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

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

                                 FORM 10 - KSB/A

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

                   For the fiscal year ended December 31, 2004

[ ]      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 [ ]

                                       i
<PAGE>

         Check if there is no 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. [X]

         State issuer's revenues for its most recent fiscal year   $15,191,761

         The aggregate market value of the voting common stock held by
non-affiliates of the Company as of March 11, 2005 was approximately $13,031,264
based upon 31,026,820 shares held by such persons and the closing bid price of
$.42 on that date. Shares of common stock held by each officer and director and
by each person who owns 10% or more of the outstanding common stock have been
excluded because these people may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for any other
purpose.

         On March 11, 2005, approximately 37,667,162 shares of the Company's
common stock were outstanding.


                      DOCUMENTS INCORPORATED BY REFERENCE:

         No documents are incorporated by reference.

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


                                       ii
<PAGE>


                                   LION, INC.

                                  FORM 10-KSB/A

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

                                      INDEX


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

PART II
ITEM 5.            Market for Common Equity and Related Stockholder Matters                         10
ITEM 6.            Management's Discussion and Analysis                                             10
ITEM 7.            Financial Statements                                                             24
ITEM 8.            Changes In and Disagreements With Accountants on Accounting
                   and Financial Disclosure                                                         48
ITEM 8A            Controls and Procedures                                                          48
ITEM 8B            Other Information                                                                48

PART III
ITEM 9.            Directors and Executive Officers of the Registrant                               49
ITEM 10.           Executive Compensation                                                           55
ITEM 11.           Security Ownership of Certain Beneficial Owners and
                   Management and Related Stockholder Matters                                       57
ITEM 12.           Certain Relationships and Related Transactions                                   59
ITEM 13.           Exhibits                                                                         60
ITEM 14.           Principal Accounting Fees and Services                                           62
                   Signatures                                                                       63
</TABLE>

  EXPLANATORY NOTE

         We are filing this Amendment No. 1 to our Form 10-KSB for the year
ended December 31, 2004 (the "Form 10-KSB"), originally filed with the
Securities and Exchange Commission on March 31, 2005, to expand disclosures of
our critical accounting policies in the Management's Discussion and Analysis
section, and to include the conformed signature page on the report from our
independent accounting firm which was inadvertently omitted from the initial
filing. Except as noted above, this amendment is not intended to supplement,
amend or update other information presented in this annual report as originally
filed.

                                      iii
<PAGE>

                                     PART I


ITEM 1.    DESCRIPTION OF BUSINESS

         LION, Inc. has been a provider of advanced business solutions that
streamline the mortgage loan fulfillment process for the mortgage industry since
1995. We provide an integrated technology platform offering online loan
productivity, mortgage pipeline hedging and risk management, software
development and data communications tools.

         Until December 2000, we operated under the name Plenum Communications,
Inc. During the fourth quarter of 2003 we acquired strategic assets from
Ignition Mortgage Technology Solutions ("Ignition") expanding the breadth of our
product and service offerings which had previously been focused on the front end
of the mortgage loan process, such as lead generation, mortgage content, rate
publishing and web site hosting. During the fourth quarter of 2004, we acquired
Tuttle Risk Management Services Inc., a Delaware corporation ("TRMS"), now
operating as a Washington limited liability company. TRMS provides hands-on
mortgage pipeline risk management for financial institutions that originate and
then sell loans into the secondary market.

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

INDUSTRY INFORMATION

         The mortgage loan market in the United States has been robust for a
number of years, fueled by a multi-year surge in refinance volume that resulted
from 30-year lows in interest rates. Mortgage origination volume peaked in 2003
at approximately $3.8 trillion, 66 percent of which related to refinance volume.
Mortgage volume fell to approximately $2.7 trillion in 2004 due to erosion in
refinance activity brought on by a change in Federal Reserve monetary policy
that targeted steady increases in federal funds rates. Mortgage origination
volume is expected to range from $2 to $2.5 trillion in 2005.

         The housing market remained strong throughout 2004 with near record
levels of housing starts and purchase money mortgage origination. Projections
over the next 3 years suggest continuing strength in the sale of residential
housing along with further erosion in refinance activity. LION's strength has
been in the purchase money mortgage influenced segment rather than where most of
the market weakness is expected in the form of declining refinance activity. The
consensus view is that the Federal Reserve will continue a policy of moderated
interest rate increases that have most economists predicting that interest rates
on 30 year fixed rate mortgages will climb to almost 7 percent by the end of
2005, up from just under 6 percent at the end of 2004.

                                       1
<PAGE>

         Compression in the number of borrowers seeking home loans has already
begun to force lenders to downsize. This should create demand for the technology
tools offered by LION. Additionally, as competition for fewer borrowers
escalates, originator demand for marketing and productivity tools should also
benefit LION. Tighter markets and stiffer competition have already begun to spur
lender consolidation. As the number of originators decline, LION may be the
beneficiary where it has a contractual relationship with the acquirer but may
face negative exposure to larger lenders acquiring LION's middle market lender
customers.

CUSTOMERS, PRODUCTS AND SERVICES

         Our primary objective for 2004 was to focus on the integration of
strategic assets acquired in December 2003 from Ignition Mortgage Technology
Solutions ("Ignition"). This was the first critical step in expanding LION from
a company focused on the front end of the mortgage loan process, including lead
generation, mortgage content, rate publishing and web site hosting. By expanding
the breadth of our product and service offerings to appeal to a wider audience
of consumers, mortgage brokers, realtors and lenders, we positioned the Company
to become an end-to-end technology and solutions provider, generating new
revenue streams and creating the opportunity to diversify our distribution
channels.

         The launch of our Precision marketing productivity suite in October
2004 was the direct result of the integration of LION and Ignition products and
services. The Precision product consists of corporate wholesale, retail and
correspondent lender websites, productivity software, Pipeline Tools interest
rate risk management technology, and a product eligibility and pricing engine
that provides access to real-time, risk-based, product, and price information to
manage loan registration and interest rate lock transactions. Additionally, our
fourth quarter 2004 acquisition of TRMS solidified our distribution channel for
our capital markets technology and advisory offerings and enhanced our product
bundling opportunities.

         We have reorganized our product groupings to more closely align our
business objectives by product with the customers we serve. More specifically,
we are reorganizing into three business units focused on Leads, Loans and
Capital Markets. The Leads business unit is comprised of Mortgage 101.

         MORTGAGE 101 is an interactive service provided through LION's
www.mortgage101.com consumer portal which connects potential mortgage applicants
with a network of mortgage lenders who offer mortgage programs, rates and
services. Mortgage 101 also provides education to home buyers and owners through
informative articles, interactive calculators and real-time rate comparison
technology. This product is one of the leading sources of leads for real estate
financing by mortgage originators and is a preferred platform for them to market
to their customers. Mortgage 101 placed from number 1 to number 3 in search
engine placement for the keyword "mortgage" throughout most of 2004. Through the
Mortgage 101 brand, LION has grown its co-branded real estate sites to
approximately 48,000 which consist of realtors, real estate offices, relocation
sites, associations, and city portals. Traffic from these branded and co-branded
sites along with search engine activity averages over 400,000 unique visitors
each month to this consumer portal. This compliments the consumer traffic
received by our customers through the Mortgage 101 domain associated with the
websites provided to them. Revenues are generated from mortgage brokers or
originators who participate in the pay-per-lead program or advertise through the
Mortgage 101 site.

                                       2
<PAGE>

         The Loans business unit is comprised of LION Pro, Retail Websites,
LockPoint Xtra(R), and our new Precision productivity marketing suite, which
combines the best features of all three products plus Pipeline Tools for
midsized mortgage originators.

         LION PRO, used by over 7,800 mortgage brokers nationwide, consists of
LION Loan Search, LoanLink (subprime loan exchange platform), News Now
(high-value market data) and Ratesheets on Demand (aggregated mortgage
ratesheets). It is packaged and often private labeled for both large companies
and origination teams along with individual or small mortgage brokers. Through
this password protected product, originators can access one of the nation's
largest databases of wholesale mortgage rate, fee, and program information to
instantly price any mortgage loan. This database is updated daily for 77 regions
nationwide comprised of 113 participating lenders. Revenues from the LION Pro
product line are generated from mortgage brokers and originators subscribing to
the service, origination teams private-labeling this service for their own
companies, and from participating lenders.

         RETAIL WEB SITES are offered to mortgage companies and individual
originators to help educate consumers about mortgages, market their services to
borrowers, generate more business, efficiently connect with service providers
and better serve their borrowers. This product is intended to create and foster
relationships between consumers and mortgage originators while enabling mortgage
companies and originators to more efficiently manage their online production
channel and maximize the business value received from their online operations.
Both template and custom design solutions deliver a combination of standard and
custom content to approximately 2,800 web sites and over 5,000 user accounts.
Revenues are generated from web site set up and monthly hosting fees along with
fees for related functionality tools.

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

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

                                       3
<PAGE>

         The Capital Markets business unit includes our Pipeline Tools
technology and TRMS' Risk Management Services.

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

         RISK MANAGEMENT SERVICES are provided by TRMS, a registered Commodity
Trading Advisor. The services are structured to provide mortgage pipeline risk
management for mortgage companies and savings and loan associations that seek to
originate and then sell loans into the secondary mortgage market. The solutions
are tailored to firms that lack capital market expertise and offer a wide array
of services under the managed account umbrella that include pricing, best
execution analysis, rate sheet generation, policy and procedure formulation,
trading and investor relations assistance. Clients leverage the "second set of
eyes" provided by TRMS to validate their day-to-day secondary marketing
decisions or to outsource significant aspects of the secondary marketing role to
TRMS rather than developing the primary capability to fill these roles within
their organizations.

SALES AND MARKETING

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

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

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

         PRESS RELEASES AND OTHER PRESS COVERAGE. We issue press releases on
product launches, new product releases, new customer acquisitions and
achievement of certain milestones.

                                       4
<PAGE>

We also have been the subject of published reviews of mortgage technology
products, quoted in trade journals and have been the subject of articles written
about the Company.

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

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

         REALTOR MARKETING. We provide a free content package for real estate
and related sites. The free content delivers a Mortgage Center with
Mortgage101.com technology with live rates, 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."
Mortgage101.com held positions from 1 to 3 in search engine placement for
keyword search "mortgage" on Google, MSN and Yahoo throughout most of 2004.

RESEARCH AND DEVELOPMENT

         We develop our own proprietary software for providing products and
services to our customers. These efforts are funded primarily through
operations. Research and development expense was approximately $2,500,000 and
$384,000 for 2004 and 2003, respectively.

COMPETITION

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

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

         LION markets itself to retail borrowers through its mortgage101.com
Internet portal, sells directly to mortgage brokers through a telephonic and
email sales effort, markets to realtors directly and through third parties and
sells to mortgage originators and lenders through a professional sales staff.

         The market for Internet-based products and services is growing and
remains intensely competitive, rapidly evolving, and subject to rapid
technological change. We expect competition to

                                       5
<PAGE>

intensify and increase in the future. 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.

         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 have. These companies could be strong competitors if they
decided to develop a focused business effort in our Internet space. Furthermore,
to the extent that our products achieve market acceptance, competitors can be
expected to offer competitive products or embark on pricing strategies, which,
if successful, could have a material adverse effect on the results of our
operations and financial condition.

         The consumer mortgage arena is intensely competitive. Well capitalized
companies spend millions of dollars marketing to the consumer to achieve brand
awareness. Consumers search the Internet looking for information and will
commonly shop two to three companies before making a decision. Also, consumers
prefer to "shop globally and buy locally." Our network of consumer sites
delivers value to consumers on both issues. As an unbiased source of rate and
fee information provided by local brokers, our network of consumer sites has
become a leading mortgage portal destination when measured by reported consumer
traffic.

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

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

         The Capital Markets group competes against a number of firms that
provide similar technologies, analytics and services to those offered by the
firm. Competition in the Pipeline Tools segment of the market is to a large
extent driven by client perceptions regarding the quality of financial analytics
provided, product price and the scope and functionality of the Pipeline Tools

                                       6
<PAGE>

product offering. Scope, in this case, refers to products that have the ability
to extend beyond traditional pipeline risk management and can offer solutions in
areas such as asset/liability management, servicing hedging and accounting
interface. Given the complexity of the developing and supporting the analytics
required to quantify pipeline risk management, we compete against only a handful
of firms in the Pipeline Tools only space.

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

         As we seek to expand our market share, 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

         Our mortgage pipeline risk management services are provided by TRMS, a
Commodity Trading Advisor registered with the Commodity Futures Trading
Commission and the National Futures Association. Commodity Trading Advisors are
subject to detailed disclosure, reporting, and recordkeeping requirements. The
U.S. commodity markets are subject to on-going and substantial regulatory
changes, and we cannot predict what statutory, administrative or exchange
imposed restrictions may become applicable to or adversely affect TRMS in the
future. Our other operations are subject to general business regulations and
laws, as well as regulations and laws specifically governing the Internet and
e-commerce. Existing and future laws and regulations may impede the growth of
the Internet or other online services. These regulations and laws may cover
taxation, user privacy, data protection, pricing, content, copyrights,
distribution, electronic contracts and other communications, consumer
protection, the provision of online payment services, broadband Internet access,
and the characteristics and quality of products and services not currently
subject to direct regulation by any government agency, other than regulations
applicable to businesses generally, 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 developing. We cannot predict the
impact, if any, that future regulation or regulatory changes might have on our
business. It is not clear how existing laws governing issues such as property

                                       7
<PAGE>

ownership, sales and other taxes, libel, and personal privacy apply to the
Internet and e-commerce. Unfavorable resolution of these issues may harm our
business. This could, in turn, diminish the demand for our products and services
and increase our cost of doing business.

PROPRIETARY RIGHTS

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

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

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

EMPLOYEES

         At December 31, 2004, we had 141 employees of which 131 were full-time.
There are 17 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

                                       8
<PAGE>

represented by any collective bargaining unit, and we have never experienced a
work stoppage. We believe relations with our employees are good.


ITEM 2.   DESCRIPTION OF PROPERTY

         Our executive offices are located in Seattle, Washington, where we
currently lease approximately 8,274 square feet. 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.

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

         For computer information services, research and development, product
support, and related business use, we lease 2,746 square feet in San Rafael,
California. The lease expires March 31, 2005. Management foresees no problem in
extending or modifying the lease or finding alternative space.

         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

         See Note H - Legal Matters of the Notes to Financial Statements (Item
7) for information regarding legal proceedings.


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

         There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended December 31, 2004.

                                       9
<PAGE>

                                     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,          2004                   2003
                                  ---------------------  ----------------------
                                    HIGH          LOW      HIGH          LOW
                                    ----          ---      ----          ---
   First Quarter                   $0.600       $0.200    $0.085       $0.040
   Second Quarter                   0.740        0.420     0.170        0.060
   Third Quarter                    0.610        0.300     0.320        0.090
   Fourth Quarter                   0.550        0.390     0.330        0.120

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

         There were approximately 1,407 holders of record of our common stock as
of March 11, 2005.

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.


ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

         Our primary objective for 2004 was to focus on the integration of
strategic assets acquired in December 2003 from Ignition. This was the first
critical step in expanding LION from a company focused on the front end of the
mortgage loan process, including lead generation, mortgage content, rate
publishing and web site hosting. By expanding the breadth of our product and
service offerings to appeal to a wider audience of consumers, mortgage brokers,
realtors and lenders, we positioned the Company to become an end-to-end
technology and solutions provider, generating new revenue streams and creating
the opportunity to further diversify our distribution channels.

                                       10
<PAGE>

         Our fourth quarter acquisition of TRMS solidified our distribution
channel for our capital markets technology and advisory offerings and enhanced
our product bundling opportunities. Through the acquisition of Ignition and
TRMS, LION has developed a bundled product suite that supports our tagline, FROM
LEADS TO LOANS TO CAPITAL MARKETS. The launch of our Precision marketing
productivity suite in October 2004 represented the realization of the concept
and effort that drove us to acquire assets from Ignition in late 2003. The
merging of Ignition's technology and platform with that of LION is the bedrock
upon which our future offerings to midsize mortgage lenders will be based.

         To support our revenue targets and profitability objectives, we have
reorganized our product groupings to more closely align our business objectives
by product with the customers we serve. Our three business units are Leads,
Loans and Capital Markets. The change is largely structural and does not require
significant personnel changes. Our Leads units consists of Mortgage 101, our
consumer Internet portal that attracts in excess of 400,000 consumer hits per
month along with similar consumer traffic from co-branded Realtor websites that
display our content. This business unit accounted for 13% of 2004 revenue and
added more than 13,000 new Realtor affiliates in 2004, bringing the number to
over 48,000. Our Loans business unit is comprised of products that include
Retail Websites, LockPoint Xtra(R), LION Pro and our new Precision marketing
productivity suite that combines the best features of all three products for our
offering to mid sized mortgage originators. Together, these offerings accounted
for 51% of LION's 2004 revenue. Our Capital Markets related businesses include
our Pipeline Tools technology and TRMS' Risk Management Services operations
acquired early in the fourth quarter. This unit accounted for 37% of our revenue
in 2004.

         For fiscal 2004, we reported record revenue of $15.2 million, an
increase of 88% over full year 2003 revenue; we were profitable for the tenth
consecutive quarter, beginning with the third quarter of 2002 through the fourth
quarter of 2004, despite the significant cost and challenges of integrating two
major acquisitions; and we ended the year with $4.5 million in cash, our highest
cash balance ever. However, we did sustain a modest operating loss of
approximately $44,000 in the second quarter of 2004. We consolidated parts of
our multiple data centers acquired through our acquisitions in order to
streamline production and have continued to eliminate redundancy of equipment
and processes with our primary and back up datacenters. With much of the
consolidation work complete, we expect additional expense reduction throughout
2005 to ensure that our operating infrastructure and costs are consistent with
our revenue opportunities.

         As we look to the future, our direction and our progress will be
influenced by certain strategic drivers affecting the market and customers we
serve, including higher interest rates, pressure on mortgage volume and higher
adjustable rate and sub prime mortgage origination as a percentage of total
volume. These external influences are generally positive for LION as they
stimulate demand for lead generation, productivity tools and investment in
technology. Conversely, decline in mortgage loan volume can be expected to
adversely affect the performance of our transactional based revenue products
such as LockPoint Xtra(R) and our capital markets businesses. We intend to
offset volume decline, however, by adding to our customer base. Intensifying
competition for fewer borrowers is also accelerating industry consolidation
among lenders and vendors. While the mortgage market has fallen from its high in
2003 to an expected $2-2.5 trillion in 2005, LION's addressable market has not
declined. A substantial share of our revenue is associated with consumers that
buy their homes, rather than refinance them. Purchase money mortgage
origination, those loans made in connection with consumer home purchases,
increased in 2004 and are expected to remain stable or perhaps increase in

                                       11
<PAGE>

2005. Despite the increasing interest rates, demand for new and existing housing
has remained strong and is forecast to continue to grow.

         Our principal focus in 2005 is expanding our revenue base through a
variety of strategies, increasing our profits and broadening our scope. We
undertake this effort in a challenging business climate that compels us to
identify the opportunities and challenges that faces us so that we may take the
actions necessary to optimize our opportunity to thrive. However, due to the two
acquisitions in the last 12 months, we have incurred additional costs which
could extend to the first half of 2005 while we further integrate, streamline
and modify our operations, technology, and infrastructure supporting our current
and planned product offerings. Until these efforts are completed, profitability
could be constrained during 2005.

BUSINESS ENTERPRISE SEGMENTS

         We operate in one reportable operating segment for our various product
lines within our Leads, Loans and Capital Markets groups for LION and its
subsidiary, TRMS. Our products and services collectively streamline the mortgage
loan fulfillment process for the mortgage industry. We provide an integrated
technology platform offering online loan productivity, mortgage pipeline hedging
and risk management, software development and data communications tools
delivered through our datacenters. In addition, TRMS provides and supports its
risk management services to customers utilizing our Pipeline Tools technology.
LION's customer base for its products and services is similar in type and class
as the customer base for TRMS.

         Although the Company has multiple operating segments, under SFAS 131,
two or more operating segments may be aggregated into a single operating segment
for financial reporting purposes if aggregation is consistent with the objective
and basic principles of SFAS 131, if the segments have similar economic
characteristics, and if the segments are similar in each of the following areas:
1) the nature of products and services, 2) the nature of the production
processes; 3) the type or class of customer for their products and services; and
4) the methods used to distribute their products or provide their services. We
believe the Company meets these criteria as we provide similar services to
similar customers using similar methods of production and similar methods to
distribute the services and therefore qualify to aggregate our results of
operations in one reportable operating segment.

                                       12
<PAGE>

CONDENSED RESULTS

<TABLE>
<CAPTION>
                                      Three months ended                  For the Year Ended
                                          December 31,                        December 31,
                                 ------------------------------      ------------------------------
                                     2004              2003              2004              2003
                                 ------------      ------------      ------------      ------------
<S>                              <C>               <C>               <C>               <C>
Revenues                         $  4,171,275      $  2,632,606      $ 15,191,761      $  8,068,030
Operating expenses                  4,082,571         2,220,502        15,075,499         7,294,120
                                 ------------      ------------      ------------      ------------
    Operating income                   88,704           412,104           116,262           773,910
Other (expense) income - net          (19,024)           (5,175)          406,995           (17,117)
                                 ------------      ------------      ------------      ------------
                                       69,680           406,929           523,257           756,793
Income tax (benefit) expense          (43,225)           29,739           (92,906)           29,739
                                 ------------      ------------      ------------      ------------
Extraordinary gain - net              112,905           377,190           616,163           727,054
                                           --         2,027,675                --         2,027,675
                                 ------------      ------------      ------------      ------------
    Net income                   $    112,905      $  2,404,865      $    616,163      $  2,754,729
                                 ============      ============      ============      ============

Net income per common share,
        Basic                    $         --      $        .08      $        .02      $        .09
                                 ============      ============      ============      ============
        Diluted                  $         --      $        .07      $        .02      $        .08
                                 ============      ============      ============      ============
</TABLE>

         Revenue for the fourth quarter was up 17 percent over third quarter
2004 and 58 percent higher than the same quarter a year ago. Year-to-date
revenue aggregated a record $15.2 million, an increase of 88 percent over full
year 2003 revenue. The growth in revenue during 2004 was due primarily to the
Ignition and TRMS acquisitions, contributing approximately $6.8 million of
revenue growth while approximately $306 thousand was gained organically through
LION's pre-Ignition products and services.

         Overall operating expenses were impacted by the integration of our two
strategic acquisitions. We made progress in consolidating the multiple data
centers acquired through our acquisitions and continue to streamline production
and eliminate redundancy of equipment and processes with our primary and backup
datacenters. Expense containment policies implemented during the year ensured
that our infrastructure did not swell beyond what was necessary to support the
complexities of combining companies. Further efforts throughout 2005 will be
necessary to further bring operating expenses more in line with revenues.

         During the second quarter, we reached a mutually acceptable mediated
settlement with our insurance carrier for the reimbursement of defense and
indemnity costs related to litigation completed in June 2002. The Company
received approximately $433,000 net of legal expenses in June 2004 which is
reflected in other income for the year.

         We reported net income of $113,000 for the quarter compared to $2.4
million in fourth quarter 2003, which was aided by a $2 million extraordinary
gain associated with the Ignition acquisition. Net income for full year 2004 was
$616,000, or $.02 per diluted share compared to $2.7 million inclusive of the
extraordinary gain or $.08 per diluted share in 2003.

                                       13
<PAGE>


DETAILED RESULTS OF OPERATIONS

REVENUES

<TABLE>
<CAPTION>
                                                                         For the year
                             ---------------------------------------------------------------------------------------------------
                                         2004                              2003                               Change
                             -----------------------------     -----------------------------     -------------------------------
<S>                          <C>                       <C>     <C>                       <C>     <C>                       <C>
LEADS
Mortgage 101                 $ 1,959,114               13%     $ 2,257,281               28%     $  (298,167)              (13)%


LOANS
Lion Pro                       3,145,270               21%       2,964,500               37%         180,770                 6%
Retail web sites               2,541,401               17%       2,117,499               26%         423,902                20%
LockPoint Xtra                 1,922,863               12%         308,378                4%       1,614,485               523%
                             -----------              ---      -----------              ---      -----------       -----------
                               7,609,534               50%       5,390,377               67%       2,219,157                41%

CAPITAL MARKETS
Pipeline Tools                 4,144,412               27%         420,372                5%       3,724,040               886%
Risk Management Services       1,478,701               10%              --               --        1,478,701                --
                             -----------              ---      -----------              ---      -----------       -----------
                               5,623,113               37%         420,372                5%       5,202,741             1,238%


Total revenues               $15,191,761              100%     $ 8,068,030              100%     $ 7,123,731                88%
                             ===========              ===      ===========              ===      ===========                ==
</TABLE>

         As summarized above, we have reorganized our product groupings to more
closely align our business objectives by product with the customers we serve.
These business units are Leads, Loans, and Capital Markets.

LEADS

         The Leads business unit is comprised of our Mortgage 101 product.

         Mortgage 101 revenues, which are comprised of LION's subscription and
pay-per-lead based lead programs along with broker ad banner programs, decreased
quarter over quarter and were down year over year. This is reflective of lower
mortgage origination trends overall and increased competition for leads. At the
end of 2004, LION further refined its pay-per-lead model and business processes
and anticipates growth in revenues by this business unit in 2005 compared to
2004.

LOANS

         The Loans business unit is comprised of LION Pro, Retail Web Sites, and
LockPoint Xtra(R).

         LION Pro revenues are comprised of LION Pro Corporate, LION Pro
Individual, and lenders who participate in the underlying database. Revenues
continued to improve year over year due to the success of the LION Pro Corporate
product line. There are now 105 LION Pro Corporate accounts, an increase from an
adjusted 91 accounts at the end of third quarter 2004.

         Retail Web Site revenues increased 20% year over year and continues to
be a strong performer for the Company. This product line, which is intended to
create and foster relationships between consumers and mortgage originators while
enabling mortgage companies and originators to more efficiently manage their
online production channel and maximize the business value received

                                       14
<PAGE>

from their online operations, is expected to continue to compete successfully
with similar web site products in the industry.

         LockPoint Xtra(R) has been a LION product since December 2003. Revenues
are generated from implementation fees with new customers, recurring monthly
billings based on loan amount volumes with monthly minimums which may vary from
customer to customer, and custom development services. Revenues are primarily
transaction based and are dependent on a limited number of significant
customers. Revenues decreased from approximately $764,000 in first quarter 2004
to approximately $421,000 for the second quarter and stabilized at $335,000 in
the third quarter. In fourth quarter 2004, revenues increased to $403,000 due
primarily to the launch of LION's new Precision marketing productivity suite.

CAPITAL MARKETS

         The Capital Markets business unit is comprised of Pipeline Tools and
Risk Management Services. Due to the acquisition of TRMS in October 2004,
revenues from Pipeline Tools and Risk Management Services combined were
approximately $665,000 higher in the fourth quarter than if the acquisition had
not occurred.

         Pipeline Tools has been a LION product since December 2003. Pipeline
Tools revenues are generated from implementation fees from new customers,
recurring monthly billings based on closed loan volumes with monthly minimums
which may vary from customer to customer, and custom development services. TRMS
was LION's largest customer for Pipeline Tools. Prior to the acquisition of
TRMS, LION provided TRMS a license to have access to and use of Pipeline Tools.
LION also provided second-line support to TRMS. In return, LION was paid a fee
which was recorded as Pipeline Tools revenue and comprised approximately 72% to
74% of Pipeline Tools revenue. LION's Pipeline Tools revenues include these fees
through October 12, 2004. As of the TRMS acquisition date of October 13, 2004,
the fees between LION, the parent, and TRMS, the subsidiary, are now eliminated
when combining results of the two companies. Revenue for Pipeline Tools for
fourth quarter totaled $434,000 and had the acquisition of TRMS not occurred,
would have totaled approximately $1,248,000, a slight decrease from the
$1,291,000 in the third quarter. The decrease was due to lower loan origination
volumes in the fourth quarter.

         Risk Management Services are provided by TRMS and are generated by
recurring monthly billings based on closed loan volumes with monthly minimums
which may vary from customer to customer. Revenue from Risk Management Services
totaled $1,479,000 for the quarter and year. These revenues include
approximately $814,000 that would have been classified as Pipeline Tools had the
acquisition of TRMS not occurred.

                                       15
<PAGE>


OPERATING EXPENSES

                                          2004                   2003
                                  --------------------   ---------------------
                                                % of                    % of
                                     Amount    Revenue      Amount     Revenue
                                  -----------  -------   -----------   -------

Direct costs                      $ 5,775,042    38%     $ 1,735,428     21%
Selling and marketing               2,027,214    13%       2,240,197     28%
General and administrative          4,198,373    28%       2,451,645     30%
Research and development            2,499,713    16%         383,903      5%
Depreciation and amortization         575,157     4%         482,947      6%
                                  -----------    --      -----------     --

Total operating expenses          $15,075,499    99%     $ 7,294,120     90%
                                  ===========    ==      ===========     ==

DIRECT COSTS

         Direct costs are comprised primarily of web site fulfillment,
technology infrastructure support, product and contract support, product
deployment, and TRMS trading desk and support services. Direct costs increased
233% in 2004 compared to the prior year. A majority of the increase is
attributable to the added infrastructure related to the Ignition asset purchase
in December 2003. LION now has two major data centers, one a primary and the
other a redundant backup. In addition, the LockPoint Xtra(R) and Pipeline Tools
products require specialized allocated resources to deliver and maintain the
underlying service to customers. Compared to LION's other products, the
LockPoint Xtra(R) and Pipeline Tools products require more time and resources to
deploy before a service is fully delivered to the customer. Integration of the
LION and Ignition infrastructures continued throughout 2004 and will continue
into the first half of 2005. Once completed, the Company anticipates a decrease
in the related direct costs. In addition, due to the nature of the TRMS
operation, 94% of their operating expenses are direct expense. In the fourth
quarter and the year ended, the portion of direct expense attributable to TRMS
totaled approximately $1,260,000.

SELLING AND MARKETING

         Selling and marketing expenses are comprised primarily of advertising
and marketing costs, sales salaries and related support costs. Selling and
marketing expenses decreased nearly 10% in 2004 compared to 2003. The decrease
is primarily due to the elimination of sales, support and marketing efforts
related to the two alliances that the Company was involved with during the first
part of 2003 that were discontinued later in that year and the reallocation of
certain sales support resources to technical support roles in the web site
fulfillment area. This reduction was offset by an increase in selling and
marketing expenses due to the efforts of LION's commissioned broker sales force,
the addition of seasoned sales personnel related to the Ignition asset
acquisition, increased advertising, and additional tradeshow participation.
During fourth quarter 2004, selling costs related to TRMS were only 4% of TRMS
revenues. As discussed below under 2005 Plans, we intend to increase our
marketing efforts throughout 2005 compared to 2004.

GENERAL AND ADMINISTRATIVE

         General and administrative expenses are comprised primarily of
management and administrative salaries and related costs, legal and audit fees,
outside consulting services, certain telecommunications expenses, occupancy
costs, and other administrative related expenses. General

                                       16
<PAGE>

and administrative expenses increased 71% in 2004 compared to 2003. A majority
of this increase in expense was directly related to the impact of the Ignition
asset purchase with the addition of a new CEO and Co-President of Operations in
December 2003, incentive bonuses to various management personnel due to the
successful completion of the Ignition asset purchase and integration efforts
throughout 2004, various infrastructure integration efforts, additional investor
relations efforts, and additional stock option, legal and audit fees.
Administrative expense is expected to increase in 2005 due to compliance work on
internal controls and procedures as mandated by Section 404 of the
Sarbanes-Oxley Act. Even though the SEC has granted an extension for
non-accelerated filers such as LION to comply beginning with our Annual Report
on Form 10-KSB for the fiscal year ending December 31, 2006, there is still
substantial work that needs to be completed by LION in 2005 in order to be ready
for compliance in 2006. These additional expenses could range from $100,000 to
$125,000 in 2005.

RESEARCH AND DEVELOPMENT

         Research and development expenses are comprised primarily of
engineering salaries and related costs. Research and development expenses
increased 551% in 2004 compared to 2003. The increase was primarily attributable
to research and development efforts in the LockPoint Xtra(R), Pipeline Tools,
Retail Web Site and Mortgage 101 product lines. The LockPoint Xtra(R) and
Pipeline Tools product lines have defined and established research and
development functions in the Company's Gig Harbor, Washington and Sausalito,
California locations. The Company anticipated a higher commitment to research
and development in 2004 compared to 2003 in order to support its product
initiatives as well as the integration of various components of these product
lines in the development of the Precision productivity marketing suite. Research
and development expenses actually decreased in the last half of 2004 compared to
the first six months due to efficiencies gained in integrating LION and
Ignition. While the Company recognizes that the overall research and development
expenses are still high compared to revenues, it views these efforts at this
point in time as critical in order to have a positive impact in supporting the
development and delivery of the Company's technology, products and services in
the mortgage industry in 2005 and beyond.

DEPRECIATION AND AMORTIZATION

         The increase in depreciation and amortization expense for 2004 compared
to 2003 is due to additional depreciation related to the purchase of equipment,
computers and software along with the addition of internally developed software
for internal use.

INTEREST EXPENSE

         Interest expense increased to $40,171 from $20,214 for the years ended
December 31, 2004 and 2003, respectively. The increase is due to one-year
promissory notes assumed by LION during the acquisition of TRMS totaling
$303,000 at a 10% annual interest rate and three year notes with the TRMS
shareholders as part of the consideration paid for TRMS totaling approximately
$972,000 at an 8% annual interest rate. The $303,000 one-year notes will be paid
off by March 31, 2005 and management does not at this time anticipate any early
pay down of the three-year notes.

                                       17
<PAGE>

OTHER INCOME

         Other income includes $433,000 net of legal expenses related to a
settlement with our insurance carrier for the reimbursement of defense and
indemnity costs related to litigation completed in June 2002.

INCOME TAX EXPENSE (BENEFIT)

         The benefit for income tax for 2004 was approximately $93,000 compared
to an expense of approximately $106,000 in 2003. The 2004 effective tax rate of
10.9% is primarily attributable to the impact of utilizing our net operating
loss carryforwards. Our 2003 effective tax rate on income before extraordinary
item was 3.9% and with the extraordinary item was 3.7%. The 2003 effective tax
rates were also due primarily to the impact of our net operating loss
carryforwards. Absent these items, we would expect our effective tax rate to
approximate 36%.

         Because of the uncertainty relating to the realization of deferred tax
assets in future periods, we maintained a valuation allowance which fully offset
our net deferred tax assets at December 31, 2003 and September 30, 2004. We
reduced this valuation allowance and recognized a deferred tax asset in the
fourth quarter of 2004. We will continue to evaluate the realizability of our
net deferred tax assets in future periods and may recognize additional income
tax benefits in earnings if we determine that the realization of these assets is
more likely than not.

EXTRAORDINARY GAIN

         The purchase of certain assets of Ignition in 2003 included product
lines; certain customer, vendor, consulting, software and maintenance agreements
related to Ignition's business; leased operations facilities; intellectual
property held or used in connection with Ignition's business, including
copyrights, domain names, patent applications, and trademarks (but excluding
Freddie Mac trademarks and other intellectual property); and certain tangible
personal property, prepaid expenses and accounts receivable. The fair value of
the net assets acquired in the transaction exceeded the cost of the acquired
assets. In accordance with the provisions of Statement of Financial Accounting
Standards No. 141, "Business Combinations," the excess of the fair value of the
net assets over the cost of the acquired assets was allocated as a pro rata
reduction to the non-current assets acquired. Accordingly, the fair value of the
property and equipment acquired in the transaction was reduced to zero, and the
remaining amount was recorded as an extraordinary gain.


FINANCIAL POSITION

         We have financed our liquidity needs over the last several years
through revenue generated from operations and equipment lease financing. During
2004, we also received proceeds from the exercise of warrants and stock options
and the settlement with our insurance carrier for the reimbursement of prior
litigation and indemnification costs.

                                       18
<PAGE>

         At December 31, 2004, we had approximately $4,518,000 in cash and cash
equivalents and approximately $4 million of working capital. The change in cash
and cash equivalents is as follows:

                                                        2004            2003
                                                     -----------    -----------
CASH FLOW SUMMARY
Net income before extraordinary items                $   616,163    $   727,054
Non-cash items                                           776,551         59,033
Changes in working capital                               636,700         40,187
                                                     -----------    -----------
Net cash provided by operating activities              2,029,414      1,226,274
Net cash (used in) provided by investing activities     (454,120)     1,292,762
Net cash provided by (used in) financing activities       59,692        (39,639)
                                                     -----------    -----------
Net increase in cash and cash equivalents              1,634,986      2,479,397
Cash and cash equivalents at beginning of year         2,883,314        403,917
                                                     -----------    -----------
Cash and cash equivalents at end of year             $ 4,518,300    $ 2,883,314
                                                     ===========    ===========

NON-CASH ITEMS

         Non-cash items in net income are primarily depreciation and
amortization, expensing of stock options, and other miscellaneous items which
were offset by an increase in deferred tax assets due to the realization of net
operating loss carryforwards based on the sufficiency of future taxable income.
In 2003, non-cash items were primarily depreciation and amortization.

WORKING CAPITAL AND OPERATING ACTIVITIES

         During 2004, our investment in working capital increased due to overall
payoffs of accounts receivable during 2004 including the pay down of large
receivables outstanding at the end of 2003 related to the purchase of the
Ignition assets, an increase in accounts payable due to our normal business
operating cycle, increases in deposits from customers related to the Mortgage
101 pay per lead program, revenue growth, primarily from the Retail Web Sites,
LockPoint Xtra(R), Pipeline Tools and Risk Management Services product lines,
and a settlement with our insurance carrier related to the reimbursement of
defense and indemnity costs related to litigation completed in June 2002. This
increase was offset by payments for the acquisition costs associated with the
Ignition assets and TRMS acquisitions and a decrease in deferred revenue
associated with a large customer contract acquired with the Ignition assets.

         During 2003, investment in working capital increased due to revenue
growth, primarily from our mortgage broker customers, improved bad debt
experience, and a reduction in legal fees. The increase was offset by additional
database support costs related to increased wholesale and correspondent loan
programs, telecommunications infrastructure costs to support new services and
increased volumes through the Company's consumer and business web portals,
resources to support the development of broker websites and growth in the
commissioned broker sales force and related customer support costs.

                                       19
<PAGE>

INVESTING ACTIVITIES

         During 2004, investing activities used cash of $454,120 and primarily
consisted of the capitalized portion of software development costs related to
the enhancement of underlying infrastructure delivering various product lines
and upgrades to computer hardware and software.

         During 2003, investing activities provided net cash of $1,292,762 and
was primarily due to favorable terms related to the acquisition of certain
assets of Ignition which included net cash of approximately $1,721,000 to cover
the underlying obligations and prepaid amounts for assigned customer contracts
related to the LockPoint Xtra(R) and Pipeline Tools products. This was offset by
the capitalized portion of software development costs related to the enhancement
of core online services for brokers and the conversion of consumer traffic into
higher-value lead generation and upgrades to computer hardware and software.

FINANCING ACTIVITIES

         During 2004, net proceeds from financing activities were $59,692.
Warrants and stock options were exercised during the period totaling
approximately $197,000 along with tax benefits on stock options exercised
totaling approximately $55,000. This was offset by payments totaling
approximately $193,000 on notes payable and capitalized lease obligations
related to the acquisition of application and database software, computers,
servers, furniture and telecommunications systems upgrades over the previous two
years and payments on the one-year notes assumed during the TRMS acquisition.

         During 2003, the net use of cash for financing activities was $39,639.
Cash used was primarily related to notes payable and capitalized lease
obligations on the acquisition of application and database software, computers,
servers, furniture and telecommunications systems upgrades. This was offset by
proceeds from the exercise of stock options by employees during fourth quarter
2003.

AGGREGATE CONTRACTUAL OBLIGATIONS

         The following table represents the Company's total contractual
obligations as of December 31, 2004. See "NOTE E - LONG-TERM OBLIGATIONS" and
"NOTE G - COMMITMENTS AND CONTINGENCIES" in the Company's "NOTES TO FINANCIAL
STATEMENTS" below for additional information.

<TABLE>
<CAPTION>
                                                   Payments Due by Period
                                   -------------------------------------------------------
                                                  Less Than
                                     Total          1 Year       1-3 Years      4-5 Years
                                   ----------     ----------     ----------     ----------
<S>                                <C>            <C>            <C>            <C>
Contractual Obligations
   Long-term debt                  $1,165,105     $  192,896     $  972,209     $       --
   Capital lease obligations           94,098         70,112         23,986             --
   Operating lease obligations      1,778,042        609,300        994,033        174,709
                                   ----------     ----------     ----------     ----------
Total contractual obligations      $3,037,245     $  872,308     $1,990,228     $  174,709
                                   ==========     ==========     ==========     ==========
</TABLE>

                                       20
<PAGE>

2005 PLANS

         During 2004, we expanded the breadth of our product and service
offerings to appeal to a wider audience of consumers, mortgage brokers, realtors
and lenders. We also positioned the Company to become an end-to-end technology
and solutions provider and created the opportunity to diversify our distribution
channels further. In addition, we solidified our distribution channel for our
capital markets technology and advisory offerings through the acquisition of
TRMS and enhanced our product bundling opportunities. The launch of our
Precision marketing productivity suite in October 2004 initially appears to have
been well received in the industry

         Our direction and our progress will be influenced by strategic drivers
affecting the market and customers we serve. See "Overview" for a discussion of
industry-wide factors relevant to LION. Achieving our long-term goal of
significantly increasing our annual revenue will require strategies to
supplement our organic growth opportunities with strategic initiatives that may
include partnerships, distribution agreements and acquisitions, none of which
are mutually exclusive. We will also begin to explore opportunities to export
our technology and services outside of the mortgage market. Our principal focus
in 2005 is to expand our revenue base through a variety of strategies while
increasing our profits. We undertake this effort in a challenging business
climate that compels us to identify critical opportunities and challenges so
that we may take the actions necessary to optimize our opportunity to
successfully meet our goals.

         Reorganizing our operating structure, together with combining disparate
technologies and products into a cohesive customer centric framework, has
created an opportunity for us to repackage our product offerings to create
clear, distinctive product brands. It also allows us to redefine our corporate
image in a way that customers, prospective customers, and investors can more
clearly understand the full breadth of what LION does and how what we do
supports our corporate objectives. We will support these efforts by launching an
aggressive marketing campaign to widen our sphere of influence, articulate our
competitive advantage and increase our visibility in the mortgage industry and
with investors. We intend to invest more heavily in marketing campaigns that
will include more print advertising, expanded trade show attendance and
sponsorship, and other similar media. It is difficult to estimate the tangible
effect of a unified branding strategy on revenue in the near term, but we do
expect a positive impact in the second half of 2005.

         It is management's assessment that current working capital and that
which will be created organically through operations should be adequate for our
growth plans and capital expenditure needs throughout 2005 and into 2006.

CRITICAL ACCOUNTING POLICIES

         The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States of America
requires us to make a number of estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. Our estimates are based
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. The reporting of results of our
operations and financial condition in the preparation of our financial
statements could differ significantly from our estimates under different
assumptions and conditions. We believe that the following discussion addresses
our most critical accounting policies, which are those that are most

                                       21
<PAGE>

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

         REVENUE RECOGNITION

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

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

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

         DEFERRED TAXES

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

         During the fourth quarter of 2004, the Company recognized a tax benefit
of $150,000. This tax benefit was the result of the recognition of a net
deferred tax asset. Realization of the net deferred tax asset is dependent on
generating sufficient taxable income prior to expiration of net operating loss
carryforwards. At December 31, 2004, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $2,460,000
available to offset future income which expire in 2018 through 2022. Although
realization is not assured, management believes it is more likely than not that
a portion of the deferred tax asset will be realized. The amount of the deferred
tax asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
The Company has established a valuation allowance of $1.07 million and $1.44
million as of December 31, 2004 and 2003, respectively, due to the uncertainty
of future realization of the net deferred tax assets. Utilization of these
carryforwards

                                       22
<PAGE>

could further be limited due to a change of control in the
Company's ownership as defined by the Internal Revenue Code Section 382.

         IMPAIRMENT OF GOODWILL

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In December 2004, the FASB issued Statement of Financial Accounting
Standard ("SFAS") No. 123 (revised 2004) (SFAS No. 123R), SHARE-BASED PAYMENT.
This Standard requires companies to measure share-based payments at grant-date
fair value and recognize the compensation expense in their financial statements.
We previously adopted the fair value based method of accounting pursuant to SFAS
No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, prospectively. Management is
in the process of evaluating the requirements of SFAS No. 123R. The final
determination of the impact of this statement has not been completed.

         In May 2005, the FASB issued SFAS No. 154, ACCOUNTING CHANGES AND ERROR
CORRECTIONS. SFAS No. 154 replaces Accounting Principles Board ("APB") Opinion
No. 20, ACCOUNTING CHANGES and SFAS No. 3, REPORTING ACCOUNTING CHANGES IN
INTERIM FINANCIAL STATEMENTS. SFAS No. 154 requires retrospective application to
prior periods' financial statements of a voluntary change in accounting
principle unless it is not practical. APB No. 20 previously required that most
voluntary changes in accounting principle be recognized by including the
cumulative effect of changing to the new accounting principle in net income in
the period of the change. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
The Company does not expect the adoption of SFAS No. 154 to have a material
impact on the Company's financial position or results of operations.

         In September 2005, the Securities and Exchange Commission announced
that the compliance date for non-accelerated filers and foreign private issuers
pursuant to Section 404 of the Sarbanes-Oxley Act has been extended. Under the
latest extension, a company that is not required to file its annual and
quarterly reports on an accelerated basis and a foreign private issuer filing
its annual report on Form 20-F or 40-F, must begin to comply with the internal
control over financial reporting requirements for its first fiscal year ending
on or after July 15, 2007. This is a two-year extension from the previously
established July 15, 2005 compliance date. The Commission similarly has extended
the compliance date for these companies relating to requirements regarding
evaluation of internal control over financial reporting and management
certification requirements. LION will, therefore, be required to comply with
Section 404 of the Sarbanes-Oxley Act as of December 31, 2007.

                                       23
<PAGE>

FACTORS THAT MAY AFFECT FORWARD-LOOKING STATEMENTS

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

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

         We are working toward a goal of revenue growth and sustained
profitability. Annual revenues increased to $15.2 million from $8.1 million in
2003 and from $6.4 million for 2002. However, during 2003 and 2004, revenues
from quarter to quarter have at times remained flat. Had it not been for the
strategic acquisition of the Ignition assets in December 2003 and the
acquisition of TRMS in October 2004, revenue growth targets year over year would
not have been achieved for 2004 and the likelihood of achieving targets for 2005
much more difficult. We have had ten consecutive quarters of profitability
beginning with the third quarter of 2002 through the fourth quarter of 2004.
However, we did sustain a modest operating loss of approximately $44,000 in the
second quarter of 2004. Due to the two acquisitions in the last 12 months, the
Company has incurred additional costs which could extend to the first half of
2005 while we further integrate, streamline and modify our operations,
technology, and infrastructure supporting our current and planned product
offerings. Until these efforts are completed, profitability could be constrained
during 2005.

         Although we currently anticipate that 2005 will be a profitable year,
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, and profitability. We
cannot assure you that we will be successful in addressing these risks or that
we can be operated profitably, which depends on many factors, including the
success of our marketing program, control of expense levels and the success of
our business activities. Our future operating results will depend on a variety
of factors, including those discussed in the other factors set forth below.

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

         We are substantially dependent on the continued services of our key
personnel, including our officers, engineers and other significant employees.
These individuals have acquired specialized knowledge and skills with respect to
LION. We are continuing to create the redundancies that will reduce the reliance
on these individuals, but have not completed this task and will not for at least
the remainder of 2005. Furthermore, we have not entered into employment
agreements with these significant employees except for our upper management
team. 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

                                       24
<PAGE>

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.

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

         Our success depends on our ability to expand, retain and enhance our
advanced business solution customers. Our expanded product line as a result of
the acquisition of Ignition assets and TRMS carries with it the risk that our
revenues may be dependent on a limited number of significant customers, rather
than a broad-based broker and customer network. As part of the acquisition, LION
became the assignee of certain customer contracts, most of which have initial
contract periods or renewals expiring 2005 and 2006 and typically have renewable
successive one-year terms and in a few cases successive two-year terms. Revenues
from these contracts comprised approximately 56% of our total revenues for
fourth quarter 2004. While we did have several LockPoint Xtra(R) and Pipeline
Tools customers discontinue their contracts with us during 2004, we have also
had successful new sales for our new Precision productivity marketing suite,
Pipeline Tools and Risk Management Services. While we have no reason to believe
other similar large contracts will not be renewed, there can be no assurance
that these customers will renew their contracts, or that we will be able to
attract new customers at rates sufficient to maintain a stable or growing
revenue base. We have also experienced an anticipated but significant decline in
loan volumes in the LPX, Pipeline Tools, and Risk Management Services product
lines. If we are unsuccessful in enrolling new customers to equalize the
attrition rate, if any, of existing customers, or to offset a decline in
transactional volume, our overall share of the advanced business solution market
could be reduced, and consequently our business operating results and financial
condition may be materially adversely affected.

OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

         We do not have multiple site capacity for our LION Pro, Mortgage 101 or
Retail Web Site services, however, we do have this in place for LockPoint
Xtra(R), Pipeline Tools, and Risk Management Services. We are in the process of
developing multiple site capacity for all of our services, but this will not be
completed until some time during mid-2005. We have in place comprehensive data
tape backup procedures for our operational and administrative databases. Our
replication software provides a high level of hardware backup for the database
by duplicating our database across several powerful servers. However, despite
protective measures, our operations could be vulnerable to damage from floods,
fire, earthquakes, power loss, telecommunications failures, break-ins,
terrorism, and similar events. The prospect of such unscheduled interruptions is
possible in the foreseeable future, and we are unable to predict their
occurrence, duration or cessation.

         Despite the implementation of security measures which are constantly
updated, our systems may be vulnerable to unauthorized access, computer viruses
and other disruptive problems. We could experience interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. Unauthorized access might lead to interruptions,
delays or

                                       25
<PAGE>

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.


ITEM 7.   FINANCIAL STATEMENTS

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

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

                                       26
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders
LION, Inc.

We have audited the accompanying  consolidated  balance sheets of LION, Inc. and
Subsidiary  as of  December  31,  2004 and 2003,  and the  related  consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of LION,  Inc. and
Subsidiary as of December 31, 2004 and 2003, and the results of their operations
and their  cash flows for the years then  ended in  conformity  with  accounting
principles generally accepted in the United States of America.

/s/  Grant Thornton LLP

Portland, Oregon
February 25, 2005


                                       27
<PAGE>

                            LION, Inc. and Subsidiary
                                 BALANCE SHEETS
                                  December 31,

<TABLE>
<CAPTION>
                                     ASSETS

                                                                                                     2004                  2003
                                                                                                 ------------          ------------
<S>                                                                                              <C>                   <C>
CURRENT ASSETS
    Cash and cash equivalents                                                                    $  4,518,300          $  2,883,314
    Accounts receivable, less allowance for doubtful accounts of
       $58,000 and $132,000 in 2004 and 2003, respectively                                          1,841,840             2,141,264
    Other receivables                                                                                      --               620,708
    Deferred taxes                                                                                    150,000                    --
    Prepaid expenses and other                                                                        436,888               361,975
                                                                                                 ------------          ------------

         Total current assets                                                                       6,947,028             6,007,261

PROPERTY AND EQUIPMENT, net                                                                           931,079             1,025,153

OTHER ASSETS
    Goodwill - net                                                                                  2,590,130               273,955
    Other assets                                                                                       76,980                82,908
                                                                                                 ------------          ------------

                                                                                                 $ 10,545,217          $  7,389,277
                                                                                                 ============          ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                                                             $    294,235          $    189,727
    Accrued liabilities                                                                             1,334,659             1,647,931
    Current maturities of long-term obligations                                                       255,621                82,452
    Deferred revenue                                                                                1,050,128             1,306,224
                                                                                                 ------------          ------------

         Total current liabilities                                                                  2,934,643             3,226,334

LONG - TERM OBLIGATIONS, less current maturities                                                      995,305                85,822

COMMITMENTS AND CONTINGENCIES                                                                              --                    --

STOCKHOLDERS' EQUITY
    Preferred stock, par value $.001 per share; authorized 5,000,000 shares;
       liquidation value $900,000 at December 31, 2003                                                     --                 1,500
    Common stock - authorized, 50,000,000 shares of $.001 par value                                    37,431                31,819
    Additional contributed capital                                                                 13,730,121            11,812,248
    Accumulated deficit                                                                            (7,152,283)           (7,768,446)
                                                                                                 ------------          ------------
                                                                                                    6,615,269             4,077,121
                                                                                                 ------------          ------------

                                                                                                 $ 10,545,217          $  7,389,277
                                                                                                 ============          ============
</TABLE>



The accompanying notes are an integral part of these statements.

                                       28
<PAGE>

                            LION, Inc. and Subsidiary
                            STATEMENTS OF OPERATIONS
                             Year ended December 31,

<TABLE>
<CAPTION>
                                                                                                  2004                     2003
                                                                                              ------------             ------------
<S>                                                                                           <C>                      <C>
Revenues                                                                                      $ 15,191,761             $  8,068,030

Expenses
    Direct costs                                                                                 5,775,042                1,735,428
    Selling and marketing                                                                        2,027,214                2,240,197
    General and administrative                                                                   4,198,373                2,451,645
    Research and development                                                                     2,499,713                  383,903
    Depreciation and amortization                                                                  575,157                  482,947
                                                                                              ------------             ------------
                                                                                                15,075,499                7,294,120
                                                                                              ------------             ------------

         Operating income                                                                          116,262                  773,910

Other income (expense)
    Interest expense                                                                               (40,171)                 (20,214)
    Interest income                                                                                 12,075                    3,097
    Other income                                                                                   435,091                       --
                                                                                              ------------             ------------

         Net income before tax and extraordinary gain                                              523,257                  756,793

    Income tax (benefit) expense                                                                   (92,906)                  29,739
                                                                                              ------------             ------------

         Net income before extraordinary gain                                                      616,163                  727,054

    Extraordinary gain - net of income tax expense of $76,271                                           --                2,027,675
                                                                                              ------------             ------------

         NET INCOME                                                                           $    616,163             $  2,754,729
                                                                                              ============             ============

Per common share basic
  Income before extraordinary gain                                                            $        .02             $        .03
  Income from extraordinary gain                                                                        --                      .06
                                                                                              ------------             ------------

         Net income                                                                           $        .02             $        .09
                                                                                              ============             ============

Per common share diluted
  Income before extraordinary gain                                                            $        .02             $        .02
  Income from extraordinary gain                                                                        --                      .06
                                                                                              ------------             ------------

         Net income                                                                           $        .02             $        .08
                                                                                              ============             ============
</TABLE>



The accompanying notes are an integral part of these statements.

                                       29
<PAGE>

                            LION, Inc. and Subsidiary

                        STATEMENT OF STOCKHOLDERS' EQUITY

                     Years ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                                  Preferred stock         Common stock
                                                --------------------   -------------------  Additional
                                                                                            contributed   Accumulated
                                                  Shares     Amount      Shares    Amount     capital       deficit         Total
                                                ----------   -------   ----------  -------  -----------   ------------   ----------
<S>                                              <C>         <C>       <C>         <C>      <C>           <C>            <C>
Balance at December 31, 2002                     1,500,000   $ 1,500   31,441,978  $31,442  $11,741,101   $(10,523,175)  $1,250,868
Issuance of common stock in conjunction
   with exercise of stock options                       --        --      101,116      101       19,066             --       19,167
Common stock issued in lieu of
   compensation                                         --        --      276,000      276       19,360             --       19,636
Employee compensation from stock options                --        --           --       --       31,699             --       31,699
Issuance of stock options for consulting
   services received                                    --        --           --       --        1,022             --        1,022
Net income for the year                                 --        --           --       --           --      2,754,729    2,754,729
                                                ----------   -------   ----------  -------  -----------   ------------   ----------
Balance at December 31, 2003                     1,500,000     1,500   31,819,094   31,819   11,812,248     (7,768,446)   4,077,121
Conversion of preferred stock into common
   stock                                        (1,500,000)   (1,500)   1,541,550    1,542          (42)            --           --
Issuance of common stock in conjunction
   with exercise of stock options                       --        --      362,884      363       63,276             --       63,639
Issuance of common stock in conjunction
   with exercise of warrants                            --        --      333,334      333      133,001             --      133,334
Issuance of common stock upon exercise of
   stock options, net of common stock
   repurchase                                           --        --      165,000      165         (165)            --           --
Common stock issued for services received               --        --      115,385      115       59,885             --       60,000
Employee compensation from stock options                --        --           --       --      279,143             --      279,143
Issuance of common stock in conjunction
   with purchase of TRMS                                --        --    3,094,290    3,094    1,327,450             --    1,330,544
Tax benefit as a result of stock option
   exercises                                            --        --           --       --       55,325             --       55,325
Net income for the year                                 --        --           --       --           --        616,163      616,163
                                                ----------   -------   ----------  -------  -----------   ------------   ----------
Balance at December 31, 2004                            --   $    --   37,431,537  $37,431  $13,730,121   $ (7,152,283)  $6,615,269
                                                ==========   =======   ==========  =======  ===========   ============   ==========
</TABLE>



The accompanying notes are an integral part of these statements.

                                       30
<PAGE>


                            LION, Inc. and Subsidiary
                            STATEMENTS OF CASH FLOWS
                             Year ended December 31,

<TABLE>
<CAPTION>
                                                                                                      2004                  2003
                                                                                                   -----------          -----------
<S>                                                                                                <C>                  <C>
Cash flows from operating activities
    Net income before extraordinary gain                                                           $   616,163          $   727,054
    Adjustments to reconcile net income before extraordinary gain to net cash
       provided by operating activities
          Depreciation and amortization                                                                575,157              482,947
          Write off of capitalized software development costs                                           13,954                   --
          Stock options issued to employees and contractors                                            279,143               32,721
          Common stock issued in lieu of cash compensation                                                  --               19,636
          Tax on extraordinary gain                                                                         --              (76,271)
          Common stock issued for services received                                                     60,000                   --
          Deferred income tax asset                                                                   (150,000)                  --
          Gain on sale of assets                                                                        (1,703)                  --
          Changes in assets and liabilities
              Accounts receivable                                                                    1,073,011             (101,824)
              Other receivables                                                                        620,708                   --
              Prepaid expenses and other                                                                 3,975              (11,510)
              Accounts payable                                                                         104,508             (410,532)
              Accrued liabilities                                                                     (496,838)             473,980
              Deferred revenue                                                                        (377,096)              90,073
              Other assets                                                                            (291,568)                  --
                                                                                                   -----------          -----------

                  Net cash provided by operating activities                                          2,029,414            1,226,274

Cash flows from investing activities
    Capitalized software development costs                                                            (288,061)            (309,998)
    Net cash received in connection with purchase of assets                                                 --            1,721,235
    Cash received on purchase of TRMS                                                                   21,685                   --
    Cash received on sale of assets                                                                      1,805                   --
    Purchases of property and equipment                                                               (189,549)            (118,475)
                                                                                                   -----------          -----------

                  Net cash (used in) provided by investing activities                                 (454,120)           1,292,762

Cash flows from financing activities
    Tax benefit on stock options exercised                                                              55,325                   --
    Payments on long-term obligations                                                                 (192,606)             (58,806)
    Proceeds from issuance of common stock and exercise of stock options                               196,973               19,167
                                                                                                   -----------          -----------

                  Net cash provided by (used in) financing activities                                   59,692              (39,639)
                                                                                                   -----------          -----------

Net increase in cash and cash equivalents                                                            1,634,986            2,479,397

Cash and cash equivalents at beginning of period                                                     2,883,314              403,917
                                                                                                   -----------          -----------

Cash and cash equivalents at end of period                                                         $ 4,518,300          $ 2,883,314
                                                                                                   ===========          ===========
</TABLE>

Supplemental cash flow information and non-cash investing and
    financing activities - see Note K

The accompanying notes are an integral part of these statements.

                                       31
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE A - SUMMARY OF ACCOUNTING POLICIES

     LION,  Inc.,  dba  LionInc.com,  (the  "Company"  or "LION"),  a Washington
     corporation,  is a  technology  and service  provider of advanced  business
     solutions  that  streamline  the mortgage loan  fulfillment  process in the
     mortgage  industry.  From leads to loans to capital  markets,  LION  offers
     consistent,  seamless business solutions to consumers,  brokers,  realtors,
     originators and lenders.  LION provides an integrated  technology  platform
     offering  online  loan  productivity,  mortgage  pipeline  hedging and risk
     management,  software development and data communications tools through its
     LockPoint  Xtra(R),  Pipeline Tools,  and Risk Management  Services product
     lines.

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

     1.   PRINCIPLES OF CONSOLIDATION

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

     2.   CASH AND CASH EQUIVALENTS

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

     3.   REVENUE RECOGNITION

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

     Subscription and service fees are recognized as revenue over the respective
     subscription periods or at the time the services are provided.  The Company
     accounts for its software  products  for external  licensing in  accordance
     with Statement of Position 97-2,  SOFTWARE REVENUE  RECOGNITION,  and Staff
     Accounting  Bulletin  104,  REVENUE  RECOGNITION  IN FINANCIAL  STATEMENTS.
     Revenue from  licensing  fees relating to the use of the LockPoint  Xtra(R)
     product is recognized when all elements of the contract have been delivered
     to the  customer.  Revenue from monthly  recurring  charges from use of the
     Pipeline Tools and Risk Management  Services  products is recognized in the
     period in which the service is provided.

     Deferred revenue is recorded on prepaid  subscriptions  for periods ranging
     from 3 to 12 months and on advance  billings or cash received for contracts
     that have undelivered elements.

                                       32
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

     4.   ACCOUNTS RECEIVABLE

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

     Accounts  receivable  are stated at amounts  due from  customers  net of an
     allowance  for  doubtful  accounts.  Accounts  outstanding  longer than the
     contractual  payment terms are considered past due. The Company  determines
     its allowance by  considering a number of factors,  including the length of
     time 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  collected on such  accounts are
     credited to the allowance for doubtful accounts.

     5.   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.

     6.   CAPITALIZED SOFTWARE DEVELOPMENT COSTS

     The Company accounts for internally  developed software costs in accordance
     with SOP 98-1,  ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE  DEVELOPED OR
     OBTAINED FOR INTERNAL USE. Capitalized software development costs, intended
     for  internal  use,  totaling  $288,061  and  $309,998  for the years ended
     December  31,  2004 and 2003,  respectively.  These  costs are  included in
     computer software in property and equipment and are amortized over a period
     of three years.

                                       33
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

     7.   GOODWILL

     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,  but should rather be reviewed 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.

     8.   USE OF ESTIMATES

     In preparing the  consolidated  financial  statements  in  conformity  with
     accounting  principles  generally accepted in the United States of America,
     management is required to make  estimates and  assumptions  that affect 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.

     9.   INCOME PER COMMON SHARE

     Basic  income per share is based on the weighted  average  number of shares
     outstanding   during  each  period.   Potentially   dilutive  common  stock
     equivalents are included in determining dilutive earnings per share, except
     when  their  effect  is  antidilutive.  Common  stock  equivalents  include
     preferred shares and options to purchase common stock.

     10.  ADVERTISING COSTS

     Advertising  costs  are  expensed  as  incurred.  Advertising  expense  was
     approximately  $417,000 and $304,000 for the years ended  December 31, 2004
     and 2003, respectively.

     11.  RESEARCH AND DEVELOPMENT COSTS

     All  expenditures  for research and  development  costs are expensed in the
     year  incurred.  These expenses  consist of costs incurred for  proprietary
     research  and include  related  salaries and  benefits,  contract and other
     outside service fees, and facilities and overhead costs. In instances where
     we enter into agreements  with third parties for research and  development,
     costs are expensed upon the earlier of when non-refundable  amounts are due
     or as services are performed.  Amounts due under such  arrangements  may be
     either  fixed fee or fee for  service,  and may include  upfront  payments,
     monthly payments, and payments upon the completion of milestones or receipt
     of deliverables.

                                       34
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

     12.  INCOME TAXES

     The  Company  accounts  for  income  taxes in  accordance  with  SFAS  109,
     ACCOUNTING FOR 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.

     13.  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 closing price on the date
     of  grant  for   employees   and  the  date   services  are  completed  for
     non-employees.

     14.  STOCK OPTIONS

     Effective  January 1, 2003, the Company adopted the fair value  recognition
     provision  of  FASB  Statement  No.  123,   "Accounting   for   Stock-Based
     Compensation,"  prospectively,  to all employee  awards granted on or after
     January 1, 2003,  pursuant  to FASB  Statement  No.  148,  "Accounting  for
     Stock-Based Compensation - Transition and Disclosure."

     The Company issued options to purchase  993,751 and 3,635,000 shares during
     the years ended  December 31, 2004 and 2003,  respectively,  under the 1998
     Stock Option Plan (the "Plan").  Compensation  expense is based on the fair
     value  of  the  options  at  the  respective   grant  dates  utilizing  the
     Black-Scholes  model for estimating fair value.  The Company will recognize
     compensation  expense of $428,207 and $765,580 over the vesting  period for
     these options  granted  during the years ended  December 31, 2004 and 2003,
     respectively.  The following table illustrates the effect on net income and
     net income per share if the Company had applied the fair value  recognition
     provisions of SFAS 123 to all employee awards.

<TABLE>
<CAPTION>
                                                                     2004         2003
                                                                  ---------    ----------
<S>                                                               <C>          <C>
Net income, as reported                                           $ 616,163    $2,754,729
Add: Stock-based employee compensation expense included in
reported net income                                                 279,143        31,699

Deduct:  Total stock-based employee compensation expense
determined under fair value based method for all awards, net
ofrelated tax effects                                              (363,101)     (334,487)
                                                                  ---------    ----------
Pro forma net income                                              $ 532,205    $2,451,941
                                                                  =========    ==========
Net income per share:
    Basic - as reported                                           $     .02    $      .09
    Diluted - as reported                                         $     .02    $      .08
    Basic - pro forma                                             $     .02    $      .08
    Diluted - pro forma                                           $     .01    $      .07
</TABLE>

                                       35
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued


     15.  FAIR VALUE OF FINANCIAL INSTRUMENTS

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


     16.  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In December  2004,  the FASB issued SFAS No. 123  (revised  2004) (SFAS No.
     123R),  SHARE-BASED  PAYMENT.  This Standard requires  companies to measure
     share-based   payments  at   grant-date   fair  value  and   recognize  the
     compensation expense in their financial  statements.  We previously adopted
     the fair  value  based  method  of  accounting  pursuant  to SFAS No.  123,
     ACCOUNTING FOR STOCK BASED  COMPENSATION,  prospectively.  Management is in
     the process of  evaluating  the  requirements  of SFAS No. 123R.  The final
     determination of the impact of this statement has not been completed.

     In March 2005, the Securities  and Exchange  Commission  announced that the
     compliance  date for  non-accelerated  filers and foreign  private  issuers
     pursuant to Section 404 of the Sarbanes-Oxley Act has been extended.  Under
     the latest extension, a company that is not required to file its annual and
     quarterly  reports on an  accelerated  basis and a foreign  private  issuer
     filing its annual  report on Form 20-F or 40-F,  must begin to comply  with
     the internal  control over financial  reporting  requirements for its first
     fiscal year ending on or after July 15, 2006. This is a one-year  extension
     from  the  previously  established  July  15,  2005  compliance  date.  The
     Commission  similarly has extended the compliance  date for these companies
     relating to  requirements  regarding  evaluation  of internal  control over
     financial reporting and management certification  requirements.  LION, Inc.
     will,   therefore,   be  required  to  comply  with   Section  404  of  the
     Sarbanes-Oxley Act as of December 31, 2006.

                                       36
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE B - BUSINESS COMBINATIONS

     On October 13, 2004,  LION,  Inc.  acquired 100 percent of the  outstanding
     common  shares  of  Tuttle  Risk  Management   Services  Inc.,  a  Delaware
     corporation  ("TRMS"),  by merging  TRMS with and into LION's  wholly-owned
     subsidiary,  LION Acq. LLC, a Washington  limited liability  company.  As a
     result of these transactions, TRMS became a wholly-owned subsidiary of LION
     operating  as a  limited  liability  company  under the name  "Tuttle  Risk
     Management  Services  LLC." The  acquisition  is  intended  to qualify as a
     "reorganization" under Section 368(a) of the Internal Revenue Code of 1986,
     as  amended.  The  results of TRMS'  operations  have been  included in the
     consolidated financial statements since that date.

     The transaction  was accounted for in accordance  with SFAS 141,  "Business
     Combinations."  The  Company  received  all the  assets  of  TRMS  totaling
     $891,690 and assumed the liabilities  totaling $607,615.  The consideration
     paid by LION in exchange for the  acquisition  of TRMS included  three-year
     promissory  notes  totaling  $972,209 due at maturity  with  interest  paid
     annually at 8 percent and  3,094,290  shares of LION common stock valued at
     $1,330,544.  The number of shares of common  stock  issued  was  determined
     based on the lesser of the closing  price of LION  common  stock for the 20
     trading  days ending on the trading  day  immediately  prior to the closing
     date and $.65 per share.

     The following  table  summarizes the fair values of the assets acquired and
     liabilities assumed at the date of acquisition:

                      At October 13, 2004
-----------------------------------------------------------------

     ASSETS
     Cash received                                                $    21,685
     Accounts receivable - net                                        773,588
     Prepaid expense                                                   78,888
     Property and equipment                                            17,529
     Goodwill                                                       2,316,175
                                                                  -----------
             Total assets                                           3,207,865

     LIABILITIES
     Accrued liabilities                                               95,391
     Deferred revenue                                                 121,000
     Accrued payroll obligations                                       88,175
     Notes payable                                                    303,049
                                                                  -----------
            Total liabilities                                         607,615
                                                                  -----------
                 Net assets acquired                              $ 2,600,250
                                                                  ===========

     The $2,316,175 of goodwill includes acquisition costs of $297,497.  None of
     the goodwill is deductible for tax purposes.

                                       37
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE B - BUSINESS COMBINATIONS - Continued

On December 8, 2003, the Company  purchased  certain assets of Ignition Mortgage
Technology  Solutions,  Inc.  ("Ignition"),  a  wholly-owned  subsidiary  of the
Federal Home Loan Mortgage  Corporation  ("Freddie Mac"). Under the terms of the
agreement,  LION acquired  LockPoint Xtra,(R) an electronic rate lock system for
secondary   market   application   that  provides   real-time   feature-adjusted
loan-by-loan  price quotes,  and enables conduits to take direct electronic rate
locks from correspondent  lenders;  Pipeline Tools, used to manage interest rate
and loan pool fall-out risk; Loan Officer  Plus,(R) a point-of-sale  product for
originating mortgage loans; the multi-lender,  automated application capture and
price locking mortgage product referred to as Loan Finder/Loan WorkBench/Optimum
Controller;  certain  customer,  vendor,  consulting,  software and  maintenance
agreements related to Ignition's business;  leased operations facilities located
in Gig Harbor, Washington and Sausalito, California;  intellectual property held
or used in connection with Ignition's  business,  including  copyrights,  domain
names, patent applications, and trademarks (but excluding Freddie Mac trademarks
and other  intellectual  property and  temporarily  excluding  certain  Ignition
trademarks);  and certain  tangible  personal  property,  prepaid  expenses  and
accounts  receivable as of November 30, 2003. As of September 30, 2004,  certain
Ignition  trademarks are no longer excluded.  In addition,  the Company received
$1.0 million in  consideration  for  satisfying  obligations  under the assigned
customer  agreements and $776,950 related to amounts prepaid by a customer under
an assigned customer agreement.

The  transaction  was  accounted  for in  accordance  with SFAS  141,  "Business
Combinations."  LION  paid  $1,000  and  assumed  liabilities  of  $141,072  for
substantially all of Ignition's assets. Under the terms of the transaction, LION
assumed a deferred payroll obligation of $620,708 for severance to be paid on or
about June 30, 2004 to certain employees that transferred to LION from Ignition.
The severance was paid in full by June 30, 2004. In addition, Freddie Mac was to
provide LION with the funds,  which it did,  within ten business days of Freddie
Mac's  receipt  from  LION  that the  funds  were  due.  This  deferred  payroll
obligation  is  included in accrued  liabilities  and other  receivables  on the
balance sheet at December 31, 2003.

The fair value of the net assets acquired in the  transaction  exceeded the cost
of the acquired assets.  The excess of the fair value of the net assets over the
cost of the  acquired  assets  was  allocated  as a pro  rata  reduction  to the
non-current  assets  acquired.  Accordingly,  the fair value of the property and
equipment  acquired in the  transaction has been reduced to zero, and there will
be no associated depreciation and amortization expense going forward.

                                       38
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE B - BUSINESS COMBINATIONS - Continued

     The following  table  summarizes  the  estimated  fair values of the assets
     acquired and liabilities assumed at the date of acquisition:

                      At December 8, 2003
     ------------------------------------------------------

     ASSETS
     Cash received - net of acquisition costs of $55,715          $ 1,721,235
     Accounts receivable - net                                      1,691,779
     Prepaid expense                                                  279,077
     Other receivables                                                620,708
     Rent deposit                                                      45,000
                                                                  -----------
             Total assets                                           4,357,799

     LIABILITIES
     Accrued liabilities                                              141,072
     Deferred revenue                                                 920,654
     Deferred payroll obligation                                      620,708
     Accrued acquisition costs                                        571,419
                                                                  -----------

            Total liabilities                                       2,253,853
                                                                  -----------
                 Extraordinary gain on acquisition                $ 2,103,946
                                                                  ===========

     The following table represents  combined proforma results of operations for
     LION,  Ignition and TRMS.  The results of operations of TRMS for the period
     from October 13, 2004 to December  31, 2004 are included in the  historical
     results of  operations  of LION for the year ended  December 31, 2004.  The
     results of  operations  of Ignition for the period from December 8, 2003 to
     December 31, 2003 are included in the  historical  results of operations of
     LION for the year  ended  December  31,  2003.  The pro  forma  results  of
     operations  for LION,  Ignition  and TRMS do not  purport to  indicate  the
     actual  results  of  operations  which  would  have been  achieved  had the
     acquisitions been consummated at the beginning of the period.

                                                        2004           2003
                                                    ------------   ------------
     Revenue                                        $ 17,440,405   $ 24,006,299
     Net income (loss) before extraordinary gain    $    749,815   $ (1,387,193)
     Net income                                     $    749,815   $    587,114
     Net income per share
         Basic                                      $       .02    $       .02
         Diluted                                    $       .02    $       .02

                                       39
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE C - PROPERTY AND EQUIPMENT

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

                                                       2004             2003
                                                    -----------     -----------
 Computer equipment                                 $   798,078     $   694,734
 Computer software                                    2,012,287       1,682,114
 Equipment                                              361,648         317,515
 Leasehold improvements                                  12,355          10,919
                                                    -----------     -----------
                                                      3,184,368       2,705,282
 Less accumulated depreciation and amortization       2,253,289       1,680,129
                                                    -----------     -----------
                                                    $   931,079     $ 1,025,153
                                                    ===========     ===========

     The Company had $227,198 in fixed assets  acquired  under capital leases at
     December 31, 2004 and 2003.  Accumulated  amortization  on equipment  under
     capital leases totaled  $131,925 and $64,098 at December 31, 2004 and 2003,
     respectively.


NOTE D - ACCRUED LIABILITIES

     Accrued liabilities consist of the following as of December 31:

                                                       2004             2003
                                                    -----------     -----------
 Salaries                                           $   520,684     $   271,655
 Payroll taxes                                          159,629         116,918
 Vacation                                               321,599         152,066
 Severance                                                    -         620,708
 Federal, state, and local taxes                        167,617         241,670
 Acquisition costs                                            -          82,500
 Other                                                  165,130         162,414
                                                    -----------     -----------
                                                    $ 1,334,659     $ 1,647,931
                                                    ===========     ===========

                                       40
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE E - LONG-TERM OBLIGATIONS

<TABLE>
<CAPTION>
                                                                                                      2004                 2003
                                                                                                   -----------          -----------
<S>                                                                                                <C>                  <C>
Software note payable in monthly installments of $873 at a fixed rate of
   17.3%; final payment due December 2004; collateralized by software                              $        --          $     9,562

Capital lease obligations payable in monthly installments of $242 at a fixed
   rate of 14.3%; final payment due December 2004                                                           --                2,690

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                                                                                            --               14,302

Capital lease obligations payable in monthly installments of $1,328 at a
   fixed rate of 16.9%; final payments due  November 2005                                               13,449               25,941

Capital lease obligations payable in monthly installments of $1,301 at a fixed
   rate of 15.9%; final payments due at various dates through January
   2006                                                                                                 15,074               27,275

Capital lease obligations payable in monthly installments of $115 at a
   fixed rate of 1%; final payment due May 2006                                                          2,046                3,387

Capital lease obligations payable in monthly installments of $3,209 at a
   fixed rate of 12%; final payment due July 2006                                                       55,252               85,117

Notes payable to various TRMS shareholders at a fixed interest rate of 10%
   accrued and payable quarterly; principal payable in equal quarterly
   installments of $75,762 with monthly payments based on 15% of TRMS monthly
   cash receipts; final payment due October 2005 for any remaining
   principal and interest                                                                              192,896                   --

Notes payable to various TRMS shareholders at a fixed interest rate of 8%;
   interest is accrued and payable annually with the principal and unpaid
   accrued interest due in October, 2007                                                               972,209                   --
                                                                                                   -----------          -----------
                                                                                                     1,250,926              168,274
Less current maturities                                                                               (255,621)             (82,452)
                                                                                                   -----------          -----------
                                                                                                   $   995,305          $    85,822
                                                                                                   ===========          ===========
</TABLE>

     The  following  is a  schedule  by  year of  minimum  payments  under  such
     obligations:

<TABLE>
<CAPTION>
             Year ending December 31,                   Capital Leases      Note Payable         Total
---------------------------------------------------    ----------------   ---------------   ---------------
     <S>               <C>                             <C>                <C>               <C>
                       2005                            $        70,112    $       192,896   $       263,008
                       2006                                     23,986                  -            23,986
                       2007                                          -            972,209           972,209
                                                       ---------------    ---------------   ---------------
     Total minimum payments                                     94,098          1,165,105         1,259,203

     Less amount representing interest                          (8,277)                 -            (8,277)
                                                       ---------------    ---------------   ---------------
     Net principal payments                            $        85,821    $     1,165,105   $     1,250,926
                                                       ===============    ===============   ===============
</TABLE>

                                       41
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE F - INCOME TAXES

     The income tax  provision is comprised of the following for the years ended
     December 31:

                                                    2004                  2003
                                                  ---------            ---------
Current:
  Federal                                         $(150,000)           $  56,826
  State                                              57,094               49,184
                                                  ---------            ---------
        Total                                     $ (92,906)           $ 106,010
                                                  =========            =========

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

                                                    2004                 2003
                                                  ---------            ---------
Tax provision at statutory rate                   $ 177,907           $ 999,177
State income taxes                                   57,094              49,184
Non-deductible expenses                              16,838               6,425
Other                                                22,446             (19,488)
Decrease in valuation allowance                    (367,191)           (929,288)
                                                  ---------           ---------

     Total                                        $ (92,906)          $ 106,010
                                                  =========           =========

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

<TABLE>
<CAPTION>
                                                                       2004           2003
                                                                    -----------    -----------
<S>                                                                 <C>            <C>
Deferred tax assets:
    Intangible assets                                               $    20,751    $    23,851
    Liabilities not timely paid                                         112,442         50,375
    Allowance for doubtful accounts                                      20,930         46,643
    Stock options and warrants issued to consultants for services            --         41,703
    Stock options issued to employees                                   103,011         11,195
    Deferred revenue                                                    119,324        309,282
    Depreciation                                                          8,514             --
    Federal tax credits                                                      --         56,826
    Net operating loss carryforward                                     836,372      1,340,362
                                                                    -----------    -----------
                                                                      1,221,344      1,880,237
Deferred tax liabilities:
    Depreciation                                                             --         97,856
    Extraordinary gain deferred                                              --        343,846
                                                                    -----------    -----------
                                                                      1,221,344        441,702

Valuation allowance                                                  (1,071,344)    (1,438,535)
                                                                    -----------    -----------

                                                                    $   150,000    $        --
                                                                    ===========    ===========
</TABLE>

                                       42
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE F - INCOME TAXES - Continued

     During the fourth quarter of 2004, the Company  recognized a tax benefit of
     $150,000.  This tax  benefit  was the  result of the  recognition  of a net
     deferred tax asset.  Realization  of the net deferred asset is dependent on
     generating  sufficient  taxable income prior to expiration of net operating
     loss  carryforwards.  At December 31, 2004,  the Company had net  operating
     loss  carryforwards  for  federal  income  tax  purposes  of  approximately
     $2,460,000  available to offset  future income which expire in 2018 through
     2022. Although  realization is not assured,  management believes it is more
     likely than not that a portion of the  deferred tax asset will be realized.
     The amount of the deferred tax asset considered realizable,  however, could
     be reduced in the near term if estimates of future  taxable  income  during
     the carryforward period are reduced.

     The Company  has  established  a  valuation  allowance  of  $1,071,344  and
     $1,438,535  as of  December  31,  2004 and 2003,  respectively,  due to the
     uncertainty  of future  realization  of the net  deferred  tax assets.  The
     valuation allowance was decreased by $367,191 and $929,288 during the years
     ended  December 31, 2004 and 2003,  respectively,  based upon  management's
     estimate of the  realizability of the net deferred tax assets.  Utilization
     of these  carryforwards could further be limited due to a change of control
     in the Company's  ownership as defined by the Internal Revenue Code Section
     382.


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 March 2009.

           Year ending December 31,
                     2005                           $   609,300
                     2006                               551,088
                     2007                               442,945
                     2008                               139,767
                     2009                                34,942
                                                    -----------
        Total minimum payments required             $ 1,778,042
                                                    ===========

     Various  leases  provide  for  payment of taxes and other  expenses  by the
     Company. Rent expense for leased facilities totaled approximately  $753,000
     and $435,000 for the years ended December 31, 2004 and 2003, 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.

                                       43
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE G - COMMITMENTS AND CONTINGENCIES - Continued

     In June 2004, the Company entered into new employment  agreements with Dave
     Stedman,  its Co-President of Sales and Marketing,  and Steve Thomson,  its
     CFO. The employment agreements for Mr. Stedman and Mr. Thomson provided for
     initial  annual  salaries  of $150,000  and  $135,000,  respectively.  Each
     agreement has a term of three years and provides that the compensation will
     include a base and may  include a bonus.  In the event that  employment  is
     terminated  by the  Company  without  cause,  they  will be  entitled  to a
     severance  payment  of 50% of  their  annual  compensation.  They  are also
     entitled to receive,  at the Company's  expense,  continuation  of medical,
     dental and disability  benefits for 6 months following  termination without
     cause.

     In December 2003, the Company entered into three year employment agreements
     with Randall D. Miles,  its CEO, and Timothy F. Newberry,  its Co-President
     of  Operations.  Each of the employment  agreements  provide for an initial
     annual salary of $200,000 and may include a bonus. In the event  employment
     is terminated by the Company without cause, Mr. Miles and Mr. Newberry will
     be entitled to a severance payment of 50% of his annual compensation.  They
     are also entitled to receive,  at the Company's  expense,  continuation  of
     medical,  dental and disability benefits for 6 months following termination
     without cause.


NOTE H - SETTLEMENT OF LEGAL MATTERS

     The Company  settled its lawsuit  against  and  received  payment  from its
     insurance carrier,  Great American  Insurance  Company.  LION had initiated
     litigation  against Great American  Insurance  Company for reimbursement of
     defense  and  indemnity  costs  related  to a lawsuit  brought  by a former
     director  of  LION  that  had  resulted  in an  award  of  $357,000  to the
     plaintiff, which was subsequently settled in lieu of appeal for $340,000 in
     June 2002.  On May 11,  2004,  the  parties  reached a mutually  acceptable
     mediated  settlement of claims.  On June 7, 2004, LION received  payment of
     approximately $433,000, net of legal expenses,  which is included in "Other
     Income" in the accompanying December 31, 2004 Statement of Operations.


NOTE I - WARRANTS

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

<TABLE>
<CAPTION>
                                                                                       2004            2003
                                                                                   ------------    ------------
<S>                                                                                       <C>         <C>
   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 March 2004                        --       1,166,667
                                                                                   ------------    ------------

        Total                                                                                --       1,166,667
                                                                                   ============    ============
</TABLE>

                                       44
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE J - STOCK OPTIONS

     The Company has a stock option plan  accounted for under FASB Statement No.
     123 "Accounting for Stock- Based Compensation." The plan allows the Company
     to grant  options to employees  for up to 50,000 shares of common stock per
     employee.  Employee  directors  are eligible to receive  option  grants and
     direct  stock  issuances.  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,  non-employee directors receive automatic option
     grants  each year to  purchase  50,000  shares of common  stock  upon their
     reelection at the annual meeting of shareholders.  Non-employee chairmen of
     the audit and  compensation  committees  receive an automatic  option grant
     each year to purchase  an  additional  25,000  shares of common  stock.  At
     December 31, 2004, 2,320,474 shares are available for future issuance under
     the  plan.  Options  currently  outstanding  vest  over a zero to four year
     period.  Stock options are exercisable at not less than the market value of
     the Company's common stock on the date of grant.

     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 2004: expected volatility ranging from 129.98% to
     131.48%;  risk-free  interest  rate ranging  from 3.86% to 4.27%;  expected
     lives of 4  years;  and,  a zero  percent  dividend  yield.  The  following
     weighted  average  assumptions  were used for  grants in fiscal  year 2003:
     expected volatility ranging from 129.01% to of 132.03%;  risk-free interest
     rate ranging from 3.58% to 3.83%;  expected lives of 10 years;  and, a zero
     percent dividend yield.

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

<TABLE>
<CAPTION>
                                                     2004                    2003
                                           -----------------------  -----------------------
                                                          Weighted                 Weighted
                                                          average                  average
                                                          exercise                 exercise
             Stock options                   Shares        price      Shares        price
 --------------------------------------    ----------     --------  ----------     --------
<S>                                         <C>            <C>       <C>            <C>
 Outstanding at beginning of year           7,928,409      $   .36   5,803,900      $   .54
 Granted                                      993,751          .50   3,635,000          .16
 Forfeited                                 (1,762,917)         .76  (1,409,375)         .58
 Exercised                                   (562,884)         .14    (101,116)         .19
                                           ----------      -------  ----------      -------

 Outstanding at end of year                 6,596,359      $   .30   7,928,409      $   .36
                                           ==========      =======  ==========      =======

 Options exercisable at end of year         4,026,502      $   .32   4,368,790      $   .50
                                           ==========      =======  ==========      =======

Weighted-average fair value of options
  granted during the year                                  $   .43                  $   .21
                                                           =======                  =======
</TABLE>

                                       45
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE J - STOCK OPTIONS - Continued

     The  following is a summary of stock  options  outstanding  at December 31,
     2004:

<TABLE>
<CAPTION>
                               Outstanding Options                                           Options Exercisable
  -----------------------------------------------------------------------------      -----------------------------------
                                            Weighted-             Weighted-                                Weighted-
                                             average          average remaining                             average
    Exercise price          Number            price           contractual life          Number           exercise price
  -------------------    ------------       ---------        ------------------      -----------        ----------------
<S>                         <C>              <C>                 <C>                   <C>                  <C>
  $  .04 - $  .25           4,909,775        $  0.18             6.93 years            2,969,793            $   0.18
  $  .26 - $  .50             225,334        $  0.38             2.78 years              120,459            $   0.39
  $  .51 - $  .75             705,000        $  0.55             4.76 years              180,000            $   0.58
  $  .76 - $ 1.00             756,250        $  0.81              .14 years              756,250            $   0.81
                         ------------                                                -----------
                            6,596,359                                                  4,026,502
                         ============                                                ===========
</TABLE>

NOTE K - 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:

<TABLE>
<CAPTION>
                                                                               2004         2003
                                                                             --------     --------
      <S>                                                                    <C>          <C>
      Supplemental disclosure of cash flow information:
         Cash paid during the year for interest                              $ 18,559     $ 20,214

      Non-cash operating, investing and financing activities
         Common stock issued for services received                           $ 60,000     $     --
         Issuance of common stock upon exercise of stock options,
            net of common stock repurchase                                   $ 14,000     $     --
         Assets acquired under capital leases and notes payable              $     --     $139,255
</TABLE>

     On October 13, 2004,  the Company  acquired 100 percent of the  outstanding
     common  shares of Tuttle Risk  Management  Services,  Inc. (see Note B). In
     conjunction with the acquisition, liabilities were assumed as follows:

     Fair value of assets acquired - net of acquisition costs
         of $297,497                                             $ 2,910,368
     Promissory notes issued                                        (972,209)
     Common stock issued                                          (1,330,544)
                                                                 -----------
     Liabilities assumed                                         $   607,615
                                                                 ===========

     On  December  8,  2003,  the  Company  purchased  substantially  all of the
     operating assets of Ignition Mortgage Technology Solutions,  Inc. (see Note
     B). In  conjunction  with the  acquisition,  liabilities  were  assumed  as
     follows:

     Fair value of assets acquired                               $ 4,358,799
     Extraordinary gain on assets acquired                        (2,103,946)
     Cash paid                                                        (1,000)
                                                                 -----------
     Liabilities assumed                                         $ 2,253,853
                                                                 ===========

                                       46
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE L - 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. Employees are eligible if they are at least age 18, they have
     completed the earlier of 1 year of service or 3  consecutive  full calendar
     months  of  employment,  their  employment  is not  governed  by terms of a
     collective bargaining agreement and they are not non-resident aliens who do
     not receive  earned  income from LION.  The Company can make  discretionary
     contributions  to the plan. No  contributions  were made by the Company for
     the years ended December 31, 2004 and 2003.


NOTE M - CONCENTRATION OF CREDIT RISK

     A portion of the  Company's  revenue  and  accounts  receivable  from large
     customers in the mortgage industry exceed ten percent of the total revenues
     and accounts  receivable.  Prior to the  acquisition of TRMS on October 13,
     2004,  TRMS accounted for 18% of the Company's  revenues for the year ended
     December 31, 2004, and no customers had revenues  greater than 10% of total
     revenues in 2003. The Company has one customer  whose  accounts  receivable
     balance  represents 19% of the Company's total accounts  receivable balance
     at December 31, 2004, and two customers whose accounts  receivable  balance
     represent  24%  of the  Company's  total  accounts  receivable  balance  at
     December 31, 2003.

     Cash is held in  interest  bearing or demand  deposit  bank  accounts.  The
     Company and its  subsidiary  maintain  cash  balances at several  financial
     institutions.  Accounts  at each  institution  are  insured by the  Federal
     Deposit Insurance Corporation up to $100,000.  Uninsured balances aggregate
     $4,313,604 and $2,781,414 at December 31, 2004 and 2003, respectively.  The
     Company has not  experienced any losses in such accounts and believes it is
     not exposed to any significant credit risk on cash and cash equivalents, as
     these  deposits  are held by high credit  quality  financial  institutions,
     which have historically not incurred any credit loss.

NOTE N - RELATED PARTY TRANSACTIONS

     In June 2003,  the  Company  hired Tim  Newberry  as a  consultant  to help
     develop product plans for LION's core business.  Fees for services rendered
     by Mr.  Newberry during 2003 were $64,000 of which $60,000 was paid in 2003
     and $4,000 was paid in 2004.  On  December  8, 2003,  Mr.  Newberry  became
     Co-President in charge of operations for LION.

     During 2003,  Randall  Miles,  a member of the Board of Directors,  and SCM
     Capital  Group LLC, of which Mr.  Miles is the sole general  partner,  were
     collectively  paid $280,000 for financial  advisory services related to the
     acquisition  of Ignition.  On December 8, 2003,  Mr. Miles became the Chief
     Executive Officer and Chairman of the Board of LION.

                                       47
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE O - EARNINGS PER SHARE

     The following table represents the calculation of earnings per common share
     - basic:

<TABLE>
<CAPTION>
                                                                                                    2004                     2003
                                                                                                 -----------             -----------
<S>                                                                                              <C>                     <C>
Net income before extraordinary gain                                                             $   616,163             $   727,054
    Extraordinary gain - net of income tax expense of $76,271                                             --               2,027,675
                                                                                                 -----------             -----------
     Net income                                                                                      616,163               2,754,729

Weighted average common shares outstanding                                                        34,222,456              31,650,664

Per common share basic:
     Income before extraordinary gain                                                            $       .02             $       .03
     Income from extraordinary gain                                                                       --                     .06
                                                                                                 -----------             -----------
     Net income                                                                                  $       .02             $       .09
                                                                                                 ===========             ===========
</TABLE>

     The following table represents the calculation of earnings per common share
     - diluted:

<TABLE>
<CAPTION>
                                                                                                    2004                    2003
                                                                                                 -----------             -----------
<S>                                                                                              <C>                     <C>
Net income before extraordinary gain                                                             $   616,163             $   727,054
    Extraordinary gain - net of income tax expense of $76,271                                             --               2,027,675
                                                                                                 -----------             -----------
     Net income                                                                                      616,163               2,754,729

Weighted average common shares outstanding                                                        34,222,456              31,650,664
Dilutive effect of outstanding common stock options                                                2,997,085                 470,772
Dilutive effect of preferred stock                                                                        --               1,500,000
                                                                                                 -----------             -----------
Weighted average common and common equivalent shares outstanding
                                                                                                  37,219,541              33,621,436
Per common share diluted:
     Income before extraordinary gain                                                            $       .02             $       .02
     Income from extraordinary gain                                                                       --                     .06
                                                                                                 -----------             -----------
     Net income                                                                                  $       .02             $       .08
                                                                                                 ===========             ===========
</TABLE>

                                       48
<PAGE>

                            LION, Inc. and Subsidiary
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2004 and 2003

NOTE P - PREFERRED STOCK

     The Company issued  1,500,000  shares of preferred  stock through a private
     placement  offering in March 2001. On March 25, 2004, 1.5 million preferred
     shares were converted to 1,541,550 shares of common stock.


NOTE Q - QUARTERLY RESULTS (UNAUDITED)

     The following is a summary of unaudited  results of operations  for the two
     years ended December 31, 2004 and 2003:

<TABLE>
<CAPTION>
                                                                    Net income
                                                                      before                   Net income
                                                                  extraordinary   Net income      per
                                       Operating                  item per basic   per basic    diluted
Fiscal Year Ended                        Income         Net         and diluted     common      common
December 31, 2004:      Revenues         (Loss)       Income       common share     share        share
                        --------         ------       ------       ------------     -----        -----

<S>                    <C>            <C>             <C>            <C>           <C>          <C>
First Quarter          $3,870,181     $    9,480      $    5,711     $    --       $    --      $    --
Second Quarter         $3,576,094     $  (44,316)     $  384,608     $   .01       $   .01      $   .01
Third Quarter          $3,574,211     $   62,394      $  112,939     $    --       $    --      $    --
Fourth Quarter         $4,171,275     $   88,704      $  112,905     $    --       $    --      $    --

Fiscal Year Ended
December 31, 2003:

First Quarter          $1,773,615     $  146,535      $  142,598     $    --       $    --      $    --
Second Quarter         $1,818,055     $  121,801      $  117,859     $    --       $    --      $    --
Third Quarter          $1,843,754     $   93,470      $   89,407     $    --       $    --      $    --
Fourth Quarter         $2,632,606     $  412,104      $2,404,865     $   .01       $   .08      $   .07
</TABLE>

                                       49
<PAGE>

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

         None.


ITEM 8A.   CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.

         Under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, as of the end of the period covered
by this report ("Evaluation Date."). Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective.

         We are assessing the effectiveness of our internal controls over
financial reporting on an account by account basis as a part of our on-going
accounting and financial reporting review process in order to comply with
Section 404 of the Sarbanes-Oxley Act of 2002, which requires our management to
assess the effectiveness of our existing internal controls for the fiscal year
ended December 31, 2006. This effort includes documenting, evaluating the design
of and testing the effectiveness of our internal controls over financial
reporting. We intend to continue to refine and improve our internal controls on
an ongoing basis. During this process, we may identify items for review or
deficiencies in our system of internal controls over financial reporting that
may require strengthening or remediation.

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

ITEM 8B.   OTHER INFORMATION

ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

         Pursuant to the terms of their Employment Agreements, our executives
are eligible to receive a cash performance bonus based on the achievement of
performance goals to be determined annually by the Compensation Committee of the
Board of Directors. On February 3, 2005, the Compensation Committee recommended
to the Board and the Board approved payment of the following cash bonuses. The
discretionary bonuses were in recognition of the executives' direct involvement
in our integration of strategic assets acquired from Ignition and TRMS, and for
LION's 2004 performance and operating results.

          Randall D. Miles    Chief Executive Officer                  $ 55,000
          David Stedman       Co-President, Sales and Marketing        $ 26,000
          Tim Newberry        Co-President, Operations                 $ 33,000
          Steve Thomson       Chief Financial Officer                  $ 25,000

                                       50
<PAGE>

         On February 3, 2005, we revised our cash compensation arrangements for
non-employee members of our board of directors. Under the revised arrangements,
each of our non-employee directors will receive $2,000 cash compensation for
each board meeting and $500 cash compensation for each committee meeting.
Consistent with our current practice, non-employee directors continue to be
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. No change was made to the stock option-based
compensation to which directors are entitled. See below under Item 9,
"Compensation of Directors."


                                    PART III

ITEM 9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

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

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

    DIRECTORS:
    Randall D. Miles (3)           48      Chairman, Director
    John A. McMillan (2) (3)       73      Director
    Griffith J. Straw (2)          56      Director
    James Russo (1)                58      Director
    David Stedman                  55      Director
    J.C. "Tuck" Marshall (1)       58      Director
    Sam Ringer                     45      Director

    EXECUTIVE OFFICERS:
    Randall D. Miles               48      CEO
    David Stedman                  55      Co-President, Sales and Marketing
    Tim Newberry                   43      Co-President, Operations
    Steve Thomson                  52      CFO, Corporate Secretary, Treasurer


         (1) Member of the Audit Committee
         (2) Member of the Compensation Committee
         (3) Member of Nominating 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 June 30, 2004. Directors Randall Miles, CEO, and David
Stedman, Co-President, are full-time employees of the Company. The other
directors devote only such time as may be necessary to our business and affairs.
There are no family relationships among any of the directors or executive
officers of the Company.

DIRECTORS:

         RANDALL D. MILES has been a director of the Company since September
2002 and became Chairman and CEO in December 2003. Mr. Miles has over 20 years
of experience in investment

                                       51
<PAGE>

banking and financial services. He served as Managing Director of Investment
Banking at D.A. Davidson & Co. from September 2001 to October 2003. During the
period from June 1996 to September 2001, Mr. Miles was President and CEO of
Advantage Funding Group, Inc, President of NAFCO Funding LLC, President of
Quadrant Investment Bankers, Inc., and Managing Director of CBA Partners LLC and
The Stone Pine Companies. Mr. Miles has served in a senior executive capacity at
both large and mid-sized investment and merchant banks during the course of his
career with particular focus on providing strategic and financial advisory
counsel to public and private companies in many industry sectors that include
software and technology. 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 privately held companies
as well as non-profit charitable organizations.

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

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

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

         DAVID STEDMAN has been a director since August 2002 and served as Chief
Executive Officer of the Company from August 2002 to December 2003, as President
of LION from January 2001 to December 2003 and as Co-President since December
2003. Mr. Stedman joined LionInc.com, the former subsidiary of LION, in May 1999
as Vice President of Marketing & Sales. He served as its

                                       52
<PAGE>

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 in
the Northwest. 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. Mr. Stedman serves on the Board of Directors of a non-profit
charitable organization.

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

OFFICERS:

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

         DAVID STEDMAN has served as Co-President of LION with responsibility
for sales and marketing since December 31, 2003. Mr. Stedman was also Chief
Executive Officer of the Company from August 2002 to December 2003 and President
from January 2001 to December 2003. See background information above for Mr.
Stedman under the heading "DIRECTORS".

         TIM NEWBERRY has served as Co-President of LION with responsibility for
operations and product development since December 2003. Mr. Newberry has been
developing and managing

                                       53
<PAGE>

informational technology for over 20 years and came to LION following 10 years
at Ignition Mortgage Technology Solutions, Inc. where he held senior executive
positions with oversight of sales, marketing, software development and risk
management. Prior to employment with Ignition and its predecessor, Tuttle & Co.,
Mr. Newberry managed development of healthcare software systems as a Vice
President for DeRoyal Industries. Mr. Newberry received a B.A. degree in
Mathematics with a minor in Physics and Computer Science from Carson-Newman
College in 1983. Mr. Newberry is an active member of the Mortgage Bankers
Association of America and has served as a member of its Technology Committee.

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

SIGNIFICANT EMPLOYEES:

         ANTHONY BERRIS has been the President and a director of TRMS since
LION's acquisition of TRMS in October 2004 and president of its predecessor
company under the same name since May 2001. From 1997 to May 2001, Mr. Berris
was with Tuttle & Co. and its successor companies in the capacities of product
manager for LockPoint Xtra(R), director for Freddie Mac's Gold Cash Xtra
program, and running the trade desk for what eventually became TRMS. Mr. Berris
has over 15 years of experience in the mortgage banking industry and received
his designation as a CMB (Certified Mortgage Banker) from the Mortgage Bankers
Association of America in 2002. Articles written by Mr. Berris have been
published in Mortgage Banking Magazine (June 2001) and Secondary Marketing
Executive. Mr. Berris holds a B.A. in English Literature from the University of
California at Los Angeles and an M.B.A. in Corporate Finance from the University
of Southern California.


INFORMATION REGARDING THE BOARD AND ITS COMMITTEES

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

COMMITTEES OF THE BOARD OF DIRECTORS

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

                                       54
<PAGE>

         AUDIT COMMITTEE. The Audit Committee assists our Board of Directors in
its oversight of the quality and integrity of our accounting, auditing, and
reporting practices. The Audit Committee's role includes discussing with
management the Company's processes to manage business and financial risk, and
for compliance with applicable legal and regulatory requirements. The Audit
Committee is responsible for the appointment, replacement, compensation, and
oversight of the independent auditor engaged to prepare or issue audit reports
on our financial statements. The Audit Committee relies on the expertise and
knowledge of management and the independent auditor in carrying out its
oversight responsibilities. The specific responsibilities in carrying out the
Audit Committee's oversight role are set forth in the LION Audit Committee
Charter. The Audit Committee Charter is reviewed annually and as may be required
due to changes in industry accounting practices or the promulgation of new rules
or guidance documents.

         The Audit Committee consists of Messrs. Russo and Marshall. Both
members of the Audit Committee are "independent" as defined by Rule 4200(a)(15)
of the NASD's listing standards. Our Board believes each Audit Committee member
has sufficient experience and knowledge in financial and auditing matters to
effectively serve and carry out the duties and responsibilities of the
Committee. In addition, the Board has determined that Mr. Russo is an "audit
committee financial expert," as that term is defined by Securities and Exchange
Commission rules, which is basically limited to those who have prepared,
audited, or directly supervised the audit of comparable public company financial
statements.

         COMPENSATION COMMITTEE. The Compensation Committee reviews retirement
and benefit plans and salaries and incentive compensation to be provided to our
executive personnel, employees, and consultants, and recommends appropriate
compensation and benefit levels. The Compensation Committee also administers our
current stock option plan, including the approval of grants and options under
the plan to our employees, consultants and directors and, in general, oversees
general policy matters relating to our various compensation plans, including
payroll, option, stock, medical and bonus plans.

         NOMINATING COMMITTEE. The Nominating Committee is responsible for
identifying and recommending to the Board of Directors qualified nominees to
become board members and considers shareholder recommendations for nominees to
fill Board positions if such recommendations are received. The Nominating
Committee also recommends to the Board of Directors regarding the size and
composition of the Board as well as carrying out the duties set forth in the
LION Nominating Committee Charter. The Nominating Committee consists of Messrs.
Miles and McMillan. Only Mr. McMillan is considered independent as defined by
Rule 4200(a)(15) of the NASD's listing standards.

COMPENSATION OF DIRECTORS

         During 2004, non-employee directors received $1,000 cash compensation
for each face-to-face board meeting and no compensation for committee meetings.
Beginning February 2005, non-employee directors will receive a $2,000 cash
compensation for each board meeting and $500 cash compensation for each
committee meeting. Prior to 2004, no cash compensation was provided to directors
serving on the board. 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

                                       55
<PAGE>

the fair market value of the Company's common stock on the day of grant.
Thereafter, non-employee directors receive automatic option grants each year to
purchase 50,000 shares of common stock upon their reelection at the annual
meeting of shareholders. Non-employee chairs of the audit and compensation
committees will receive an automatic option grant each year to purchase an
additional 25,000 shares of common stock. During 2003, Mr. Miles and an
affiliated company were paid a total of $280,000 in fees in connection with the
Company's purchase of assets of Ignition Mortgage Technology Solutions, Inc. See
"Certain Relationships and Related Transactions."

CODE OF ETHICS

         We have adopted a Code of Ethics that applies to our executive
officers, including financial officers and other finance organization employees.
The Code of Ethics is publicly available on our website at
www.lioncorp.net/lioncorp/information. Our Board did not grant any waivers of
any ethics policies in fiscal 2004 to our directors or executive officers. If we
make any substantive amendments to the Code of Ethics or grant any waiver,
including any implicit waiver, from a provision of the code to our Chief
Executive Officer, Chief Financial Officer or Corporate Controller, we will
disclose the nature of such amendment or waiver on that website or in a report
on Form 8-K. The charters of the Audit Committee and Nominating Committee are
also available at the same website address.

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.

                                       56
<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, 2004,
2003 and 2002 by our Chief Executive Officer and the other most highly
compensated executive officers serving during the year ended December 31, 2004.

                           SUMMARY COMPENSATION TABLE*

                                                                     Long-Term
                                            Annual Compensation     Compensation
                                         -------------------------- ------------
                                                                     Securities
                                                                     Underlying
                                                                      Options/
Name and Principal Position       Year      Salary         Bonus      Warrants
---------------------------      ------  -------------   ----------  ----------
Randall D. Miles, CEO (1)         2004   $  200,000      $   55,000          --
                                  2003   $   12,200              --   1,000,000

David Stedman,                    2004   $  157,400      $  101,000          --
  Co-President, Sales and         2003   $  130,200(2)           --     300,000
     Marketing                    2002   $  125,900(2)           --          --

Tim Newberry,                     2004   $  200,000      $   33,000          --
  Co-President, Operations        2003   $   12,200              --   1,000,000

Steve Thomson, CFO                2004   $  145,400      $   75,000          --
                                  2003   $  113,400(3)           --          --
                                  2002   $  111,200(3)           --          --

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

(1)      Mr. Miles has served as CEO since December 8, 2003.

(2)      During 2003, includes 143,000 shares of common stock totaling $10,200
         issued in lieu of cash compensation at fair market value with prices
         ranging from $.055 to $.128. During 2002, includes 276,500 shares of
         common stock totaling $19,800 issued in lieu of cash compensation at
         fair market value with prices ranging from $.06 to $.08 per share.

(3)      During 2003, includes 133,000 shares of common stock totaling $9,400
         issued in lieu of cash compensation at fair market value with prices
         ranging from $.055 to $.128. During 2002, includes 248,500 shares of
         common stock totaling $18,600 issued in lieu of cash compensation at
         fair market value with prices ranging from $.06 to $.08 per share.

                                       57
<PAGE>

OPTION GRANTS LAST FISCAL YEAR.

         During the year ended December 31, 2004, we granted employees 993,751
options to purchase shares of our common stock. No options were granted to our
executive officers. The options have terms ranging from four to ten years but
are subject to earlier forfeiture or cancellation in connection with termination
of employment or upon the optionee's death or disability. The 4-year options
totaling 315,001 shares with quarterly vesting periods ranging from four to five
quarters. The 10-year options totaling 678,750 shares vest at 6 1/4 % each
quarter over sixteen quarters.

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, 2004 and unexercised options held as of December 31, 2004. No stock
appreciation rights were exercised during 2004 or were outstanding at December
31, 2004.

<TABLE>
<CAPTION>
                                      Shares                         Number of Securities           Value of Unexercised
                                     Acquired                        Underlying Unexercised              In-the-Money
                                        on            Value             Options/Warrants               Options/Warrants
                                     Exercise        Realized         at Fiscal Year-End (#)        at Fiscal Year-End ($)
                                                                   ----------------------------   ----------------------------
          Name                          (#)            ($)         Exercisable    Unexercisable   Exercisable    Unexercisable
          ----                          ---            ---         -----------    -------------   -----------    -------------
<S>                                   <C>           <C>              <C>              <C>           <C>             <C>
Randall Miles, CEO
      Options                             --              --         360,117         708,333        $104,911        $191,250

David Stedman, Co-President,
  Sales &
  Marketing
      Options                         32,509        $  6,502         894,500          75,000        $163,375        $ 19,500

Tim Newberry, Co-
  President, Operations
      Options                             --              --         291,667         708,333        $ 78,750        $191,250

Steve Thomson, CFO
      Options                         50,000        $ 10,000         555,000              --        $ 76,250              --
</TABLE>

EMPLOYMENT AGREEMENTS

         In December 2003, the Company entered into a three-year employment
agreement with Randall D. Miles, its CEO. The employment agreement provides for
an initial annual salary of $200,000 and may include a bonus. In the event
employment is terminated by the Company without cause, Mr. Miles will be
entitled to a severance payment of 50% of his annual compensation. Mr. Miles is
also entitled to receive, at the Company's expense, continuation of medical,
dental and disability benefits for 6 months following termination without cause.

         In December 2003, the Company entered into a three-year employment
agreement with Timothy F. Newberry, its Co-President of Operations. The
employment agreement provides for an initial annual salary of $200,000 and may
include a bonus. In the event employment is terminated by the Company without
cause, Mr. Newberry will be entitled to a severance payment of 50% of his

                                       58
<PAGE>

annual compensation. Mr. Newberry is also entitled to receive, at the Company's
expense, continuation of medical, dental and disability benefits for 6 months
following termination without cause.

         In June 2004, the Company entered into new employment agreements with
Dave Stedman, its Co-President of Sales and Marketing, and Steve Thomson, its
CFO. The employment agreements for Mr. Stedman and Mr. Thomson provided for
initial annual salaries of $150,000 and $135,000, respectively. Each agreement
has a term of three years and provides that the compensation will include a base
and may include a bonus. In the event that employment is terminated by the
Company without cause, they will be entitled to a severance payment of 50% of
their annual compensation. They are also entitled to receive, at the Company's
expense, continuation of medical, dental and disability benefits for 6 months
following termination without cause.


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

         The following table sets forth certain information that has been
provided to the Company regarding the beneficial ownership as of December 31,
2004 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                                1,849,882  (4)       4.93%
J.C. (Tuck) Marshall                              567,249  (5)       1.50%
Sam Ringer                                      1,873,920            5.01%
David Stedman                                   1,394,500  (6)       3.64%
Steve Thomson                                   1,351,500  (7)       3.56%
Randall D. Miles                                  385,117  (8)       1.02%
Griffith J. Straw                                 123,200  (9)          *
Tim Newberry                                      328,767 (10)          *
James Russo                                        99,376 (11)          *

All directors and executive officers as a       9,328,700           23.25%
group (10 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

                                       59
<PAGE>

of common stock subject to options or warrants held by that person that are
exercisable within 60 days of December 31, 2004 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 37,431,537 voting shares of
common stock outstanding as of December 31, 2004.

(4)  Includes 67,249 underlying shares of vested stock options.

(5)  Includes 337,249 underlying shares of vested stock options.

(6)  Includes 894,500 underlying shares of vested stock options.

(7)  Includes 555,000 underlying shares of vested stock options.

(8)  Includes 360,117 underlying shares of vested stock options.

(9)  Includes 123,200 underlying shares of vested stock options.

(10) Includes 291,667 underlying shares of vested stock options.

(11) Includes 59,376 underlying shares of vested stock options.


EQUITY COMPENSATION PLAN INFORMATION.

         The following table gives information about equity awards under the
Company's 1998 Plan and the individual equity arrangements as of December 31,
2004.

<TABLE>
<CAPTION>
                                                     (a)                       (b)                     (c)
                                                                                                    Number  of
                                                                                                    securities
                                                                                                  available for
                                                  Number of                                      future issuance
                                              securities to be              Weighted-              under equity
                                                 issued upon            average exercise           compensation
                                                 exercise of                price of             plans [excluding
                                                 outstanding               outstanding              securities
                                              options, warrants          options, warrants         reflected in
              Plan category                       and rights                and rights              column (a)]
------------------------------------------   ---------------------    ---------------------    ---------------------
<S>                                                 <C>                        <C>                  <C>
Equity compensation plans
approved by security holders (1)                    6,596,359                  $.30                 1,551,308
Equity compensation plans not
approved by security holders                               --                    --                        --
                                                    ---------                  ----                 ---------
Total                                               6,596,359                  $.30                 1,551,308
                                                   ==========                  ====                 =========
</TABLE>


(1)      The Company maintains the 1998 Stock Option Plan pursuant to which it
may grant options to eligible persons.

                                       60
<PAGE>


ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Randall Miles has served as a director of the Company since October
2002. Effective December 8, 2003, Mr. Miles became Chairman and CEO of the
Company. In October 2003, Mr. Miles was paid a non-refundable cash retainer in
the amount of $30,000 to provide financial advisory services related to the
potential purchase of assets of Ignition Mortgage Technology Solutions, Inc. The
agreement provided for a success fee in the amount of $250,000 if the
transaction were consummated. On December 8, 2003, the Company acquired the
assets of Ignition Mortgage Technology Solutions, Inc., and the success fee of
$250,000 was paid to SCM Capital Group LLC, an entity owned by Mr. Miles.

         Tim Newberry has served as Co-President in charge of operations since
December 8, 2003. In June 2003, the Company hired Mr. Newberry as a consultant
to help develop product plans for LION's core business. Fees for consulting
services rendered by Mr. Newberry during 2003 totaled $64,000.

                                       61
<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):

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

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

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

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

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

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

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

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

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

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

10.14    Employment Agreement - Randall D. Miles, incorporated by reference to
         the same exhibit number to the Company's Form 10 - KSB for the year
         ended December 31, 2003.

10.15    Employment Agreement - Timothy F. Newberry, incorporated by reference
         to the same exhibit number to the Company's Form 10 - KSB for the year
         ended December 31, 2003.

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

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

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

                                       62
<PAGE>

10.19    LION, Inc. Employment and Non-Competition Agreement, dated October 13,
         2004, between LION, Inc., and Anthony Berris, incorporated by reference
         as Exhibit 10.4 to the Company's Form 8-K dated October 18, 2004.

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

23.1     Consent of Grant Thornton LLP.

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

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

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

                                       63
<PAGE>


ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

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

         The following table presents fees for professional audit services
rendered by Grant Thornton LLP for the audit of our annual financial statements
for the years ended December 31, 2004 and 2003, and the reviews of the financial
statements included in each of our quarterly reports on Form 10-QSB during the
fiscal years ended December 31, 2004 and 2003, and fees billed for other
services rendered by Grant Thornton LLP during those periods.

                  Fee Category                        2004       2003
-------------------------------------------------   --------   --------

Audit Fees                                          $ 80,260   $ 54,390
Tax Fees                                              42,782     26,181
All Other Fees                                       162,171     94,500
                                                    --------   --------

                                                    $285,213   $175,071
                                                    ========   ========


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

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

ALL OTHER FEES. Fees in 2004 relate to the acquisition of the assets of Ignition
Mortgage Technology Solutions, Inc. totaling $53,291 and the acquisition of TRMS
totaling $108,880. Fees in 2003 relate to the acquisition of assets of Ignition
Mortgage Technology Solutions, Inc. and review of our Form S-8 registration
statement. All other fees may also include fees for services which would not
impair the independence of the auditor which support our evaluation of the
effectiveness of our internal controls and enhance the auditor's understanding
of our system and controls not included in Audit Fees.

                                       64
<PAGE>

                                   SIGNATURES

         In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Seattle, Washington, on February 9, 2006.

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

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

         In accordance with the requirements of the Exchange Act, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
       Signature                                        Title                             Date
       ---------                                        -----                             ----
<S>                                  <C>                                            <C>
/s/ Randall D. Miles                 Chairman of the Board and CEO                  February 9, 2006

/s/ John A. McMillan                 Director                                       February 9, 2006

/s/ David Stedman                    Director and President                         February 9, 2006

/s/ J.C. (Tuck) Marshall             Director                                       February 9, 2006

/s/ Griffith J. Straw                Director                                       February 9, 2006

/s/ Sam Ringer                       Director                                       February 9, 2006

/s/ James Russo                      Director                                       February 9, 2006

/s/ Steve Thomson                    CFO and Principal Accounting Officer           February 9, 2006
</TABLE>

                                       65
<PAGE>

                                  EXHIBIT INDEX


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

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

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

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

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

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

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

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

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

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

10.14    Employment Agreement - Randall D. Miles, incorporated by reference to
         the same exhibit number to the Company's Form 10 - KSB for the year
         ended December 31, 2003.

10.15    Employment Agreement - Timothy F. Newberry, incorporated by reference
         to the same exhibit number to the Company's Form 10 - KSB for the year
         ended December 31, 2003.

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

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

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

10.19    LION, Inc. Employment and Non-Competition Agreement, dated October 13,
         2004, between LION, Inc., and Anthony Berris, incorporated by reference
         as Exhibit 10.4 to the Company's Form 8-K dated October 18, 2004.

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

23.1     Consent of Grant Thornton LLP.

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

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

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

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