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

                                   FORM 10-KSB


                 ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000


                         COMMISSION FILE NUMBER 0-25159



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



              WASHINGTON                                   91-1524747
   (State or other jurisdiction of                       (IRS Employer
    incorporation or organization)                     Identification No.)


            2201 LIND AVENUE SW, SUITE 200, RENTON, WA    98055
             (Address of principal executive offices)   (Zip code)

                                 (425) 902-4140
                           (Issuers telephone number)

     Securities registered pursuant to Section 12 (b) of the Act:
     None

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

     Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB ( )

     Issuer's revenues for its most recent fiscal year $6,115,316

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         The aggregate market value of the voting common stock held by
non-affiliates of the Company as of March 15, 2001 was approximately $3,017,253
based on the closing price for shares of the Company's common stock as reported
by the OTC Bulletin Board for that date. Shares of common stock held by each
officer and director and by each person who owns 10% or more of the outstanding
common stock have been excluded because these people may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for any other purpose.

         On March 15, 2001, approximately 29,765,311 shares of the Company's
common stock were outstanding.



                      DOCUMENTS INCORPORATED BY REFERENCE:

         No documents are incorporated by reference.

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


































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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION OF THE
COMPANY'S BUSINESS CONTAINS FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS
A RESULT OF MANY FACTORS, INCLUDING BUT NOT LIMITED TO, THOSE DISCUSSED IN THE
SECTIONS IN THIS ANNUAL REPORT ON FORM 10-KSB ENTITLED "COMPETITION,"
"PROPRIETARY RIGHTS," "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT
MANAGEMENT'S OPINIONS ONLY AS OF THE DATE OF THIS REPORT. LION, INC. ("LION" OR
THE "COMPANY") UNDERTAKES NO OBLIGATION TO REVISE OR PUBLICLY RELEASE THE
RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS. READERS SHOULD
CAREFULLY REVIEW THE RISK FACTORS DESCRIBED IN THIS DOCUMENT AS WELL AS OTHER
DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE QUARTERLY REPORTS ON FORM 10-QSB TO BE FILED BY THE
COMPANY DURING 2001.

OVERVIEW

         LION, Inc. ("LION" or the "Company") provides Internet solutions to the
mortgage industry. To simplify origination of mortgage loans, we have created a
marketplace where buyers (consumers and mortgage brokers) and sellers (lenders)
interact to search prices, select products, and ultimately gain approval for the
mortgage transaction from both parties. Through this marketplace, we maintain an
extensive on-line mortgage loan database, automated loan underwriting systems
and other related Internet-based products and services for mortgage brokers and
lenders.

         We provide wholesale mortgage rate, fee, and program information
through our LionPro information service to over 5,000 subscribing mortgage
brokers nationwide. This database of mortgage offerings is updated daily and
contains hundreds of participating lenders with a multitude of pricing
variations. We also maintain a network of consumer sites to help mortgage
brokers and borrowers use the Internet to create business-to-consumer
relationships. The network of sites currently attracts approximately 750,000
unique visitors per month and is one of the higher trafficked networks on the
Internet for loan information.

         We have developed successful web sites for some of the nation's leading
wholesale lenders. Since mid-1999, we have provided automated underwriting
capabilities via LION-AU through Fannie Mae's Desktop Originator. This enables
brokers who are sponsored by Fannie Mae-approved lenders the ability to use the
Internet to send electronic home loan applications directly into Fannie Mae for
automated underwriting allowing subscribing mortgage brokers to quickly deliver
an underwriting decision to the customer. We also develop web-based applications
to support online wholesale/retail origination and fulfillment services as a
business-to-business application service provider ("ASP").

         LION has been an innovator of online products and services for the
mortgage industry since 1995. Originally founded as a Minnesota corporation in
1972, it operated under the name Plenum Communications, Inc. from October 1991
to December 2000. At various periods, we have conducted business under the name
Lion Inc. and, through a subsidiary, as LionInc.com.

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         On December 31, 2000, LION, Inc., a Washington corporation, became the
successor of Plenum Communications, Inc., a Minnesota corporation, pursuant to a
merger. The merger had the effect of changing LION's domicile, but did not alter
the proportionate interests of security holders. Effective January 1, 2001,
LION's wholly-owned subsidiary, which conducted business as LionInc.com, was
merged into LION. Our common stock trades on the OTC Bulletin Board under the
symbol "LINN."

INDUSTRY INFORMATION

         CONSUMER. Consumers looking to purchase homes or refinance the mortgage
on their existing homes can obtain a loan through a retail lender or through a
mortgage broker.

         MORTGAGE BROKER. Mortgage brokers originate loan applications and place
the loan with one of many wholesale lenders and assists in the processing,
fulfillment, and closing of the loan.

         RETAIL MORTGAGE BANKER. Mortgage bankers perform the same functions as
a mortgage broker and also arrange a line of credit that enable them to approve,
close, and then sell loans to a company that will service the mortgage loan.

         WHOLESALE LENDER. Wholesale lenders operate through independent
mortgage brokers to obtain loans and then either sell or keep the loan for
servicing.

         HYBRIDS. There are many hybrid companies that have both wholesale and
retail operations. These companies serve the public through branch offices and
"wholesale rates" to mortgage brokers.

         GSEs. The government sponsored enterprises, including Fannie Mae and
Freddie Mac, are major purchasers of loans. These GSEs set the rules and
guidelines for purchasing "conforming loans" that meet their criteria.

CUSTOMER BASE

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

         MORTGAGE BROKERS. Recent studies by Wholesale Access indicate that
there are approximately 25,000 mortgage brokerage firms in the country. On
average, there are 6 loan officers per firm. There appears to be a total market
of approximately 150,000 mortgage originators within these brokerage firms.

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

         There has been a growing trend toward consolidation in the industry
through franchises and, more commonly, "net branch" arrangements. Under these
arrangements the central office provides compliance, administration, a brand
name, and professional marketing materials which allows the small brokerage

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operation to focus on servicing their clients. These firms are actively seeking
ways to use technology to increase efficiencies, and we believe LION provides an
Internet solution.

         Wholesale lenders do not incur these staffing costs, since they rely on
brokers to interface with the consumer. Hence, they quote a "wholesale" rate,
which tends to be about 1-1.5 points less than the retail rate. This allows the
mortgage broker to "mark up" the loan by that amount as its fee and still
compete with the retail lenders. For instance, the retail rate might be 8% with
two points, but the wholesale rate might be 8% with one point. The mortgage
broker shows his client 8% with two points, paying one point to the lender and
keeping one point as his fee.

         Brokers vary on how much to mark up the loan. Some use a flat amount
for most loans, such as 1%. Others may consider such factors as loan size, price
sensitivity of the client, difficulty of placing the loan, and/or the extent to
which price competitiveness is or is not part of their strategy.

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

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

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

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

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

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

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

         Some lenders deal primarily in conforming loans, but also will offer
programs for loans that meet most of these requirements except for one or two.
For instance, many will offer programs for "jumbo" loans, those that exceed the
maximum loan size for conforming loans (currently $252,700 for single family
residences), and many will accept less rigorous documentation. The lenders
cannot sell these loans to the GSEs. They can either keep these loans in their
own portfolios or sell them to entities other than the GSEs.

         "Non-conforming loans" do not meet the requirements for purchase by the
GSEs. Lenders work with borrowers who have had some level of credit problems in
the past (known as "A minus, B, C or D" rated credit), whose ratio of loan
payment to income is higher than allowed under conforming rules, or who may be
purchasing a property type that is not permitted under conforming rules (i.e. a
log home or certain condominiums). These non-conforming loans are considered to
be higher risk and command higher fees or rates.

         Each lender usually offers many "programs." A program is a loan with a
particular set of terms. For example, typically there will be some 30-year fixed
rate programs, some 15-year fixed rate programs and some adjustable rate
mortgage ("ARM") programs. The rates and terms for each of these may vary by
size of loan, kind of property, credit rating, loan amount compared to property
value and other factors. The many combinations of these variables result in
lenders typically having 13-18 different programs and some having up to 50
programs. Furthermore, each program has a "matrix" or array of rates available
depending upon the points the borrower pays. For instance, a 30 year fixed rate
program might be priced at 7% if the borrower pays one point up front, but at
6-3/4% if he pays two points up front. The pricing matrix also may have standard
amounts by which the stated fees or rates increase or decrease based on certain
factors. For instance, for condominium loans, 1/4 point might be added to the
fee; or for loans over $125,000, 1/8 might be subtracted.


                                        6
<PAGE>

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

         BORROWERS/CONSUMERS. Borrowers/consumers are currently using the
Internet to search for information to assist them in finding a mortgage company.
It is estimated that around 60% of all mortgage shoppers do online research and
1% apply for a loan. The primary reason for an online information search is to
find the lowest interest rate. Secondary reasons include calculations,
information, and convenience. The borrower/consumer should become more
comfortable with technology and more often move past the information seeking
stage. It is estimated that up to 10% of all mortgage shoppers will apply online
by the Year 2005.

SERVICES AND PRODUCTS

         The mortgage process is comprised of five stages. They are origination,
fulfillment, funding, servicing, and risk management. Our strategy is to
simplify origination. Whether for the consumer, the mortgage broker, or the
lender, the basic functions of origination focus on interest rate shopping,
selecting the best product and obtaining approval.

         To simplify origination, we have created a marketplace where buyers
(consumers and mortgage brokers) and sellers (lenders) interact to search
prices, select products, and ultimately gain approval for the mortgage
transaction from both parties. Through this marketplace, we maintain an
extensive on-line mortgage loan database, automated loan underwriting systems
and other related Internet-based products and services for mortgage brokers and
lenders.

         We provide wholesale mortgage rate, fee, and program information
through our LionPro information service to over 5,000 mortgage brokers
nationwide. Lion Loan Search provides the key feature to this password-protected
service by allowing easy access to our extensive lender database. This database
is updated daily and has hundreds of participating lenders with over 17,000,000
pricing variations.

         We maintain a network of consumer sites to help mortgage brokers and
borrowers use the Internet to create business-to-consumer relationships. The
network of sites currently attracts approximately 750,000 unique visitors per
month and is one of the higher trafficked networks on the Internet for loan
information. In addition, we have over 6,000 co-branded electronic mortgage
centers that have been established for realtors, real estate offices, relocation
sites, associations, and city portals. One example of this mortgage center
provides consumer education materials to NAMB, the broker trade association
based in Washington D.C. through our Mortgage101.com site.


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         We have developed successful web sites for some of the nation's leading
wholesale lenders. Since mid-1999, we have provided automated underwriting
capabilities via LION-AU through Fannie Mae's Desktop Originator. This enables
brokers who are sponsored by Fannie Mae-approved lenders the ability to use the
Internet to send electronic home loan applications directly into Fannie Mae for
automated underwriting allowing subscribing mortgage brokers to quickly deliver
an underwriting decision to the customer.

         We have developed web-based applications to support online
wholesale/retail origination and fulfillment services. As an application service
provider (ASP) in the business-to-business (B2B) space, we customize and host a
lender's web site, as well as provide the software applications needed to
automate a lender's loan pipeline. As an ASP, we allow lenders to provide
brokers with web-based tools that facilitate an efficient and fast loan process.
The product features origination applications such as product and pricing search
engines, real-time rate locking capabilities, electronic 1003 manager, loan
status monitoring and a broadcast E-mail center. All of these features are
secured by our access-control module. This access feature provides a complete
and secure E-commerce solution.

         Our combined professional and consumer marketplaces represent one of
the largest combined marketplaces on the Internet serving the consumer, mortgage
originator, and mortgage lender. To capitalize on this, we also provide ad
banner advertisements to our mortgage broker and lender customers.

SALES AND MARKETING

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

         SALES FORCE. We maintain a professional sales force compensated on a
commission basis after an initial three-month internship. The sales force make
telephone solicitations, handle inbound phone inquiries and contact brokers who
register for our service.

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

         TRADE JOURNALS ADVERTISING AND ARTICLES. There are three primary
mortgage publications, ORIGINATION NEWS, MORTGAGE ORIGINATOR and THE MORTGAGE
PRESS. The first two are national publications. THE MORTGAGE PRESS publishes a
state association periodical for approximately 25 states, and distributes the
issues at no cost very broadly to an estimated audience of over 200,000.

         We advertise in these publications. In addition, senior managers of the
Company have contributed articles on Internet usage by brokers and lenders to
trade magazines such as SECONDARY MARKETING EXECUTIVE, MORTGAGE PRESS and
MORTGAGE MATTERS. For additional information on advertising, see Note A (10) to
the Consolidated Financial Statements.

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<PAGE>

         PRESS RELEASES AND OTHER PRESS COVERAGE. We issue press releases on
product introductions and changes, upon entering new states with a database, and
upon achieving certain milestones. These appear without cost in various trade
magazines. We also have been the subject of published reviews of mortgage
technology products, quoted in trade journals and been the subject of articles
written about the Company.

         SPEAKING ENGAGEMENTS. Representatives of the Company from time to time
speak at other industry functions not connected to broker trade shows. As we
have become increasingly known for our Internet expertise, the significance of
these engagements has grown.

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

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

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

         STATE ASSOCIATION MARKETING AGREEMENTS. We have entered into agreements
with the state mortgage broker associations, some of which include: Colorado,
Arizona, and Mississippi. While these agreements vary, LION generally receives
preferential promotional opportunities to the membership in exchange for hosting
and maintaining the association web site.

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

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

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


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         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. Over 6,000 real estate and related sites participate in the content
program.

         The larger state and national REALTOR associations conduct annual trade
shows which include a schedule of speakers, workshops, and an exhibition hall
where industry affiliates promote their products from booths. We promote the
Mortgage101.com content program at these trade shows.

         LISTING WITH SEARCH ENGINES. We have arranged to be listed in all major
"search engines." The URLs of the network of consumer sites appear if the user
enters key words such as "mortgage" or "mortgage interest rates." Constant
analysis of server traffic shows that a significant number of consumers find
these sites while "surfing the Net."

RESEARCH AND DEVELOPMENT

         We develop our own proprietary software for providing products and
services to our customers. These efforts are funded through operations and
equity financing. Research and development expense was approximately $578,000
and $301,000 for 2000 and 1999, respectively.

COMPETITION

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

         We expect to face competition from various e-commerce businesses and
other companies targeting both consumers and businesses, whether or not they
focus on our business model. A small number of companies have developed a
searchable database of wholesale loan programs. To our knowledge, none of these
have met with significant commercial success. One company offers a "bidding
room" service, by which lenders can bid on loans packaged by mortgage brokers.
It is unclear whether this service will become popular or whether it will be a
competitive service to us.

         We believe participation from a significant majority of lenders is
necessary to make a quality product. This creates a difficult barrier to entry
for new competitors and requires significant ramp-up times to make a competitive
product successful. Nevertheless, our competitors may include companies with
longer operating histories, greater market presence and name recognition, and
with larger customer bases and greater financial, technical and marketing
resources than we do. These companies would be strong competitors if they
decided to develop a focused business effort in our Internet space. Furthermore,
to the extent that our products achieve market acceptance, competitors can be
expected to offer competitive products or embark on pricing strategies, which,
if successful, could have a material adverse effect on the results of our
operations and financial condition.

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

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

         We are also aware of competition in the broker home page development
market. The market is comprised of a few strong competitors, such as Myers and
Ellie Mae. In addition, several industry affiliates, such as the Loan
Origination Software Providers, have entered the market. The market also
consists of small, local web companies who provide services for a wide range of
industries. These small, local web companies do not have the technology
necessary to provide mortgage brokers current technology specific to the
mortgage industry. We provide them the licensed technology allowing the
developer to facilitate the local relationship. The industry affiliates who have
entered the market view their broker home page development as an ancillary
product. These affiliates are able to deliver technology pertaining to their
business model but have not achieved substantial market share.

         We currently host over 1,000 web sites. This places us as the third
largest provider of Internet sites for mortgage brokers and retail originators.
We have the ability to deliver competitive technology and aggressive advertising
campaigns. In addition, the broker home page product benefits from the market
share resulting from our product and service offerings.

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

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


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GOVERNMENT REGULATION

         We are not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity of the Internet, it
is possible that a number of laws and regulations may be adopted with respect to
the Internet, covering issues such as user privacy, pricing and characteristics
and quality of products and services. There can be no assurance that the
enactment of laws affecting telecommunications will not decrease the growth of
the Internet, which in turn could decrease the demand for our products and
services, increase the cost of doing business, or otherwise have an adverse
effect on our business, operating results or financial condition. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, libel and personal privacy is uncertain. We cannot predict the
impact, if any, that future regulation or regulatory changes might have on our
business.

PROPRIETARY RIGHTS

         We rely on a combination of copyright and trademark laws, trade
secrets, software security measures, license agreements and nondisclosure
agreements to protect our proprietary technology and software products. We have
a variety of registered Internet domain names. We currently have no federally
registered trademarks or service marks, nor are we the owner or assignee of any
domestic or foreign patents. There are no trademark or service mark applications
or patent applications pending. We cannot be certain that others will not
develop substantially equivalent or superseding proprietary technology, or that
equivalent products will not be marketed in competition with our products,
thereby substantially reducing the value our proprietary rights. Furthermore,
there can be no assurance that any confidentiality agreements between us and our
employees or any license agreements with our customers will provide meaningful
protection our proprietary information in the event of any unauthorized use or
disclosure of such proprietary information.

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

EMPLOYEES

         At December 31, 2000, we had 93 full-time associates, which included 25
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

                                       12
<PAGE>

engineers involved in new product development, for whom competition is intense.
From time to time, we may employ independent consultants or contractors to
support our research and development, marketing, customer service and
administrative organizations. Our employees are not represented by any
collective bargaining unit, and we have never experienced a work stoppage. We
believe relations with our employees are good.

RISK FACTORS

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

WE HAVE NO HISTORY OF PROFITS AND OUR FUTURE PROFITABILITY REMAINS UNCERTAIN.

         We are working toward a goal of sustained profitability and took
several important steps during the fourth quarter of 2000, including, merging
our subsidiary with LION, reorganizing our senior management team, and
consolidating our originator sales and service operations. We are experiencing
increased revenues but have not reached profitability as of December 31, 2000.
For fourth quarter 2000, the net loss was $257,424 compared with a net loss of
$2,943,713 for fourth quarter 1999. For the fiscal year ended December 31, 2000,
we had a net loss of $1,297,849, or $0.04 per share, compared to a net loss of
$3,997,151, or $0.15 per share, the prior fiscal 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, profitability and the need to raise capital to
fund our ongoing operations. We cannot assure you that that we will be
successful in addressing these risks or that we can be operated profitably,
which depends on many factors, including the success of our marketing program,
the control of expense levels and the success of our business activities. Our
future operating results will depend on a variety of factors, including those
discussed in the other risk factors set forth below.

















                                       13
<PAGE>

FINANCIAL RESULTS FOR ANY PARTICULAR PERIOD WILL NOT PREDICT RESULTS FOR FUTURE
PERIODS.

         Because of the uncertain nature of the rapidly changing market we
serve, period-to-period comparisons of operating results may not be meaningful.
You should not rely on the results for any period as an indication of future
performance. In particular, although we have historically experienced strong
revenue growth, we do not believe that this level of revenue growth will be
sustained in 2001 and in future periods, particularly on a long-term basis. For
example, over 50% of our growth in revenues for 2000 compared to 1999 is
attributable to the acquisition of the IMark assets and its mortgage industry
Internet sites on May 17, 1999. In addition, we expect that our operating
expenses will continue to increase as we expand our sales and marketing
operations, fund greater levels of product development, and acquire
complementary businesses and technologies. Furthermore, we are subject to
employer payroll taxes when our employees exercise their non-qualified stock
options. The employer payroll taxes are assessed on each employee's gain, which
is the difference between the price of our common stock on the date of exercise
and the exercise price. During a particular period, these payroll taxes could be
material. Depending on the number of shares of our common stock for which
options are exercised and the fair market value of shares of our common stock
during such period, these employer payroll taxes would be recorded as a charge
to operations in the period such options are exercised based on actual gains
realized by employees. In addition to the net proceeds we would receive upon the
exercise of stock options, we would receive tax deductions for gains realized.

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

         Our existing working capital is not sufficient to allow us to execute
our business plan, including the further development and implementation of our
online business, or to fund our expansion and marketing plans for the year 2001.
The full development and implementation of our business will require additional
resources. If we are unable to obtain adequate capital financing through equity
or other financings, we may not be able to successfully implement our short-term
or long-term plans for expansion or to meet our working capital requirements. We
anticipate that a significant portion of our near-term capital resources will be
provided through operations. However, even if we succeed in our business plans,
we may experience rapid growth requiring additional funds to expand our
operations and organization.

         We do not have current commitments for financing sufficient to fund our
expansion and marketing plans. In order to provide adequate working capital, we
intend to explore a number of options to secure financing including the issuance
of additional equity. We might not succeed, however, in raising equity capital
or in negotiating and obtaining additional and acceptable financing when we need
it. Our ability to obtain additional capital may depend on market conditions
(including the market for Internet stocks), national and global economies and
other factors beyond our control. If adequate capital were not available or were
not available on acceptable terms at a time when we needed it, our ability to
execute our business plans, develop or enhance our services or respond to
competitive pressures would be significantly impaired.


                                       14
<PAGE>

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

         LION's most critical customer is currently the mortgage broker.
Mortgage broker fees comprised 69% of our total revenues during 2000. Customer
agreements are short-term and renewable. There can be no assurance that these
subscribers will continue to participate in the LION program, or that we will be
able to attract new mortgage brokers at rates sufficient to maintain a stable or
growing revenue base. We cannot assure you that the market for our products and
services will continue to develop as expected. If the mortgage broker market
develops more slowly than expected or becomes saturated with competitors, or if
our products and services do not continue to achieve market acceptance, our
business operating results and financial conditions may be materially adversely
affected.

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

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

         The performance of our web site will continue to be dependent on the
successful operation of the Internet and on certain third parties and services
(such as Internet service providers, Internet backbone providers and Web
browsers). Our Internet services will be designed around certain technology
standards. Current and future success of our services may become subject to
additional industry standards as Internet commerce rapidly evolves. As a result
our business may incur additional costs of unknown proportions as we are
confronted with new technology standards. In addition, we may not be successful
in our efforts to enhance existing services and to develop, introduce and market
new services. Furthermore, our enhancements and new services may not adequately
meet the requirements of the marketplace and achieve market acceptance. As the
Internet develops, it is possible that incompatibility or lack of appropriate
features could impact our business. In addition, the widespread adoption of new
Internet or telecommunications technologies or standards could require us to
make substantial expenditures to modify or adapt our services. In this case, the
new Internet or telecommunications services or enhancements that we offer could
contain design flaws or other defects. Although we expect to be responsive to
changes in the Internet and technology, we may not be successful in achieving
widespread acceptance of our services before competitors offer services with
speed and performance equal to or greater than ours.


                                       15
<PAGE>

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

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

         We are substantially dependent on the continued services of our key
personnel, including our president, chief financial officer, our engineers and
other significant employees. These individuals have acquired specialized
knowledge and skills with respect to LION and its operations. With respect to
our proprietary software, while backup has been provided by the other full-time
company engineers, currently there are portions of the database management and
development that rely solely on Sam Ringer who is the author of the LION
software. We are in the process of creating the engineering redundancy that will
reduce the reliance on this individual, but have not completed this task.
Furthermore, we have not entered into employment agreements with these officers
and significant employees. If any of these individuals were to leave LION
unexpectedly, we could face substantial difficulty in hiring qualified
successors and could experience a loss in productivity while any such successor
obtains the necessary training and experience. We provide stock options, which
currently serve to retain and motivate key employees as they become vested in
their initial stock option grants. While management personnel are typically
granted additional stock options, which will usually vest over a period of four
years, subsequent to their hire date to provide additional incentive to remain
at LION, the initial option grant is typically the largest and an employee may
be more likely to leave our employ upon completion of the vesting period for the
initial option grant. We expect that we will need to attract, train, retain and
motivate additional technical, managerial, marketing and customer support
personnel. Competition for these personnel may be intense, particularly for
individuals with suitable experience. We face the risk that if we are unable to
attract and integrate new personnel, or retain and motivate existing personnel,
our business will be adversely affected.

OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

         We have in place comprehensive data tape backup procedures for our
operational and administrative databases. Our replication software provides a
high level of hardware backup for the database by duplicating our database
across several powerful PCs. However, despite protective measures, our
operations could be vulnerable to damage from floods, fire, earthquakes, power
loss, telecommunications failures, break-ins and similar events. In addition,
the majority of our network infrastructure is located in Seattle, Washington, an
area susceptible to earthquakes. In recent months, the western United States
(California in particular) has experienced repeated episodes of diminished

                                       16
<PAGE>
electrical power supply. As a result of these episodes, certain of our
operations or facilities may be subject to "rolling blackouts" or other
unscheduled interruptions of electrical power. The prospect of such unscheduled
interruptions may continue for the foreseeable future and we are unable to
predict either their occurrence, duration or cessation. We do not have multiple
site capacity for all of our services in the event of any such occurrence.

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

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

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

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

         The trading price of our common stock has been and may continue to be
subject to wide fluctuations. During 2000, the closing sale prices of our common
stock on the OTC Bulletin Board ranged from $1.375 to $.125 per share and the
sale price of our common stock closed at $.11 per share on March 15, 2001. Our
stock price may fluctuate in response to a number of events and factors, such as
quarterly variations in operating results, announcements of technological
innovations or new products by us or our competitors, changes in financial
estimates and recommendations by securities analysts, the operating and stock
price performance of other companies that investors may deem comparable, and
news reports relating to trends in our markets. In addition, the stock market in
general, and the market prices for Internet-related companies in particular,
have experienced extreme volatility that often has been unrelated to the
operating performance of these companies. These broad market and industry
fluctuations may adversely affect the price of our stock, regardless of our
operating performance.

                                       17
<PAGE>

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

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

         As of December 31, 2000, a substantial majority of the 32,665,311
outstanding shares of common stock and 1,500,000 shares of preferred stock held
by existing shareholders were issued and sold by the Company in private
transactions in reliance on exemptions from the registration provisions of the
Securities Act and are restricted securities within the meaning of Rule 144
under the Securities Act. Of the outstanding shares, including shares held by
affiliates, 31,415,622 were issued on or before December 31, 1999, and may be
currently eligible for resale in the open market, if any, subject to the volume
and other conditions of Rule 144. There are no contractual restrictions on the
resale of the outstanding common stock. The sale in the public market of these
shares of restricted common stock, or the perception that these sales may occur,
may depress prevailing market prices of the common stock.

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

         As of December 31, 2000, there were outstanding stock options to
purchase an aggregate of 3,878,250 shares of common stock at exercise prices
ranging from $.17 to $2.00 per share, and warrants to purchase 685,000 shares of
common stock at exercise prices ranging from $.60 to $1.75. Employee options are
subject to a restriction whereby option holders have agreed to not sell or
otherwise transfer or dispose of shares of the common stock issued upon exercise
of options in an amount which shall exceed 250,000 shares during any three-month
period. The exercise of these outstanding options and warrants will dilute the
percentage ownership of common stockholders, and any sales in the public market
of shares of common stock underlying such securities may adversely affect
prevailing market prices for the common stock. Furthermore, the terms upon which
we will be able to obtain additional equity capital may be adversely affected
since the holders of these outstanding securities can be expected to exercise
their respective rights therein at a time when we would, in all likelihood, be
able to obtain any needed capital on terms more favorable to the Company than
those provided in such securities.


                                       18
<PAGE>

"PENNY STOCK" REGULATIONS IMPOSE RESTRICTIONS ON THE MARKETABILITY OF OUR COMMON
STOCK.

         The SEC has adopted regulations which generally define "penny stock" to
be any equity security that is not traded on a national securities exchange or
NASDAQ and that has a market price of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. The
definition excludes the securities of an issuer meeting certain minimum
financial requirements. Generally, these minimum thresholds would be met by an
issuer with net tangible assets in excess of $2 million or $5 million,
respectively, depending upon whether the issuer has been continuously operating
for less or more than three years, or by an issuer with "average revenue" of at
least $6 million for the last three years.

         As long as we do not meet the relevant financial requirements and our
common stock is trading at less than $5.00 per share on the OTC Bulletin Board,
our securities are subject to the penny stock rules. These rules impose
additional sales practice requirements on broker-dealers who sell our securities
to persons other than established customers and accredited investors (generally,
investors with a net worth in excess of $1,000,000 or an individual annual
income exceeding $200,000, or, together with the investor's spouse, a joint
income of $300,000). For transactions covered by the penny stock rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any non-exempt transaction
involving a penny stock, the rules require, among other things, that the
broker-dealer deliver an SEC mandated risk disclosure document relating to the
penny stock market and the risks associated therewith prior to the transaction.
The broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative as well as current quotations
for the securities. If the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, the broker-dealer must send monthly statements
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the penny stock
rules may restrict the ability of broker-dealers to sell our securities and may
affect the ability of our shareholders to sell their securities in the secondary
market.

ITEM 2.  DESCRIPTION OF PROPERTY

         Our executive offices are located in Renton, Washington, where we
currently lease approximately 20,093 square feet. The lease began September 13,
1999 and expires on September 30, 2004. We have the right to use this space for
computer information services and related business uses. For sales and marketing
efforts, we lease approximately 5,500 square feet of space in Spokane,
Washington, which expires December 31, 2001 and approximately 4,589 square feet
in Denver, Colorado, which expires October 31, 2004.

         In January 2001, we announced an initiative to consolidate our broker
sales and customer service operations. As a part of the consolidation, broker
sales and customer service was moved to our Denver office, and we subsequently
closed our sales and customer support operations in Spokane, Washington on
January 31, 2001. Since the lease in Spokane, Washington doesn't expire until
December 31, 2001, we are in the process of finding a subtenant for the
remainder of the term.

                                       19
<PAGE>

         Our former executive offices located in Mercer Island, Washington, have
been subleased. We lease approximately 3,500 square feet and the lease expires
on June 30, 2001. Monthly rent on the space is $6,923 which is offset by monthly
subtenant rent of $6,424.

         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

         During January 2001, LION became party to a legal proceeding initiated
by Mr. Billy Anders, a former director of LION (BILLY R. ANDERS V. PLENUM
COMMUNICATIONS, INC., A MINNESOTA CORPORATION, filed in U.S. District Court,
Eastern District of Washington, Case No. CS-00-0468-WFN). During the same month,
LION became party to a second proceeding initiated by Mr. Anders in state court,
adding Allen Ringer, a former executive officer and director of LION, and his
marital community as parties (BILLY R. ANDERS V. PLENUM COMMUNICATIONS, INC., A
MINNESOTA COMPANY, ALLEN RINGER, AND THE MARITAL COMMUNITY OF ALLEN RINGER AND
JANE DOE RINGER, filed in Superior Court, State of Washington, Spokane County,
Case No. 00207342-3). Mr. Anders seeks damages from LION and Mr. Ringer under
five theories of relief including breach of contract, breach of implied
contract, intentional misrepresentation, negligent misrepresentation and racial
discrimination. Mr. Anders has requested an unspecified amount of actual,
compensatory and punitive damages. Mr. Anders alleges he was denied compensation
promised him pursuant to an oral contract by the failure of LION to extend the
duration of and to reprice his stock options, and that he was discriminated
against because of his race. Management believes these claims are wholly without
merit and intends to defend LION vigorously in the matter. Pursuant to the
indemnification provisions of its articles of incorporation, and subject to
their limitations, LION will indemnify and provide for the representation of
Allen Ringer as a co-defendant. LION and Mr. Ringer have answered the complaints
denying the claims and raising various affirmative defenses.

         To the best of our knowledge, there are no other legal actions pending,
threatened or contemplated against the Company.

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

         The Annual Meeting of our shareholders was held November 28, 2000 in
Bellevue, Washington. Our common stock and Series A Preferred Stock were the
only classes of securities entitled to vote at the Annual Meeting. Only
shareholders of record at the close of business on October 9, 2000 ("Record
Date") were entitled to receive notice of the Annual Meeting. As of the Record
Date, there were 32,912,811 shares of common stock and 1,500,000 shares of
Series A Preferred Stock outstanding. There were 27,208,125 shares represented
at the Annual Meeting in person or by proxy, each share entitled to one vote on
each matter to be voted upon. Various matters were submitted for a vote by the
shareholders as summarized below.


                                       20
<PAGE>

PROPOSAL #1 - Election of directors.

         The following directors were elected to serve on the LION Board of
Directors for a one-year term. No other director's term of office continued
after the meeting.
<TABLE><CAPTION>
                              Positions and Offices                  Vote of the Stockholders
                                  Held Within        -------------------------------------------------------
           Directors              the Company           For           Against      Abstaining      Non-Votes
           ---------              -----------        ----------      ---------     ----------      ---------
         <S>                      <C>                <C>             <C>           <C>             <C>
         Jack McMillan            Chairman of the    18,061,347      9,146,778          0              0
                                    Board, CEO
         J.C. "Tuck" Marshall     Director           17,855,340      9,352,785          0              0
         Jacob Smith              Director           17,710,870      9,497,255          0              0
         Sam Ringer               Director           17,876,132      9,331,993          0              0
         Kurt Springman           Director           15,119,126     12,088,999          0              0
</TABLE>

PROPOSAL #2 - To change the Company's state of incorporation from Minnesota to
Washington by a merger with and into a newly formed, wholly-owned Washington
subsidiary.

         The proposal to change the Company's state of incorporation from
Minnesota to Washington by a merger with and into a newly formed, wholly-owned
Washington subsidiary was approved. The vote was 19,253,405 for, 408,002
against, 63,968 abstaining and 14,687,436 not voting.

PROPOSAL #3 - Ratification of independent accountants.

         Grant Thornton was ratified as the independent accountants for the
fiscal year ended December 31, 2000 by a vote of 26,916,676 in favor, 282,989
against and 8,460 abstaining.

                                     PART II

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

MARKET INFORMATION

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

         Fiscal Year Ended December 31,          2000                  1999
                                           ---------------       ---------------
                                            High      Low         High      Low
                                           ------   ------       ------   ------
         First Quarter                     $1.375   $0.625       $2.125   $0.812
         Second Quarter                     0.875    0.406        2.187    1.500
         Third Quarter                      0.500    0.187        1.718    0.781
         Fourth Quarter                     0.266    0.125        1.000    0.531


                                       21
<PAGE>

         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 1,210 holders of record of our common stock as
of March 15, 2001.

DIVIDEND POLICY

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

SHARES ELIGIBLE FOR FUTURE SALE

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

RECENT SALES OF UNREGISTERED SECURITIES

         During the year ended December 31, 2000, the Company issued and sold
the following securities:

         1.   During the three-month period ended March 31, 2000, we sold an
              aggregate of 980,964 shares of common stock to 13 of our existing
              shareholders at purchase prices ranging from $.25 to $.50 per
              share in connection with the exercise of outstanding warrants, for
              an aggregate purchase price of $472,232. The investors were
              accredited or sophisticated purchasers. We issued the shares in
              reliance upon the exemption from registration under Section 4(2)
              of the Securities Act. The recipients of securities represented
              their intentions to acquire the securities for investment only,
              and not with a view to sell, or for sale in connection with any

                                       22
<PAGE>
              resale or distribution. Appropriate legends were affixed to the
              share certificates issued in the transactions. The offering was
              made without the use of any general solicitation or advertising.
              All recipients had access to all material information concerning
              the Company.

         2.   During the three-month period ended March 31, 2000, we sold an
              aggregate of 544,167 shares of common stock to 6 persons at
              purchase prices ranging from $.01 to $1.00 per share in connection
              with the exercise of outstanding options. Cash consideration was
              received from 3 persons totaling $20,808 for 94,167 shares at
              exercise prices ranging from $.01 to $.65 per share. Nonrecourse
              promissory notes were received from 3 persons in the total amount
              of $309,375 for 450,000 shares at exercise prices ranging from
              $.25 to $1.00 per share. The promissory notes accrue interest at
              10% per annum with all three notes maturing on July 1, 2001. The
              issuance of common stock upon the exercise of the stock options
              was deemed to be exempt from registration under the Securities Act
              in reliance on Rule 701, and were issued pursuant to a written
              compensation benefit plan in consummation of offers made prior to
              our becoming subject to the reporting requirements of the Exchange
              Act.

         3.   On March 14, 2000, we sold a warrant for consideration of $2,000
              for legal and financial advisory services. The warrant was granted
              to 1 person for a total of 200,000 common shares at an exercise
              price of $.78 per share and an expiration date of March 14, 2003.
              It contains a net issuance exercise provision, providing that, if
              the fair market value of our common stock is greater than the
              exercise price, in lieu of exercising the warrant for cash, the
              holder may elect to receive shares equal to the value of the
              warrant. We issued the shares in reliance upon the exemption from
              registration under Section 4(2) of the Securities Act. The
              recipient of securities represented its intentions to acquire the
              securities for investment only, and not with a view to sell, or
              for sale in connection with any resale or distribution. The
              offering was made without the use of any general solicitation or
              advertising. The recipient had access to all material information
              concerning the Company.

         4.   On April 28, 2000, we granted a warrant for assisting the Company
              in locating financing through the issuance of preferred stock (see
              paragraph below). The warrant was granted to one person for a
              total of 105,000 common shares at an exercise price of $.60 per
              share and an expiration date of April 28, 2003. The grant of the
              warrant did not require registration under the Securities Act, or
              an exemption therefrom, since the grant did not involve a "sale"
              as the term is used in Section 2(3) of the Securities Act.

         5.   On May 1, 2000, the Company received $900,000 during "the first
              closing" on the issuance of 1.5 million shares of Series A
              Preferred Stock. Issue costs totaled approximately $93,000. The
              Preferred Stock is not redeemable and one share of Preferred Stock
              can be converted at the option of the holder at any time after the
              date of issuance into one share of Common Stock. The holder of
              each share of Series A Preferred Stock has the right to one vote

                                       23
<PAGE>

              for each share of Common Stock into which such Preferred Stock
              could then be converted. The Preferred Stock was issued to two
              investors. The issuances were deemed to be exempt from
              registration under the Securities Act in reliance on Section 4(2)
              of the Securities Act as transactions by an issuer not involving
              any public offering. The investors were accredited purchasers. The
              recipients of securities represented their intentions to acquire
              the securities for investment only, and not with a view to sell,
              or for sale in connection with any resale or distribution.
              Appropriate legends were affixed to the certificates issued in the
              transactions. The offering was made without the use of any general
              solicitation or advertising. The recipients had access to all
              material information concerning the Company.

         6.   On May 17, 2000, we issued 584,558 shares of common stock to two
              persons as post-closing consideration for the assets purchased
              from IMark, LLC on May 17, 1999. We issued the shares in reliance
              upon the exemption from registration under Section 4(2) of the
              Securities Act. The recipients of securities are employees of the
              Company. They represented their intentions to acquire the
              securities for investment only, and not with a view to sell, or
              for sale in connection with any resale or distribution.
              Appropriate legends were affixed to the share certificates issued
              in the transactions. The offering was made without the use of any
              general solicitation or advertising. All recipients had access to
              all material information concerning the Company.

         7.   Pursuant to the Company's 1998 Stock Option Plan, the Company
              granted stock options to 139 employees at various dates from
              January to December 2000. These stock options were comprised of
              2,163,875 shares of common stock, expire 5 or 10 years from the
              date of grant, vest in quarterly increments over a 4 year period
              and have exercise prices, based on the market price at the date of
              grant, ranging from $.15 to $.94 per share. The Company also
              granted stock options to one contractor for services received.
              These options were comprised of 50,000 shares of common stock,
              expire over 2 years from the date of grant, vest over 1 year and
              have an exercise price of $.54 per share. The granting of stock
              options did not require registration under the Securities Act, or
              an exemption therefrom, since the grants did not involve a "sale"
              as the term is used in Section 2(3) of the Securities Act.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS

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

         IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION AND
ANALYSIS OF MANAGEMENT CONTAINS FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, INCLUDING BUT NOT
LIMITED TO, THOSE DISCUSSED BELOW AND IN THE SECTIONS IN THIS ANNUAL REPORT ON
FORM 10-KSB ENTITLED "COMPETITION," "PROPRIETARY RIGHTS," AND "RISK FACTORS."
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING

                                       24
<PAGE>

STATEMENTS, WHICH REFLECT MANAGEMENT'S OPINIONS ONLY AS OF THE DATE OF THIS
REPORT. LION UNDERTAKES NO OBLIGATION TO REVISE OR PUBLICLY RELEASE THE RESULTS
OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS. READERS SHOULD CAREFULLY
REVIEW THE RISK FACTORS DESCRIBED IN THIS DOCUMENT AS WELL AS OTHER DOCUMENTS
THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING THE QUARTERLY REPORTS ON FORM 10-QSB TO BE FILED BY THE COMPANY DURING
2001.

RESULTS OF OPERATIONS

         Mortgage brokers, wholesale lenders and industry affiliates constitute
LION's principal income base, and therefore, the Company's primary sources of
revenue. While borrowers are not currently part of LION's revenue base, they
directly impact our core customer base.

REVENUES

         Revenues increased to $6,115,316 from $4,241,277 for the years ended
December 31, 2000 and 1999, respectively. This represents an increase of
$1,874,039 or 44%. Total revenues of $6,115,316 for 2000 were comprised of
mortgage broker fees of $4,234,576 or 69% of total revenues, lender fees of
$1,436,965 or 23%, ad banner revenues of $420,333 or 7%, and broadcast fax fees
of $23,442 or less than 1%. Total revenues of $4,241,277 for 1999 were comprised
of mortgage broker fees of $3,162,973 or 74% of total revenues, lender fees of
$785,758 or 19%, ad banner revenues of $192,040 or 5%, and broadcast fax fees of
$100,506 or 2%.

         Over 50% of the growth in revenues for 2000 compared to 1999 is
primarily due to the acquisition of the IMark assets and its mortgage industry
Internet sites on May 17, 1999. These LionChoice products contributed $1,008,356
of the $1,874,039 increase in revenues. The remainder of the increase is due to
$651,207 of new lender fees, $63,247 of new LionPro fees, $228,293 of new ad
banner fees and a reduction of broadcast fax fees totaling $77,064.

DIRECT COSTS

         Direct costs are comprised primarily of web site development and
salaries related to the daily updates to rates, fees and other loan program
information in the mortgage lender database. Direct costs increased to $695,356
from $589,499 for 2000 and 1999, respectively. This represents an increase of
$105,857 or 18%. Direct costs as a percentage of revenues improved to 11% from
14% for 2000 and 1999, respectively. The increase is primarily due to the
addition of web masters to accommodate the increased business in web site
development.

SELLING AND MARKETING

         Marketing and selling expenses are comprised of marketing and
advertising costs, trade show costs, sales salaries and related support costs.
Marketing and selling expenses increased to $2,343,677 from $2,071,970 for 2000
and 1999, respectively. This represents an increase of $271,707 or 13%. These
expenses as a percentage of revenues improved to 38% from 49% for 2000 and 1999,
respectively. The increase in cost was due primarily to (i) increased use of
resources for advertising and marketing programs and (ii) an increase in the
tele-marketing sales effort in both the mortgage broker and lender sales areas.

                                       25
<PAGE>

GENERAL AND ADMINISTRATIVE

         General and administrative expenses are comprised of management and
administrative salaries and related costs, outside consulting services,
telecommunications expenses, occupancy costs, and other administrative related
expenses. General and administrative expenses increased to $3,050,505 from
$2,734,526 for 2000 and 1999, respectively. This represents an increase of
$315,979 or 12%. General and administrative expenses as a percentage of revenues
improved to 50% from 64% for 2000 and 1999, respectively. The increase in costs
was due primarily to (i) increases in management, finance and administrative
salaries, (ii) an increase in bad debt expense due to the constricting mortgage
industry, and (iii) an increase in occupancy costs.

COMPENSATION FROM STOCK OPTIONS ISSUED UNDER FAIR MARKET VALUE

         During the first quarter of 2000, certain long-time employees exercised
stock options in consideration for nonrecourse promissory notes. Under APB
Opinion No. 25, the issuance of stock options under such notes is in essence a
new granting of options. By issuing nonrecourse notes, we extended the original
terms of the fixed award, creating a new measurement date. As such, additional
compensation cost is recognized to the extent that the intrinsic value of the
new award exceeds the original intrinsic value of the original award. During the
second quarter of 2000, the Company also modified the exercise price of certain
fixed stock option awards, which resulted in the awards being accounted for as
variable stock option awards. As such, the remeasurement of variable stock
option awards resulted in a reduction of expense during the second quarter of
2000. There were no adjustments during the last six months of 2000.

         Compensation from stock options issued below fair market value
decreased to $101,580 from $2,190,989 for 2000 and 1999, respectively. For the
three months ended March 31, 2000, we recorded compensation expense of $181,260
for the difference between the original intrinsic value and the intrinsic value
of the new award. For the three months ended June 30, 2000, the remeasurement of
variable stock option awards resulted in a reduction to expense totaling
$79,680.

RESEARCH AND DEVELOPMENT

         Research and development expenses are comprised primarily of
engineering salaries and related costs. Research and development expenses
increased to $577,550 from $300,738 for 2000 and 1999, respectively. This
represents an increase of $276,812 or 92%. The increase is primarily due to our
increased efforts to (i) develop the business-to-business strategy through our
LoanCAT (ASP) projects for supporting online wholesale origination and
fulfillment services and (ii) improvements to the infrastructure LION's database
and web sites. These efforts will continue during all of 2001.

DEPRECIATION AND AMORTIZATION

         Depreciation and amortization expenses increased to $516,214 from
$241,351 for 2000 and 1999, respectively. This represents an increase of
$274,863 or 114%. Depreciation and amortization expenses were 8% and 6% of
revenues for 2000 and 1999, respectively. The increase of $274,863 was due
primarily to the (i) purchase of telecommunications equipment and computer
hardware, (ii) capitalization of internally developed software needed to expand
and improve our telecommunications and computer systems infrastructure and (iii)

                                       26
<PAGE>

the amortization of goodwill. Goodwill totaling $940,918 related to the IMark
acquisition of assets contributed $167,919 of amortization expense for 2000
compared to $66,127 in 1999.

INTEREST EXPENSE

         Interest expense decreased to $148,032 from $173,267 for 2000 and 1999,
respectively. Interest expense is comprised primarily of (i) amortization of
loan fees and interest related to the line of credit for 2000 and (ii) interest
on convertible debentures and amortization of loan fees and interest related to
the line of credit in 1999. All applicable debt accrued interest at rates
ranging from 10% to 12%.

INTEREST INCOME

         Interest income decreased to $21,696 from $48,857 for 2000 and 1999,
respectively. The decrease is primarily due to those individuals who exercised
stock options through "nonrecourse" promissory notes and subsequently electing
not to pay the next installment of quarterly interest thereby walking away from
the notes.

LIQUIDITY AND CAPITAL RESOURCES

         We are continuing to implement our business plan which includes
enhancing our existing core of products and services to mortgage brokers and
lenders along with the creation of new products and services scheduled for
launch during each quarter of 2001. In addition, we intend to continue the
development of key strategic alliances both in and outside of the industry as
part of our growth strategy.

         We anticipate attaining positive cash flow from operations during the
first quarter of 2001. Sustained quarterly profitability is also anticipated
beginning the second quarter of 2001.

         The Board of Directors approved an equity private placement during the
first quarter of 2001. Proceeds will be for working capital and to strengthen
our financial condition. We anticipate initial proceeds from this financing of
approximately $600,000 will be received during March and April of 2001. Plans
are in process to raise additional capital later in 2001 to fund our growth
plans over the next two to three years. The amount and source of funding is yet
to be determined.

         Management believes these plans provide for continuance of operations
through January 1, 2002. However, there can be no assurance that we will be able
to obtain sufficient additional financing or be successful in our future
operation.

         During 2000, we used net cash of $710,171 in our operating activities
compared to the use of $995,417 for operations in 1999. The net use of cash in
operating activities for 2000 was primarily attributable to (i) research and
development in internal software for automated underwriting and wholesale
origination and fulfillment services (LoanCAT), (ii) a focus on delivering our
core business, (iii) occupancy and related costs for future growth and (iv)
primarily during the second quarter, the pay down of accounts payable.


                                       27
<PAGE>

         During 2000, we used net cash of $258,836 for our investing activities
which was primarily for the capitalized portion of our software development
costs related to our LoanCAT projects (developing solutions for online wholesale
origination and fulfillment services for lenders). In the prior year, we used
net cash in investing activities totaling $833,914 which was primarily for the
acquisition of equipment and capitalized software development costs related to
automated underwriting and to expand our Seattle, Spokane and Denver operations.

         Net cash proceeds from financing activities during 2000 were $717,612.
During 2000, we paid off a related party payable totaling $60,500 and our line
of credit totaling $587,550. Proceeds received from financing activities were
primarily the result of the exercise of warrants for $472,232 during the first
quarter of 2000 and the issuance of preferred stock on May 1, 2000 in the amount
of $807,000 (net of approximately $93,000 in issue costs). For the same period
in the prior year, net cash proceeds from financing activities totaling
$1,631,213 were primarily from the exercise of warrants totaling $943,401 and
draws on our line of credit totaling $587,550.


ITEM 7.  FINANCIAL STATEMENTS

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

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


























                                       28
<PAGE>

               Report of Independent Certified Public Accountants
               --------------------------------------------------


Board of Directors and Stockholders
LION, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheets of LION, Inc. and
Subsidiary as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LION, Inc. and
Subsidiary as of December 31, 2000 and 1999, and the consolidated results of
their operations and their consolidated cash flows for each of the two years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.


/s/  Grant Thornton LLP
Portland, Oregon
February 14, 2001






















                                       29
<PAGE>
                            LION, Inc. and Subsidiary
                           CONSOLIDATED BALANCE SHEETS
                                  December 31,

                                     ASSETS
<TABLE><CAPTION>
                                                                            2000              1999
                                                                        ------------      ------------
<S>                                                                     <C>               <C>
CURRENT ASSETS
    Cash and cash equivalents                                           $    117,254      $    368,649
    Accounts receivable, less allowance for doubtful accounts
       of $82,390 and $148,179 in 2000 and 1999, respectively                457,705           380,547
    Prepaid expenses and other                                                92,615           236,584
                                                                        ------------      ------------
         Total current assets                                                667,574           985,780

PROPERTY AND EQUIPMENT, net                                                  861,847           981,530

OTHER ASSETS
    Goodwill - net                                                           706,873           500,674
    Other assets                                                              45,377            37,177
                                                                        ------------      ------------
                                                                        $  2,281,671      $  2,505,161
                                                                        ============      ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Line of credit                                                      $       --        $    587,550
    Accounts payable                                                         236,836           434,922
    Accrued liabilities                                                      381,087           415,152
    Deferred revenue                                                         305,100           289,930
    Related party payables                                                      --              60,500
                                                                        ------------      ------------
         Total current liabilities                                           923,023         1,788,054


COMMITMENTS                                                                     --                --

STOCKHOLDERS' EQUITY
    Preferred stock, par value $.001 per share;
       authorized 5,000,000 shares; liquidation value $900,000                 1,500              --
    Common stock - authorized, 50,000,000 shares of $.001 par value           32,665            31,416
    Additional contributed capital                                        12,804,073        11,187,120
    Notes receivable from stockholders                                      (969,375)       (1,289,063)
    Accumulated deficit                                                  (10,510,215)       (9,212,366)
                                                                        ------------      ------------
                                                                           1,358,648           717,107
                                                                        ------------      ------------
                                                                        $  2,281,671      $  2,505,161
                                                                        ============      ============
</TABLE>



The accompanying notes are an integral part of these statements.

                                       30
<PAGE>
                            LION, Inc. and Subsidiary
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             Year ended December 31,


<TABLE><CAPTION>
                                                                           2000              1999
                                                                       ------------      ------------
<S>                                                                    <C>               <C>
Revenues                                                               $  6,115,316      $  4,241,277

Expenses
    Direct costs                                                            695,356           589,499
    Selling and marketing                                                 2,343,677         2,071,970
    General and administrative                                            3,050,505         2,734,526
    Compensation from stock options issued below fair market value          101,580         2,190,989
    Research and development                                                577,550           300,738
    Depreciation and amortization                                           516,214           241,351
                                                                       ------------      ------------
                                                                          7,284,882         8,129,073
                                                                       ------------      ------------

         Operating loss                                                  (1,169,566)       (3,887,796)

Other income (expense)
    Interest expense                                                       (148,032)         (173,267)
    Interest income                                                          21,696            48,857
    Other (expense) income                                                   (1,947)           15,055
                                                                       ------------      ------------
         NET LOSS                                                      $ (1,297,849)     $ (3,997,151)
                                                                       ============      ============
Loss per common share - basic and diluted                              $       (.04)     $       (.15)
                                                                       ============      ============
</TABLE>





















The accompanying notes are an integral part of these statements.

                                       31
<PAGE>
                            LION, Inc. and Subsidiary
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                     Years ended December 31, 2000 and 1999



<TABLE><CAPTION>
                                                                                                Notes
                                  Common stock           Preferred Stock       Additional     receivable
                              ---------------------   ---------------------    contributed       from      Accumulated
                                Shares      Amount      Shares      Amount       capital     stockholders    deficit        Total
                              ----------   --------   ----------   --------    -----------   -----------   -----------   -----------
<S>                           <C>          <C>        <C>          <C>         <C>           <C>           <C>           <C>
Balance at January 1, 1999    24,671,355   $ 24,671         --     $   --      $ 5,879,970   $  (207,812)  $(5,215,215)  $   481,614
Issuance of common stock
  in conjunction with
  exercise of warrants         1,957,611      1,958         --         --          941,443          --            --         943,401
Issuance of common stock
  in conjunction with
  exercise of stock options    4,317,500      4,318         --         --        1,142,883    (1,081,251)         --          65,950
Issuance of warrants for
  services received                 --         --           --         --           60,955          --            --          60,955
Issuance of warrants for
  financing costs                   --         --           --         --          134,000          --            --         134,000
Issuance of stock options
  for consulting services
  received                          --         --           --         --           55,960          --            --          55,960
Issuance of stock options
  to employees under fair
  market value                      --         --           --         --        2,190,989          --            --       2,190,989
Issuance of common stock
  for conversion of
  debentures                     116,214        116         --         --          181,272          --            --         181,388
Issuance of common stock
  in conjunction with
  purchase of IMark              352,942        353         --         --          599,648          --            --         600,001
Net loss for the year               --         --           --         --             --            --      (3,997,151)  (3,997,151)
                              ----------   --------   ----------   --------    -----------   -----------   -----------   -----------
Balance at December 31, 1999  31,415,622   $ 31,416         --     $   --      $11,187,120   $(1,289,063)  $(9,212,366)  $   717,107
</TABLE>















The accompanying notes are an integral part of these statements.

                                       32
<PAGE>
                            LION, Inc. and Subsidiary
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                     Years ended December 31, 2000 and 1999


<TABLE><CAPTION>
                                                                                                Notes
                                  Common stock           Preferred Stock       Additional     receivable
                              ---------------------   ---------------------    contributed       from      Accumulated
                                Shares      Amount      Shares      Amount       capital     stockholders    deficit        Total
                              ----------   --------   ----------   --------    -----------   -----------   -----------   -----------
<S>                           <C>          <C>        <C>          <C>         <C>           <C>           <C>           <C>
Balance at December 31, 1999  31,415,622   $ 31,416         --     $   --      $11,187,120   $(1,289,063)  $(9,212,366)  $   717,107
Issuance of common stock in
  conjunction with exercise
  of warrants                    980,964        981         --         --          471,251          --            --         472,232
Issuance of common stock in
  conjunction with exercise
  of stock options               544,167        544         --         --          329,639      (309,375)                     20,808
Issuance of warrants for
  services received                 --         --           --         --          129,940          --            --         129,940
Issuance of Preferred Stock
  in conjunction with
  financing                         --         --      1,500,000      1,500        743,090          --            --         744,590
Issuance of warrants as
  finders fee for financing         --         --           --         --           62,410          --            --          62,410
Issuance of stock options
  for consulting services
  received                          --         --           --         --           23,713          --            --          23,713
Issuance of stock options
  to employees under fair
  market value                      --         --           --         --          101,580          --            --         101,580
Common stock returned for
  cancellation of notes
  receivable                    (860,000)      (860)        --         --         (618,203)      619,063          --            --
Payment of notes receivable         --                                                --          10,000          --          10,000
Issuance of common stock in
  conjunction with purchase
  of IMark                       584,558        584         --         --          373,533          --            --         374,117
Net loss for the year               --         --           --         --             --            --      (1,297,849)  (1,297,849)
                              ----------   --------   ----------   --------    -----------   -----------   -----------   -----------
Balance at December 31, 2000  32,665,311   $ 32,665    1,500,000   $  1,500    $12,804,073   $  (969,375) $(10,510,215)  $ 1,358,648
                              ==========   ========   ==========   ========    ===========   ===========   ===========   ===========
</TABLE>




The accompanying notes are an integral part of these statements.







                                       33
<PAGE>
                            LION, Inc. and Subsidiary
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             Year ended December 31,
<TABLE><CAPTION>
                                                                    2000              1999
                                                                ------------      ------------
<S>                                                             <C>               <C>
Cash flows from operating activities
   Net loss                                                     $ (1,297,849)     $ (3,997,151)
   Adjustments to reconcile net loss to net cash used
      in operating activities
         Depreciation and amortization                               516,214           241,351
         Write off of software development costs                      56,200              --
         Interest earned on notes receivable                          10,584           (33,242)
         Interest expense on convertible debentures                     --              96,356
         Warrants issued for services received                       129,940            60,955
         Warrants issued for financing costs                         115,500            44,667
         Common stock and stock options issued for
             services received                                        23,713            55,960
         Compensation expense on stock options issued
             under fair market value                                 101,580         2,190,989
         Changes in assets and liabilities, net of
             effect of purchase of IMark, Inc.
               Accounts receivable                                   (77,158)         (180,608)
               Prepaid expenses and other                            (37,738)          (89,517)
               Accrued liabilities                                   (60,041)          136,456
               Accounts payable                                     (198,086)          384,236
               Deferred revenue                                       15,170           131,308
               Other assets                                           (8,200)          (37,177)
                                                                ------------      ------------
                  Net cash used in operating activities             (710,171)         (995,417)

Cash flows from investing activities
   Capitalized software development costs                           (223,894)         (371,503)
   Cash received for purchase of assets with common stock               --              26,866
   Purchase of property and equipment                                (34,942)         (489,277)
                                                                ------------      ------------
                  Net cash used in investing activities             (258,836)         (833,914)

Cash flows from financing activities
   (Payments on) proceeds from  related party payables               (60,500)           34,312
   (Payments on) proceeds from line of credit, net                  (587,550)          587,550
   Proceeds from notes receivable                                     65,622              --
   Proceeds from issuance of common stock and exercise
      of stock options                                                20,808            65,950
   Net proceeds from issuance of preferred stock                     807,000              --
   Proceeds from exercise of warrants                                472,232           943,401
                                                                ------------      ------------
                  Net cash provided by financing activities          717,612         1,631,213
                                                                ------------      ------------
Net (decrease) increase in cash and cash equivalents                (251,395)         (198,118)

Cash and cash equivalents at beginning of period                     368,649           566,767
                                                                ------------      ------------
Cash and cash equivalents at end of period                      $    117,254      $    368,649
                                                                ============      ============

Supplemental cash flow information and non-cash investing and financing activities
   See note N
</TABLE>
The accompanying notes are an integral part of these statements.

                                       34
<PAGE>
                            LION, Inc. and Subsidiary
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999


NOTE A - SUMMARY OF ACCOUNTING POLICIES

LION, Inc., formerly Plenum Communications, Inc., and its subsidiary,
LionInc.com, (collectively, the Company), are Washington corporations. Effective
December 31, 2000, LION, Inc. moved its state of domicile from Minnesota to
Washington. Effective January 1, 2001, LION, Inc. and LionInc.com were merged
into one company in the State of Washington. LION, Inc., dba LionInc.com,
provides its subscribers; principally mortgage brokers and agents, electronic
access to a database of mortgage offerings by a multitude of lenders throughout
the United States.

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

1.       Principles of Consolidation
         ---------------------------
The financial statements include the accounts of the Company and its
wholly-owned subsidiary. All significant intercompany balances and transactions
have been eliminated.

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

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

4.       Property and Equipment
         ----------------------
Property and equipment are stated at cost less accumulated depreciation and
amortization. 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.


                                       35
<PAGE>
                            LION, Inc. and Subsidiary
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999


NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued


5.       Capitalized Software Development Costs
         --------------------------------------
The Company capitalized software development costs, intended for internal use,
totaling $249,870 and $420,503 for the years ending December 31, 2000 and 1999,
respectively. These costs are included in computer software in property and
equipment and are amortized over a period of three years.

6.       Goodwill
         --------
Goodwill represents the excess cost of acquiring the assets of IMark, LLC over
the fair value of net assets acquired at the date of acquisition, which is
amortized using a straight-line method over five years. The Company periodically
reviews goodwill to assess recoverability. Impairment is recognized in operating
results if expected future operating undiscounted cash flows of the acquired
assets is less than the carrying value of the goodwill. Accumulated amortization
totaled $234,046 and $66,127 at December 31, 2000 and 1999, respectively.

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

8.       Fair Value of Financial Instruments
         -----------------------------------
In accordance with the requirements of Statement of Financial Accounting
Standards No. 107 - "Disclosure About Fair Value of Financial Instruments", the
following methods and assumptions were used to estimate the fair value of each
class of financial instruments.


         o  Line of Credit - The carrying amount approximates fair value because
            of their short-term nature.

         o  Related Party Payables - It was not practicable to estimate the fair
            value due to the specific nature of the payables and debentures.

9.       Loss Per Common Share
         ---------------------
Loss per share is based on the average number of shares outstanding during each
period. The weighted average number of common shares outstanding was 32,871,000
and 27,084,016 for the years ended December 31, 2000 and 1999, respectively. The
computation for loss per common share assuming dilution for the years ended
December 31, 2000 and 1999 was anti-dilutive; and therefore, is not included.


                                       36
<PAGE>
                            LION, Inc. and Subsidiary
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued


10.      Advertising Costs
         -----------------
Advertising costs are expensed as incurred. Advertising expense was
approximately $234,300 and $144,500 for the years ended December 31, 2000 and
1999, respectively.

11.      Research and Development Costs
         ------------------------------
All expenditures for research and development costs are expensed in the year
incurred.


NOTE B - BUSINESS COMBINATIONS

On May 17, 1999, the Company exchanged 352,942 shares of its common stock (the
LION shares) valued at approximately $600,000 for substantially all of the
assets of IMark, LLC ("IMark), including its mortgage industry Internet sites,
and assumed certain liabilities and obligations. The transaction was accounted
for under the purchase method of accounting. Net tangible assets purchased from
IMark totaled $64,782. The excess purchase price over the fair value of tangible
assets purchased from IMark totaled $566,801 and was allocated to goodwill. The
Company incurred $31,582 in acquisition costs which were comprised primarily of
legal and other professional fees.

The following table reflects the pro forma consolidated results of operations of
the acquisition of the IMark assets as if it had occurred at the beginning of
1999.

         Revenues                          $   4,482,943
         Net loss                          $  (3,953,908)
         Loss per common share             $        (.15)

In conjunction with the purchase, it was agreed that if on the date one year
from the date of closing (May 17, 2000), the average market price of the LION
shares was less than $600,000, the Company, at its discretion, will make up the
difference by either a payment of cash or through the issuance of additional
shares of the Company's common stock. As the average market price of the shares
issued was less than $600,000 at May 17, 2000, an additional 584,558 shares were
issued at $.64 per share. The additional consideration totaling $374,117 was
recorded as an increase to goodwill and is being amortized over the remaining
estimated life.

NOTE C - MANAGEMENT PLANS

The Company is continuing to implement its business plan which includes
enhancing its existing core of products and services to mortgage brokers and
lenders along with the creation of new products and services scheduled for
launch during each quarter of 2001. In addition, the Company intends to continue
the development of key strategic alliances both in and outside of the industry
as part of its growth strategy.

                                       37
<PAGE>
                            LION, Inc. and Subsidiary
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999

NOTE C - MANAGEMENT PLANS - Continued

The Company anticipates attaining positive cash flow from operations during the
first quarter of 2001. Sustained quarterly profitability is also anticipated
beginning the second quarter of 2001.

The Board of Directors has approved an equity private placement, consisting of
common stock and warrants, to accredited investors during the first quarter of
2001. Proceeds will be used for working capital and to strengthen the Company's
financial condition. The Company anticipates initial proceeds from this
financing of approximately $600,000 will be received during March and April of
2001. Additional funding, potentially as much as $1.6 million, could come from
the subsequent exercise of the warrants, which expire in 2004. Plans are in
process to raise additional capital later in 2001 to fund the Company's growth
over the next two to three years. The amount and source of funding is yet to be
determined.

Management believes these plans provide for continuance of operations through
January 1, 2002. However, there can be no assurance that the Company will be
able to obtain sufficient additional financing or be successful in its future
operation.


NOTE D - PREPAID EXPENSES AND OTHER

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

                                               2000             1999
                                           ------------     ------------
         Deferred financing costs          $       --       $    115,500
         Prepaid expenses                        84,485           69,490
         Other receivables                        8,130           51,594
                                           ------------     ------------
                                           $     92,615     $    236,584
                                           ============     ============

NOTE E - PROPERTY AND EQUIPMENT

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

                                               2000             1999
                                           ------------     ------------
         Computer equipment                $    467,953     $    661,266
         Computer software                      771,867          584,316
         Equipment                              237,617          246,316
         Leasehold improvements                  37,714           37,714
                                           ------------     ------------
                                              1,515,151        1,529,612
         Less accumulated depreciation
         and amortization                       653,304          548,082
                                           ------------     ------------
                                           $    861,847     $    981,530
                                           ============     ============

                                       38
<PAGE>
                            LION, Inc. and Subsidiary
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999

NOTE F - ACCRUED LIABILITIES

Accrued liabilities consist of the following as of December 31:

                                                 2000             1999
                                             ------------     ------------
         Salaries                            $    139,689     $    153,380
         Payroll taxes                             63,405           86,793
         Vacation                                  86,007           69,100
         Accrued software costs capitalized        25,976           49,000
         Other                                     66,010           56,879
                                             ------------     ------------
                                             $    381,087     $    415,152
                                             ============     ============

NOTE G - LINE OF CREDIT

At December 31, 1999 the Company had a line of credit with a bank collateralized
by accounts receivable, computer software and equipment. The line of credit
expired and was paid in full in September 2000. A director and a shareholder of
the Company guaranteed the line of credit.

In conjunction with obtaining the line of credit, the Company issued 280,000
warrants to purchase common stock at $1.06 per share. The Company amortized the
fair value of the warrants totaling $134,000 over the term of the line of
credit. Deferred financing costs of approximately $115,500 related to the
warrants and other fees is recorded in prepaid expenses and other in the
consolidated financial statements at December 31, 1999.

NOTE H - RELATED PARTY PAYABLES

On December 30, 1999, the Company entered into a promissory note agreement with
a related party for $60,500, including interest at 12% per annum. The promissory
note and accrued interest were paid in May 2000.

NOTE I - INCOME TAXES

The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, "Accounting for Income Taxes".

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

                                               2000             1999
                                           ------------     ------------
         Tax benefit at statutory rate     $   (441,269)    $ (1,359,031)
         Non-deductible expenses                 62,388           33,358
         Other                                  (14,528)         (16,607)
         Increase in valuation allowance        393,409        1,342,280
                                           ------------     ------------
         Total                             $       --       $       --
                                           ============     ============


                                       39
<PAGE>
                            LION, Inc. and Subsidiary
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999

NOTE I - INCOME TAXES - Continued

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

                                               2000             1999
                                           ------------     ------------
Deferred tax asset:
   Depreciation                            $      1,199     $       --
   Liabilities not timely paid                   28,732           22,474
   Allowance for doubtful accounts               28,013           50,381
   Stock options and warrants issued to
     consultants for services                    52,242           39,751
   Stock options issued to employees
     under fair value                            34,543          744,936
   Net operating loss carryforward            2,918,846        1,816,925
                                           ------------     ------------
                                              3,063,575        2,674,467
Deferred tax liability:
   Depreciation                                    --             (4,301)

Valuation allowance                          (3,063,575)      (2,670,166)
                                           ------------     ------------
                                           $       --       $       --
                                           ============     ============

The Company has established a valuation allowance of $3,063,575 and $2,670,166
as of December 31, 2000 and 1999, respectively, due to the uncertainty of future
realization of the deferred tax assets. The valuation allowance was increased by
$393,409 and $1,342,280 during the years ended December 31, 2000 and 1999,
respectively based upon management's estimate of the realizability of the net
deferred tax assets. At December 31, 2000, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $8,585,000
available to offset future income which expire in 2004 through 2020. Utilization
of these carryforwards are dependent on future taxable income and could further
be limited due to a change of control in the Company's ownership as defined by
the Internal Revenue Code 382.

NOTE J - COMMITMENTS

The Company conducts a portion of its operations in leased facilities classified
as operating leases. The following is a schedule by years of approximate minimum
rental payments, excluding sublease income, under such operating leases, which
expire at various dates through September 2004.

         Year ending December 31,
                2001                       $    320,000
                2002                            493,100
                2003                            504,900
                2004                            327,400
                                           ------------
         Total minimum payments required   $  1,645,400
                                           ============

The leases provide for payment of taxes and other expenses by the Company. Rent
expense for leased facilities totaled approximately $426,000 and $239,860 for
the years ended December 31, 2000 and 1999, respectively.

                                       40
<PAGE>
                            LION, Inc. and Subsidiary
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999



NOTE K - WARRANTS

The Company had the following warrants outstanding to purchase common shares as
of December 31:
<TABLE><CAPTION>
                                                                                        2000                 1999
                                                                                     -----------          -----------
   <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 $0.25, expiring through 2000                                                --                  73,000

   Warrants issued in conjunction with the Private Placement whereby one warrant
      entitles the holder to purchase one share of common stock at an exercise
      price of $0.50, expiring through 2000                                                --               3,794,741

   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 $0.63, expiring through 2001                                               50,000               50,000

   Warrants issued in conjunction with the Private Placement whereby one warrant
      entitles the holder to purchase one share of common stock at an exercise
      price of $1.06, expiring through 2001                                              280,000              280,000

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

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

   Warrants issued for legal services related to financing whereby one warrant
      entitles the holder to purchase one share of common stock at an exercise
      price of $.78, expiring through 2003                                               200,000                 --
                                                                                     -----------          -----------
        Total                                                                            685,000            4,247,741
                                                                                     ===========          ===========
</TABLE>









                                       41
<PAGE>
                            LION, Inc. and Subsidiary
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999


NOTE L - STOCK OPTIONS

The Company has a stock option plan accounted for under APB Opinion No. 25 and
related Interpretations. The plan allows the Company to grant options to
employees for up to 50,000 shares of common stock per employee. Options
currently outstanding vest over a two to five-year period. Stock options are
exercisable at not less than the market value of the Company's common stock on
the date of grant. Accordingly, no compensation cost has been recognized for
stock options granted. Had compensation cost for the plan been determined based
on the fair value of the options at the grant dates consistent with the method
required by Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), the Company's net loss would have been
increased to the pro forma amounts indicated below for the years ended December
31.

During 2000 and 1999, certain officers and employees exercised stock options in
consideration for nonrecourse promissory notes. Under APB Opinion No. 25, the
issuance of stock options under such notes is in essence a new granting of
options. By issuing nonrecourse notes, the Company extended the original terms
of the fixed award, creating a new measurement date. As such, additional
compensation cost is recognized to the extent that the intrinsic value of the
new award exceeds the original intrinsic value of the original award. For the
year ended December 31, 2000 and 1999, the Company recorded compensation expense
of $101,580 and $2,190,989, respectively, for the difference between the
original intrinsic value and the intrinsic value of the new award. In
conjunction with the Company issuing the notes, the officers and employees also
exercised their option to purchase the Company's common stock. As a result, the
shares are reflected as issued and outstanding, however, the shares are held by
the Company as collateral on the notes. The Company recorded notes receivable
from shareholders totaling $309,375 and $1,081,251 during 2000 and 1999,
respectively, for the exercise of these stock options.

The Company has notes receivable from stockholders totaling $969,375 and
$1,289,063 at December 31, 2000 and 1999, respectively, resulting from the
exercise of stock options. During 2000, notes receivable of $619,063 were
canceled and the related shares totaling 860,000 were retired due to non-payment
of accrued interest.

Promissory notes totaling $728,750 bear interest at 10% per annum with accrued
interest to be paid quarterly until the notes are paid in full. These notes are
due on or before April 1, 2001. Notes totaling $240,625 as of December 31, 2000
plus accrued interest are due at maturity. The maturity date is July 1, 2001.

Subsequent to December 31, 2000, notes totaling $728,750 were canceled and the
related shares totaling 2,915,000 were retired due to non-payment of interest.
As accrued interest was fully reserved at December 31, 2000, there will be no
effect to net income in 2001.





                                       42
<PAGE>
                            LION, Inc. and Subsidiary
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999


NOTE L - STOCK OPTIONS - Continued

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 2000: expected volatility ranging from 105.32% to 144.60%; risk free
interest rate ranging from 5.00% to 6.82%; expected lives ranging from 2 to 10
years; and, a zero percent dividend yield. The following weighted average
assumptions were used for grants in fiscal year 1999: expected volatility
ranging from 75.70% to 83.97%; risk free interest rate of 6.50%; expected lives
ranging from 2 to 5 years; and, a zero percent dividend yield


                                        2000            1999
                                    ------------    ------------
Net loss:
   As reported                      $ (1,297,849)   $ (3,997,151)
   Pro forma                        $ (2,001,603)   $ (4,090,943)

Net loss per common share:
   As reported                      $       (.04)   $       (.15)
   Pro forma                        $       (.06)   $       (.15)



A summary of the Company's stock option plan's activity is as follows:
<TABLE><CAPTION>
                                                 2000                          1999
                                      --------------------------    --------------------------
                                                      Weighted                      Weighted
                                                       average                       average
                                                      exercise                      exercise
       Stock options                     Shares         price          Shares         price
----------------------------------    -----------    -----------    -----------    -----------
<S>                                   <C>            <C>            <C>            <C>
Outstanding at beginning of year        5,182,500    $      1.04      7,127,500    $       .44
Granted                                 2,213,875            .63      2,662,500           1.37
Forfeited or exercised                 (3,518,125)           .94     (4,607,500)           .32
                                      -----------    -----------    -----------    -----------

Outstanding at end of year              3,878,250    $       .89      5,182,500    $      1.04
                                      ===========    ===========    ===========    ===========

Options exercisable at end of year      1,310,712    $       .81      2,172,865    $       .69
                                      ===========    ===========    ===========    ===========
Weighted-average fair value of
 options granted during the year                     $       .49                   $       .94
                                                     ===========                   ===========
</TABLE>


                                       43
<PAGE>
                            LION, Inc. and Subsidiary
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999



NOTE L - STOCK OPTIONS - continued

The following is a summary of stock options outstanding at December 31, 2000:


                                Options Outstanding
                  ------------------------------------------------
                                 Weighted-average       Number of
                     Number         remaining            options
Exercise price    outstanding    contractual life      exercisable
--------------    -----------    ----------------      -----------
$ .17 - $ .25         475,000           .47 years          108,125
$ .26 - $ .50         262,000           .28 years           95,375
$ .51 - $ .75         727,500          1.85 years          395,613
$ .76 - $1.00       1,533,750          3.69 years          577,537
$1.01 - $2.00         880,000          3.32 years          134,063


NOTE M - ISSUANCE OF SERIES A PREFERRED STOCK

On April 27, 2000, the Company filed a Certificate of Designation with the State
of Minnesota providing for the designation of a series of preferred stock to be
named "Series A Preferred Stock," consisting of 4,782,608 shares for financing
of up to $3,000,000. On May 1, 2000, the Company received $900,000 during "the
first closing" on the issuance of 1.5 million shares of Series A Preferred
Stock. Issue costs totaled approximately $93,000. The Preferred Stock is not
redeemable and one share of Preferred Stock can be converted at the option of
the holder at any time after the date of issuance into one share of Common
Stock. The holder of each share of Series A Preferred Stock has the right to one
vote for each share of Common Stock into which such Preferred Stock could then
be converted. The remaining unissued shares of Series A Preferred Stock totaling
3,282,608 shares may be issued based on a schedule covering 180 days beginning
April 28, 2000. On October 28, 2000, the subscribers' right to purchase these
remaining unissued shares of Series A Preferred Stock expired. The proceeds from
the sale of the Series A Preferred Stock were used to payoff certain Company
obligations, enhance core products, and support future Company initiatives.














                                       44
<PAGE>
                            LION, Inc. and Subsidiary
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999




NOTE N - 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>
                                                                            2000          1999
                                                                         ----------    ----------
<S>                                                                      <C>           <C>
Supplemental disclosure of cash flow information:
   Cash paid during the year for interest                                $  146,450    $   17,437

Non-cash investing and financing activities
   Exercise of stock options by note receivable                          $  309,375    $1,081,251
   Common stock retired for cancellation of notes receivable             $  619,063    $     --
   Debentures converted to common stock                                  $     --      $  181,388
   Issuance of warrants as finders fee for financing                     $   62,410    $     --
   Capitalized software costs incurred through accrued liability         $   25,976    $   49,000
   Purchase of assets with common stock                                  $  374,117    $  600,001
   Issuance of warrants for financing costs deferred                     $     --      $   89,333
</TABLE>

NOTE O - RETIREMENT PLAN

The Company has adopted a salary deferral retirement plan, or 401(k) plan in
April 2000. The plan covers all employees who meet the plan's eligibility
requirements. The Company can make discretionary contributions to the plan. No
contributions were made by the Company for the year ended December 31, 2000.
















                                       45
<PAGE>

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

         None.

                                    PART III

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

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

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

         DIRECTORS:
         John A. McMillan (1)              69         Chairman
         J.C. (Tuck) Marshall (1)          54         Director
         Kurt Springman  (2) (3)           40         Director
         Jacob L. Smith  (2) (3)           61         Director
         Sam Ringer                        40         Director

         EXECUTIVE OFFICERS:
         John A. McMillan                  69         CEO
         David Stedman                     52         President
         Chuck Aikens                      29         COO
         Steve Thomson                     48         CFO, Corporate Secretary
         June Bachman                      33         CTO
         Ed Hallda                         34         CSO

         (1)  Member of the Executive Committee
         (2)  Member of the Audit Committee
         (3)  Member of the Compensation Committee

         Following is a discussion of the business background of each director
and executive officer. All directors were elected to a one-year term at the 2000
Annual Meeting. Sam Ringer is a full-time employee of the Company. The other
directors devote only such time as may be necessary to our business and affairs.

         JOHN A. MCMILLAN joined our company as a director in January 1999, and
has been CEO since October 1999 and Chairman of the Board since February 2000.
He is also a member of the Executive Committee. Mr. McMillan is a Director and
member of the Executive Committee of the Board of Directors for Nordstrom, Inc.
Mr. McMillan has been associated with Nordstrom for 40 years and has served as a
member of the office of chief executive officer since 1971. Mr. McMillan's
business and civic affiliations include sitting on the Board of Directors for
Vision Youth (Chairman), Follet Company, Seattle YMCA, Seattle Foundation, ZION
Preparatory Academy Capitol Campaign (Chairman), Crista Ministries, World
Concern, Urban Enterprise Council (Chairman), Bob Walsh Enterprises, Global
Partnerships, Catholic Fund, and Seattle Pacific University.

         J.C. (TUCK) MARSHALL joined our company as a director in July 1999 and
is a member of the Executive Committee. 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

                                       46
<PAGE>
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. Mr. Marshall is
currently 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, and NAMB
Legislative Chairman in 1998. As president of NAMB, Mr. Marshall developed
contacts at all levels of congress and state governments through his lobbying
efforts. Mr. Marshall 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.

         KURT SPRINGMAN has been a director since 1997. Mr. Springman is
currently the Strategic Alliance Manager for NetIQ Corporation, with
responsibility for the development and maintenance of technical and marketing
alliances with Microsoft, Citrix and other technology companies. From 1999 to
2000, Mr. Springman was the Market Manager for Attachmate, responsible for the
strategic marketing of the EXTRA! line of mainframe terminal emulation products.
From 1996 to 1999, Mr. Springman was Compaq Computer Corporation's (formerly
Digital Equipment Corporation) Senior Marketing Consultant for the Enterprise
Solution Center for Windows in Bellevue, WA. From 1991 to 1996, he was the
principal owner and CEO of Prestige Events, Inc., a firm specializing in high
tech event marketing. Customers of Prestige included major names like Microsoft,
Intel, Digital, and Paul Allen Group. From 1985 to 1991, he served with Merrill
Lynch Securities and JP Morgan in New York as an Associate Officer where he was
involved in creating and trading jumbo mortgage pools and derivative products,
and structuring real estate and corporate financings. From 1983 to 1986, Mr.
Springman was a CPA with Peat Marwick - KMPG in Denver, Colorado. He was an
elected Council member of the City of Bellevue (term 1996-1999), and is well
known in the Washington Software Alliance. Mr. Springman received an MS degree
in accounting from the University of Denver in 1983, and an MBA in Finance from
New York University in 1987. He is a Microsoft Certified Professional, a Compaq
Accredited Systems Engineer and a Citrix Certified Administrator.

         JACOB L. SMITH has been a director since June 1998. Mr. Smith, an
attorney with Smith Kosanke & Wright, has practiced business law in Lynden,
Washington for the last thirty-five years. Mr. Smith received a B.S. degree in
Chemical Engineering from the University of Washington in 1962. He received a
J.D. law degree from Willamette University Law School in Salem Oregon in 1965.

         SAM RINGER co-founded our company and has been a director since 1989.
He has served as President of LionInc.com from 1997 to March 2000 and during the
period from 1991 through 1995. From February 1999 to March 2000 he also served
as Chief Executive Officer of LionInc.com. He was co-architect and author of the
LionInc.com 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, Sam served for two years as a
mortgage broker at Mornet Mortgage, a Seattle mortgage brokerage firm.

         DAVID STEDMAN, President of LION as of January 2001, joined LionInc.com
in May 1999 as Vice President of Marketing & Sales. In January 2000, Mr. Stedman
was promoted to COO of LionInc.com and has been its President since October
2000. 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. Most recently Mr.
Stedman was a Vice President/Director of Marketing for Safeco Properties, a real
estate development subsidiary of Safeco Insurance. Prior to Safeco Properties,
Mr. Stedman held a number of positions with advertising agencies both here in
the Northwest and in Alaska. Along with winning a variety of national and local
advertising awards, Mr. Stedman has been a guest speaker for a design class at
the University of Washington and has presented to a variety of business
organizations.

                                       47
<PAGE>

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

         STEVE THOMSON, CFO of LION as of January 2001, joined LionInc.com in
March 1998 as its Controller. From 1995 to 1998, Mr. Thomson worked as a
consultant with a number of high tech and Internet related companies including
Sierra Online, Inc. and N2H2, Inc. From 1988 to 1995, Mr. Thomson served as
Controller and Division Manager with Vanier, a $130 million subsidiary of
American Business Products. From 1979 to 1986, Mr. Thomson was in public
accounting with Price 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.

         JUNE BACHMAN, Chief Technology Officer since January 2001, is
responsible for LION's internal technology infrastructure, internal business
systems, web application development of hosted products and services, and client
contract fulfillment. Ms. Bachman initially joined the Company in June 2000 as
the Director of Project Management; where she directed activities related to
product information and development, contract fulfillment and organizational
processes and systems. Ms. Bachman spent her first six months at LION
introducing strong project management methodologies while building the Project
Management Office. Ms. Bachman spent the previous twelve years cultivating a
blend of technical and managerial expertise. As a high tech managerial
consultant and organizational theorist, her experience has been applied in the
non-profit, public and private sectors alike; with such organizations as Boeing,
Washington State Attorney General's Office and Tidemark Solutions (dot.com). Ms.
Bachman's technical expertise is web application development built upon a strong
relational database foundation. Ms. Bachman's accomplishments include successful
implementation of customized database solutions for local government clients,
repeatedly turning around software implementations gone wrong and the creation
of the operational structure for a division of consumer protection. A graduate
of the University of Puget Sound, Ms. Bachman holds a degree in Politics and
Government (legal emphasis). Her postgraduate work in Business Administration
(MBA) and Public Administration (MPA) was conducted at the University of
Colorado, Colorado Springs, and she will be completing her Masters of Science in
Project Management (technology emphasis) in Spring 2001.

         ED HALLDA, Chief Strategy Officer since February 2001, joined
LionInc.com as Director of Internet Services in February 1997, assuming the
position of Vice President of Engineering in January 1999. He is currently
responsible for leading product vision, strategic business development and
expansion into new markets. Prior to his current position, Mr. Hallda was
responsible for technology initiatives while managing LION's 24/7 ASP and
Internet infrastructure. During this time, he drove the development of
LionInc.com's lender ASP initiative, LoanCAT; established a strong relationship
with Fannie Mae which culminated in the addition of Automated Underwriting to
our Marketplace, and guided the transition of mortgage professionals to
e-commerce technologies through the creation of over five hundred web sites.
Prior to LionInc.com, Mr. Hallda was a technology consultant for several high
tech companies including Keystroke.com and the Naval Undersea Warfare Center.
Mr. Hallda received his education from the U.S. Navy in Nuclear and Electrical
Engineering, later studying Liberal Arts at Olympic College.


                                       48
<PAGE>

BOARD OF DIRECTORS

         Our board of directors is composed of five members. Each director
currently serves until the next annual meeting of stockholders or until his
successor is duly elected and qualified. At each annual meeting of stockholders,
the directors' successors will be elected to serve until the next annual meeting
of stockholders. In addition, 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 Executive Committee, Audit Committee and the Compensation Committee. There
is no standing nominating committee. The Executive Committee, established in
February 1999, consists of 2 members. The Executive Committee exercises all
powers of the Board in the management of the Company between meetings of the
Board, to the maximum extent permitted by law, except those functions assigned
to specific committees or reserved to the Board by the bylaws of the Company.
Messrs. McMillan and Marshall serve on the Executive Committee.

         The Audit Committee, established in May 1998, is responsible for
reviewing the results and scope of audits and other services provided by the
Company's independent auditors, and the fees for related services performed
during the year. The Audit Committee also recommends to the Board of Directors
the firm to be appointed as independent auditors. The audit committee will
generally meet with and consider suggestions from members of management and our
internal accounting personnel, as well as our independent accountants,
concerning our financial operations. The functions of the Audit Committee were
expanded during 2001 and include the following responsibilities:

         o    develop a written charter to govern Audit Committee functions;
         o    review the audit committee charter at least annually and recommend
              any changes to our board of directors;
         o    review our annual financial statements and any other relevant
              reports or other financial information, including the regular
              internal financial reports prepared by management;
         o    discuss audited financial statements with management;
         o    recommend to the board of directors the selection of the
              independent accountants and approve the fees and other
              compensation to be paid to the independent accountants;
         o    review the performance of the independent accountants and approve
              any proposed discharge of the independent accountants when
              circumstances warrant;
         o    discussing with the independent auditors specific auditing
              standards;
         o    review and discuss with the accountants all significant
              relationships the accountants have with us to determine the
              accountants' independence;
         o    following completion of the annual audit, review separately with
              the independent accountants, the internal auditing department, if
              any, and management any significant difficulties encountered
              during the course of the audit;
         o    draft a statement as to whether, based on its review and its
              discussions, it recommends to the Board of Directors that the
              audited financial statements be included in our annual report; and
              evaluate whether its members are "independent" and disclose
              information to the Company regarding any director on the audit
              committee who is not "independent."

         The Compensation Committee, established in October 1998, makes
recommendations concerning retirement and benefit plans and salaries and
incentive compensation of executive personnel and employees of, and consultants
to, the Company. The Compensation Committee also administers the Company's 1998
Stock Option Plan, including the approval of grants under the plan to our
employees, consultants and
                                       49
<PAGE>

directors. Messrs. Springman and Smith currently serve as members of the
Compensation and Audit Committees.

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

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

         Based upon a review of the copies of the Section 16(a) reports
furnished to us, or written representations from one or more of these persons
that no annual Form 5 reports were required to be filed by them for the 2000
fiscal year, we believe that there has been compliance with all Section 16(a)
filing requirements applicable to our officers, directors and ten-percent
beneficial owners; except that Billy Anders failed to file three monthly reports
covering four transactions and failed to include one transaction on his Form 5,
previously filed, but did report the four transactions late on a Form 4 and
filed a late amended Form 5 for the omitted transaction; Sam Ringer failed to
file two monthly reports covering five transactions, but did report these
transactions late on a Form 4; Jack McMillan filed one monthly report late,
failed to file a monthly report covering one transaction, however filed that
transaction on his year-end Form 5, and failed to include four transactions on a
Form 5, previously filed, however reported these transactions late on an amended
Form 5; Tuck Marshall failed to file a monthly report covering one transaction,
but did report the transaction on his year-end Form 5; Kurt Springman filed one
monthly report late and failed to file a monthly report covering one
transaction, but did report the transaction on his year-end Form 5; Joe Ringer
failed to file a monthly report covering one transaction, but did report the
transaction on his year-end Form 5 that was filed late; Jacob Smith failed to
file a monthly report covering one transaction, but did report the transaction
on his year-end Form 5; Allen Ringer failed to file eight monthly reports
covering twelve transactions, but did report the transactions on his year-end
Form 5.












                                       50
<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, 2000,
1999 and 1998 by our Chief Executive Officer and the other most highly
compensated executive officer serving during the year ended December 31, 2000

                           Summary Compensation Table*
                           ---------------------------
<TABLE><CAPTION>
                                                                  Long-Term
                                   Annual Compensation           Compensation
                               ----------------------------    ------------------
                                                                        Securities
                                                                        Underlying
                                                                Stock    Options/     All Other
Name and Principal Position    Year     Salary       Other     Awards    Warrants    Compensation
---------------------------    ----    --------    --------    ------    --------    ------------
<S>                            <C>     <C>         <C>         <C>       <C>         <C>
John A. McMillan               2000        --          --         --       30,000           --
   CEO and CFO                 1999        --      $ 16,250       --      440,000           --

Allen Ringer                   2000    $ 46,848        --         --          --     $     60,000(1)
   President                   1999    $ 59,552    $132,150       --          --            --
                               1998    $ 60,000        --         --          --            --
</TABLE>
-------------------
(*)  Columns in the Summary Compensation Table that were not relevant to the
compensation paid to the Named Executive Officers were omitted.

(1)  Represents amounts payable to Mr. Ringer in 2000 and 2001 pursuant to a
separation agreement.


OPTION GRANTS LAST FISCAL YEAR.

         The following table sets forth information regarding options granted to
our executive officers during 2000. No other executive officers received option
grants in the last fiscal year.
<TABLE><CAPTION>
                                                  Percent of
                                   Number of     total stock
                                   securities      options
                                   underlying     granted to     Exercise or
                                 stock options   employees in     base price    Expiration
Name and Principal Position         granted      fiscal year        ($/Sh)         date
---------------------------         -------      -----------       -------      ---------
<S>                                 <C>          <C>               <C>          <C>
John A. McMillan, CEO and CFO        15,000          .7%           $  0.94        2/18/02
                                     15,000          .7%           $  0.17       11/28/02
</TABLE>



                                       51
<PAGE>
         During the year ended December 31, 2000, we granted employees options
to purchase shares of our common stock. Options vest ratably each quarterly over
a forty-eight month period. The options have a five- or ten- year term, but are
subject to earlier termination in connection with termination of employment or
upon the optionee's death or disability.

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

         The following table provides information with respect to stock options
exercised by our executive officers during the fiscal year ended December 31,
2000 and unexercised options or warrants held as of December 31, 2000. No stock
appreciation rights were exercised during 2000 or were outstanding at December
31, 2000.
<TABLE><CAPTION>
                                                       Number of Securities              Value of Unexercised
                            Shares                    Underlying Unexercised                 In-the-Money
                           Acquired                      Options/Warrants                   Options/Warrants
                             on         Value          at Fiscal Year-End (#)             at Fiscal Year-End ($)
                           Exercise    Realized    -----------------------------     -----------------------------
   Name                      (#)         ($)       Exercisable     Unexercisable     Exercisable     Unexercisable
   ----                    -------     -------     -----------     -------------     -----------     -------------
<S>                        <C>         <C>         <C>             <C>               <C>             <C>
John A. McMillan,
CEO and CFO
   Options                    --          --           230,000           100,000           --                --
   Warrants                   --          --           140,000             --              --                --

Allen Ringer, President
   Warrants                107,000     $53,500           --                --              --                --
</TABLE>

STOCK OPTION PLAN

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

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

         The discretionary option grant program will be administered by the
Board of Directors or a committee of two or more members of the Board. Plan
administrators have sole authority to prescribe the form, content and status of
options to be granted, select the eligible recipients, determine the timing of
option grants, determine the number of shares subject to each grant, the
exercise price, vesting schedule, and
                                       52
<PAGE>
term for which any option will remain outstanding. The Board of Directors have
the authority to correct any defect, supply any omission or reconcile any
inconsistency in the Plan, determine the terms and restrictions on all
restricted option awards granted under the Plan, and in general, to construe and
interpret any provision of the 1998 Plan or of any option granted thereunder.
The administration of the automatic option grant program will be self-executing
in accordance with the provisions of the 1998 Plan.

         The exercise price for outstanding option grants under the 1998 Plan
may be paid in cash or, upon approval of the Plan administrators, in shares of
common stock valued at fair market value on the exercise date. The option may
also be exercised through a same-day cashless exercise program or a reduction in
the amount of any Company liability to the optionee. In addition, the Plan
administrator may provide financial assistance to one or more optionees in the
exercise of their outstanding options by allowing the individuals to deliver a
full-recourse, interest-bearing promissory note in payment of the exercise price
and any associated withholding taxes incurred in connection with the exercise.

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

         Under the 1998 Plan, no stock option can be granted for a period longer
than ten years or for a period longer than five years for ISOs granted to
optionees possessing more than 10% of the total combined voting power of all
classes of stock of the Company. Following the effective date of any
registration of the Company's securities under the Exchange Act, the per share
exercise price for any option granted may not be less than the fair market value
of the Company's securities on the grant date. Unless extended by the Plan
administrators until a date not later than the expiration date of the option,
the right to exercise an option terminates thirty days after the termination of
an optionee's employment, contractual or director relationship with the Company.
If the optionee dies or is disabled, the option will remain exercisable for a
period of one year after the termination of employment or relationship with the
Company.

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

         As of December 31, 2000, the Company had granted options to purchase an
aggregate of 14,291,375 shares of common stock (before reversion of 5,148,958
underlying shares due to stock option expirations and forfeitures), of which
3,878,250 underlying shares were outstanding at December 31, 2000. Of the
options granted, 4,895,000 of underlying shares were issued to our directors, of
which 600,000 were outstanding at December 31, 2000.

COMPENSATION OF DIRECTORS

         Tuck Marshall, Executive Committee member, receives $3,500 per month
for assisting LION on a regular basis with key strategic alliances. Billy Anders
received payments during 2000 for consulting and other services provided LION.

                                       53
<PAGE>

See "Certain Relationships and Related Transactions." We provide no cash
compensation to any of our directors for serving on our board of directors or
for attendance of meetings of committees of the board of directors. Non-employee
directors are reimbursed for reasonable travel and other out-of-pocket expenses
incurred in connection with attendance at meetings of the board of directors and
committees of the board of directors. Employee directors are eligible to receive
option grants and direct stock issuances under our 1998 Stock Option Plan.
Non-employee directors receive as an initial retainer options to purchase 50,000
shares of common stock, exercisable at not less than the fair market value of
the Company's common stock on the day of grant. Thereafter, under our 1998 Stock
Plan, non-employee directors receive automatic option grants each year to
purchase 15,000 shares of common stock upon their reelection at the annual
meeting of shareholders.

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

         The following table sets forth certain information that has been
provided to the Company regarding the beneficial ownership as of December 31,
2000 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:
John A. McMillan                         644,300  (4)        1.9%
J.C. (Tuck) Marshall                     117,750  (5)         *
Kurt Springman                           144,600  (6)         *
Jacob L. Smith                            37,500  (7)         *
Sam Ringer                             1,377,086  (8)        4.0%

OTHER BENEFICIAL OWNERS:
Allen C. Ringer                        1,094,365  (9)        3.2%
Joe Ringer                             1,425,967 (10)        4.2%
ICM Asset Management, Inc.             1,789,000 (11)        5.2%

All directors and executive
officers as a group (10 persons)       3,412,555 (12)        9.7%

*  Less than one percent.

(1) Except as noted below, the business address of the directors and executive
officers is 2201 Lind Avenue SW, Suite 200, Renton, WA 98055.

(2) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
or warrants held by that person that are exercisable within 60 days of December
31, 2000 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 34,165,311 voting shares
outstanding as of December 31, 2000, consisting of 32,665,311 shares of common
stock and 1,500,000 shares of Series A Convertible Preferred Stock. The Series A
Convertible Preferred Stock held by the person or group noted in the footnotes
to this table is convertible into an equivalent number of shares of common
stock.
                                       54
<PAGE>

(4) Includes 230,000 shares underlying stock options and 140,000 shares
underlying warrants granted but not yet exercised. The address of Mr. McMillan
is 500 Pine Street, Seattle, WA 98101.

(5) Includes 116,750 shares underlying stock options not yet exercised. The
address of Mr. Marshall is 7601 W. 191st Street, Tinley Park, IL 60477.

(6) Includes 30,000 shares underlying stock options not yet exercised.

(7) Includes 30,000 shares underlying stock options granted but not yet
exercised. The address of Mr. Smith is 3800 Ft. Bellingham Rd., Bellingham, WA
98225.

(8) Adjusted to give effect to the forfeiture by Mr. Ringer of 1,000,000 shares
of common stock on January 1, 2001, which had secured the payment to LION of a
promissory note. The shares were subsequently cancelled and retired by LION.

(9) Adjusted to give effect to the forfeiture by Mr. Ringer of 915,000 shares of
common stock on January 1, 2001, which had secured payment to LION of a
promissory note. The shares were subsequently cancelled and retired by LION. The
address of Mr. Ringer is 1620 East Houston, Suite 800, Spokane, WA 99217.

(10) Adjusted to give effect to the forfeiture by Mr. Ringer of 1,000,000 shares
of common stock on January 1, 2001, which had secured payment to LION of a
promissory note. The shares were subsequently cancelled and retired by LION. The
address of Mr. Ringer is 1620 East Houston, Suite 800, Spokane, WA 99217.

(11) ICM Asset Management, Inc. is deemed the beneficial owner of the 1,500,000
voting shares of Series A Preferred Stock and 289,000 shares of common stock
owned by Koyah Leverage Partners LP, Koyah Partners LP and Jim Simmons because
of its power to vote and dispose of those shares. The address of ICM Asset
Management, Inc. is 601 W. Main Ave., Suite 600, Spokane, WA 99201.

(12) Includes 5 employees who became executive officers effective January 1,
2001 due to the merger of the parent and subsidiary companies. Also, includes
924,319 shares underlying stock options and 140,000 shares underlying warrants
granted but not yet exercised by certain directors and executive officers.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company received marketing and sales consulting services from Billy
Anders, Sr., a Director of the Company until November 28, 2000. Mr. Anders was
paid cash fees for these services totaling $72,000 and $11,435 for the years
ended December 31, 1999 and 2000, respectively. In addition, Mr. Anders assisted
in finding an investor for the Company's private placement on April 28, 2000 for
its Series A Preferred Stock. Mr. Anders received a fee of $63,000 for this
along with warrants to purchase the Company's common stock totaling 105,000
shares at $.60 per share.

         During September 1998, the Company sold 62,500 shares of common stock
to Mr. Billy Anders at a purchase price of $.50 and 125,000 shares of common
stock at a purchase price of $1.00 in connection with the exercise of
outstanding options. The aggregate purchase price of $156,250 was payable by a
nonrecourse promissory note with principal balance, together with interest at
the rate of 10% per annum, due on or before March 1, 2000. The 187,500 shares of
common stock purchased by the promissory note were pledged to the Company as

                                       55
<PAGE>
collateral until the note was paid in full. On March 1, 2000, Mr. Anders
defaulted on payment of the promissory note, and the 187,500 forfeited shares of
common stock were retired and cancelled.

         On December 30, 1999, the Company entered into a promissory note
agreement with Mr. Sam Ringer, a Director and employee of the Company, for
$60,500, including interest at 12% per annum. The promissory note and accrued
interest were paid in May 2000. During October 1999, we sold 1,000,000 shares of
common stock to Mr. Sam Ringer at a purchase price of $.25 per share in
connection with the exercise of outstanding options. The aggregate purchase
price of $250,000 was payable by a nonrecourse promissory note with principal
balance due on or before April 1, 2001, together with interest at the rate of
10% per annum payable quarterly. The shares of common stock purchased by the
promissory note were pledged to LION as collateral until the note was paid in
full. On January 1, 2001, Mr. Ringer defaulted on payment of the quarterly
interest, and the 1,000,000 forfeited shares of common stock were retired and
cancelled by LION.

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

         Effective November 10, 2000, Allen Ringer resigned as President and as
a director of LION. The terms of the separation agreement provided for a
transition period through January 2001, during which Mr. Ringer's customary
administrative duties would be transferred to LION. Mr. Ringer agreed to not
compete with LION's business for a period of two (2) years and not seek or
accept any nomination for a seat on the Board of Directors of the Company for a
period of one (1) year. Mr. Ringer will receive severance payments totaling
$60,000, to be paid incrementally from November 2000 to April 2001.

         Howard Baskin, a shareholder of the Company and past "managing
executive" of the Company's subsidiary, LionInc.com, provided various strategic
alliance consulting services resulting in cash compensation of $88,312 and
$1,350 for the years ended December 31, 1999 and 2000, respectively.

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 and Plan of Merger (change of domicile from Minnesota to
         Washington) (2)
3.1      Restated Articles of Incorporation of Plenum Communications, Inc., a
         Minnesota corporation (1)
3.2      By-laws of Plenum Communications, Inc., a Minnesota corporation (1)
3.3      Articles of Incorporation of LION, Inc. (3)
3.4      By-laws of LION, Inc., a Washington corporation (4)
4.1      Specimen Common Stock Certificate (1)

                                       56
<PAGE>


10.1     1998 Stock Option Plan with Form of Option Agreement (1)
10.2     Consulting Agreement with H. Baskin (1)
10.3     Premises Lease Agreement (Mercer Island property) dated as of
         May 1, 1998 (1)
10.4     Premises Lease Agreement (Spokane property) dated as of
         January 1, 1999 (5)
10.5     Premises Lease Agreement (Renton Property) dated as of June 30, 1999
         (lease term beginning September 13, 1999 (6)
10.6     Office Suite Lease Agreement (Denver Property) dated as of September
         19, 2000 (7)
21.1     LION, Inc., a Washington corporation is the sole subsidiary of the
         Company as of 12/31/00 (1)


(1)      Incorporated by reference to the same exhibit number to the Company's
         Registration Statement on Form 10-SB (File No. 0-25159).
(2)      Incorporated by reference to Exhibit A in the Company's Definitive
         Proxy Statement dated October 20, 2000.
(3)      Incorporated by reference to Exhibit B in the Company's Definitive
         Proxy Statement dated October 20, 2000.
(4)      Incorporated by reference to Exhibit C in the Company's Definitive
         Proxy Statement dated October 20, 2000.
(5)      Incorporated by reference to the same exhibit number to the Company's
         Form 10-KSB for the year ended December 31, 1998.
(6)      Incorporated by reference to the same exhibit number to the Company's
         Form 10-QSB for the quarter ended September 30, 1999.
(7)      Incorporated by reference to the same exhibit number to the Company's
         Form 10-QSB for the quarter ended September 30, 2000.


(b)      REPORTS ON FORM 8-K

         No Reports on Form 8-K were filed during the quarter ended
December 31, 2000.






















                                       57
<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
Renton, Washington, on March 30, 2001.

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

                                         By:  /s/ John A. McMillan
                                              ---------------------
                                              John A. McMillan
                                              CEO

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

         Signature                    Title                          Date
         ---------                    -----                          ----
  /s/ John A. McMillan         Chairman of the Board and CEO     March 30, 2001
  /s/ J.C. (Tuck) Marshall     Director                          March 30, 2001
  /s/ Kurt Springman           Director                          March 30, 2001
  /s/ Sam Ringer               Director                          March 30, 2001
  /s/ Jacob L. Smith           Director                          March 30, 2001
  /s/ Steve Thomson            CFO (effective 1/1/01)            March 30, 2001




















                                       58
<PAGE>



                                  EXHIBIT INDEX

2.1      Agreement and Plan of Merger (change of domicile from Minnesota to
         Washington) (2)
3.1      Restated Articles of Incorporation of Plenum Communications, Inc., a
         Minnesota corporation (1)
3.2      By-laws of Plenum Communications, Inc., a Minnesota corporation (1)
3.3      Articles of Incorporation of LION, Inc. (3)
3.4      By-laws of LION, Inc., a Washington corporation (4)
4.1      Specimen Common Stock Certificate (1)
10.1     1998 Stock Option Plan with Form of Option Agreement (1)
10.2     Consulting Agreement with H. Baskin (1)
10.3     Premises Lease Agreement (Mercer Island property) dated as of May 1,
         1998 (1)
10.4     Premises Lease Agreement (Spokane property) dated as of
         January 1, 1999 (5)
10.5     Premises Lease Agreement (Renton Property) dated as of June 30, 1999
         (lease term beginning September 13, 1999 (6)
10.6     Office Suite Lease Agreement (Denver Property) dated as of September
         19, 2000 (7)
21.1     LION, Inc., a Washington corporation is the sole subsidiary of the
         Company as of 12/31/00 (1)


(1)      Incorporated by reference to the same exhibit number to the Company's
         Registration Statement on Form 10-SB (File No. 0-25159).
(2)      Incorporated by reference to Exhibit A in the Company's Definitive
         Proxy Statement dated October 20, 2000.
(3)      Incorporated by reference to Exhibit B in the Company's Definitive
         Proxy Statement dated October 20, 2000.
(4)      Incorporated by reference to Exhibit C in the Company's Definitive
         Proxy Statement dated October 20, 2000.
(5)      Incorporated by reference to the same exhibit number to the Company's
         Form 10-KSB for the year ended December 31, 1998.
(6)      Incorporated by reference to the same exhibit number to the Company's
         Form 10-QSB for the quarter ended September 30, 1999.
(7)      Incorporated by reference to the same exhibit number to the Company's
         Form 10-QSB for the quarter ended September 30, 2000.















                                       59