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                     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, 2002

[_]  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 (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 [ ]

<PAGE>


       Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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. [ ]

       State issuer's revenues for its most recent fiscal year $6,409,568

       The aggregate market value of the voting common stock held by
non-affiliates of the Company as of March 13, 2003 was approximately $1,866,119
based on the closing price for shares of the Company's common stock as reported
by the OTC Bulletin Board for 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 13, 2003, approximately 31,559,978 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]

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                                     PART I


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

       In addition to historical information, the discussion of the Company's
business contains forward-looking statements. These forward-looking statements
involve risks, uncertainties and assumptions. The actual results may differ
materially from those anticipated in these forward-looking statements as a
result of many factors, including but not limited to, those discussed in the
sections in this Annual Report on Form 10-KSB entitled "Competition,"
"Proprietary Rights," "Risk Factors" and "Management's Discussion and Analysis."
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's opinions only as of the date of this
report. LION, Inc. undertakes no obligation to revise or publicly release the
results of any revision to these forward-looking statements. Readers should
carefully review the risk factors described in this document as well as other
documents the Company files from time to time with the Securities and Exchange
Commission, including the quarterly reports on Form 10-QSB to be filed by the
Company during 2003.


ITEM 1.    DESCRIPTION OF BUSINESS

OVERVIEW

       LION, Inc. ("LION" or the "Company"), a Washington Corporation, has been
an innovator of Internet-based products and services for the mortgage industry
since 1995. Until December 2000, LION operated under the name Plenum
Communications, Inc. and conducted business through its wholly-owned subsidiary,
LionInc.com. Effective January 1, 2001, LionInc.com was merged into LION. Our
common stock trades on the OTC Bulletin Board under the symbol "LINN."

       LION's website address is www.lioninc.com. LION makes available free of
charge through its website its annual report on Form 10-KSB, quarterly reports
on Form 10-QSB, current reports on Form 8-K and all amendments to those reports
as soon as reasonably practicable after such material is electronically filed
with or furnished to the Securities and Exchange Commission.

INDUSTRY INFORMATION

       Loan origination volume in the mortgage industry in the U.S. is expected
to reach more than $2 trillion in 2003. While 2003 is expected to be a strong
year, volumes are expected to be down from the approximately $2.5 trillion mark
set in 2002. Mortgage brokers could account for 40 to 60 percent of total
originations in 2003. The industry is still paper intensive, and industry
participants still interact with one another by phone, fax and express mail.
However, approximately 60 percent of consumers search for loans online and
online originations as a percent of all originations are expected to grow each
year. By 2006, loan originations utilizing the Internet could approach one-third
of all originations. Use of the Internet in the mortgage industry is expected to
reduce both processing time and average cost per transaction.

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CUSTOMER BASE

       Mortgage brokers, wholesale lenders and industry affiliates constitute
our primary sources of revenue. While borrowers/consumers are not currently part
of our revenue base, they directly impact our core customer base. Each of our
customer segments is discussed below in more detail.

       MORTGAGE BROKERS. There are approximately 30,000 mortgage brokerage firms
in the country. The median mortgage brokerage firm has one office, originates
approximately 125 loans per month, and employs 4 to 5 loan officers. There
appears to be a total market of approximately 120,000 mortgage originators
within these brokerage firms.

       Large Mortgage Broker firms who have 50-100 loan officers in one location
tend to be spread out geographically with no more than 10-25 loan officers in a
single office. However, the majority of mortgage brokers operate much like sole
practitioners with less than 10 employees.

       There has been a growing trend toward consolidation in the industry
through franchises and, more commonly, "net branch" arrangements. Under these
arrangements the central office provides compliance, administration, a brand
name, and professional marketing materials which allows the small brokerage
operation to focus on servicing their clients. These firms are actively seeking
ways to use technology to increase efficiencies, and we believe LION provides an
Internet solution.

       Brokers typically deal with a number of lenders. Most brokers report that
they concentrate their business with just a few lenders, typically about five.
However, they may be "approved" to do business with 30 or more, and may receive
daily rate information from 50 or more.

       Rates are important to the broker for two reasons. First, to varying
degrees, their customer may be price sensitive. The broker needs to be
competitive relative to the retail lenders and other brokers. Second, the rate
can affect the amount of fee the broker earns. In some cases, if the broker
knows a customer is satisfied by a particular interest rate, the broker's fee
can be increased if a wholesale rate can be found that is lower than the one
which originally served as the basis for the quote. Alternatively, if a broker
cannot find a low enough rate, the broker's fee may have to be cut either to
compete with another loan the customer has been offered, or to bring the loan
down to a rate that will allow the customer to qualify.

       Since brokers are very "price sensitive," they aggressively shop with
price being the deciding factor in selecting a lender. Occasionally, if they
find an attractive rate from a lender with whom they are not currently approved,
they will try to become approved in order to place a particular loan. However,
seeking a new lender relationship in the midst of a loan placement is risky,
because the loan may be delayed or may not close at all as a result of the time
required to obtain approval and the possibility of not being approved.

       Historically, the process of checking rates, fees and choosing a lender
has been a manual and inefficient one. Our service is designed to make this
process dramatically more efficient, and to give the broker the best opportunity
to compete. The mortgage broker must maintain a competitive advantage over other
mortgage brokers, mortgage bankers, and large retailers. The Internet and other
advanced technologies allow efficiencies that decrease the costs of loan
production. The mortgage broker can currently develop a web site, promote this
web site, take applications, import into software and Automated Underwriting
engines, and communicate with potential and current customers. We

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simplify Internet origination through one seamless path from the consumer web
site to an Automated Underwriting decision.

       WHOLESALE LENDERS. LION's participating lenders are primarily "wholesale"
lenders who operate through independent mortgage brokers. The mortgage brokers
work directly with the consumer to complete the application and submit the
application to the lender for approval. If the loan is approved, the lender then
funds the mortgage at closing. Some of the wholesale lenders also have a
separate "retail" operation that works directly with the customer. In some
cases, that retail operation can operate as a broker and place loans with other
wholesale lenders.

       In any given market, typically 50 to 75 percent of the wholesale lenders
and probably a larger percentage of the loan volume are approved by either
national or large regional lenders.

       Loans are further segmented into "conforming" and "non-conforming" (also
known as "sub prime"). Strictly defined, a "conforming loan" is one that meets
the requirements set by Fannie Mae and Freddie Mac as loans these GSEs will
purchase from lenders. Conforming loans must meet GSE criteria for loan size,
credit standing of the borrower, borrower income relative to the loan payment,
loan amount to value of property, type of property and with respect to specific
documentation required to prove they meet these requirements.

       INDUSTRY AFFILIATES. Another market consists of companies who sell
services or advertising to lenders, brokers or consumers seeking mortgage loans.
These companies are potential advertisers on the LION web sites. Examples
include title insurance companies, credit reporting agencies, escrow service
companies, flood insurance companies, mortgage insurance companies, appraisers,
origination software companies, mortgage associations, training companies and
other general vendors to small businesses (i.e. cell phone companies, business
insurance agencies, pager companies, copier companies and general computer
hardware and software companies).

PRODUCTS AND SERVICES

       LION provides marketing and website technology to help mortgage
originators attract customers and originate loans more efficiently and cost
effectively. With proven online strategies, the LION mortgage solution delivers
a competitive advantage that generates more originator business, saves time and
money, increases loan production and streamlines the approval process.

       LION's "consumer to business" and "business to business" portals connect
the originator to a large marketplace of customers seeking home mortgages and to
a powerful network of lenders and vendors in the mortgage industry. The
Company's "consumer to business" portal, www.mortgage101.com, is one of the
nations leading consumer mortgage portals. Accessible through a variety of
leading search engines, Mortgage 101 and its network of LION affiliate internet
sites attract over 1,000,000 unique visitors each month. Its content is
co-branded to approximately 18,500 realtor sites, nearly 2,200 originator
websites, and a variety of developer direct and association websites. The
Company's "business to business" portal, www.lioninc.com, allows members to
search for the best mortgage for their customers by checking and comparing
lender pricing from one of the largest wholesale lender databases in the
country, locking the rate and sending the loan application file to a number of
lenders electronically through an advanced loan origination software system.
LION also provides this complete software package to large originator companies
under a private label license allowing them to customize their own services
under their own brand.

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       In LION's core business model, there are three distinct revenue
categories from its mortgage broker/originator and lender customers. The
categories are membership, marketing and technology fees.

       MEMBERSHIP FEES are generated from LION's subscription-based products and
services. They are LION Pro, Mortgage 101 and Free Mortgage Dot Com.

       LION PRO, used by approximately 5,200 mortgage brokers nationwide,
consists of LION Loan Search, LoanLink, News Now and Ratesheets on Demand.
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
in 77 regions in the country. There are over 120 participating lenders and
nearly 48,000 loan programs in the loan search database. The LoanLink feature is
a subprime loan exchange platform where originators can submit hard to place
loans to participating lenders. The News Now feature of LION Pro allows
originators to make informed decisions with high-value content and market data;
featuring mortgage backed securities, real time market information, financial
market analysis, economic indicators, business/service directories and
calendars. Finally, the Ratesheets on Demand service allows members to request
ratesheets from all participating lenders and receive them by either fax or
email.

       MORTGAGE 101 consists of hundreds of mortgage information pages, home
buying articles, economic and market data, prequalification tools, interactive
calculators, live interest rates displayed from LION's Multi-Lender Rate Feed
and prequalification and application tools. Mortgage 101 content educates
consumers about the mortgage process and connects them to a large network of
local originators that can provide a competitive loan product. Through the
Mortgage 101 brand, the Company has grown its co-branded real estate sites to
approximately 18,500 which consist of realtors, real estate offices, relocation
sites, associations, and city portals. The Mortgage 101 brand also includes
approximately 2,200 mortgage companies that have their web sites hosted by LION
also. LION recently completed producing a Spanish translation of
Mortgage101.com, located at Hipoteca101.com, and has partnered with a large
national origination organization to provide mortgage services for their
website.

       Originators also pay a fee for MORTGAGE 101 ORIGINATOR TOOLS which
include a suite of back-end tools used to manage and customize rates, leads and
content. This valuable management tool is integrated into their company's
existing website. This service is provided to over 2,500 mortgage brokers
nationwide.

       FREE MORTGAGE DOT COM is a template web site using Mortgage101 technology
with the mortgage originators' logo and colors delivered with no set up fees and
free one-year domain name registration. Users pay a monthly hosting fee for this
entry level service. In many cases this product becomes the first step before
moving into a series of upgrades toward larger more comprehensive enterprise
websites. There are approximately 1,100 mortgage brokers using this template web
site.

       MARKETING FEES are generated through both of LION's portal web sites;
www.lioninc.com and www.mortgage101.com. Consumers visiting the mortgage101.com
web site, check live interest rates, use pre-qualification tools, and submit
"1003" loan applications through links connecting them to LION's network of
advertisers. Originator advertisers attract customers by

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paying marketing fees for ad banners, directory listings, interest rate display,
web site promotion, and lead generation. Originators visit the lioninc.com web
site to check daily wholesale rates, submit loans, and access mortgage specific
news and content. Wholesale lenders and industry vendors attract these customers
by paying marketing fees for ad banners, web site promotion, and lead
generation.

       TECHNOLOGY FEES are generated through the sales of website development
and hosting to mortgage originators and wholesale/retail lenders. LION web sites
offer both template and custom design solutions that deliver a combination of
standard and custom content which feature, calculators to deliver valuable
information to the user, integrated consumer tools, distinct user access
modules, a preferred lender selection, business document publishing and loan
file management accessible from any business location.

       For the wholesale and/or retail lender, LION has developed technology
under the LoanCAT brand. This technology allows lenders to electronically submit
rate pricing, receive rate lock requests and "1003" loan application files.

PRODUCTS AND SERVICES INITIATIVES FOR 2003

       LION's current subscription based business model performs well in a
competitive market with higher interest rates. This more competitive market
forces mortgage brokers to compete aggressively for loan volume. They use LION's
products and services as creative ways to attract and capture more customers.
This model however, does not effectively capture larger revenue opportunities
for LION when loan volumes increase during low interest rate cycles. LION is in
the process of developing a new performance/transaction based business model
that will accelerate the Company's growth potential. LION's new model will be a
blend between both the subscription based and performance/transaction based
models.

       LEAD GENERATION. To leverage the growing traffic to its consumer
marketplace, LION has improved the conversion of its consumer traffic into
higher quality leads by enhancing profiling, filtering and routing to its
mortgage originator customers. The Company will be introducing additional
improvements throughout 2003 by incorporating more advanced qualifying criteria.
Improvements to the Mortgage 101 web site will be completed during the first
quarter of 2003 which will continue to draw more consumers into the LION
consumer portal.

       PRODUCTIVITY TOOLS FOR BROKERS. The Company has developed its first
version of an office-based LION Pro product known as LION Pro Office. This
product offers productivity software for both single and multi-user offices and
includes a private database that features a comprehensive searchable database of
each broker company's specific group of lenders. It will feature new loan
program search parameters, management tools and an advanced version of the News
Now content. This improved high-value content and market data section will
feature real time market information, financial market analysis, economic
indicators combined with the broker company's current business/service
directories and calendars.

       LION has delivered this private database product and management software
to two large originator companies and anticipates a wider scale launch of the
full product towards the end of the second quarter of 2003. LION Pro Office
customers will not only see their own lenders and loan programs but also have
access to the entire LION Pro database which gives them overall access to over
120 participating lenders totaling nearly 48,000 loan programs. This new product
targeted to the

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larger origination companies is anticipated to rapidly increase broker
membership into the LION marketplace.

       SUBPRIME DECISION ENGINE. Plans are also under way to improve LION's
LoanLink, subprime exchange platform. In November 2002, LION signed a strategic
alliance agreement that will introduce a subprime decision engine to its network
of mortgage originators and lenders. This technology will enable LION members to
submit a file and receive instantly priced, conditional loan approvals from the
nation's top subprime lenders. In addition, LION is planning to offer a private
label version of this product engine to the nation's wholesale and retail
lending institutions.

       LOAN LOCKING WITH LENDERS. Through a strategic agreement, LION has also
introduced broker approval, online loan program and product search, real-time
pricing, lock processing and file submission between mortgage brokers and
wholesale lenders. This is mostly for conforming loans, but there is also
subprime loan functionality that is beginning to be used.

       LOAN ORIGINATION SOFTWARE. In October 2002, through another key strategic
alliance, LION introduced an advanced loan origination software (LOS) product.
This new LOS offers a revolutionary straight-through processing software system
that leverages the Internet and wireless devices to allow origination teams to
easily prospect and process mortgage loans. With this product, originators are
empowered to access and share files with others anytime, anywhere, without
having to re-key data, and without traditional hardware and software expenses.
Through this alliance, LION will be able to offer a complete "lead to loan"
package that will begin to streamline the entire loan process for its members by
bundling the software with its online advertising, lead generation, web site and
membership services. This software is the vehicle that delivers the loan
application to the lender and lies at the heart of driving increased loan
production to the lender. This LOS functionality will be one of the keys to the
success of LION's new performance/transaction based business model.

SALES AND MARKETING

       Of our principal customer base, consisting of mortgage brokers, wholesale
lenders and industry affiliates, brokers currently constitute the largest source
of revenue. As the broker subscriber base grows, it is expected that the lenders
and affiliates seeking access to that broker base will follow. Consequently,
most of the marketing effort is devoted to the broker group. We continue to
focus our marketing efforts to increase the visibility of this group in a number
of ways:

       SALES FORCE. We maintain a professional sales force compensated on a
commission basis. The sales force makes telephone solicitations, handles inbound
phone inquiries and contacts brokers who register for our service.

       TRADE SHOWS. The large state mortgage broker associations conduct annual
trade shows which include a schedule of speakers and/or workshops, as well as
exhibition hall where lenders and industry affiliates promote their products
from booths. At many of these shows, we have participated as a speaker and
exhibitor.

       PRESS RELEASES AND OTHER PRESS COVERAGE. We issue press releases on
product introductions and changes, upon entering new states with a database, and
upon achieving certain

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milestones. We also have been the subject of published reviews of mortgage
technology products, quoted in trade journals and 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 broker trade shows. As we
have become increasingly known for our Internet expertise, the significance of
these engagements has grown.

       BROADCAST FAX ADVERTISING. Mortgage brokers are particularly accustomed
to receiving solicitations by fax in the form of daily rate sheet distributions
by lenders. We have developed a series of broadcast fax advertisements for the
mortgage broker industry.

       DATA FEED TO ORIGINATION SOFTWARE COMPANIES. In certain cases, we enable
our loan program data information to feed directly to our members via the
member's processing software. Any third party agreements with the processing
software vendor provide us with a mechanism to market to the vendor's customer.

       ORIGINATION SOFTWARE VENDOR INTERFACE INTO LION LOAN SEARCH(TM). We are
participating in an agreement with Calyx Software which allows a Calyx user to
open a borrower file and perform a loan search. The interface extracts the
needed information from the borrower file, launches the user's browser and
accesses the LION Loan Search(TM) results page. This provides another entry
point for the mortgage broker into our site. Similar agreements are being
pursued with other mortgage software vendors.

       NON-MEMBER SECTION AND ONLINE REGISTRATION. Most of the features of our
site are password protected, however a new broker visiting the web site without
yet having a password is able to visit selected non-member sites. The visitor is
guided through various features, illustrated with "screen captures" of LION Loan
Search(TM) and Loan~Link(TM), with explanations of our service, testimonials of
current subscribers, and a form that allows the broker to register online.

       In addition to marketing to the broker industry, we market our
business-to-consumer initiatives in a number of ways to increase the exposure of
the network of consumer sites.

       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, 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." Constant
analysis of server traffic shows that a significant number of consumers find
these sites while "surfing the Net."

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RESEARCH AND DEVELOPMENT

       We develop our own proprietary software for providing products and
services to our customers. These efforts are funded through operations and
equity financing. Research and development expense was approximately $318,000
and $267,000 for 2002 and 2001, respectively.

COMPETITION

       The market for Internet-based products and services is still intensely
competitive, rapidly evolving, and subject to rapid technological change. We
expect competition to intensify and increase in the future. Technological
barriers to entry are relatively low, and current and new competitors can launch
new sites at a relatively low cost using commercially available software.

       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. A small number of companies have developed a
searchable database of wholesale loan programs.

       We believe participation from a significant majority of lenders is
necessary to make a quality product. This creates a difficult barrier to entry
for new competitors and requires significant ramp-up times to make a competitive
product successful. Nevertheless, 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 do. These companies would 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 decision. Also, consumers
prefer to "shop globally and buy locally." Our network of consumer sites
delivers value to the consumer 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.

       We believe we will remain in a good competitive position as long as we
continue to maintain the quality of our product and our relationships with
lenders, brokers and affiliates. Our ability to compete successfully will
depend, in large part, on our ability to continually enhance and improve
existing products and services, to adapt products and services to the needs of
our customers and potential customers, to successfully develop and market new
products, and to continually improve operating efficiencies.

       We are also aware of competition in the broker home page development
market. The market is comprised of a few strong competitors, such as Myers
Internet and Ellie Mae. In addition, several industry affiliates, such as the
Loan Origination Software Providers, have entered 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 do not have the technology
necessary to provide mortgage brokers current technology specific to the
mortgage industry. We provide them the licensed

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technology allowing the developer to facilitate the local relationship. The
industry affiliates who have entered the market view their broker home page
development as an ancillary product.

       We currently host approximately 2,200 web sites. This places us as the
third largest provider of Internet sites for mortgage brokers and retail
originators. 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.

       Lender homepage competitors include a broad universe of web site makers
and technology companies. However, to the best of our knowledge, we are one of
the few companies providing lender web sites with connectivity to the mortgage
broker with advanced technology.

       There can be no assurance that we will be able to compete successfully,
that competitors will not develop technologies, products or strategic alliances
and affiliations that make our products less marketable or less useful or
desirable. Furthermore, we may not be able to successfully enhance our products
and services, develop new products or services or attain lower costs, when and
as we need them. Increased competition, price or other circumstances, could
result in erosion of our market share, and may require price reductions and
increased spending on marketing and product development. Increasing competition
for our products and services could have a material adverse effect on our
business, operating results and financial condition.

GOVERNMENT REGULATION

       We are not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, it is possible that a number of laws and regulations
may be adopted with respect to the Internet, covering issues such as user
privacy, pricing and characteristics and quality of products and services. There
can be no assurance that the enactment of laws affecting telecommunications will
not decrease the growth of the Internet, 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. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, libel and personal privacy is
uncertain. We cannot predict the impact, if any, that future regulation or
regulatory changes might have on our 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. We currently have no federally registered
trademarks or service marks, nor are we the owner or assignee of any domestic or
foreign patents. There are no trademark or service mark applications or patent
applications pending. We cannot be certain 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 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 our proprietary information in the event of any unauthorized use or
disclosure of such proprietary information.

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       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
infringement of existing or future patents, trademarks or proprietary rights of
others may occur. 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 effect upon us. In
addition, there can be no assurance that we will have the financial or other
resources necessary to enforce or defend a patent 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, 2002, we had 89 employees of which 80 were full-time.
There are 22 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.

RISK FACTORS

       You should carefully consider the following risks before you decide to
buy shares of our common stock. The risks and uncertainties described below are
not the only ones facing us. Additional risks and uncertainties, including those
risks set forth in the sections in this Annual Report on Form 10-KSB entitled
"Competition," "Proprietary Rights," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," may also adversely impact and
impair our business. If any of the following risks actually occur, our business,
results of operations or financial condition would likely suffer. In such case,
the trading price of our common stock could decline, and you may lose all or
part of the money you paid to buy our stock.


WE HAVE NO HISTORY OF SUSTAINED 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 sustained profitability and took several
important steps during 2001 by merging our subsidiary with LION, reorganizing
our senior management team, and consolidating our originator sales and service
operations. During 2002, we moved forward with (i) our three major initiatives;
enhancement of core online services for brokers, the conversion of consumer
traffic into high-value business generation, and new online management tools for
lenders and (ii) our strategic alliances with IMX, Inc. (incorporating the IMX
Exchange(R) technology and its participating brokers and lenders into the LION
marketplace), ABC Virtual Communications, Inc. (joint marketing and licensing
agreement that empowers LION to deliver ABC Virtual's unique loan origination
software, ECLoanPro, to LION's network of mortgage originators and lenders) and
LoanRover Decision Systems, Inc. (integration of a multi-lender subprime
decision engine to LION's

                                       12
<PAGE>


members). All of these initiatives and alliances are in various stages of
integration with the Company's operations.

       Annual revenues increased to $6,409,568 from $6,010,604 for 2002 and
2001, respectively. The growth has come primarily from improvements to existing
core products and services. The potential growth in revenues related to our
initiatives and strategic alliances will not materially impact operations until
early to mid 2003. This assumes the initiatives and alliances achieve market
acceptance.

       We did achieve profitability for the second and third quarters of 2001,
and net income for the year was $41,568. The loss for first quarter 2002
totaling $40,896 was anticipated and the loss for second quarter was $324,834
which included the unanticipated Anders litigation settlement totaling $340,000.
While the third quarter and fourth quarters of 2002 were profitable at $115,461
and $141,182, respectively, there was a loss for the year totaling $109,087.

       We currently anticipate that 2003 will be a profitable year, however our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in new and rapidly evolving markets,
including uncertainty of revenues, markets, profitability and the need to raise
capital to fund our ongoing operations. 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,
the control of expense levels and the success of our business activities. Our
future operating results will depend on a variety of factors, including those
discussed in the other risk factors set forth below.


WE WILL NEED ADDITIONAL FINANCING; CURRENT FUNDS ARE INSUFFICIENT TO FINANCE OUR
PLANS FOR GROWTH AND OUR OPERATIONS AT THE DESIRED RAPID PACE; WE COULD BE
REQUIRED TO CUT BACK OPERATIONS IF WE ARE UNABLE TO RAISE OR OBTAIN NEEDED
FUNDING.

       Our existing working capital is not sufficient to allow us to execute our
business plan as fast as we would like. We are planning to fund internally the
development and implementation of our initiatives and the integration of our new
strategic alliances through funds generated from Company operations.

       While the Company did grow its cash reserves during the first and second
quarters of 2002, we had to pay out $340,000 in early July 2002 related to the
judgment on the Anders lawsuit. During the fourth quarter were able to again
increase our cash reserves while continuing to fund our initiatives and
integration with strategic alliances. We will continue to grow our cash reserves
and fund the development and implementation of our plans through operations, but
additional resources are needed to grow at our desired pace. If we are unable to
obtain adequate capital financing through equity or other financings, we may not
be able to successfully implement our short-term or long-term plans for
expansion or to meet our working capital requirements. However, even if we
succeed in our business plans, we may experience rapid growth requiring
additional funds to expand our operations and organization.

       We do not have current commitments for financing sufficient to fund our
expansion and marketing plans at our desired pace. In order to provide adequate
working capital, we intend to explore a number of options to secure financing.
We might not succeed, however, in raising equity

                                       13
<PAGE>


capital or in negotiating and obtaining additional and acceptable financing when
we need it. Our ability to obtain additional capital may depend on market
conditions (including the market for Internet stocks), national and global
economies and other factors beyond our control. If adequate capital were not
available or were not available on acceptable terms at a time when we needed it,
our ability to execute our business plans, develop or enhance our services or
respond to competitive pressures would be significantly impaired.


WE ARE SUBSTANTIALLY DEPENDENT ON MORTGAGE BROKERS AND THE MORTGAGE
BROKER INDUSTRY.

       LION's most critical customer continues to be the mortgage broker.
Mortgage broker fees comprised of memberships, website services, lead generation
and ad banners were 84% of our total revenues during 2002. Customer agreements
are short-term and renewable. There can be no assurance that these subscribers
will continue to participate in the LION marketplace, or that we will be able to
attract new mortgage brokers at rates sufficient to maintain a stable or growing
revenue base. We cannot assure you that the market for our products and services
will continue to develop as expected. If the mortgage broker market develops
more slowly than expected or becomes saturated with competitors, or if our
products and services do not continue to achieve market acceptance, our business
operating results and financial condition may be materially adversely affected.

       During the last 15 years, the mortgage brokerage industry has grown from
infancy to capturing a significant portion of the mortgage origination market,
and the current trend shows continued gains. While there are no clear threats
that would cause one to conclude today that the industry will not continue to
thrive, the health of the industry is important to LION's future, and there are
potential risks. These include potential lawsuits over broker and wholesale
lender compensation systems, increased regulation that may add costs or limit
profitability, and possible changes in how consumers obtain mortgages, possibly
driven by technology or by efforts to standardize and automate the mortgage
process. In addition, the overall volume of business is directly related to
interest rates and overall economic conditions. Recessionary economic conditions
or a rise in interest rates may adversely affect the ability of prospective
consumers to obtain financing required for construction and refinance. Any of
these may reduce the overall share of the market handled by mortgage brokers,
which could materially adversely affect our business.


WE WILL DEPEND ON THE CONTINUED UTILITY OF THE INTERNET AND MAY HAVE DIFFICULTY
ACCOMMODATING TECHNOLOGY ADVANCES.

       The performance of our web site will continue to be dependent on the
successful operation of the Internet and on certain third parties and services
(such as Internet service providers, Internet backbone providers and Web
browsers). Our Internet services will be designed around certain technology
standards. Current and future success of our services may become subject to
additional industry standards as Internet commerce rapidly evolves. As a result,
our business may incur additional costs of unknown proportions as we are
confronted with new technology standards. In addition, we may not be successful
in our efforts to enhance existing services and to develop, introduce and market
new services. Furthermore, our enhancements and new services may not adequately
meet the requirements of the marketplace and achieve market acceptance. As the
Internet develops, it is possible that incompatibility or lack of appropriate
features could impact our business. In addition, the widespread adoption of new
Internet or telecommunications technologies or standards

                                       14
<PAGE>


could require us to make substantial expenditures to modify or adapt our
services. In this case, the new Internet or telecommunications services or
enhancements that we offer could contain design flaws or other defects. Although
we expect to be responsive to changes in the Internet and technology, we may not
be successful in achieving widespread acceptance of our services before
competitors offer services with speed and performance equal to or greater than
ours.

       Much of the architecture that we employ was designed for our original
business model. In the future, we may be required to make significant changes to
our architecture, including moving to a completely new architecture. If we are
required to switch architectures, we may incur substantial costs and experience
delays or interruptions in our service. If we experience delays or interruptions
in our service due to inadequacies in our current architecture or as a result of
a change in architectures, users may become dissatisfied with our service and
move to competing providers of online services. Further, to the extent that
demand for our services increases, we will need to expand our infrastructure,
including the capacity of our hardware servers and the sophistication of our
software. This expansion is likely to be expensive, complex, and require
additional technical expertise. Any loss of traffic, increased costs,
inefficiencies or failures to adapt to new technologies and the associated
adjustments to our architecture would have a material adverse effect on our
business.


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 and its operations. With respect to our proprietary software, while backup
has been provided by the other full-time company engineers, currently there are
portions of the database management and development that rely solely on Sam
Ringer who is a co-author of the LION Pro software. We are continuing to create
the engineering redundancy that will reduce the reliance on this individual, but
have not completed this task and will not for some time. Furthermore, we have
not entered into employment agreements with these significant employees except
for our CEO/President, CFO and COO. 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. We provide stock options, which
currently serve to retain and motivate key employees as they become vested in
their initial stock option grants. While management personnel are typically
granted additional stock options, which will usually vest over a period of four
years, subsequent to their hire date to provide additional incentive to remain
at LION, the initial option grant is typically the largest and an employee may
be more likely to leave our employ upon completion of the vesting period for the
initial option grant. 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.

                                       15
<PAGE>


OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

       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. In
addition, the majority of our network infrastructure is located in Seattle,
Washington, an area susceptible to earthquakes. The prospect of such unscheduled
interruptions is quite possible in the foreseeable future, and we are unable to
predict either their occurrence, duration or cessation. We do not have multiple
site capacity for all of our services in the event of any such occurrence.

       Despite the implementation of security measures, 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.


WE MAY BE UNABLE TO EFFECTIVELY MANAGE OUR DESIRED GROWTH, WHICH COULD
ULTIMATELY STRAIN OUR FINANCIAL, PERSONNEL AND TECHNICAL RESOURCES.

       We intend to expand our level of operations and will need an effective
planning and management process to implement our business plan successfully.
Depending on the amount and timing of any increase in business, this expansion
could place a strain on our management, operational, software and financial
resources. Some areas that could be put under strain by growth include
marketing, customer support, customer billing and web site support and
maintenance. To accommodate growth, if any, we may be required to implement and
improve our management, operating and financial systems, procedures and controls
on a timely basis and to expand, train, motivate and manage our employees. There
is a risk, however, that our systems may be inadequate to support our existing
and future operations or that hiring, training and managing new employees will
be more difficult than we anticipate.


OUR STOCK TRADES ON THE OTC BULLETIN BOARD. OUR STOCK PRICE HAS BEEN VOLATILE
HISTORICALLY, WHICH MAY MAKE IT MORE DIFFICULT FOR YOU TO RESELL SHARES WHEN YOU
WANT AT PRICES YOU FIND ATTRACTIVE.

       The trading price of our common stock has been and may continue to be
subject to wide fluctuations. During 2002, the closing sale prices of our common
stock on the OTC Bulletin Board ranged from $.03 to $.10 per share and the sale
price of our common stock closed at $.05 per share on December 31, 2002. Our
stock price may fluctuate in response to a number of events and factors, such as
quarterly variations in operating results, announcements of technological
innovations or new

                                       16
<PAGE>


products by us or our competitors, changes in financial estimates and
recommendations by securities analysts, the operating and stock price
performance of other companies that investors may deem comparable, and news
reports relating to trends in our markets. In addition, the stock market in
general, and the market prices for Internet-related companies in particular,
have experienced extreme volatility that often has been unrelated to the
operating performance of these companies. These broad market and industry
fluctuations may adversely affect the price of our stock, regardless of our
operating performance.

       The OTC Bulletin Board is an electronic quotation medium used by
subscribing broker dealers to reflect dealer quotations on a real-time basis.
This over-the-counter market provides significantly less liquidity than the
NASDAQ Stock Market. Quotes for stocks included on the OTC Bulletin Board are
not listed in the financial sections of newspapers as are those for The NASDAQ
Stock Market. Shares that are thinly traded on the Bulletin Board often trade
only infrequently and experience a significant spread between the market maker's
bid and asked prices. Therefore, prices for securities traded solely on the OTC
Bulletin Board may be difficult to obtain and holders of common stock may be
unable to resell their securities at or near their original offering price or at
any price. Furthermore, volatility or a lack of positive performance in our
stock price may adversely affect our ability to retain key employees, all of
whom have been granted stock options. In the event our securities are not
included on the OTC Bulletin Board and do not qualify for the NASDAQ, quotes for
the securities may be included in the electronic "pink sheets" for the
over-the-counter market.


VOLUME OF SHARES ELIGIBLE FOR SALE COULD IMPAIR OUR STOCK PRICE AND HINDER
FUTURE FINANCING EFFORTS.

       As of December 31, 2002, a substantial majority of the 31,441,978
outstanding shares of common stock and 1,500,000 shares of convertible preferred
stock held by existing shareholders were issued and sold by the Company in
private transactions in reliance on exemptions from the registration provisions
of the Securities Act and are restricted securities within the meaning of Rule
144 under the Securities Act. Of the outstanding shares, including shares held
by affiliates, 32,401,978 or 98% were issued on or before December 31, 2001, and
may be currently eligible for resale in the open market, if any, subject to the
volume and other conditions of Rule 144. There are no contractual restrictions
on the resale of the outstanding common stock. The sale in the public market of
these shares of restricted common stock, or the perception that these sales may
occur, may depress prevailing market prices of the common stock.


OUTSTANDING OPTIONS AND WARRANTS, WHEN EXERCISED, WILL FURTHER DILUTE COMMON
SHAREHOLDERS.

       As of December 31, 2002, there were outstanding stock options to purchase
an aggregate of 5,803,900 shares of common stock at exercise prices ranging from
$.05 to $2.00 per share, and warrants to purchase 1,471,667 shares of common
stock at exercise prices ranging from $.40 to $.78 per share. Employee options
are subject to a restriction whereby option holders have agreed to not sell or
otherwise transfer or dispose of shares of the common stock issued upon exercise
of options in an amount which shall exceed 250,000 shares during any three-month
period. The exercise of these outstanding options and warrants will dilute the
percentage ownership of common stockholders, and any sales in the public market
of shares of common stock underlying such securities may adversely affect
prevailing market prices for the common stock. Furthermore, the terms upon which
we will be

                                       17
<PAGE>


able to obtain additional equity capital may be adversely affected since the
holders of these outstanding securities can be expected to exercise their
respective rights therein at a time when we would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than those
provided in such securities.


ITEM 2.   DESCRIPTION OF PROPERTY

       Our executive offices are located in Seattle, Washington, where we
currently lease approximately 8,274 square feet. The lease expires on July 31,
2007. We have the right to use this space for computer information services and
related business uses.

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

       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.


ITEM 3.   LEGAL PROCEEDINGS

       We are not a party to any legal proceedings.


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

       The Annual Meeting of our shareholders was held December 13, 2002 in
Bellevue, Washington. Our common stock and Series A Preferred Stock were the
only classes of securities entitled to vote at the Annual Meeting. Only
shareholders of record at the close of business on October 28, 2002 (Record
Date) were entitled to receive notice of the Annual Meeting. As of the Record
Date, there were 31,413,478 shares of common stock and 1,500,000 shares of
Series A Preferred Stock outstanding. There were 21,07,234 shares or 63.8
percent of the outstanding shares represented at the Annual Meeting in person or
by proxy, each share entitled to one vote on each matter to be voted upon.
Various matters were submitted for a vote by the shareholders as summarized on
the next page.

                                       18
<PAGE>


PROPOSAL # 1 - Election of directors.

       The following directors were elected to serve on the LION Board of
Directors for a one-year term.

                                                       Vote of the Stockholders
                        Positions and Offices Held   ---------------------------
    Directors               Within the Company            For         Withheld
--------------------    --------------------------   ------------- -------------
John A. McMillan        Chairman of the Board         20,575,595      431,639
David Stedman           Director, President & CEO     20,224,191      783,043
J.C. "Tuck" Marshall    Director                      20,597,626      409,608
Sam Ringer              Director                      20,750,877      256,357
Jacob L. Smith          Director                      20,768,301      238,933
Randall D. Miles        Director                      20,760,796      246,438
Griffith J. Straw       Director                      20,768,301      238,933


PROPOSAL # 2 - Ratification of independent accountants.

       Grant Thornton was ratified as the independent accountants for the fiscal
year ended December 31, 2002 with a vote of 20,907,498 for, 74,126 against and
25,610 abstaining.


                                     PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

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:

Fiscal Year Ended December 31,              2002                     2001
                                      -----------------       -----------------
                                       High        Low         High        Low
                                      ------     ------       ------     ------
First Quarter                         $0.100     $0.075       $0.172     $0.063
Second Quarter                         0.090      0.060        0.100      0.060
Third Quarter                          0.095      0.065        0.110      0.080
Fourth Quarter                         0.100      0.030        0.090      0.050

       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.

                                       19
<PAGE>


       There were approximately 1,271 holders of record of our common stock as
of March 13, 2003.

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.

SHARES ELIGIBLE FOR FUTURE SALE

       In general, Rule 144 under the 1933 Act provides that securities may be
sold if there is current public information available regarding the Company and
the securities have been held at least one year. Rule 144 also includes
restrictions on the amount of securities sold, the manner of sale and requires
notice to be filed with the SEC. Under Rule 144 a minimum of one year must
elapse between the later of the date of the acquisition of the securities from
the issuer or from an affiliate of the issuer, and any resale under the Rule. If
a one-year period has elapsed since the date the securities were acquired, the
amount of restricted securities that may be sold for the account of any person
within any three-month period, including a person who is an affiliate of the
Company, may not exceed the greater of 1% of the then outstanding shares of
common stock of the Company or the average weekly trading volume in the
over-the-counter market during the four calendar weeks preceding the date on
which notice of sale is filed with the SEC. If a two-year period has elapsed
since the date the securities were acquired from the issuer or from an affiliate
of the issuer, a seller who is not an affiliate of the Company at any time
during the three months preceding a sale is entitled to sell the shares without
regard to volume limitations, manner of sale provisions or notice requirements.
See Risk Factors -- VOLUME OF SHARES ELIGIBLE FOR SALE COULD IMPAIR OUR STOCK
PRICE AND HINDER FUTURE FINANCING EFFORTS.

RECENT SALES OF UNREGISTERED SECURITIES

       During the fourth quarter of 2002, common stock totaling 153,500 shares
at prices ranging from $.056 to $.064 per share totaling $9,284 were issued to
two employees in lieu of cash for deferred compensation. The recipients were
accredited, had access to all material information concerning the Company, and
acquired the securities for investment. Appropriate legends were affixed to the
certificates issued in the transactions. The issuances were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.

                                       20
<PAGE>


ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS

       The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the related Notes included elsewhere in this document.

SUMMARIZED RESULTS OF OPERATIONS

CONDENSED RESULTS

                              Three months ended          For the Year Ended
                                 December 31,                December 31,
                          -------------------------   -------------------------
                              2002          2001          2002          2001
                          -----------   -----------   -----------   -----------

Revenues                  $ 1,664,054   $ 1,463,445   $ 6,409,568   $ 6,010,604
Operating expenses          1,520,607     1,491,513     6,119,823     5,963,416
                          -----------   -----------   -----------   -----------
  Operating income (loss)     143,447       (28,068)      289,745        47,188
Other expense - net            (2,265)         (229)     (398,832)       (5,620)
                          -----------   -----------   -----------   -----------
    Net income (loss)     $   141,182   $   (28,297)  $  (109,087)  $    41,568
                          ===========   ===========   ===========   ===========


       For the fourth quarter of 2002, revenue was $1.66 million, up 14% from
$1.46 million for the fourth quarter of 2001. Revenue for the full year of 2002
was $6.41 million, up 7% from $6.01 million for 2001.

       Net income for fourth quarter of 2002 was approximately $141,000 compared
to a net loss of approximately $28,000 for the same quarter in the prior year.
The Company incurred a net loss for the full year of 2002 of approximately
$109,000 compared to net income of $42,000 for 2001. The net loss in 2002 was
due to settlement charges and legal fees totaling approximately $647,000 related
to the Billy Anders litigation, which was settled in early July 2002. Excluding
settlement charges included in other expense and related legal expenses included
in operating expenses during both 2002 and 2001, net income would have remained
unchanged at $141,000 for the fourth quarter and been approximately $538,000 for
all of 2002, up from net income of approximately $28,000 and $125,000,
respectively, for the same periods in 2001. The Company is pursuing ongoing
negotiations with its insurance carrier to recapture some if not all of the
legal fees and settlement amount related to the Anders case. It is anticipated
that this will be resolved sometime during the first half of 2003.

       At the beginning of 2002, the Company implemented SFAS No. 142 which
eliminates the amortization of goodwill and requires periodic review for
potential impairment. Amortization expense totaling $113,360 was included in the
operating results for 2001. No amortization expense for goodwill has been
recorded in 2002.

                                       21
<PAGE>


DETAILED RESULTS OF OPERATIONS

REVENUES

                                2002          2001
                             ----------    ----------
     REVENUES BY CATEGORY
     Membership fees         $2,979,790    $2,913,518
     Marketing fees           2,330,642     2,016,697
     Technology fees          1,077,526     1,060,268
     Other fees                  21,610        20,121
                             ----------    ----------

     Total revenues          $6,409,568    $6,010,604
                             ==========    ==========


       Revenues increased to $6,409,568 from $6,010,604 for the years ended
December 31, 2002 and 2001, respectively. This represents an increase of
$398,964 or 7%. Total revenues of $6,409,568 for 2002 were comprised of mortgage
broker fees of $5,358,994 or 84% and lender fees of $1,050,574 or 16%. Total
revenues of $6,010,604 for 2001 were comprised of mortgage broker fees of
$4,768,822 or 79% and lender fees of $1,241,782 or 21%.

       Fees from mortgage brokers increased to $5,358,994 from $4,768,822 for
2002 and 2001, respectively. This represents an increase of $590,172 or 12%. The
increase was due primarily to growth in membership fees (LION Pro - Loan Search,
Mortgage 101 - originator tools, and Free Dot Com - template websites) totaling
$66,272, marketing fees (lead generation and advertising) totaling $344,248,
technology fees (website development and hosting) totaling $167,934, and other
revenues totaling $11,718.

       Fees from lenders decreased to $1,050,574 from $1,241,782 for 2002 and
2001, respectively. This represents a decrease of $191,208 or 15%. The decrease
was due to decreases in marketing fees (lead generation and advertising)
totaling $30,303, technology fees (website development and hosting) totaling
$150,676, and other fees totaling $10,229.


DIRECT COSTS

       Direct costs are comprised primarily of web site fulfillment, technology
infrastructure support, project management, quality control, and salaries
related to the daily updates to rates, fees, and other loan program information
in the mortgage lender database. Direct costs increased to $1,079,660 from
$1,053,960 for the years ended December 31, 2002 and 2001, respectively. This
represents an increase of $25,700 or 2%. Direct costs as a percentage of
revenues decreased to 17% from 18% for 2002 and 2001, respectively. The increase
in expense is due to increased database support functions as LION expanded its
database of lenders during the latter half of 2002. This increase was offset by
a decrease in (i) LoanCat projects not requiring the same level of fulfillment
resources during 2002 as compared to the prior year and (ii) the redeployment of
infrastructure resources beginning in the fourth quarter of 2001 to research and
development efforts on new product initiatives.

                                       22
<PAGE>


SELLING AND MARKETING

       Marketing and selling expenses are comprised of marketing and advertising
costs, sales salaries and related support costs. Marketing and selling expenses
increased to $1,843,857 from $1,725,005 for the years ended December 31, 2002
and 2001, respectively. This represents an increase of $118,852 or 7%. These
expenses as a percentage of revenues were 29% for both 2002 and 2001. The
increase is due to growth in the commissioned broker sales force and related
support costs, increased advertising costs for lead generation and greater
participation in trade shows.


GENERAL AND ADMINISTRATIVE

       General and administrative expenses are comprised of management and
administrative salaries and related costs, legal and audit fees, outside
consulting services, telecommunications expenses, occupancy costs, and other
administrative related expenses. General and administrative expenses decreased
to $2,413,824 from $2,418,803 for the years ended December 31, 2002 and 2001,
respectively. This represents a decrease of $4,979. General and administrative
expenses as a percentage of revenues were 38% and 40% for the years ended
December 31, 2002 and 2001, respectively. The decrease in costs was due
primarily to a reduction in rent expense due to the move to the new corporate
headquarters in Seattle from Renton, telephone costs due to beneficial contract
changes, improvement in bad debt experience, and the reallocation of upper
management resources to research and development and direct costs. This decrease
was offset by legal fees related to the Billy Anders litigation totaling
approximately $307,000 and $83,000 in 2002 and 2001, respectively.


RESEARCH AND DEVELOPMENT

       Research and development expenses are comprised primarily of engineering
salaries and related costs. Research and development expenses increased to
$317,909 from $267,113 for the years ended December 31, 2002 and 2001,
respectively. This represents an increase of $50,796 or 19%. Research and
development expenses as a percentage of revenues increased to 5% from 4% for the
years ended December 31, 2002 and 2001, respectively. The increase is primarily
due to the reallocation of fulfillment, infrastructure and administrative
personnel to the research and development function to work on three major
initiatives for 2002; enhancement of core online services for brokers, the
conversion of consumer traffic into higher-value lead generation, and new online
management tools for lenders.


DEPRECIATION AND AMORTIZATION

       Depreciation and amortization expense decreased to $464,573 from $498,535
for the years ended December 31, 2002 and 2001, respectively. This represents a
decrease of $33,962 or 7%. The decrease was due to the implementation of SFAS
No. 142 at the beginning of 2002 which eliminated the amortization of goodwill.
Amortization of goodwill during 2001 that did not recur in 2002 amounted to
$113,360. This reduction in 2002 was offset by additional depreciation on new
fixed asset additions and amortization of internally developed software.

                                       23
<PAGE>


OTHER EXPENSE

       Other expense totaling $390,000 for the year ended December 31, 2002
includes the $340,000 settlement related to the Billy Anders litigation and
$50,000 settlement related to past software licensing infringements and
penalties. See "NOTE H - SETTLEMENT OF LEGAL MATTERS" in the Company's "NOTES TO
FINANCIAL STATEMENTS".


LIQUIDITY AND CAPITAL RESOURCES

       During 2002, the Company primarily funded its activities through
operations and lease financing. At December 31, 2002, we had approximately
$404,000 in cash and cash equivalents.

                                          2002          2001
                                       ---------     ---------
     NET CASH PROVIDED BY (USED IN)
     Operating activities              $ 446,459     $ 527,638
     Investing activities               (501,745)     (339,266)
     Financing activities                (21,707)      175,284
                                       ---------     ---------

     Net (decrease) increase           $ (76,993)    $ 363,656
                                       =========     =========

OPERATING ACTIVITIES

       During 2002, operating activities provided net cash of $446,459 compared
to $527,638 for 2001. The net cash provided by operating activities for 2002 was
primarily attributable to (i) revenue growth, primarily from our mortgage broker
customers, (ii) improved bad debt experience, (iii) a reduction in occupancy
costs and other related costs due to moving the company headquarters to a
smaller, more efficient location in Seattle, and (iv) a reduction in telephone
costs due to beneficial contract changes. The increase was offset by (i) the
funding of legal expenses totaling approximately $307,000 related to the Billy
Anders trial and (ii) the judgment resulting from the trial which was paid in
early July 2002 totaling $340,000.

       The net cash provided by operating activities for 2001 was primarily
attributable to efficiencies gained from (i) the merger of the parent and
subsidiary companies, (ii) the closure of the Spokane sales office (iii) the
consolidation of all originator sales functions in the Denver sales office and
(iv) the reorganization of the engineering department. These cost savings were
offset by payments on accounts payable and other accrued liabilities.

INVESTING ACTIVITIES

       During 2002, we used net cash of $501,745 for our investing activities
which was primarily for (i) the capitalized portion of software development
costs related to the Company's three initiatives; enhancement of core online
services for brokers, the conversion of consumer traffic into higher-value lead
generation, and new online management tools for lenders and (ii) upgrades to
hardware and software for the data center that delivers the Company's products
and services.

       During 2001, we used net cash of $339,266 for our investing activities
which was primarily for the capitalized portion of our software development
costs related to (i) our migration to a new data

                                       24
<PAGE>


base platform, (ii) additional solutions to automated underwriting submissions,
and (iii) upgrades to internal reporting systems.

FINANCING ACTIVITIES

       During 2002, the net use of cash for financing activities was $21,707.
Cash used was primarily related to notes payable on the acquisition of
application and database software for the Company's data center.

       During 2001, net cash proceeds from financing activities were $177,550.
Proceeds received from financing activities were primarily the result of a
private placement of the Company's common stock totaling $175,000.


AGGREGATE CONTRACTUAL OBLIGATIONS

                                              Payments Due by Period
                                  ----------------------------------------------
                                               Less Than
                                     Total      1 Year     1-3 Years   3-5 Years
                                  ----------  ----------  ----------  ----------
CONTRACTUAL OBLIGATIONS
Long-term debt                    $   17,617  $    8,055  $    9,562  $     --
Capital lease obligations             86,012      37,075      48,937        --
Operating lease obligations        1,823,100     367,500     765,900     689,700

                                  ----------  ----------  ----------  ----------
Total contractual obligations     $1,926,729  $  412,630  $  824,399  $  689,700
                                  ==========  ==========  ==========  ==========


       The above table represents the Company's total contractual obligations as
of December 31, 2002. See "NOTE E - LONG-TERM OBLIGATIONS" and "NOTE G -
COMMITMENTS AND CONTINGENCIES" in the Company's "NOTES TO FINANCIAL STATEMENTS"
below for additional information.


2003 PLANS

       The Company is continuing to implement its business plan which includes
enhancing core products and services through internal research and development
projects and strategic alliances with companies providing "best of breed"
products and services. In addition, the Company is in the process of moving to a
blend of its existing subscription based business model combined with a
performance/transaction based model which will allow the Company to take
advantage of cyclical swings in mortgage loan volumes. See additional comments
under the heading "PRODUCTS AND SERVICES INITIATIVES FOR 2003" in Item 1 above.

       To ensure operational success of our plans for 2003, the Company expects
to make greater investments in marketing, personnel, and professional services.
It is management's belief that working capital from operations will be adequate
to fund the Company's initiatives, integrate with its strategic alliance
partners, and enhance core business.

                                       25
<PAGE>


       During 2002, we were able to fund our initiatives from operations. In
addition, not including the judgment from the Anders litigation totaling
$340,000 that was paid in July 2002, the Company has been able to grow its
available cash each quarter along with achieving profitability for the third and
fourth quarters of 2002. We further anticipate being profitable during each
quarter of 2003.


CRITICAL ACCOUNTING POLICIES

       LION's financial statements and accompanying notes are prepared in
accordance with U.S. GAAP. Preparing financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses. These estimates and assumptions are affected
by management's application of accounting policies. Critical accounting policies
for LION include revenue recognition, accounting for internally-developed
software, accounting for research and development costs, accounting for legal
contingencies, and accounting for income taxes.

       LION accounts for goodwill in accordance with SFAS 142, GOODWILL AND
OTHER INTANGIBLE ASSETS, which requires that goodwill be tested for impairment
at the reporting unit level on an annual basis and between annual tests in
certain circumstances. Application of the goodwill impairment test requires
judgment, including the identification of reporting units, assigning assets and
liabilities to reporting units, assigning goodwill to reporting units, and
determining the fair value of each reporting unit. Significant judgments
required to estimate the fair value of reporting units include estimating future
cash flows, determining appropriate discount rates and other assumptions.
Changes in these estimates and assumptions could materially affect the
determination of fair value for each reporting unit.

       LION accounts for research and development costs in accordance with
several accounting pronouncements, including SFAS 2, ACCOUNTING FOR RESEARCH AND
DEVELOPMENT COSTS, and SFAS 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO
BE SOLD, LEASED, OR OTHERWISE MARKETED. SFAS 86 specifies that costs incurred
internally in creating a computer software product should be charged to expense
when incurred as research and development until technological feasibility has
been established for the product. Once technological feasibility is established,
all software costs should be capitalized until the product is available for
internal use by the Company. Judgment is required in determining when the
technological feasibility of a product is established. The Company expenses all
research and development costs when incurred.

       LION from time to time is involved in certain legal matters arising
during the normal course of business. Should they occur, the outcomes of these
various legal proceedings and claims are subject to significant uncertainty.
SFAS 5, ACCOUNTING FOR CONTINGENCIES, requires that an estimated loss from a
loss contingency should be accrued by a charge to income if it is probable that
an asset has been impaired or a liability has been incurred and the amount of
the loss can be reasonably estimated. Disclosure of a contingency is required if
there is at least a reasonable possibility that a loss has been incurred. The
Company evaluates, among other factors, the degree of probability of an
unfavorable outcome and the ability to make a reasonable estimate of the amount
of loss. Changes in these factors could materially impact the Company's
financial position or its results of operations.

       SFAS 109, ACCOUNTING FOR INCOME TAXES, establishes financial accounting
and reporting standards for the effect of income taxes. The objectives of
accounting for income taxes are to

                                       26
<PAGE>


recognize the amount of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in an entity's financial statements or tax returns.
Judgment is required in assessing the future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Fluctuations in the actual outcome of these future tax consequences could
materially impact the Company's financial position or its results of operations.


ITEM 7.   FINANCIAL STATEMENTS

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

     Report of Independent Certified Public Accountants
     Balance Sheets
     Statements of Operations
     Statement of Stockholders' Equity
     Statements of Cash Flows
     Notes to Financial Statements

                                       27
<PAGE>


Report of Independent Certified Public Accountants



Board of Directors and Stockholders
LION, Inc.

We have audited the accompanying balance sheets of LION, Inc. as of December 31,
2002 and 2001, and the related  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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes 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 financial  statements  referred to above present fairly, in
all material  respects,  the financial position of LION, Inc. as of December 31,
2002 and 2001,  and the  results  of its  operations  and its cash flows for the
years then ended in conformity with accounting  principles generally accepted in
the United States of America.

As  discussed  in  Note A to  the  financial  statements,  the  Company  adopted
Statement  of  Financial  Accounting  Standards  No.  142,  "GOODWILL  AND OTHER
INTANGIBLE ASSETS" ("SFAS 142") on January 1, 2002.


/s/  Grant Thornton LLP
Portland, Oregon
February 14, 2003

                                       28
<PAGE>


                                   LION, Inc.
                                 BALANCE SHEETS
                                  December 31,

                                     ASSETS

                                                         2002           2001
                                                     -----------    -----------
CURRENT ASSETS
  Cash and cash equivalents                          $   403,917    $   480,910
  Accounts receivable, less allowance for
     doubtful accounts of $62,400 and
     $58,000 in 2002 and 2001, respectively              347,661        363,168
  Prepaid expenses and other                              71,388         72,579
                                                     -----------    -----------

       Total current assets                              822,966        916,657

PROPERTY AND EQUIPMENT, net                              940,372        875,807

OTHER ASSETS
  Goodwill - net                                         273,955        273,955
  Other assets                                            37,908         33,022
                                                     -----------    -----------

                                                     $ 2,075,201    $ 2,099,441
                                                     ===========    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                   $   111,340    $   129,240
  Accrued liabilities                                    329,671        306,338
  Current maturities of long-term obligations             35,330         21,278
  Deferred revenue                                       295,497        277,449
                                                     -----------    -----------

       Total current liabilities                         771,838        734,305

LONG - TERM OBLIGATIONS, less current maturities          52,495         51,325

COMMITMENTS AND CONTINGENCIES                               --             --

STOCKHOLDERS' EQUITY
  Preferred stock, par value $.001 per share;
    authorized 5,000,000 shares; liquidation
    value $900,000                                         1,500          1,500
  Common stock - authorized, 50,000,000 shares
    of $.001 par value                                    31,442         31,027
  Additional contributed capital                      11,741,101     11,716,622
  Notes receivable from stockholders                        --          (21,250)
  Accumulated deficit                                (10,523,175)   (10,414,088)
                                                     -----------    -----------
                                                       1,250,868      1,313,811
                                                     -----------    -----------

                                                     $ 2,075,201    $ 2,099,441
                                                     ===========    ===========

The accompanying notes are an integral part of these statements.

                                       29
<PAGE>


                                   LION, Inc.

                            STATEMENTS OF OPERATIONS

                             Year ended December 31,


                                                         2002           2001
                                                      ----------     ----------

Revenues                                              $6,409,568     $6,010,604

Expenses
  Direct costs                                         1,079,660      1,053,960
  Selling and marketing                                1,843,857      1,725,005
  General and administrative                           2,413,824      2,418,803
  Research and development                               317,909        267,113
  Depreciation and amortization                          464,573        498,535
                                                      ----------     ----------
                                                       6,119,823      5,963,416
                                                      ----------     ----------

       Operating income                                  289,745         47,188

Other income (expense)
  Interest expense                                       (11,060)        (2,720)
  Interest income                                          1,988          3,011
  Other income                                               240          5,740
  Other expense (Note H)                                (390,000)       (11,651)
                                                      ----------     ----------

       NET (LOSS) INCOME                              $ (109,087)    $   41,568
                                                      ==========     ==========

(Loss) income per common share - basic and diluted    $     --       $     --
                                                      ==========     ==========


The accompanying notes are an integral part of these statements.

                                       30
<PAGE>


                                   LION, Inc.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

                     Years ended December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                                               Notes
                                   Preferred stock        Common stock         Additional    receivable
                                  -----------------  ----------------------   contributed       from      Accumulated
                                    Shares   Amount     Shares      Amount       capital    stockholders    deficit        Total
                                  ---------  ------  -----------   --------   ------------   ---------   ------------   -----------
<S>       <C>                     <C>        <C>      <C>          <C>        <C>            <C>         <C>            <C>
Balance at
  January 1, 2001                 1,500,000  $1,500   32,665,311   $ 32,665   $ 12,429,956   $(969,375)  $(10,455,656)  $ 1,039,090
Issuance of common stock
  in conjunction with
  exercise of stock options              --      --      140,000        140         23,660     (21,250)            --         2,550
Common stock issued in lieu
  of cash compensation                   --      --      320,000        320         36,180          --             --        36,500
Issuance of common stock in
  conjunction with a Private             --      --    1,166,667      1,167        173,833          --             --       175,000
  Placement Offering
Issuance of stock options
  for consulting                         --      --           --         --         19,103          --             --        19,103
  services received
Common stock returned for
  cancellation of notes
  receivable                             --      --   (3,265,000)    (3,265)      (966,110)    969,375             --            --
Net income for the year                  --      --           --         --             --          --         41,568        41,568
                                  ---------  ------  -----------   --------   ------------   ---------   ------------   -----------
Balance at December 31, 2001      1,500,000   1,500   31,026,978     31,027     11,716,622     (21,250)   (10,414,088)    1,313,811
Issuance of common stock in
  conjunction with exercise
  of stock options                       --      --       15,000         15            885          --             --           900
Common stock issued in lieu
  of  compensation                       --      --      525,000        525         37,921          --             --        38,446
Issuance of stock options
  for consulting services
  received                               --      --           --         --          6,798          --             --         6,798
Common stock returned for
  cancellation of notes
  receivable                             --      --     (125,000)      (125)       (21,125)     21,250             --            --
Net loss for the year                    --      --           --         --             --          --       (109,087)     (109,087)
                                  ---------  ------  -----------   --------   ------------   ---------   ------------   -----------
Balance at December 31, 2002      1,500,000  $1,500   31,441,978   $ 31,442   $ 11,741,101   $      --   $(10,523,175)  $ 1,250,868
                                  =========  ======  ===========   ========   ============   =========   ============   ===========
</TABLE>


The accompanying notes are an integral part of these statements.

                                       31
<PAGE>


                                   LION, Inc.

                            STATEMENTS OF CASH FLOWS

                             Year ended December 31,


                                                         2002           2001
                                                     -----------    -----------

Cash flows from operating activities
  Net (loss) income                                  $  (109,087)   $    41,568
  Adjustments to reconcile net (loss) income to
    net cash provided by operating activities
      Depreciation and amortization                      464,573        498,535
      Write off of capitalized software
        development costs                                 10,436         15,000
      Common stock and stock options issued
        for services received                              6,798         19,103
      Common stock issued in lieu of
        cash compensation                                 38,446         36,500
      Changes in assets and liabilities
        Accounts receivable                               15,507         94,537
        Prepaid expenses and other                         1,191         20,036
        Accrued liabilities                               23,333        (74,749)
        Accounts payable                                 (17,900)      (107,596)
        Deferred revenue                                  18,048        (27,651)
        Other assets                                      (4,886)        12,355
                                                     -----------    -----------

          Net cash provided by operating activities      446,459        527,638

Cash flows from investing activities
  Capitalized software development costs                (355,285)      (224,742)
  Purchase of property and equipment                    (146,460)      (114,524)
                                                     -----------    -----------

          Net cash used in investing activities         (501,745)      (339,266)

Cash flows from financing activities
  Payments on long-term obligations                      (22,607)        (2,266)
  Proceeds from issuance of common stock
    and exercise of stock options                            900        177,550
                                                     -----------    -----------

          Net cash (used in) provided
            by financing activities                      (21,707)       175,284
                                                     -----------    -----------

Net (decrease) increase in cash and cash equivalents     (76,993)       363,656

Cash and cash equivalents at beginning of period         480,910        117,254
                                                     -----------    -----------

Cash and cash equivalents at end of period           $   403,917    $   480,910
                                                     ===========    ===========

Supplemental cash flow information and non-cash investing and financing
activities

   See note L

The accompanying notes are an integral part of these statements.

                                       32
<PAGE>


                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE A - SUMMARY OF ACCOUNTING POLICIES

     LION, Inc. is a Washington corporation. LION, Inc., dba LionInc.com,
     provides its subscribers, principally mortgage brokers and agents,
     electronic access to a database of mortgage offerings by a multitude of
     lenders throughout the United States. LION, Inc. 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.

     A summary of significant accounting polices consistently applied in the
     preparation of the accompanying financial statements follows.

     1.   CASH AND CASH EQUIVALENTS

     For purposes of the statement of cash flows, the Company considers all
     highly-liquid instruments purchased with a maturity of three months or less
     to be cash equivalents.

     2.   REVENUE RECOGNITION

     Subscription and service fees are recognized as revenue over the respective
     subscription periods or at the time the services are provided. Deferred
     revenue is recorded on prepaid subscriptions for periods ranging from 3 to
     12 months and on advance billings for the subsequent months' subscriptions
     and services provided. Large web development contracts expected to span
     greater than 30 days are recognized over the production period, which
     approximates the percentage of completion method of revenue recognition.

     3.   ACCOUNTS RECEIVABLE

     The Company's accounts receivable are due from companies in the mortgage
     industry, the largest group being 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, but in some cases
     they may be due within 15 or 30 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 trade 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 received on such receivables are
     credited to the allowance for doubtful accounts.

                                       33
<PAGE>


                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

     4.   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, principally on a straight-line basis. The estimated lives in
     determining depreciation are as follows:

          Computer equipment             3 to 5 years
          Computer software              3 to 5 years
          Equipment                           5 years

     Leasehold improvements are amortized over the lives of the respective
     leases or the service lives of the improvements, whichever is shorter.

     5.   CAPITALIZED SOFTWARE DEVELOPMENT COSTS

     The Company capitalized software development costs, intended for internal
     use, totaling $355,285 and $224,742 for the years ended December 31, 2002
     and 2001, respectively. These costs are included in computer software in
     property and equipment and are amortized over a period of three years.

     6.   GOODWILL

     Goodwill represents the excess cost of acquiring the assets of IMark, LLC
     over the fair value of net assets acquired at the date of acquisition,
     which was, until January 1, 2002, amortized using a straight-line method
     over five years. In contrast to accounting standards in effect during 2001,
     Statement of Financial Accounting Standards (SFAS) No. 142, GOODWILL AND
     OTHER INTANGIBLE ASSETS, which became effective beginning in 2002, provides
     that goodwill should not be amortized. Accordingly, with the adoption of
     SFAS 142 in 2002, the Company discontinued the amortization of goodwill.
     The information presented below reflects adjustments to information
     reported in 2001 as if SFAS 142 had been applied in that year.

                                               Year ended December 31,
                                               -----------------------
                                                  2002          2001
                                               ---------     ---------

          Reported net (loss) income           $(109,087)    $  41,568
          Add back:  Goodwill amortization          --         113,360
                                               ---------     ---------

          Adjusted net (loss) income           $(109,087)    $ 154,928
                                               =========     =========

     The Company reviews goodwill at least annually to assess recoverability.
     Impairment is recognized in operating results if the fair value of goodwill
     is less than the carrying value of the goodwill. Accumulated amortization
     totaled $292,847 at December 31, 2002 and 2001.

                                       34
<PAGE>


                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

     7.   USE OF ESTIMATES

     In preparing the Company's financial statements, management is required to
     make estimates and assumptions that affect the reported amounts of assets
     and liabilities, the disclosure of contingent assets and liabilities at the
     date of the financial statements, and the reported amounts of revenues and
     expenses during the reporting period. Actual results could differ from
     those estimates.

     8.   INCOME (LOSS) PER COMMON SHARE

     Income (loss) per share is based on the weighted average number of shares
     outstanding during each period. The weighted average number of common
     shares outstanding was 31,244,711 and 30,673,978 for the years ended
     December 31, 2002 and 2001, respectively. Preferred shares outstanding were
     excluded in the computation of diluted EPS during 2002 as their effect was
     anti-dilutive, but included during 2001. Warrants and options to purchase
     7,275,567 and 7,343,667 shares of common stock were outstanding at December
     31, 2002 and 2001, respectively, but were not included in the computation
     of diluted earnings per share because their exercise price was greater than
     the average market price of the common shares.

     9.   ADVERTISING COSTS

     Advertising costs are expensed as incurred. Advertising expense was
     approximately $230,000 and $198,000 for the years ended December 31, 2002
     and 2001, respectively.

     10.  RESEARCH AND DEVELOPMENT COSTS

     All expenditures for research and development costs are expensed in the
     year incurred.

     11.  INCOME TAXES

     The Company records deferred income tax assets and liabilities based upon
     the difference between the financial statement and income tax bases of
     assets and liabilities using enacted income tax rates. Valuation allowances
     are established when necessary to reduce deferred income tax assets to the
     amount expected to be realized. Income tax expense is the taxes paid and
     payable for the period and the change during the period in net deferred
     income tax assets and liabilities.

     12.  STOCK ISSUED FOR SERVICES

     Issuances of shares of the Company's stock to employees or third-parties
     for compensation or services are valued using the 20 day trailing average
     closing price on the date of grant for employees and the date services are
     completed for non-employees.

                                       35
<PAGE>


                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

     13.  STOCK OPTIONS

     At December 31, 2002, the Company has a stock-based employee compensation
     plan, which is described more fully in Note J. The Company accounts for
     this plan under the recognition and measurement principles of APB Opinion
     No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
     Interpretations. No stock-based employee compensation cost is reflected in
     net income, as all options granted under this plan had an exercise price
     equal to the market value of the underlying common stock on the date of
     grant. The following table illustrates the effect on net income and
     earnings per share if the Company had applied the fair value recognition
     provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, to
     stock-based employee compensation for the years ended December 31:

                                                        2002          2001
                                                     ---------     ---------

          Net (loss) income, as reported             $(109,087)    $  41,568
          Deduct: Total stock-based employee
          compensation expense determined under
          fair value based method for all awards,
          net of related tax effects                  (450,303)     (668,305)
                                                     ---------     ---------
          Pro forma net loss                         $(559,390)    $(626,737)
                                                     =========     =========
          (Loss) income per share:
             Basic and diluted--as reported          $      --       $    --
                                                     =========     =========
             Basic and diluted--pro forma            $    (.02)    $    (.02)
                                                     =========     =========

     14.  RECLASSIFICATIONS

     Certain reclassifications have been made to the 2001 financial statements
     in order to conform to the 2002 presentation.

NOTE B - PREPAID EXPENSES AND OTHER

     Prepaid expenses and other consist of the following as of December 31:

                                                      2002           2001
                                                   ---------      ---------

     Prepaid expenses                              $  67,996      $  65,588
     Other receivables                                 3,392          6,991
                                                   ---------      ---------

                                                   $  71,388      $  72,579
                                                   =========      =========

                                       36
<PAGE>


                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


NOTE C - PROPERTY AND EQUIPMENT

     Property and equipment consist of the following as of December 31:

                                                      2002           2001
                                                   ---------      ---------

     Computer equipment                            $ 576,285      $ 524,741
     Computer software                             1,442,765      1,058,496
     Equipment                                       276,017        288,185
     Leasehold improvements                            4,990         18,396
                                                   ---------      ---------
                                                   2,300,057      1,889,818
     Less accumulated depreciation
       and amortization                            1,359,685      1,014,011
                                                   ---------      ---------

                                                   $ 940,372      $ 875,807
                                                   =========      =========

     The Company had $87,944 and $50,115 in fixed assets which were acquired
     under capital leases at December 31, 2002 and 2001, respectively.
     Accumulated amortization on equipment under capital leases totaled $17,705
     and $4,284 at December 31, 2002 and 2001, respectively.


NOTE D - ACCRUED LIABILITIES

     Accrued liabilities consist of the following as of December 31:

                                                      2002           2001
                                                   ---------      ---------

     Salaries                                      $ 126,404      $ 126,040
     Payroll taxes                                    46,569         44,328
     Vacation                                         99,211         99,948
     Accrued software costs capitalized                   --         25,000
     Other                                            57,487         11,022
                                                   ---------      ---------

                                                   $ 329,671      $ 306,338
                                                   =========      =========

                                       37
<PAGE>


                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE E - LONG-TERM OBLIGATIONS

     1.   Notes payable and capital lease obligations consist of the following
          at December 31:

                                                          2002          2001
                                                       ---------     ---------

      Software note payable in monthly installments
        of $873 at a fixed rate of 17.3%; final
        payment due December 2004; collateralized
        by software                                    $  17,617     $  24,754

      Capital lease obligations payable in monthly
        installments of $242 at a fixed rate
        of 14.3%; final payment due December 2004          5,024         7,050

      Capital lease obligations payable in monthly
        installments of $1,519 at a fixed rate
        of 17.3%; final payments due at various
        dates through November 2004                       28,684        40,799

      Capital lease obligations payable in monthly
        installments of $1,328 at a fixed rate
        of 16.9%; final payments due November 2005        36,500            --
                                                       ---------     ---------
                                                          87,825        72,603
     Less current maturities                             (35,330)      (21,278)
                                                       ---------     ---------

                                                       $  52,495     $  51,325
                                                       =========     =========

     2.   Notes Payable:

     Aggregate maturities of notes payable are as follows at December 31:

          2003                  $ 8,055
          2004                    9,562
                                -------

                                $17,617
                                =======

     3.   Capital Lease Obligations:

     The Company conducts a portion of their operations utilizing certain
     equipment and software under capital leases. The following is a schedule by
     year of minimum rental payments under such leases:

         Year ending December 31,
     --------------------------------

                  2003                              $ 37,075
                  2004                                34,324
                  2005                                14,613
                                                    --------

     Total minimum lease payments                     86,012

     Less amount representing interest               (15,804)
                                                    --------

     Present value of net minimum lease payments    $ 70,208
                                                    ========

                                       38
<PAGE>


                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2001

NOTE F - INCOME TAXES

     The Company accounts for income taxes on the liability  method, as provided
     by SFAS No. 109, ACCOUNTING FOR INCOME TAXES.

     The income tax  provision  reconciled  to the tax computed at the statutory
     federal rate was as follows for the years ended December 31:

                                                           2002            2001
                                                    -----------     -----------

      Tax (benefit) provision at statutory rate     $   (37,090)    $    14,133
      Non-deductible expenses                             5,317          41,924
      Other                                             (45,204)         85,785
      Increase (decrease) in valuation allowance         76,977        (141,842)
                                                    -----------     -----------

          Total                                     $        --     $        --
                                                    ===========     ===========

     The components of deferred taxes are as follows at December 31:

                                                           2002            2001
                                                    -----------     -----------
      Deferred tax asset:
        Intangible assets                           $    26,350     $    29,750
        Liabilities not timely paid                      32,882          33,132
        Allowance for doubtful accounts                  21,216          19,720
        Stock options and warrants issued
          to consultants for services                    39,779           6,494
        Net operating loss carryforward               2,314,808       2,218,640
                                                    -----------     -----------
                                                      2,435,035       2,307,556
      Deferred tax liability:
        Depreciation                                     67,212          16,710

      Valuation allowance                            (2,367,823)     (2,290,846)
                                                    -----------     -----------

                                                    $        --     $        --
                                                    ===========     ===========

     The Company  has  established  a  valuation  allowance  of  $2,367,823  and
     $2,290,846  as of  December  31,  2002 and 2001,  respectively,  due to the
     uncertainty  of future  realization  of the net  deferred  tax assets.  The
     valuation  allowance was increased  (decreased)  by $76,977 and  $(141,842)
     during the years ended December 31, 2002 and 2001, respectively, based upon
     management's  estimate of the realizability of the net deferred tax assets.
     At December 31, 2002, the Company had net operating loss  carryforwards for
     federal income tax purposes of approximately $6,808,000 available to offset
     future  income  which  expire in 2005 through  2022.  Utilization  of these
     carryforwards  are dependent on future  taxable income and could further be
     limited due to a change of control in the Company's ownership as defined by
     the Internal Revenue Code Section 382.

                                       39
<PAGE>


                                   LION, INC.
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 2002 AND 2001

NOTE G - COMMITMENTS AND CONTINGENCIES

     The Company conducts a portion of its operations in leased facilities under
     operating  lease  agreements.  The  following  is a  schedule  by  years of
     approximate  minimum rental  payments under such  operating  leases,  which
     expire at various dates through November 2007.

               Year ending December 31,
                         2003                             $  367,500
                         2004                                377,800
                         2005                                388,100
                         2006                                398,400
                         2007                                291,300
                                                          ----------

            Total minimum payments required               $1,823,100
                                                          ==========

     The leases  provide for payment of taxes and other expenses by the Company.
     Rent  expense for leased  facilities  totaled  approximately  $358,000  and
     $475,000 for the years ended December 31, 2002 and 2001, respectively.

     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.

NOTE H - SETTLEMENT OF LEGAL MATTERS

     A jury trial was completed on May 31, 2002, in a matter  initiated by Billy
     Anders,   a  former   director   of  LION   (BILLY  R.   ANDERS  V.  PLENUM
     COMMUNICATIONS, INC, A MINNESOTA CORPORATION, ALLEN RINGER, AND THE MARITAL
     COMMUNITY OF ALLEN  RINGER AND JANE DOE RINGER filed in the Spokane  County
     Superior  Court,  Case No.  00-207342-3).  Prior to the  conclusion  of the
     trial,  Mr.  Anders'  claims  of  negligent  misrepresentation  and  racial
     discrimination  on the basis of disparate  treatment and  retaliation  were
     dismissed. In addition, the Company's counterclaims against Mr. Anders were
     also  dismissed.  The jury found there was a breach of an oral contract and
     an intentional  misrepresentation  made to Mr. Anders by Allen Ringer,  the
     former  President,  acting on behalf of the Company,  and awarded plaintiff
     $357,000 in damages.  The judgment,  which was recorded in Other Expense in
     the second  quarter of 2002, was settled in lieu of an appeal for a payment
     totaling  $340,000 in early July 2002.  The Company is  currently  pursuing
     reimbursement  from its insurance carriers for coverage on the judgment and
     its  defense  costs as  incurred.  If  negotiations  fail,  the  Company is
     reviewing a separate action seeking coverage by its insurance carriers.

     In June 2001, the Company received  notification from the Business Software
     Alliance (the "BSA"), an organization  representing  certain members of the
     software industry,  regarding the presence of unlicensed  software products
     at the  Company.  The Company  conducted a voluntary  audit and  corrective
     actions were taken. In November 2002, the Company agreed to settle with the
     BSA for compensation of past software licensing infringements and penalties
     in the  amount of  $50,000,  which was  recorded  in Other  Expense.  As of
     December 31, 2002, the settlement amount has been paid in full.

                                       40
<PAGE>


                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


NOTE I - WARRANTS

     The Company  had the  following  warrants  outstanding  to purchase  common
     shares as of December 31:

                                                         2002           2001
                                                    ---------      ---------

     Warrants issued in conjunction with marketing
       services whereby one warrant entitles the
       holder to purchase one share of common
       stock at an exercise price of $1.75,
       expiring through 2002                               --         50,000

     Warrants issued as a finders fee for
       financing whereby one warrant entitles
       the holder to purchase one share of common
       stock at an exercise price of $.60,
       expiring through 2003                          105,000        105,000

     Warrants issued for legal services related
       to financing whereby one warrant entitles
       the holder to purchase one share of common
       stock at an exercise price of $.78,
       expiring through 2003                          200,000        200,000

     Warrants issued in conjunction with the
       Private Placement whereby one warrant
       entitles the holder to purchase one share
       of common stock at an exercise price of
       $.40, expiring through 2004                  1,166,667      1,166,667
                                                    ---------      ---------

         Total                                      1,471,667      1,521,667
                                                    =========      =========


NOTE J - STOCK OPTIONS

     The Company has a stock option plan  accounted for under APB Opinion No. 25
     and related  Interpretations.  The plan allows the Company to grant options
     to  employees  for up to 50,000  shares of common  stock per  employee.  At
     December 31, 2002, 3,776,933 shares are available for future issuance under
     the  plan.  Options  currently  outstanding  vest  over a zero to five year
     period.  Stock options are exercisable at not less than the market value of
     the  Company's  common  stock  on  the  date  of  grant.  Accordingly,   no
     compensation cost has been recognized for stock options granted.

     The fair  value of option  grants  are  estimated  using the  Black-Scholes
     option pricing model with the following  weighted average  assumptions used
     for grants in fiscal year 2002: expected  volatility of 112.43%;  risk-free
     interest rate of 3.83%;  expected lives ranging from 4 to 10 years;  and, a
     zero percent  dividend yield. The following  weighted  average  assumptions
     were used for grants in fiscal year 2001:  expected  volatility of 145.51%;
     risk-free  interest  rate of 5.07%;  expected  lives  ranging  from 5 to 10
     years; and, a zero percent dividend yield.

                                       41
<PAGE>


                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


NOTE J - STOCK OPTIONS - Continued

     During 2001, an employee  exercised  stock options in  consideration  for a
     nonrecourse  promissory  note.  Under APB Opinion  No. 25, the  issuance of
     stock under such a note is in essence a new grant of options.  By issuing a
     nonrecourse  note,  the Company  extended the  original  terms of the fixed
     award,  creating a new measurement date. As such,  additional  compensation
     cost is recognized to the extent that the intrinsic  value of the new award
     exceeds  the  intrinsic  value of the  original  award.  For the year ended
     December 31,  2001,  no  compensation  expense was recorded as there was no
     difference  between  the  intrinsic  value  of the new and old  awards.  In
     conjunction  with the Company issuing the note, the employee also exercised
     their option to purchase  the  Company's  common  stock.  As a result,  the
     shares have been reflected as issued and  outstanding at December 31, 2001,
     however,  the shares are held by the Company as collateral on the note. The
     Company recorded notes receivable from shareholders totaling $21,250 during
     2001,  for the  exercise  of these stock  options.  During  2002,  the note
     receivable of $21,250 was canceled and the related shares totaling  125,000
     were retired due to non-payment of accrued interest and principal.

     A summary of the Company's stock option plan activity is as follows:

<TABLE>
<CAPTION>
                                                            2002                           2001
                                                 -------------------------      -------------------------
                                                                  Weighted                       Weighted
                                                                   average                        average
                                                                  exercise                       exercise
                Stock options                      Shares           price         Shares           price
      --------------------------------           ----------       --------      ----------       --------
<S>                                               <C>             <C>            <C>             <C>
      Outstanding at beginning of year            5,822,000       $    .56       3,878,250       $    .89
      Granted                                       451,900            .12       3,060,000            .12
      Forfeited                                    (455,000)           .40        (976,250)           .57
      Exercised                                     (15,000)           .06        (140,000)           .17
                                                 ----------       --------      ----------       --------

      Outstanding at end of year                  5,803,900       $    .54       5,822,000       $    .56
                                                 ==========       ========      ==========       ========

      Options exercisable at end of year          4,302,088       $    .57       3,102,625       $    .65
                                                 ==========       ========      ==========       ========

     Weighted-average fair value of options
       granted during the year                                    $    .09                       $    .12
                                                                  ========                       ========
</TABLE>

                                       42
<PAGE>


                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


NOTE J - STOCK OPTIONS - Continued

     The  following is a summary of stock  options  outstanding  at December 31,
     2002:

                      Outstanding Options                   Options Exercisable
     -----------------------------------------------------  --------------------
                                          Weighted-average             Weighted-
                                Weighted-    remaining                  average
                                 average     contractual               exercise
     Exercise price    Number     price         life          Number     price
     --------------  ---------  --------  ----------------  ---------  ---------

     $ .05 - $ .25   3,171,900   $ 0.18      7.49 years     2,093,775   $ 0.18
     $ .26 - $ .50     127,000   $ 0.49       .46 years       106,125   $ 0.49
     $ .51 - $ .75     595,000   $ 0.66       .46 years       572,500   $ 0.66
     $ .76 - $1.00   1,310,000   $ 0.84      1.60 years     1,109,375   $ 0.84
     $1.01 - $2.00     600,000   $ 1.67      1.23 years       420,313   $ 1.68


NOTE K - ISSUANCE OF COMMON STOCK AND SERIES A PREFERRED STOCK

     On March 9, 2001, the Board of Directors authorized the Company to issue up
     to 4,000,000  units,  each unit consisting of one (1) share of common stock
     and one (1) 3-year,  Class A Redeemable  Warrant, in a private placement to
     accredited investors at a price of $.15 per unit. The exercise price of the
     warrants was $.20 per share if exercised  during the first eighteen  months
     or $.40 per share if  exercised  during the second  eighteen  months of the
     warrant  period.  The  underlying  shares  are  not  registered  under  the
     Securities  Act of  1933  and are  restricted  securities  as that  term is
     defined in Rule 144 as  promulgated  under the Act.  During March 2001, the
     Company received $175,000 from accredited individuals  participating in the
     private  placement  through the issuance of 1,166,667  units  consisting of
     common stock and warrants. Proceeds were used for working capital.



     Because of the Private Placement  Offering in 2001, the conversion price of
     Series A Preferred Stock has been automatically adjusted so that each share
     is now convertible at the rate of approximately 1.04 shares of Common Stock
     for each  share of Series A  Preferred  Stock.  The holder of each share of
     Series A Preferred Stock has the right to one vote for each share of Common
     Stock into which such Preferred Stock could then be converted.

                                       43
<PAGE>


                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2002 and 2001


NOTE L - SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING
     ACTIVITIES

     Supplemental disclosure of cash flow information and non-cash investing and
     financing activities is as follows for December 31:

                                                             2002         2001
                                                          ---------    ---------
     Supplemental disclosure of cash flow information:
       Cash paid during the year for interest             $  13,780    $      --

     Non-cash investing and financing activities
     Exercise of stock options by note receivable         $      --    $  21,250
     Common stock retired for cancellation of
       notes receivable                                   $  21,250    $ 969,375
     Assets acquired under capital leases and
       notes payable                                      $  37,829    $  74,869

NOTE M - RETIREMENT PLAN

     The Company adopted a salary deferral  retirement  plan, or 401(k) plan, in
     April 2000.  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 the years ended December 31,
     2002 and 2001.

NOTE N - QUARTERLY RESULTS (UNAUDITED)

     The following is a summary of unaudited  results of operations  for the two
     years ended December 31, 2002 and 2001:

                                                           Net loss    Net loss
                                    Operating      Net    per basic  per diluted
     Fiscal Year Ended               Income       Income    common     common
     December 31, 2002:  Revenues    (Loss)       (Loss)     share      share
                        ----------  ---------  ---------  --------   -----------

     First Quarter      $1,510,963  $(38,535)  $ (40,896)  $   --     $   --
     Second Quarter     $1,606,313  $ 26,907   $(324,834)  $ (.01)    $ (.01)
     Third Quarter      $1,628,238  $157,926   $ 115,461   $   --     $   --
     Fourth Quarter     $1,664,054  $143,447   $ 141,182   $   --     $   --

     Fiscal Year Ended
     December 31, 2001:

     First Quarter      $1,491,135  $(32,680)  $ (28,160)  $   --     $   --
     Second Quarter     $1,563,196  $ 65,112   $  63,843   $   --     $   --
     Third Quarter      $1,492,828  $ 42,824   $  34,182   $   --     $   --
     Fourth Quarter     $1,463,445  $(28,068)  $ (28,297)  $   --     $   --

                                       44
<PAGE>


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

     None.

                                    PART III

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

     Set forth below is information concerning our directors, executive officers
and other key employees.

           Name                   Age                    Position
           ----                   ---                    --------

    DIRECTORS:
    John A. McMillan              71         Chairman, director
    David Stedman                 53         Director
    J.C. "Tuck" Marshall          56         Director
    Sam Ringer                    43         Director
    Jacob L. Smith (1) (2)        63         Director
    Randall D. Miles (1)          46         Director
    Griffith J. Straw             54         Director

    EXECUTIVE OFFICERS:
    David Stedman                 53         President & CEO
    Chuck Aikens                  31         COO
    Steve Thomson                 50         CFO, Corporate Secretary, Treasurer

     (1)  Member of the Audit Committee

     (2)  Member of the Compensation Committee

     Following is a discussion of the business background of each director and
executive officer. All directors were elected to a one-year term at the Annual
Meeting held December 13, 2002. Sam Ringer, co-founder, and David Stedman,
President and CEO, 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.

DIRECTORS:

     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 is a Director and member of the Executive Committee of the Board of
Directors for Nordstrom, Inc. 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 Vision Youth (Chairman), ZION Preparatory
Academy Capitol Campaign (Chairman), Urban Enterprise Council, Bob Walsh
Enterprises, Global Partnerships, and Seattle Pacific University.

                                       45
<PAGE>


     DAVID STEDMAN has been a director and served as Chief Executive Officer of
the Company since August 2002, and as President of LION since January 2001. Mr.
Stedman joined LionInc.com, the former subsidiary of LION, in May 1999 as Vice
President of Marketing & 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. Prior to Safeco Properties, Mr. Stedman held a
number of positions with advertising agencies both here in the Northwest and in
Alaska. Along with winning a variety of national and local advertising awards,
Mr. Stedman has been a guest speaker for a design class at the University of
Washington and has presented to a variety of business organizations.

     J.C. (TUCK) MARSHALL was appointed to the Board of Directors in 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 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. As President of NAMB, Mr. Marshall
developed contacts at all levels of congress and state governments through his
lobbying efforts. He also developed strong working relationships with the
leadership of the national and state mortgage broker associations along with the
nation's leading mortgage industry companies. 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
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.

     JACOB SMITH has been a director of the Company since June 1998. Mr. Smith
has practiced business and civil law in Lynden, Washington for the last
thirty-three years, with an emphasis on real estate, estate planning, and
municipal law. He is the senior partner in the Lynden law firm of Smith Kosanke
and Wright which he founded in 1972. Mr. Smith received a B.S. degree in
Chemical Engineering from the University of Washington in 1962. He received a
J.D. law degree from Willamette University Law School in Salem, Oregon in 1965.
Mr. Smith is past president of the Whatcom County Bar Association.

     RANDALL D. MILES has been a director of the Company since September 2002.
Mr. Miles has served as Managing Director of Investment Banking at D.A. Davidson
& Co. since September

                                       46
<PAGE>


2001 and has over 20 years of experience in investment banking and financial
services. 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. His transactional
experience includes mergers and acquisitions, public and private capital raising
as well as structured finance expertise. Mr. Miles graduated from the University
of Washington in 1979 with a degree in finance and sits on the board of
directors of several privately held companies.

     GRIFFITH J. STRAW has been a director of the Company since September 2002.
Since May 2002, Mr. Straw has served as Regional Sales Director 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.

OFFICERS:

     DAVID STEDMAN has served as Chief Executive Officer of the Company since
August 2002, and as President of LION since January 2001. See additional
comments above for Mr. Stedman under the heading "DIRECTORS".

     CHUCK AIKENS, Chief Operating Officer of LION as of January 2001, has
served as Senior Vice President of Sales and Marketing for LionInc.com since
March of 2000 and has served as General Manager of the Denver operations since
May of 1999. Mr. Aikens was the original business developer and software
programmer of Mortgage101.com and America Mortgage Online in 1995. Mr. Aikens
served as President of IMark Design Group which was acquired by LionInc.com in
May of 1999. Mr. Aikens has experience in the industry accumulating 4 years of
origination and management experience with North American Mortgage Company and
Banc One Mortgage. Mr. Aikens obtained a Bachelor's degree at Metropolitan State
College of Denver in Finance and Accounting and has also attended the Illinois
Institute of Technology, University of Florida, and University of Colorado. In
his educational background, Mr. Aikens has also gained expertise in several
programming languages, database architecture, internet software design, and web
development.

     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

                                       47
<PAGE>


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.

Board of Directors

     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. At each annual meeting of stockholders,
the directors' successors will be elected to serve until the next annual meeting
of stockholders. 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 and the Compensation Committee. There is no standing nominating
committee.

     The Audit Committee is responsible for reviewing internal accounting
procedures, consulting with and reviewing the services provided by its
independent auditors, and for carrying out the duties set forth in the LION
Audit Committee Charter.

     The Compensation Committee makes recommendations concerning retirement and
benefit plans and salaries and incentive compensation of executive personnel and
employees of, and consultants to, the Company. The Compensation Committee also
administers the Company's 1998 Stock Option Plan, including the approval of
grants under the plan to our employees, consultants and directors. Mr. Smith
currently serves as the sole member of the Compensation Committee.

     Our board of directors may establish other committees to facilitate the
management of our business.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     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 and Jake Smith each failed to file a monthly
report covering one transaction, however, they did reflect the transaction on
their year-end Form 5.

                                       48
<PAGE>


ITEM 10.   EXECUTIVE COMPENSATION

     The following summary compensation table indicates the cash and non-cash
compensation earned during the fiscal years ended December 31, 2002, 2001 and
2000 by our Chief Executive Officer and the other most highly compensated
executive officers serving during the year ended December 31, 2002.

                           Summary Compensation Table*

                                 Annual Compensation      Long-Term Compensation
                              --------------------------  ----------------------
                                                                      Securities
                                                                      Underlying
                                                           Stock       Options/
Name and Principal Position   Year   Salary     Other      Awards      Warrants
---------------------------   ----  --------   ---------  -------     ----------

John A. McMillan, CEO(1)      2002        --        --        --         15,000
                              2001        --        --        --         15,000
                              2000        --        --        --         30,000

David Stedman,                2002  $106,100   $19,800(2)                    --
  President/CEO(1)            2001  $119,900        --        --        500,000

Steve Thomson, CFO            2002  $ 92,600   $18,600(3)                    --
                              2001  $ 76,100   $36,500(3)     --        400,000


----------
(*)  Columns in the Summary Compensation Table that were not relevant to the
     compensation paid to the Named Executive Officers were omitted.

(1)  Mr. McMillan served as CEO from October 1999 to August 2002, and Mr.
     Stedman has served as CEO since August 2002.

(2)  276,500 shares of common stock were issued in lieu of cash compensation at
     fair market value with prices ranging from $.06 to $.08 per share.

(3)  During 2002, 248,500 shares of common stock were issued in lieu of cash
     compensation at fair market value with prices ranging from $.06 to $.08 per
     share. During 2001, 320,000 shares of common stock were issued in lieu of
     cash compensation at fair market value with prices ranging from $.10 to
     $.15 per share.

                                       49
<PAGE>


OPTION GRANTS LAST FISCAL YEAR.

     The following table sets forth information regarding options granted to our
executive officers during 2002.

                            Number of    Percent of total
                            securities     stock options
                            underlying      granted to    Exercise or
Name and                  stock options    employees in   base price  Expiration
Principal Position           granted        fiscal year     ($/Sh)       date
---------------------     -------------  ---------------- ----------- ----------

John A. McMillan, CEO         15,000           3.3%       $0.06         12/13/06

     During the year ended December 31, 2002, we granted employees options to
purchase shares of our common stock. The options vest at 6 1/4 % each quarter
over sixteen quarters. The options have a ten-year term, but are subject to
earlier forfeiture or cancellation in connection with termination of employment
or upon the optionee's death or disability.

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE.

     The following table provides information with respect to stock options
exercised by our named executive officers during the fiscal year ended December
31, 2002 and unexercised options or warrants held as of December 31, 2002. No
stock appreciation rights were exercised during 2002 or were outstanding at
December 31, 2002.

<TABLE>
<CAPTION>
                                                         Number of Securities           Value of Unexercised
                                Shares                  Underlying Unexercised              In-the-Money
                               Acquired                    Options/Warrants               Options/Warrants
                                  on       Value        at Fiscal Year-End (#)         at Fiscal Year-End ($)
                               Exercise  Realized    ----------------------------   ---------------------------
    Name                         (#)        ($)      Exercisable    Unexercisable   Exercisable   Unexercisable
    ----                         ----       ---      -----------    -------------   -----------   -------------
<S>                              <C>        <C>        <C>             <C>              <C>            <C>
John A. McMillan, CEO
  Options                         --         --        330,000              --          --             --
  Warrants                        --         --        833,333              --          --             --

David Stedman, President/CEO
  Options                         --         --        753,125         196,875          --             --

Steve Thomson, CFO
  Options                         --         --        700,250         149,750          --             --
</TABLE>

                                       50
<PAGE>


EMPLOYMENT AGREEMENTS

     In October 2001, the Company entered into employment agreements with Dave
Stedman, its President and CEO, and Steve Thomson, its CFO. Each officer's
agreement has a term of three years. Each employment agreement provides that an
officer's compensation will include a base and may include a bonus. In the event
that an officer's employment is terminated by the Company without cause, the
officer will be entitled to a severance payment of 50% of his annual
compensation. 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. Each agreement provides that the officer may elect to
receive up to 20% of his salary in the form of restricted stock grants, valued
using the 20 day trailing average closing price on the date of grant.


EQUITY COMPENSATION PLAN INFORMATION

     The Company maintains the 1998 Stock Option Plan ("1998 Plan"), pursuant to
which it may grant equity awards to eligible persons. Additionally, it has
entered into individual arrangements outside of the 1998 Plan with its President
and CEO, David Stedman, and its CFO, Steve Thomson, providing for the grant of
restricted stock. The 1998 Plan and the individual plans are described more
fully below.

     The following table gives information about equity awards under the
Company's 1998 Plan and the individual equity arrangements as of December 31,
2002.

<TABLE>
<CAPTION>
                                                     (a)                 (b)                  (c)
                                                                                           Number of
                                                                                           securities
                                                                                         available for
                                                  Number of                             future issuance
                                              securities to be                            under equity
                                                 issued upon       Weighted-average    compensation plans
                                                 exercise of      exercise price of        [excluding
                                                 outstanding         outstanding           securities
                                              options, warrants   options, warrants        reflected
              Plan category                       and rights          and rights         in column  (a)]
------------------------------------------    -----------------   -----------------    ------------------
<S>                                                <C>                   <C>                 <C>
Equity compensation plans approved by
security holders(1)                                5,803,900             $.54                3,776,933

Equity compensation plans not approved
by security holders (2)                            1,077,083             $.08                       --
                                                   ---------             ----                ---------

Total                                              6,880,983             $.47                3,776,933
                                                   =========             =====               =========

</TABLE>

(1)  This plan is the Company's 1998 Stock Option Plan.

(2)  The numbers set forth in the table include potential awards of restricted
     stock pursuant to salary conversion rights under employment agreements. The
     shares are valued using the 20 day trailing average closing price on the
     date of grant. The aggregate number of shares available for issuance is

                                       51
<PAGE>


     estimated based upon the average high and low bid price for LION's common
     stock for each quarter during 2002, as published by the OTC Bulletin Board.


STOCK OPTION PLAN

     The Company's 1998 Stock Option Plan ("1998 Plan") is intended to serve as
an equity incentive program for management, qualified employees, non-employee
members of the Board of Directors, and independent advisors or consultants. The
1998 Plan became effective on October 30, 1998 upon adoption by the Board of
Directors, and was approved by the shareholders at the December 1998 annual
shareholders' meeting. Under the 1998 Plan, the total number of shares of common
stock reserved for issuance is 15,000,000, which may be Incentive Stock Options
("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, or nonqualified stock options.

     The 1998 Plan contains two separate components: (i) a discretionary option
grant program under which eligible individuals in the Company's employ or
service (including officers and other employees, non-employee Board members and
independent advisors or consultants) may, at the discretion of the Plan
Administrator, be granted options to purchase shares of common stock; and (ii)
an automatic option grant program under which option grants will automatically
be made at periodic intervals to eligible non-employee Board members to purchase
shares of Common Stock at an exercise price equal to their fair market value on
the grant date.

     The discretionary option grant program will be administered by the Board of
Directors or a committee of two or more members of the Board. Plan
administrators have sole authority to prescribe the form, content and status of
options to be granted, select the eligible recipients, determine the timing of
option grants, determine the number of shares subject to each grant, the
exercise price, vesting schedule, and term for which any option will remain
outstanding. The Board of Directors have the authority to correct any defect,
supply any omission or reconcile any inconsistency in the Plan, determine the
terms and restrictions on all restricted option awards granted under the Plan,
and in general, to construe and interpret any provision of the 1998 Plan or of
any option granted thereunder. The administration of the automatic option grant
program will be self-executing in accordance with the provisions of the 1998
Plan.

     The exercise price for outstanding option grants under the 1998 Plan may be
paid in cash or, upon approval of the Plan administrators, in shares of common
stock valued at fair market value on the exercise date. The option may also be
exercised through a same-day cashless exercise program or a reduction in the
amount of any Company liability to the optionee.

     Under the automatic option grant program, immediately after each annual
meeting of shareholders, each elected non-employee director of the Company shall
automatically be granted a nonqualified stock option to purchase 15,000 shares
of common stock for each year included in the term for which he or she was
elected, provided that individual has not previously received an option grant
from the Company in connection with his or her Board service which remains
unvested.

     Under the 1998 Plan, no stock option can be granted for a period longer
than ten years or for a period longer than five years for ISOs granted to
optionees possessing more than 10% of the total combined voting power of all
classes of stock of the Company. Following the effective date of any


                                       52
<PAGE>


registration of the Company's securities under the Exchange Act, the per share
exercise price for any option granted may not be less than the fair market value
of the Company's securities on the grant date. Unless extended by the Plan
administrators until a date not later than the expiration date of the option,
the right to exercise an option terminates thirty days after the termination of
an optionee's employment, contractual or director relationship with the Company.
If the optionee dies or is disabled, the option will remain exercisable for a
period of one year after the termination of employment or relationship with the
Company.

     At the sole discretion of the Plan administrators, options granted under
the 1998 Plan may contain resale provisions pursuant to which the purchaser of
the common stock issued upon exercise of the option may be limited to sales of
common stock in an amount which may not exceed 250,000 shares during any
three-month period.

     As of December 31, 2002, the Company had granted options to purchase an
aggregate of 17,803,275 shares of common stock (before reversion of 6,580,208
underlying shares due to stock option expirations and forfeitures), of which
5,803,900 underlying shares were outstanding at December 31, 2002. Of the
options granted, 961,900 of the outstanding options at December 31, 2002 were
issued to directors.

OTHER NON-STOCKHOLDER APPROVED EQUITY ARRANGEMENTS

     The employment agreements with Dave Stedman, President and CEO, and Steve
Thomson, CFO, described above, were not approved by stockholders. See
"Employment Agreements" above.


COMPENSATION OF DIRECTORS

     We provide no cash compensation to any of our directors for serving on our
board of directors or for attendance of meetings of committees of the board of
directors. 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. Employee directors
are eligible to receive option grants and direct stock issuances under our 1998
Stock Option Plan. Non-employee directors receive as an initial retainer 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,
under our 1998 Stock Plan, non-employee directors receive automatic option
grants each year to purchase 15,000 shares of common stock upon their reelection
at the annual meeting of shareholders.

                                       53
<PAGE>


ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth certain information that has been provided
to the Company regarding the beneficial ownership as of December 31, 2002 of the
Company's common stock by (a) each person who is known by the Company to be a
beneficial owner of more than five percent of the outstanding common stock of
the Company, (b) each director of the Company, (c) each of the executive
officers named in the Summary Compensation Table on this Form 10 - KSB, and (d)
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                                2,945,966 (4)        8.64%
J.C. (Tuck) Marshall                              642,500 (5)        1.92%
Jacob L. Smith                                    170,000 (6)          *
Sam Ringer                                      1,708,920 (7)        5.16%
David Stedman                                   1,073,375 (8)        3.18%
Steve Thomson                                   1,327,875 (9)        3.94%
Randall D. Miles                                   68,450(10)          *
Griffith J. Straw                                  68,450(11)          *

OTHER BENEFICIAL OWNERS:
ICM Asset Management, Inc.                      1,879,000(12)        5.70%

All directors and executive officers as a       8,526,710           23.32%
group (9 persons)


*    Less than one percent.

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

(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, 2002 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 32,941,978 voting shares
     outstanding as of December 31, 2002, consisting of 31,441,978 shares of
     common stock and 1,500,000 shares of Series A Convertible Preferred Stock.
     The Series A Convertible Preferred Stock held by the person or group noted
     in the footnotes to this table is convertible into an equivalent number of
     shares of common stock.

                                       54
<PAGE>


(4)  John McMillan is deemed the beneficial owner of 1,782,633 shares of common
     stock, 330,000 shares underlying stock options, and 833,333 shares
     underlying warrants granted but not yet exercised, because of his power to
     vote and dispose of those shares.

(5)  Includes 442,500 shares underlying stock options not yet exercised.

(6)  Includes 15,000 shares underlying stock options not yet exercised.

(7)  Sam Ringer is deemed the beneficial owner of 1,542,253 shares of common
     stock and 166,667 shares underlying warrants not yet exercised, because of
     his power to vote and dispose of those shares.

(8)  Includes 796,875 shares underlying stock options not yet exercised.

(9)  Includes 759,375 shares underlying stock options not yet exercised.

(10) Includes 68,450 shares underlying stock options not yet exercised.

(11) Includes 68,450 shares underlying stock options not yet exercised.

(12) ICM Asset Management, Inc. is deemed the beneficial owner of the 1,500,000
     voting shares of Series A Preferred Stock and 379,000 shares of common
     stock owned by Koyah Leverage Partners LP, Koyah Partners LP and Jim
     Simmons because of their power to vote and dispose of those shares. The
     address of ICM Asset Management, Inc. is 601 W. Main Ave., Suite 600,
     Spokane, WA 99201.


ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     During October 1999, we sold 1,000,000 shares of common stock to Mr. Sam
Ringer, current director and employee, at a purchase price of $.25 per share in
connection with the exercise of outstanding options. The aggregate purchase
price of $250,000 was payable by a nonrecourse promissory note with principal
balance due on or before April 1, 2001, together with interest at the rate of
10% per annum payable quarterly. The shares of common stock purchased by the
promissory note were pledged to LION as collateral until the note was paid in
full. On January 1, 2001, Mr. Ringer defaulted on payment of the quarterly
interest, and the 1,000,000 forfeited shares of common stock were retired and
cancelled by LION.

     During October 1999, we also sold 1,000,000 shares of common stock to Joe
Ringer, former director and the brother of Sam Ringer, and 915,000 shares of
common stock to Allen Ringer, former director and father of Sam Ringer, at a
purchase price of $.25 per share in connection with the exercise of outstanding
options. The purchase price was payable by nonrecourse promissory notes which
were secured by the purchased shares, due on or before April 1, 2001. Interest
accrued at the rate of 10% per annum and was payable quarterly. On January 1,
2001, both Allen and Joe Ringer defaulted on payment of the quarterly interest,
and the 1,915,000 forfeited shares of common stock were retired and cancelled by
LION.

                                       55
<PAGE>


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(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):

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      By-laws 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      Specimen Common Stock Certificate, incorporated by reference to the
         same exhibit number to the Company's Registration Statement on Form
         10-SB (File No. 0-25159).

10.1     1998 Stock Option Plan with Form of Option Agreement, incorporated by
         reference to the same exhibit number to the Company's Registration
         Statement on Form 10-SB (File No. 0-25159).

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, 2001.

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, 2001.

10.11    Alliance Agreement dated May 6, 2002 between LION, Inc. and IMX, Inc.,
         incorporated by reference to the same exhibit number to the Company's
         Form 8-K filed on June 6, 2002.

10.12    Lease Amendment # 2 (Denver Property) dated as of October 21, 2002.

99.1     Certification by Chief Executive Officer and Chief Financial Officer
         Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
         of the Sarbanes - Oxley Act of 2002.


(b)      REPORTS ON FORM 8-K

     No Reports on Form 8-K were filed during the quarter ended December 31,
2002.

                                       56
<PAGE>


ITEM 14.  CONTROLS AND PROCEDURES

(A)  EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES:

     Within 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of both our
President and CEO and our Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on this
evaluation, our President and CEO and our Chief Financial Officer concluded that
our disclosure controls and procedures were effective as of the date of such
evaluation to ensure that material information required to be included in our
Annual Report on Form 10-KSB were made known to them. It should be noted that
the design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote.

(B)  CHANGES IN INTERNAL CONTROLS:

     In addition, we reviewed our internal controls, and there have been no
significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.


                                   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 31, 2003.

                                   LION, Inc.
                                   ----------
                                  (Registrant)

                              By: /s/ David Stedman
                                  -----------------
                                  David Stedman
                                  President and 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:

       SIGNATURE                           TITLE                       DATE
       ---------                           -----                       ----

/s/ John A. McMillan            Chairman of the Board             March 31, 2003
/s/ David Stedman               Director, President and CEO       March 31, 2003
/s/ J.C. (Tuck) Marshall        Director                          March 31, 2003
/s/ Sam Ringer                  Director                          March 31, 2003
/s/ Jacob L. Smith              Director                          March 31, 2003
/s/ Steve Thomson               CFO                               March 31, 2003
/s/ Lisa Bouchakian Dunn        Controller                        March 31, 2003

                                       57
<PAGE>


                                  CERTIFICATION

I, David Stedman, certify that:

1.   I have reviewed this annual report on Form 10-KSB of LION, Inc.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

          a.   designed such disclosure controls and procedures to ensure that
               material information relating to the registrant, is made known to
               us by others within the organization, particularly during the
               period in which this annual report is being prepared;

          b.   evaluated the effectiveness of the registrant's disclosure
               controls and procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

          c.   presented in this annual report our conclusions about the
               effectiveness of the disclosure controls and procedures based on
               our evaluation as of the Evaluation Date;

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

          a.   all significant deficiencies in the design or operation of
               internal controls which could adversely affect the registrant's
               ability to record, process, summarize and report financial data
               and have identified for the registrant's auditors any material
               weaknesses in internal controls; and

          b.   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal controls; and

6.   The registrant's other certifying officer and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: March 31, 2003                                /s/ David Stedman
                                                        -----------------------
                                                        David Stedman
                                                        President and
                                                        Chief Executive Officer

                                       58
<PAGE>


                                  CERTIFICATION

I, Steve Thomson, certify that:

1.   I have reviewed this annual report on Form 10-KSB of LION, Inc.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

          a.   designed such disclosure controls and procedures to ensure that
               material information relating to the registrant, is made known to
               us by others within the organization, particularly during the
               period in which this annual report is being prepared;

          b.   evaluated the effectiveness of the registrant's disclosure
               controls and procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

          c.   presented in this annual report our conclusions about the
               effectiveness of the disclosure controls and procedures based on
               our evaluation as of the Evaluation Date;

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

          a.   all significant deficiencies in the design or operation of
               internal controls which could adversely affect the registrant's
               ability to record, process, summarize and report financial data
               and have identified for the registrant's auditors any material
               weaknesses in internal controls; and

          b.   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal controls; and

6.   The registrant's other certifying officer and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: March 31, 2003                                 /s/ Steve Thomson
                                                         -----------------------
                                                         Steve Thomson
                                                         Chief Financial Officer

                                       59
<PAGE>


                                  EXHIBIT INDEX

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      By-laws 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      Specimen Common Stock Certificate, incorporated by reference to the
         same exhibit number to the Company's Registration Statement on Form
         10-SB (File No. 0-25159).

10.1     1998 Stock Option Plan with Form of Option Agreement, incorporated by
         reference to the same exhibit number to the Company's Registration
         Statement on Form 10-SB (File No. 0-25159).

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, 2001.

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, 2001.

10.11    Alliance Agreement dated May 6, 2002 between LION, Inc. and IMX, Inc.,
         incorporated by reference to the same exhibit number to the Company's
         Form 8-K filed on June 6, 2002.

10.12    Lease Amendment # 2 (Denver Property) dated as of October 21, 2002.

99.1     Certification by Chief Executive Officer and Chief Financial Officer
         Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
         of the Sarbanes - Oxley Act of 2002.

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