousands, except net loss per
share):
<TABLE>
<CAPTION>
<S>                                                                                                   <C>
    Net loss, as reported                                                                             $    (102)
    Add: Stock-based employee compensation expense included in
         reported net loss                                                                                  191
    Deduct:  Total stock-based employee compensation expense determined under fair value method
        for all awards, net of related tax effects                                                         (199)
                                                                                                    ----------------
    Pro forma net loss                                                                                $    (110)
                                                                                                    ================

    Net loss per share:
        Basic and diluted - as reported                                                               $       --
                                                                                                    ================
        Basic and diluted - pro forma                                                                 $       --
                                                                                                    ================
</TABLE>

Note 7 - Retirement Plan

The Company has adopted a salary deferral retirement plan, or 401(k) plan. The
plan covers all employees who meet the plan's eligibility requirements. The
Company can make discretionary contributions to the plan. No contributions were
made by the Company for 2006 and 2005.



                                       50
<PAGE>



                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 8 - Segment Reporting

The Company has two operating segments, TRMS and the integrated software,
services and lead generation businesses in which the Company is engaged.
Management reports on each segment based upon, among other things, TRMS being a
registered Commodity Trading Advisor and generating revenues through delivery of
Risk Management Services, while LION's other combined operations generate
revenues primarily for sales of software related products and services.
Intercompany revenues represent fees for Pipeline Tools technology and services
purchased by TRMS from its parent, LION, which are generally accounted for at
current market prices and are eliminated in consolidation. Accounting policies
for segments are the same as those described in Note 1. The following sets forth
information for reportable segments and consolidated totals (in thousands):

<TABLE>
<CAPTION>
                                                         LION               TRMS            Consolidated
                                                      -------------      -----------      ----------------
<S>                                                   <C>                <C>                  <C>
   Year ended December 31, 2006:
          Revenues from external customers            $   8,017          $   5,685            $  13,702
          Revenues from internal customers                3,677                 --                   --
          Operating loss                                 (1,168)               (86)              (1,254)
          Depreciation and amortization                     433                 12                  445
          Capital expenditures                              139                  2                  141
          Goodwill                                          274              2,316                2,590
          Total assets                                    5,265              3,222                8,487

    Year ended December 31, 2005:
          Revenues from external customers            $   9,300          $   6,489            $  15,789
          Revenues from internal customers                3,783                 --                   --
          Operating income (loss)                          (389)               300                  (89)
          Depreciation and amortization                     512                 21                  533
          Capital expenditures                              397                 50                  447
          Goodwill                                          274              2,316                2,590
          Total assets                                    6,174              3,515                9,689
</TABLE>



                                       51
<PAGE>



                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 8 - Segment Reporting - continued

The Company's product groupings are comprised of Leads, Loans, and Capital
Markets. Revenues for 2006 and 2005 were as follows (in thousands):

                                           2006          2005
                                         -------       -------

         Leads                           $ 1,870       $ 1,781
         Loans                             5,723         6,764
         Capital Markets                   6,109         7,244
                                         -------       -------
              Total revenues             $13,702       $15,789
                                         =======       =======


The Leads product grouping consists of the Company's Mortgage 101 product, which
generates revenues from LION's subscription and pay-per-lead based lead programs
along with broker ad banner programs.

The Loans product grouping consists of LION Pro, Retail Websites, and LockPoint
Xtra(R). LION Pro revenues are comprised of LION Pro Corporate, LION Pro
Individual, and lenders who participate in the underlying database. Retail
Website revenues consist of site development and hosting fees. LockPoint Xtra(R)
revenues which include Precision MTS are generated from implementation fees with
new customers, recurring monthly billings based on locked loan amount volumes
with monthly minimums which may vary from customer to customer, and custom
development services.

The Capital Markets product grouping consists of Pipeline Tools and Risk
Management Services. Pipeline Tools revenues are generated from implementation
fees from new customers, recurring monthly billings based on closed loan volumes
with monthly minimums which may vary from customer to customer, and custom
development services. Risk Management Services are provided by TRMS and are
generated by recurring monthly billings based on closed loan volumes with
monthly minimums which may vary from customer to customer.


                                       52
<PAGE>


                            LION, Inc. and Subsidiary
                   Notes to consolidated financial statements
                           December 31, 2006 and 2005

Note 9 - Quarterly Financial Data (Unaudited)

Following is a summary of unaudited quarterly results of operations in 2006 and
2005 (in thousands, except income per share):
<TABLE>
<CAPTION>
                                                                                        Net        Net
                                                                                       income     income
                                                                                       (loss)      per
                                                             Operating       Net      per basic   diluted
Fiscal Year ended                                             Income       Income      common    common
December 31, 2006:                           Revenues         (Loss)       (Loss)      Share      Share
                                             --------         ------       ------      -----      -----
<S>                                        <C>               <C>          <C>         <C>          <C>
First Quarter                              $    3,533        $  (198)     $  (186)    $    -       $ --
Second Quarter                             $    3,537        $  (557)     $  (535)    $ (.01)      $ --
Third Quarter                              $    3,327        $  (240)     $  (215)    $ (.01)      $ --
Fourth Quarter                             $    3,305        $  (259)     $  (384)    $ (.01)      $ --

Fiscal Year ended
December 31, 2005:

First Quarter                              $    4,041        $  (137)     $  (149)    $    -       $- -
Second Quarter                             $    3,999        $  (173)     $  (179)    $    -       $- -
Third Quarter                              $    4,020        $   212      $   213     $  .01       $.01
Fourth Quarter                             $    3,729        $     9      $    13     $    -       $ --

</TABLE>


Note 10 - Subsequent Event

         On March 26, 2007, LION accepted the resignation of Randall D. Miles,
its Chairman and Chief Executive Officer, effective as of April 1, 2007 (the
"Resignation Date"). Until the Resignation Date, LION will continue to pay Mr.
Miles the salary and benefits contemplated under the employment agreement he
entered into with the Company on December 11, 2006. After the Resignation Date,
for a six-month term Mr. Miles will provide certain consulting services to the
Company. During the six-month consulting period LION will provide to Mr. Miles
compensation in an amount equal to Miles' salary under his employment agreement
and continued coverage of certain employee benefits.



                                       53
<PAGE>


ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURES

         None.


ITEM 8A.   CONTROLS AND PROCEDURES

(a) Disclosure controls and procedures.

         Under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report.
Disclosure controls and procedures are defined under SEC rules as controls and
other procedures that are designed to ensure that information required to be
disclosed by a company in reports that it files under the Exchange Act are
recorded, processed, summarized and reported within the required time periods.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective.

(b) Changes in internal control over financial reporting.

         We are assessing the effectiveness of our internal controls over
financial reporting on an account by account basis as a part of our on-going
accounting and financial reporting review process in order to comply with
Section 404 of the Sarbanes-Oxley Act of 2002, which requires our management to
assess the effectiveness of our existing internal controls for the fiscal year
ended December 31, 2007. This effort includes documenting, evaluating the design
of and testing the effectiveness of our internal controls over financial
reporting. We intend to continue to refine and improve our internal controls on
an ongoing basis. During this process, we may identify items for review or
deficiencies in our system of internal controls over financial reporting that
may require strengthening or remediation.

         There have been no changes in our internal controls over financial
reporting during our most recent fiscal quarter that have materially affected,
or are reasonably likely to materially affect, our internal controls over
financial reporting.

ITEM 8B.   OTHER INFORMATION

None.


                                       54
<PAGE>


                                    PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND
          CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
          ACT

         Set forth below is information concerning our directors, executive
officers and other key employees as of the date of filing this report. For
changes effective as of April 1, 2007, see below under Item 10 - "Departure of
Directors or Officers; Appointment of Officers."

           NAME                                AGE         POSITION
           ----                                ---         --------
    DIRECTORS:
    Randall D. Miles (3)                       50         Chairman, Director
    John A. McMillan (2) (3)                   75         Director
    Griffith J. Straw (2)                      58         Director
    James D. Russo (1) (2)                     60         Director
    David Stedman                              57         Director
    J.C. "Tuck" Marshall (1)                   60         Director
    Sam Ringer                                 47         Director

    EXECUTIVE OFFICERS:
    Randall D. Miles                           50         CEO
    David Stedman                              57         President
    Steve Thomson                              54         CFO, Corporate
                                                          Secretary, Treasurer


     (1)  Member of the Audit Committee

     (2)  Member of the Compensation Committee

     (3)  Member of Nominating Committee

           All directors were elected at the Annual Meeting held June 23, 2005.
Directors hold office until the next annual meeting or until their successors
have been elected and qualified. Directors Randall Miles, CEO, and David
Stedman, President, are full-time employees of the Company. The other directors
devote only such time as may be necessary to our business and affairs. There are
no family relationships among any of the directors or executive officers of the
Company. Following is a discussion of the business background of each director
and executive officer.

DIRECTORS:

         RANDALL D. MILES has been a director of the Company since September
2002 and became Chairman and CEO in December 2003. Mr. Miles has over 20 years
of experience in investment banking and financial services. He served as
Managing Director of Investment Banking at D.A. Davidson & Co. from September
2001 to October 2003. During the period from June 1996 to September 2001, Mr.
Miles was President and CEO of Advantage Funding Group, Inc, President of NAFCO
Funding LLC, President of Quadrant Investment Bankers, Inc., and Managing
Director of CBA Partners LLC and The Stone Pine Companies. Mr. Miles has served
in a senior executive capacity at both large and mid-sized investment and
merchant banks during the course of his career with particular focus on
providing strategic and financial advisory counsel to public and private
companies in many industry sectors that include software and technology. Mr.
Miles graduated from


                                       55
<PAGE>

the University of Washington in 1979 with a degree in finance and sits on the
board of directors of privately held companies as well as non-profit charitable
organizations.

         JOHN A. MCMILLAN has been a director of the Company since January 1999,
and served as Chief Executive Officer from October 1999 through August 2002. Mr.
McMillan retired as Director of the Board of Directors for Nordstrom, Inc. in
May 2004. Mr. McMillan has been associated with Nordstrom for 40 years and
served as a member of the Office of Chief Executive Officer from 1971 to 1996.
Mr. McMillan's business and civic affiliations include sitting on the Board of
Directors for the McMillan Family Foundation and Coalition Community Development
of Resources and was a former member of the Board of Directors for Vision Youth
(Chairman), ZION Preparatory Academy Capitol Campaign (Chairman), Urban
Enterprise Council, Bob Walsh Enterprises, Global Partnerships, and Seattle
Pacific University.

         GRIFFITH J. STRAW has been a director of the Company since September
2002. Since May 2002, Mr. Straw has served as Regional Vice President of United
Guaranty Residential Insurance Company. Mr. Straw has more than 20 years
experience in the mortgage banking industry. His previous positions include
Director of Business Development at Freddie Mac, McLean, Virginia from October
1994 to March 2002. He served as Senior Vice President, Director of Marketing at
Frontline Mortgage from May 1993 to October 1994 and Senior Vice President at
National Pacific Mortgage from 1987 to 1992. Mr. Straw received his designation
as a CMB (Certified Mortgage Banker) from the Mortgage Bankers Association of
America ("MBA") in 2000. He is also a Faculty Fellow for the MBA's School of
Mortgage Banking and was designated as a member of the Master Faculty in 2001.
In November 1998, MORTGAGE TECHNOLOGY magazine named Mr. Straw as one of the
year's top seven mortgage "technologists" in recognition of his role in creating
online business opportunities for Freddie Mac.

         JAMES D. RUSSO has been a director since August 2004. Since 2001, Mr.
Russo has served as the Executive Director Finance of Advancis Pharmaceutical
Corporation. He has over 25 years of executive financial and operational
management experience with US and international based businesses in the
pharmaceutical, engineering, environmental consulting and banking industries.
Mr. Russo has been CFO of public and privately held companies and is a founding
director of Cardinal Financial Corporation since 1997. Mr. Russo also serves as
a trustee of TESST College of Technology and is a graduate of the University of
Maryland.

         DAVID STEDMAN has been a director since August 2002 and has served as
President since June 2005. Previously, Mr. Stedman served as President of LION
from January 2001 to December 2003, as Chief Executive Officer from August 2002
to December 2003, and as Co-President from December 2003 to May 2005. Mr.
Stedman joined LionInc.com, the former subsidiary of LION, in May 1999 as Vice
President of Marketing and Sales. He served as its COO from January 2000 and as
its President from October 2000 until its merger with the Company. Mr. Stedman
has over 20 years of marketing experience that includes expertise in market
analysis, systems development, strategic and market planning, identity creation,
advertising and public relations. From 1989 to 1999 Mr. Stedman was a Vice
President/Director of Marketing for Safeco Properties, a real estate development
subsidiary of Safeco Insurance.

         J.C. (TUCK) MARSHALL has been a director since July 1999. Mr. Marshall
formerly served as President of the National Association of Mortgage Brokers
(NAMB) and is currently the president of J.C. Marshall Financial Services Inc.,
a licensed brokerage of mortgages, real estate, and insurance


                                       56
<PAGE>

in Tinley Park, Illinois. He is a former president of Margo Financial Services
LLC, a national provider of wholesale residential mortgages and a division of
Argo FSB. He is a former president of the Illinois Association of Mortgage
Brokers Education Foundation and a member of the UG/UIG Advisory Board. He was
formerly Advisory Association Member for Chase Mortgage. His past
accomplishments also include president of the Illinois Association of Mortgage
Brokers, NAMB Regional broker of the Year in 1995, NAMB Volunteer of the Year in
1996/1997, NAMB Legislative Chairman in 1998, and the receipt of the NAMB 2002
Distinguished Service Industry Award. Mr. Marshall served as interim President
of LionInc.com from March 2000 to October 2000.

         SAM RINGER has been a director of the Company since 1989. From March
2000 to January 2001, he served as Chief Technology Officer of LionInc.com. He
served as Chief Executive Officer of LionInc.com from February 1999 to March
2000, and as its President from 1997 to March 2000, and during the period from
1991 through 1995. Mr. Ringer was co-founder, co-architect and author of the
LION loan search software. He received his training as a computer engineer and
programmer in Spokane, WA at Spokane Falls Community College and Gonzaga
University. Prior to his tenure with the Company, Mr. Ringer served for two
years as a mortgage broker at MorNet Mortgage, a Seattle mortgage brokerage
firm.

OFFICERS:

         RANDALL MILES has served as the Chief Executive Officer of the Company
since December 2003. See background information above for Mr. Miles under the
heading "DIRECTORS."

         DAVID STEDMAN has served as President of the Company since June 2005.
See background information above for Mr. Stedman under the heading "DIRECTORS."

         STEVE THOMSON, CFO of LION as of January 2001, joined LionInc.com in
March 1998 as its Controller. From 1995 to 1998, Mr. Thomson worked as a
consultant with a number of high tech and Internet related companies including
Sierra Online, Inc. and N2H2, Inc. From 1988 to 1995, Mr. Thomson served as
Controller and Division Manager with Vanier, a $130 million subsidiary of
American Business Products. From 1979 to 1986, Mr. Thomson was in public
accounting with Price Waterhouse. Mr. Thomson received a B.A. degree in Business
Administration from the University of Washington in 1976 and has been a CPA
since 1981.


                                       57
<PAGE>




COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that our directors and executive officers, and persons who own more
than ten percent of the our common stock, file with the SEC initial reports of
ownership and reports of changes in ownership of our common stock and other
equity securities. Officers, directors and greater-than-ten percent shareholders
are required by the SEC regulation to furnish us with copies of all Section
16(a) forms they file. Specific due dates have been established by the SEC, and
we are required to disclose in this report any failure to file by those dates.

         We believe that there has been compliance with all Section 16(a) filing
requirements applicable to our officers, directors and ten-percent beneficial
owners; except that Jack McMillan inadvertently failed to report one stock
purchase made during 2001, but reported the transaction on his 2007 Form 5; and
Griffith Straw failed to timely file a Form 4 covering one transaction, but did
subsequently report this transaction on a Form 4.

CODE OF ETHICS

We have adopted a Code of Ethics that applies to our executive officers,
including financial officers and other finance organization employees. The Code
of Ethics is publicly available on the investor relations portion of our website
at www.lionmts.com. Our Board did not grant any waivers of any ethics policies
in fiscal 2006 to our directors or executive officers. If we make any
substantive amendments to the Code of Ethics or grant any waiver, including any
implicit waiver, from a provision of the code to our Chief Executive Officer,
Chief Financial Officer or Corporate Controller, we will disclose the nature of
such amendment or waiver on that website or in a report on Form 8-K. The
charters of the Audit, Compensation and Nominating Committees are also available
at the same website address.

INFORMATION REGARDING THE BOARD AND ITS COMMITTEES

         The Board of Directors represents the interests of our stockholders as
a whole and is responsible for directing the management of the business and
affairs of LION. Our board of directors is composed of seven members. Each
director currently serves until the next annual meeting of stockholders or until
his successor is duly elected and qualified. Our bylaws provide that the
authorized number of directors will be between three and nine, with the exact
number to be determined by a majority of our board of directors or stockholders.

Committees of the Board of Directors

         The standing committees of the Board of Directors of the Company are
the Audit Committee, Compensation Committee and Nominating Committee. Our board
of directors may establish other committees to facilitate the management of our
business. Below is a description of each committee of the Board of Directors.

         AUDIT COMMITTEE. The Audit Committee assists our Board of Directors in
its oversight of the quality and integrity of our accounting, auditing, and
reporting practices. The Audit Committee's role includes discussing with
management the Company's processes to manage business and financial


                                       58
<PAGE>

risk, and for compliance with applicable legal and regulatory requirements. The
Audit Committee is responsible for the appointment, replacement, compensation,
and oversight of the independent registered public accounting firm engaged to
prepare or issue audit reports on our financial statements. The Audit Committee
relies on the expertise and knowledge of management, any internal auditors, and
the independent auditor in carrying out its oversight responsibilities. The
specific responsibilities in carrying out the Audit Committee's oversight role
are set forth in the LION Audit Committee Charter. The Audit Committee Charter
is reviewed annually and as may be required due to changes in industry
accounting practices or the promulgation of new rules or guidance documents.

         The Audit Committee consists of Messrs. Russo and Marshall. Both
members of the Audit Committee are "independent" as defined by Rule 4200 of the
NASDAQ Marketplace Rules. Our Board believes each Audit Committee member has
sufficient experience and knowledge in financial and auditing matters to
effectively serve and carry out the duties and responsibilities of the
Committee. In addition, the Board has determined that Mr. Russo is an "audit
committee financial expert," as that term is defined by Securities and Exchange
Commission rules, which is basically limited to those who have prepared,
audited, or directly supervised the audit of comparable public company financial
statements.

         COMPENSATION COMMITTEE. The Compensation Committee reviews retirement
and benefit plans and salaries and incentive compensation to be provided to our
executive personnel, employees, and consultants, and recommends appropriate
compensation and benefit levels. The Compensation Committee also administers our
current stock option and equity incentive plans, including the approval of
grants and options under the plans to our employees, consultants and directors
and, in general, oversees general policy matters relating to our various
compensation plans, including payroll, option, stock, medical and bonus plans.
The Compensation Committee consists of Messrs. Straw, Russo and McMillan, each
of whom is considered independent as defined by Rule 4200 of the NASDAQ
Marketplace Rules.

         NOMINATING COMMITTEE. The Nominating Committee is responsible for
identifying and recommending to the Board of Directors qualified nominees to
become board members and considers shareholder recommendations for nominees to
fill Board positions if such recommendations are received. The Nominating
Committee also recommends to the Board of Directors regarding the size and
composition of the Board as well as carrying out the duties set forth in the
LION Nominating Committee Charter. The Nominating Committee consists of Messrs.
Miles and McMillan. Only Mr. McMillan is considered independent as defined by
Rule 4200 of the NASDAQ Marketplace Rules. Mr. Miles is not considered
independent because he is an executive officer of LION.



                                       59
<PAGE>



ITEM 10. EXECUTIVE COMPENSATION

         The following table provides summary information about compensation
expensed or accrued by the Company during the fiscal year ended December 31,
2006 for (a) our Chief Executive Officer, (b) the next two most highly
compensated executive officers serving at the end of the fiscal year ended
December 31, 2006, and (c) up to two additional individuals for whom disclosure
would have been provided but for the fact that they were not serving as
executive officers at the end of fiscal 2006 (collectively, the "named executive
officers"):

                           SUMMARY COMPENSATION TABLE*
<TABLE>
<CAPTION>
                                                                                     Option
              NAME AND PRINCIPAL POSITION                 Year       Salary         Awards(2)     Total
              ---------------------------                -------   ---------       -----------   --------
<S>                                                       <C>      <C>        <C>  <C>           <C>
Randall D. Miles, CEO                                     2006     $ 239,619(1)      $ 71,247    $ 310,866

David Stedman, President                                  2006     $ 182,705         $ 27,301    $ 210,006

Steve Thomson, CFO                                        2006     $ 167,698                -    $ 167,698
</TABLE>

----------------
 (*) Columns in the Summary Compensation Table that were not relevant to the
compensation paid to the named executive officers were omitted.

(1) Mr. Miles also contributed a portion of his salary to the Company's 401(k)
savings plan. Salary includes payments made to the named executive officers for
forfeited vacation time

((2)) This column represents the dollar amount recognized for financial
statement reporting purposes with respect to the 2006 fiscal year for the fair
value of stock options granted to each of the named executives, in 2006 as well
as prior fiscal years, in accordance with SFAS 123R. Pursuant to SEC rules, the
amounts shown exclude the impact of estimated forfeitures related to
service-based vesting conditions. For a discussion of the relevant assumptions
used in calculating grant date fair value with respect to the 2006 grants, refer
to note 6 of the Consolidated Financial Statements included in this Form 10-KSB.
These amounts reflect the Company's accounting expense for these awards, and do
not correspond to the actual value that will be recognized by the named
executives. The actual value that will be recognized by Mr. Miles will depend on
whether the market price of LION's common stock achieves certain specified
levels.


NARRATIVE TO SUMMARY COMPENSATION TABLE

         EMPLOYMENT AGREEMENTS. During 2006, three named executive officers were
employed pursuant to agreements with LION. Each employment agreement sets forth,
among other things, the officer's base salary, bonus opportunities, entitlement
to participate in our benefit plans and to receive equity awards, and
post-termination benefits and obligations. The employment agreements provide
that each executive is entitled to four weeks paid vacation, use of cell phone
and wireless connectivity, and reimbursement of business expenses. The
employment agreements also provide for severance benefits upon termination of
employment as a result of death or permanent disability, termination by the
Company without cause, termination by the executive for cause, or termination in
connection with a change in control. If the Company terminates the agreement for
cause, or the executive terminates the agreement other than for cause, the
executive will be entitled to receive his salary only through the effective date
of termination. "Cause" for the executive includes another entity or person
becoming the majority owner of the Company through a hostile takeover or the

                                       60
<PAGE>

election of a slate of directors, a majority of which were not recommended by
the existing directors and management prior to the vote. Unless entitled to
severance benefits, the executive's accrual of, or participation in plans
providing for benefits will cease at the effective date of termination, provided
however, that the executive will have the right to continue coverage under the
Company's group health plans as provided by the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA").

         Our original 2003 employment agreement with Randall D. Miles, our CEO,
had an initial term that expired in December 2006. In December 2006, the Company
entered into a renewed three-year employment agreement with Mr. Miles ("Miles
Employment Agreement"). Mr. Miles is paid an annual salary of $250,000. In the
event Mr. Miles is terminated without cause or within one year of a change in
control (as defined below), he will be entitled to a severance benefit equal to
6 months of his then current compensation. In order to be eligible to receive a
severance benefit, Mr. Miles must first sign a full waiver and release of claims
against LION and its directors, officers, employees, and affiliates. Mr. Miles
is also entitled to receive, at the Company's expense, continuation of medical,
dental and disability benefits for 6 months following termination without cause.

      "Change of Control" of the Company has the meaning set forth in Section
409A of the Internal Revenue Code, and includes each and all of the following
occurrences:

            (i) The stockholders of the Company approve a merger or
      consolidation of the Company with any other corporation, other than a
      merger or consolidation which would result in the voting securities of the
      Company outstanding immediately prior thereto continuing to represent
      (either by remaining outstanding or by being converted into voting
      securities of the surviving entity or its parent company) more than fifty
      percent (50%) of the total voting power represented by the voting
      securities of the Company or such surviving entity, or its parent company,
      outstanding immediately after such merger or consolidation, or the
      stockholders of the Company approve a plan of complete liquidation of the
      Company or an agreement for the sale or disposition by the Company of all
      or substantially all the Company's assets.

            (ii) The acquisition by any person as beneficial owner, directly or
      indirectly, of securities of the Company representing fifty percent (50%)
      or more of the total voting power represented by the Company's then
      outstanding voting securities.

            (iii) A change in the composition of the Board of Directors of the
      Company, a majority of which were not endorsed by a majority of the
      members of the corporation's board of directors prior to the date of the
      appointment or election.

         Mr. Miles was awarded two million (2,000,000) stock options, which
become exercisable, if at all, if the market price of LION's common stock
achieves certain specified levels, based on the 20-day trailing trading price.
The options are divided into four tranches. The first 200,000 options vest if
the 20-day trailing trading price is $.40 per share, the next 400,000 options
vest at $.50 per share, the third tranche of 600,000 options vest at $.65 per
share, and the last 800,000 options vest if the 20-day trailing trading price is
$.80 per share. The options are exercisable only during the term of Mr. Miles
employment, provided however, that if Mr. Miles is terminated without cause, he
will have a period of six (6) months following termination of employment to
exercise the vested options. In the event of a change in control, the remaining
unvested options granted to Mr. Miles will immediately


                                       61
<PAGE>

vest, provided that such immediate vesting shall be limited to a maximum of one
million (1,000,000) options.

         In June 2004, the Company entered into renewed three-year employment
agreements with David Stedman, its President, and Steve Thomson, its CFO. Each
employment agreement specifies a minimum level of base salary for the executive,
but gives the Compensation Committee authority to increase the executive's base
salary from time to time. The initial base salaries for Mr. Stedman and Mr.
Thomson were $150,000 and $135,000, respectively. The base salaries were
increased in February 2005 and in February 2006, such that the current base
salaries are $162,700 and $153,000, respectively. Each agreement provides that
the compensation may include a bonus. In the event that employment is terminated
by the Company without cause, the executives will be entitled to a severance
payment equal to 50% of their annual compensation. They are also entitled to
receive, at the Company's expense, continuation of medical, dental and
disability benefits for 6 months following termination without cause.

DEPARTURE OF DIRECTORS OR OFFICERS; APPOINTMENT OF OFFICERS

         On March 26, 2007, LION accepted the resignation of Randall D. Miles,
its Chairman and Chief Executive Officer, effective as of April 1, 2007
(the "Resignation Date"). Until the Resignation Date, LION will continue to pay
Mr. Miles the salary and benefits contemplated under the Miles Employment
Agreement. After the Resignation Date, for a six-month term Mr. Miles will
provide certain consulting services to the Company. During the six-month
consulting period LION will provide to Mr. Miles compensation in an amount equal
to Miles' salary under the Miles Employment Agreement and continued coverage of
certain employee benefits.

         LION's Board of Directors has appointed David Stedman, President, as
the interim Chief Executive Officer, beginning April 2, 2007, until a successor
candidate is identified. Mr. Stedman is compensated in accordance with his
current employment agreement with the Company as described above.





                                       62
<PAGE>



OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END.

         The following table provides information with respect to the holdings
of stock options by the named executive officers on December 31, 2006. This
table includes unexercised and unvested option awards. Each stock option grant
is shown separately for each named executive. The vesting schedule for each
grant is shown following this table, based on the option grant date.
<TABLE>
<CAPTION>

                                              Number of Securities Underlying
                                                    Unexercised Options
                                              ---------------------------------
                                     Option                                          Option       Option
                                      Grant                                         Exercise    Expiration
      Name                            Date       Exercisable     Unexercisable       Price         Date
      ----                           -------     -----------     -------------      --------    -----------
<S>                                  <C>          <C>               <C>         <C>  <C>          <C>
Randall Miles, CEO                   12/8/03      541,667           458,333     (1)  $0.18        12/08/13
                                    12/11/06          --          2,000,000     (2)  $0.28        12/11/16

David Stedman, President              2/2/01      419,500              --       (3)  $0.20          2/2/11
                                     7/14/03      300,000              --       (4)  $0.19         7/14/13

Steve Thomson, CFO                    2/2/01      273,000              --       (3)  $0.20          2/2/11
</TABLE>


(1)  2003 option grant is comprised of two tranches of 500,000 options each. The
     first tranche vests 6 1/4 percent on a quarterly basis. The second tranche
     vests in 3 increments if the market price of the Company's common stock
     achieves certain levels, based on the 20-day trailing trading average. One
     increment of 166,667 options has already vested at a 20-day trailing
     trading price of $.35 per share. The second and third increments totaling
     166,667 options (vesting at $.70 per share) and 166,666 options (vesting at
     $1.00 per share) have not vested.

(2)  2006 option grant vests if the market price of the Company's common stock
     achieves certain levels, based on the a 20-day trailing trading average.
     The first 200,000 options vest if the 20-day trailing trading price is $.40
     per share, the next 400,000 options vest at $.50 per share, the third
     tranche of 600,000 options vest at $.65 per share, and the last 800,000
     options vest if the 20-day trailing trading price is $.80 per share.

(3)  2001 option grant vests 6 1/4 percent on a quarterly basis, and 12 1/2
     percent in profitable quarters.

(4)  2003 option grant vests 12 1/2 percent on a quarterly basis.


                                       63
<PAGE>



 DIRECTOR COMPENSATION

         Directors who are employees of LION receive no compensation for service
on the Board. Non-employee directors receive a cash fee of $2,000 for each board
meeting attended in person and a cash fee of $500 for each telephonic board
meeting attended. Non-employee directors receive a cash fee of $500 for each
committee meeting attended whether telephonically or in person. Non-employee
directors are reimbursed for reasonable travel and other out-of-pocket expenses
incurred in connection with attendance at meetings of the board of directors and
committees of the board of directors. Each new non-employee director receives a
one-time grant of options to purchase 50,000 shares of common stock, exercisable
at not less than the fair market value of the Company's common stock on the day
of grant. Thereafter, each non-employee director receives an annual grant of
options to purchase 50,000 shares of common stock upon reelection at the annual
meeting of shareholders. Options have generally vested over a one-year period.
Non-employee chairs of the audit and compensation committees receive an annual
grant of options to purchase an additional 25,000 shares of common stock at the
fair market value on the date of grant. The options and restricted shares, if
any, granted to directors are subject to the terms and conditions of the 1998
Stock Option Plan or the 2005 Stock Incentive Plan.

         The following summary compensation table indicates the cash and
non-cash compensation earned during the fiscal year ended December 31, 2006 by
the non-employee directors.
<TABLE>
<CAPTION>
                                                              Fees Earned
                                                              or Paid in          Option
                         Name                                    Cash             Awards*            Total
--------------------------------------------------------    ----------------    ----------        -------------
<S>                                                           <C>               <C>        <C>       <C>
John A. McMillan                                              $   7,000         $ 6,584    (1)       $13,584

Griffith J. Straw                                             $  14,388         $ 9,875    (2)       $24,263

James D. Russo                                                $  18,000         $ 9,875    (3)       $27,875

JC (Tuck) Marshall                                            $  16,971         $ 6,584    (4)       $23,555

Sam Ringer                                                    $   8,000         $ 6,584    (5)       $14,584
</TABLE>

*    For a discussion of the relevant assumptions used in calculating grant date
     fair value with respect to the 2006 grants, refer to Note 6 of the
     Consolidated Financial Statements included in this Form 10 - KSB.

(1)  Options totaling 50,000 shares were granted during 2006. Options totaling
     137,500 shares were outstanding at December 31, 2006.

(2)  Options totaling 75,000 shares were granted during 2006. Options totaling
     253,750 shares were outstanding at December 31, 2006.

(3)  Options totaling 75,000 shares were granted during 2006. Options totaling
     268,750 shares were outstanding at December 31, 2006.

(4)  Options totaling 50,000 shares were granted during 2006. Options totaling
     470,417 shares were outstanding at December 31, 2006.

(5)  Options totaling 50,000 shares were granted during 2006. Options totaling
     100,000 shares were outstanding at December 31, 2006.


                                       64
<PAGE>



ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS.

FIVE PERCENT OWNERS OF COMPANY STOCK

The following table sets forth information as to those holders, other than
directors and executive officers of the Company, known to LION to be the
beneficial owners of more than 5% of the outstanding shares of Common Stock as
of December 31, 2006.

                                               Shares              Percent
Name and Address                            Beneficially           of Voting
of Beneficial Owner                            Owned              of Shares
-------------------                        --------------       --------------

Continental Advisors LLC (1)                 2,814,508              7.29%
227 West Monroe Street, Suite 5050 Chicago,
IL 60606
Chicago, IL 60606


(1) Based on a Schedule 13G filed on February 13, 2007, Continental Advisors LLC
and David P. Purcell have shared power to vote and dispose of the shares.


STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

         The following table sets forth certain information that has been
provided to the Company regarding the beneficial ownership as of December 31,
2006 of the Company's common stock by (a) each director or director nominee of
the Company, (b) each of the named executive officers, and (c) all directors and
executive officers of the Company as a group.

                                              Shares (2)          Percent (3)
Name and Address (1)                        Beneficially           of Voting
of Beneficial Owner                            Owned               of Shares
-------------------                        --------------       --------------

DIRECTORS AND EXECUTIVE OFFICERS:

John A. McMillan                             1,974,050  (4)         5.10%
J.C. (Tuck) Marshall                           675,417  (5)         1.73%
Sam Ringer                                   1,948,920  (6)         5.04%
David Stedman                                1,219,500  (7)         3.10%
Steve Thomson                                1,101,500  (8)         2.83%
Randall D. Miles                               665,117  (9)         1.70%
Griffith J. Straw                              284,700 (10)           *
James Russo                                    271,250 (11))          *

All directors and executive officers as
  a group (8 persons)                        8,140,454             19.74%


* Less than one percent.

(1) Except as noted below, the business address of the directors and executive
officers is c/o LION, Inc., 4700-42nd Avenue SW, Suite 430, Seattle, WA 98116.

                                       65
<PAGE>

(2) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
or warrants held by that person that are exercisable within 60 days of December
31, 2006 are deemed outstanding. These shares, however, are not deemed
outstanding for purposes of computing the ownership of any other person. To our
knowledge, except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the stockholders named in the table have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them.

(3) Percentage of beneficial ownership is based upon 38,614,272 voting shares of
common stock outstanding as of December 31, 2006.

(4) Includes 1,335,550 shares held by the John A. & Alexandra McMillan Living
Trust, 112,500 underlying shares of vested stock options and 6,000 shares owned
by spouse.

(5) Includes 445,417 underlying shares of vested stock options.

(6) Includes 75,000 underlying shares of vested stock options.

(7) Includes 719,500 underlying shares of vested stock options.

(8) Includes 273,000 underlying shares of vested stock options.

(9) Includes 541,667 underlying shares of vested stock options.

(10) Includes 216,250 underlying shares of vested stock options.

(11) Includes 231,250 underlying shares of vested stock options.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         The following table gives information about equity awards under the
Company's 1998 Stock Option Plan or the 2005 Stock Incentive Plan and the
individual equity arrangements as of December 31, 2006.
<TABLE>
<CAPTION>

                                                  (a)                     (b)                       (c)

                                                                                                   Number of
                                               Number of                                         securities
                                            securities to be                                 available for future
                                              issued upon            Weighted-average       issuance under equity
                                              exercise of           exercise price of         compensation plans
                                              outstanding              outstanding          [excluding securities
                                           options, warrants        options, warrants        reflected in column
            Plan category                      and rights               and rights                   (a)]
--------------------------------------    ---------------------    ---------------------    -----------------------
<S>                                               <C>                        <C>                    <C>
Equity compensation plans approved
by security holders (1)                           6,090,417                  $.26                   5,295,311
Equity compensation plans not
approved by security holders                             --                    --                          --
                                          ---------------------    ---------------------    -----------------------
Total                                             6,090,417                  $.26                   5,295,311
                                          =====================    =====================    =======================
</TABLE>

(1) The Company maintains the 1998 Stock Option Plan pursuant to which it may
grant options to eligible persons and the 2005 Stock Incentive Plan pursuant to
which it may grant incentive stock


                                       66
<PAGE>

options, non-qualified stock options, restricted stock awards, restricted stock
units and stock appreciation rights to eligible persons.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
          INDEPENDENCE CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         LION is not aware of any transaction entered into since January 1,
2006, or currently proposed, in which a related person had, or will have, a
direct or indirect material interest

DIRECTOR INDEPENDENCE

         Our common stock is not listed on a national securities exchange which
requires that a majority of our Board must be "independent directors" according
to independence standards established by the exchange. In determining whether
our directors or the members of a specific committee of the board of directors
are independent, we have utilized the definition of "independent" as defined by
Rule 4200 of the NASDAQ Marketplace Rules. Following is a list of our
independent directors as of the date of this Form 10-KSB:

   John A. McMillan
   Griffith J. Straw
   James D. Russo
   J.C. "Tuck" Marshall


For an identification of members of committees of the board of directors,
including each director that is not independent, see Item 9 above, under
"INFORMATION REGARDING THE BOARD AND ITS COMMITTEES."


                                       67
<PAGE>

ITEM 13.   EXHIBITS

(a)       EXHIBITS:

          Exhibits are incorporated as part of this Annual Report by reference
          or are filed with this report as indicated below (numbered in
          accordance with Item 601 of Regulation S-B):

2.1       Agreement of Merger, dated October 12, 2004, by and among LION, Inc.,
          LION Acq. LLC, Tuttle Risk Management Services Inc., Anthony Berris
          (individually and as the Stockholders' Representative), and Sern
          Clementson, incorporated by reference to the same exhibit number to
          the Company's Form 8-K dated October 18, 2004.

3.3       Articles of Incorporation of LION, Inc., incorporated by reference to
          Exhibit B to the Company's Definitive Proxy Statement dated October
          20, 2000.

3.4       Bylaws of LION, Inc., a Washington corporation, incorporated by
          reference to Exhibit C to the Company's Definitive Proxy Statement
          dated October 20, 2000.

4.1       Form of 8% Promissory Note due October 2007, issuable by LION, Inc.,
          incorporated by reference to the same exhibit number to the Company's
          Form 8-K dated October 18, 2004.

10.1      1998 Stock Option Plan with Form of Option Agreement, incorporated by
          reference to Registration Statement on Form S-8 filed July 28, 2003
          (File No. 333-107402).

10.2      2005 Stock Incentive Plan with Form of Stock Option Agreement and Form
          of Restricted Stock Agreement, incorporated by reference to
          Registration Statement on Form S-8 filed August 11, 2005 (File No.
          333-127434).

10.6      Office Suite Lease Agreement (Denver Property) dated as of September
          19, 2000, incorporated by reference to the same exhibit number to the
          Company's Form 10 - QSB for the quarter ended September 30, 2000.

10.8      Premises Lease Agreement (Seattle Property) - effective date August 1,
          2001, incorporated by reference to the same exhibit number to the
          Company's Form 10 - QSB for the quarter ended June 30, 2001.

10.9      Employment Agreement - S. Thomson, incorporated by reference to the
          same exhibit number to the Company's Form 10-KSB for the year ended
          December 31, 2004.

10.10     Employment Agreement - D. Stedman, incorporated by reference to the
          same exhibit number to the Company's Form 10-KSB for the year ended
          December 31, 2004.

10.12     Lease Amendment # 2 (Denver Property) dated as of October 21, 2002,
          incorporated by reference to the same exhibit number to the Company's
          Form 10-KSB for the year ended December 31, 2002.


10.13    Asset Purchase Agreement dated December 8, 2003, by and among LION,
         Inc., Freddie Mac, and Ignition Mortgage Technology Solutions, Inc.,
         incorporated by reference to the Report on Form 8-K filed December 23,
         2003.

10.14     Employment Agreement - Randall D. Miles, incorporated by reference to
          the Report on Form 8-K filed December 14, 2006.

10.16     Put Agreement, dated October 12, 2004, between LION, Inc. and certain
          stockholders of Tuttle Risk Management Services Inc., incorporated by
          reference as Exhibit 10.1 to the Company's Form 8-K October 18, 2004.

10.17     Secured Notes Agreement, dated October 13, 2004, between Tuttle Risk
          Management Services Inc., the stockholders of Tuttle Risk Management
          Services Inc., LION, Inc., and Anthony Berris, as Stockholders'
          Representative, incorporated by reference as Exhibit 10.2 to the
          Company's Form 8-K dated October 18, 2004.

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<PAGE>

10.18     Unconditional Guaranty, dated October 13, 2004, by LION, Inc.,
          incorporated by reference as Exhibit 10.3 to the Company's Form 8-K
          dated October 18, 2004.

10.19     Form of Indemnification Agreement, incorporated by reference to the
          Report on Form 8-K filed August 25, 2005.

14.1      Code of Ethics for CEO and Senior Financial Officers, incorporated by
          reference to the same exhibit number to the Company's Form 10 - KSB
          for the year ended December 31, 2003.

21.1      Subsidiaries of LION, Inc.

23.1      Consent of Grant Thornton LLP.

31.1      Certification of Chief Executive Officer pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002.

31.2      Certification of Chief Financial Officer pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002.

32.1      Certification by Chief Executive Officer and Chief Financial Officer
          pursuant to Section 906 of the Sarbanes - Oxley Act of 2002


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<PAGE>


ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

Fees paid to Grant Thornton (audit and non-audit)

         The following table presents fees for professional audit services
rendered by Grant Thornton LLP for the audit of our annual financial statements
for the years ended December 31, 2006 and 2005, and the reviews of the financial
statements included in each of our quarterly reports on Form 10-QSB during the
fiscal years ended December 31, 2006 and 2005, and fees billed for other
services rendered by Grant Thornton LLP during those periods.

                  Fee Category               2006                2005
--------------------------------- ----      ---------         ----------

         Audit fees                         $139,413           $114,457
         Audit - related fees                     --                 --
         Tax fees                             37,649             24,769
         All other fees                        7,245             32,407
                                            --------           --------
                                            $184,307           $171,633
                                            ========           ========

AUDIT FEES. Consist of assurance and related services that are reasonably
related to the performance of the audit or review of LION's financial
statements. This category includes fees related to the performance of audits and
attest services not required by statute or regulations, audits of the Company's
stock option plans, additional revenue compliance procedures related to
performance of the review or audit of our financial statements, and accounting
consultations regarding the application of GAAP to proposed transactions.

TAX FEES. Consist of the aggregate fees billed for professional services
rendered by Grant Thornton LLP for tax compliance, tax advice, and tax planning.
These services include preparation of federal and state income tax returns.

ALL OTHER FEES. Fees in 2006 relate to reviews of various SEC correspondence.
Fees in 2005 relate to Sarbanes-Oxley Section 404 compliance work and reviews of
various SEC correspondence.



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<PAGE>


                                   SIGNATURES

         In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Seattle, Washington, on March 30, 2007.

                                   LION, INC.
                                  -------------
                                  (Registrant)

                          By:   /s/ Randall D. Miles
                                --------------------
                                Randall D. Miles
                                CEO

         In accordance with the requirements of the Exchange Act, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
           SIGNATURE                                     TITLE                         DATE
           ---------                                     -----                         ----
  <S>                                    <C>                                      <C>
    /s/ Randall D. Miles                 Chairman of the Board and CEO            March 30, 2007
    /s/ John A. McMillan                 Director                                 March 30, 2007
    /s/ David Stedman                    Director and President                   March 30, 2007
    /s/ J.C. (Tuck) Marshall             Director                                 March 30, 2007
    /s/ Griffith J. Straw                Director                                 March 30, 2007
    /s/ Sam Ringer                       Director                                 March 30, 2007
    /s/ James D. Russo                   Director                                 March 30, 2007
    /s/ Steve Thomson                    CFO                                      March 30, 2007
    /s/ Chris Johnson                    Controller                               March 30, 2007
</TABLE>



                                       71
<PAGE>


                                  EXHIBIT INDEX


2.1       Agreement of Merger, dated October 12, 2004, by and among LION, Inc.,
          LION Acq. LLC, Tuttle Risk Management Services Inc., Anthony Berris
          (individually and as the Stockholders' Representative), and Sern
          Clementson, incorporated by reference to the same exhibit number to
          the Company's Form 8-K dated October 18, 2004.

3.3       Articles of Incorporation of LION, Inc., incorporated by reference to
          Exhibit B to the Company's Definitive Proxy Statement dated October
          20, 2000.

3.4       Bylaws of LION, Inc., a Washington corporation, incorporated by
          reference to Exhibit C to the Company's Definitive Proxy Statement
          dated October 20, 2000.

4.1       Form of 8% Promissory Note due October 2007, issuable by LION, Inc.,
          incorporated by reference to the same exhibit number to the Company's
          Form 8-K dated October 18, 2004.

10.1      1998 Stock Option Plan with Form of Option Agreement, incorporated by
          reference to Registration Statement on Form S-8 filed July 28, 2003
          (File No. 333-107402).

10.2      2005 Stock Incentive Plan with Form of Stock Option Agreement and Form
          of Restricted Stock Agreement, incorporated by reference to
          Registration Statement on Form S-8 filed August 11, 2005 (File No.
          333-127434).

10.6      Office Suite Lease Agreement (Denver Property) dated as of September
          19, 2000, incorporated by reference to the same exhibit number to the
          Company's Form 10 - QSB for the quarter ended September 30, 2000.

10.8      Premises Lease Agreement (Seattle Property) - effective date August 1,
          2001, incorporated by reference to the same exhibit number to the
          Company's Form 10 - QSB for the quarter ended June 30, 2001.

10.9      Employment Agreement - S. Thomson, incorporated by reference to the
          same exhibit number to the Company's Form 10-KSB for the year ended
          December 31, 2004.

10.10     Employment Agreement - D. Stedman, incorporated by reference to the
          same exhibit number to the Company's Form 10-KSB for the year ended
          December 31, 2004.

10.12     Lease Amendment # 2 (Denver Property) dated as of October 21, 2002,
          incorporated by reference to the same exhibit number to the Company's
          Form 10-KSB for the year ended December 31, 2002.

10.13     Asset Purchase Agreement dated December 8, 2003, by and among LION,
          Inc., Freddie Mac, and Ignition Mortgage Technology Solutions, Inc.,
          incorporated by reference to the Report on Form 8-K filed December 23,
          2003.

10.14     Employment Agreement - Randall D. Miles, incorporated by reference to
          the Report on Form 8-K filed December 14, 2006.

10.16     Put Agreement, dated October 12, 2004, between LION, Inc. and certain
          stockholders of Tuttle Risk Management Services Inc., incorporated by
          reference as Exhibit 10.1 to the Company's Form 8-K October 18, 2004.

10.17     Secured Notes Agreement, dated October 13, 2004, between Tuttle Risk
          Management Services Inc., the stockholders of Tuttle Risk Management
          Services Inc., LION, Inc., and Anthony Berris, as Stockholders'
          Representative, incorporated by reference as Exhibit 10.2 to the
          Company's Form 8-K dated October 18, 2004.

10.18     Unconditional Guaranty, dated October 13, 2004, by LION, Inc.,
          incorporated by reference as Exhibit 10.3 to the Company's Form 8-K
          dated October 18, 2004.

10.19     Form of Indemnification Agreement, incorporated by reference to the
          Report on Form 8-K filed August 25, 2005.

                                       72
<PAGE>

14.1      Code of Ethics for CEO and Senior Financial Officers, incorporated by
          reference to the same exhibit number to the Company's Form 10 - KSB
          for the year ended December 31, 2003.

21.1      Subsidiaries of LION, Inc.

23.1      Consent of Grant Thornton LLP.

31.1      Certification of Chief Executive Officer pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002.

31.2      Certification of Chief Financial Officer pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002.

32.1      Certification by Chief Executive Officer and Chief Financial Officer
          pursuant to Section 906 of the Sarbanes - Oxley Act of 2002


                                       73