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

                                  FORM 10 - KSB

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

                   For the fiscal year ended December 31, 2004

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

                  For the transition period from _____ to _____

                         Commission file number 0-25159
                                                -------

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

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

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

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

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

                                      None

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

                         Common Stock - $.001 par value

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

                                       i
<PAGE>

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

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

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

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


                      DOCUMENTS INCORPORATED BY REFERENCE:

         No documents are incorporated by reference.

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

                                       ii
<PAGE>

                                   LION, INC.

                                   FORM 10-KSB

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

                                      INDEX

                                                                            Page

PART I
ITEM 1.       Description of Business                                         1
ITEM 2.       Description of Property                                         9
ITEM 3.       Legal Proceedings                                               9
ITEM 4.       Submission of Matters To a Vote of Security Holders             9

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

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

                                      iii
<PAGE>

                                     PART I

ITEM 1.    DESCRIPTION OF BUSINESS

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

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

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

INDUSTRY INFORMATION

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

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

                                       1
<PAGE>

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

CUSTOMERS, PRODUCTS AND SERVICES

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

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

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

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

                                       2
<PAGE>

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

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

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

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

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

                                       3
<PAGE>

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

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

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

SALES AND MARKETING

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

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

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

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

                                       4
<PAGE>

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

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

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

         REALTOR MARKETING. We provide a free content package for real estate
and related sites. The free content delivers a Mortgage Center with
Mortgage101.com technology with live rates, interactive calculators, an
extensive library, and online applications with the "look and feel" of the real
estate site.

         LISTING WITH SEARCH ENGINES. We have arranged to be listed in all major
"search engines." The URLs of the network of consumer sites appear if the user
enters key words such as "mortgage" or "mortgage interest rates."
Mortgage101.com held positions from 1 to 3 in search engine placement for
keyword search "mortgage" on Google, MSN and Yahoo throughout most of 2004.

RESEARCH AND DEVELOPMENT

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

COMPETITION

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

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

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

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

                                       5
<PAGE>

intensify and increase in the future. Current and new competitors can launch new
sites at a relatively low cost using commercially available software. We expect
to face competition from various e-commerce businesses and other companies
targeting both consumers and businesses, whether or not they focus on our
business model.

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

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

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

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

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

                                       6
<PAGE>

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

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

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

GOVERNMENT REGULATION

         Our mortgage pipeline risk management services are provided by TRMS, a
Commodity Trading Advisor registered with the Commodity Futures Trading
Commission and the National Futures Association. Commodity Trading Advisors are
subject to detailed disclosure, reporting, and recordkeeping requirements. The
U.S. commodity markets are subject to on-going and substantial regulatory
changes, and we cannot predict what statutory, administrative or exchange
imposed restrictions may become applicable to or adversely affect TRMS in the
future. Our other operations are subject to general business regulations and
laws, as well as regulations and laws specifically governing the Internet and
e-commerce. Existing and future laws and regulations may impede the growth of
the Internet or other online services. These regulations and laws may cover
taxation, user privacy, data protection, pricing, content, copyrights,
distribution, electronic contracts and other communications, consumer
protection, the provision of online payment services, broadband Internet access,
and the characteristics and quality of products and services not currently
subject to direct regulation by any government agency, other than regulations
applicable to businesses generally, and there are currently few laws or
regulations directly applicable to access to or commerce on the Internet.
However, it is possible that a number of laws and regulations may be adopted
with respect to the Internet, covering issues such as user privacy, pricing and
characteristics and quality of products and services. There can be no assurance
that the enactment of laws affecting telecommunications will not decrease the
growth of the Internet, which in turn could decrease the demand for our products
and services, increase the cost of doing business, or otherwise have an adverse
effect on our business, operating results or financial condition. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, libel and personal privacy is developing. We cannot predict the
impact, if any, that future regulation or regulatory changes might have on our
business. It is not clear how existing laws governing issues such as property

                                       7
<PAGE>

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

PROPRIETARY RIGHTS

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

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

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

EMPLOYEES

         At December 31, 2004, we had 141 employees of which 131 were full-time.
There are 17 commissioned marketing associates. Our future success will depend,
in part, on our ability to continue to attract, retain and motivate highly
qualified technical and management personnel, particularly highly skilled
technical engineers involved in new product development. From time to time, we
may employ independent consultants or contractors to support our research and
development, marketing, customer service and administrative organizations. Our
employees are not

                                       8
<PAGE>

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

ITEM 2.   DESCRIPTION OF PROPERTY

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

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

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

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

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

ITEM 3.   LEGAL PROCEEDINGS

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

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

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

                                       9
<PAGE>

                                     PART II

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

MARKET INFORMATION

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

       Fiscal Year Ended December 31,            2004                2003
                                          ------------------  ------------------
                                            HIGH      LOW       HIGH      LOW
                                            ----      ---       ----      ---
       First Quarter                       $0.600    $0.200    $0.085    $0.040
       Second Quarter                       0.740     0.420     0.170     0.060
       Third Quarter                        0.610     0.300     0.320     0.090
       Fourth Quarter                       0.550     0.390     0.330     0.120

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

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

DIVIDEND POLICY

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

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

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

                                       10
<PAGE>

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

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

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

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

                                       11
<PAGE>

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

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

BUSINESS ENTERPRISE SEGMENTS

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

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

                                       12
<PAGE>

CONDENSED RESULTS

<TABLE>
<CAPTION>
                                    Three months ended              For the Year Ended
                                       December 31,                    December 31,
                               ----------------------------    ----------------------------
                                   2004            2003            2004            2003
                               ------------    ------------    ------------    ------------

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

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

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

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

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

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

                                       13
<PAGE>

DETAILED RESULTS OF OPERATIONS

REVENUES

<TABLE>
<CAPTION>
                                                            For the year
                               -----------------------------------------------------------------------
                                        2004                    2003                   Change
                               ---------------------    --------------------    ----------------------


     LEADS
     -----
     <S>                       <C>              <C>     <C>             <C>     <C>            <C>
     Mortgage 101              $  1,959,114      13%    $ 2,257,281      28%    $  (298,167)     (13)%

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

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

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

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

LEADS

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

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

LOANS

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

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

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

                                       14
<PAGE>

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

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

CAPITAL MARKETS

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

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

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

                                       15
<PAGE>

OPERATING EXPENSES

<TABLE>
<CAPTION>
                                                 2004                          2003
                                     ----------------------------  ---------------------------
                                                         % of                         % of
                                          Amount        Revenue         Amount       Revenue
                                     ----------------  ----------  ---------------- ----------

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

     Total operating expenses          $  15,075,499      99%       $    7,294,120     90%
                                     ================  ==========  ================ ==========
</TABLE>

DIRECT COSTS

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

SELLING AND MARKETING

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

GENERAL AND ADMINISTRATIVE

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

                                       16
<PAGE>

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

RESEARCH AND DEVELOPMENT

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

DEPRECIATION AND AMORTIZATION

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

INTEREST EXPENSE

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

                                       17
<PAGE>

OTHER INCOME

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

INCOME TAX EXPENSE (BENEFIT)

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

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

EXTRAORDINARY GAIN

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

FINANCIAL POSITION

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

                                       18
<PAGE>

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

                                                          2004          2003
                                                      -----------   -----------
CASH FLOW SUMMARY
Net income before extraordinary items                 $   616,163   $   727,054
Non-cash items                                            776,551       459,033
Changes in working capital                                636,700        40,187
                                                      -----------   -----------
Net cash provided by operating activities               2,029,414     1,226,274
Net cash (used in) provided by investing activities      (454,120)    1,292,762
Net cash provided by (used in) financing activities        59,692       (39,639)
                                                      -----------   -----------
Net increase in cash and cash equivalents               1,634,986     2,479,397
Cash and cash equivalents at beginning of year          2,883,314       403,917
                                                      -----------   -----------
Cash and cash equivalents at end of year              $ 4,518,300   $ 2,883,314
                                                      ===========   ===========

NON-CASH ITEMS

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

WORKING CAPITAL AND OPERATING ACTIVITIES

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

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

                                       19
<PAGE>

INVESTING ACTIVITIES

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

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

FINANCING ACTIVITIES

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

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

AGGREGATE CONTRACTUAL OBLIGATIONS

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

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

                                       20
<PAGE>

2005 PLANS

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

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

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

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

CRITICAL ACCOUNTING POLICIES

         As disclosed in the Notes to the Financial Statements (See Note A), we
have identified various accounting policies as critical to our business
operations and to the understanding of our results of operations. Critical
accounting policies for LION include revenue recognition, accounting for
internally-developed software, accounting for research and development costs,
accounting for legal contingencies, and accounting for income taxes.

                                       21
<PAGE>

FACTORS THAT MAY AFFECT FORWARD-LOOKING STATEMENTS

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

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

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

         Although we currently anticipate that 2005 will be a profitable year,
our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in new and rapidly evolving
markets, including uncertainty of revenues, markets, and profitability. We
cannot assure you that we will be successful in addressing these risks or that
we can be operated profitably, which depends on many factors, including the
success of our marketing program, control of expense levels and the success of
our business activities. Our future operating results will depend on a variety
of factors, including those discussed in the other factors set forth below.

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

         We are substantially dependent on the continued services of our key
personnel, including our officers, engineers and other significant employees.
These individuals have acquired specialized knowledge and skills with respect to
LION. We are continuing to create the redundancies that will reduce the reliance
on these individuals, but have not completed this task and will not for at least
the remainder of 2005. Furthermore, we have not entered into employment
agreements with these significant employees except for our upper management
team. If any of these individuals were to leave LION unexpectedly, we could face
substantial difficulty in hiring qualified successors and could experience a
loss in productivity while any such successor obtains the necessary training and
experience. We provide stock options, which currently serve to retain and
motivate key employees as

                                       22
<PAGE>

they become vested in their initial stock option grants. While management
personnel are typically granted additional stock options, which will usually
vest over a period of four years subsequent to their hire date to provide
additional incentive to remain at LION, the initial option grant is typically
the largest and an employee may be more likely to leave our employ upon
completion of the vesting period for the initial option grant. We expect that we
will need to attract, train, retain and motivate additional technical,
managerial, marketing and customer support personnel. Competition for these
personnel may be intense, particularly for individuals with suitable experience.
We face the risk that if we are unable to attract and integrate new personnel,
or retain and motivate existing personnel, our business will be adversely
affected.

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

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

OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

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

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

                                       23
<PAGE>

cessation in service to subscribers or deter potential subscribers. Although we
intend to constantly update industry-standard security measures, these measures
have been circumvented in the past, and there can be no assurance that measures
we adopt will not be circumvented in the future. We do not carry sufficient
business interruption insurance to compensate us for losses that may occur as a
result of any of these events. Eliminating computer viruses and alleviating
other security problems may require interruptions, delays or cessation of
service to our subscribers, which could have a materially adverse affect on our
business, operating results and financial condition.

ITEM 7.   FINANCIAL STATEMENTS

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

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

                                       24
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors and Stockholders
LION, Inc.

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

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

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




Portland, Oregon
February 25, 2005

                                       25
<PAGE>

                            LION, Inc. and Subsidiary
                                 BALANCE SHEETS
                                  December 31,

<TABLE>
<CAPTION>

                                                        ASSETS

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

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

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

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

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

                                         LIABILITIES AND STOCKHOLDERS' EQUITY

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

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

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

COMMITMENTS AND CONTINGENCIES                                                              --                   --

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

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


The accompanying notes are an integral part of these statements.

                                       26
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                      2004                 2003
                                                                                ----------------     ----------------

<S>                                                                             <C>                  <C>
Revenues                                                                        $    15,191,761      $     8,068,030

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

         Operating income                                                               116,262              773,910

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

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

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

         Net income before extraordinary gain                                           616,163              727,054

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

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

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

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

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

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


The accompanying notes are an integral part of these statements.

                                       27
<PAGE>

                            LION, Inc. and Subsidiary

                        STATEMENT OF STOCKHOLDERS' EQUITY

                     Years ended December 31, 2004 and 2003

<TABLE>
<CAPTION>
                                      Preferred stock                Common stock         Additional
                                ---------------------------   --------------------------  contributed    Accumulated
                                   Shares         Amount         Shares        Amount       capital        deficit         Total
                                ------------   ------------   ------------  ------------  ------------   ------------   ------------

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


The accompanying notes are an integral part of these statements.

                                       28
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                2004             2003
                                                                             -----------      -----------

<S>                                                                          <C>              <C>
Cash flows from operating activities
    Net income before extraordinary gain                                     $   616,163      $   727,054
    Adjustments to reconcile net income before extraordinary gain
       to net cashprovided by operating activities
          Depreciation and amortization                                          575,157          482,947
          Write off of capitalized software development costs                     13,954             --
          Stock options issued to employees and contractors                      279,143           32,721
          Common stock issued in lieu of cash compensation                          --             19,636
          Tax on extraordinary gain                                                 --            (76,271)
          Common stock issued for services received                               60,000             --
          Deferred income tax asset                                             (150,000)            --
          Gain on sale of assets                                                  (1,703)            --
          Changes in assets and liabilities
              Accounts receivable                                              1,073,011         (101,824)
              Other receivables                                                  620,708             --
              Prepaid expenses and other                                           3,975          (11,510)
              Accounts payable                                                   104,508         (410,532)
              Accrued liabilities                                               (496,838)         473,980
              Deferred revenue                                                  (377,096)          90,073
              Other assets                                                      (291,568)            --
                                                                             -----------      -----------
                  Net cash provided by operating activities                    2,029,414        1,226,274

Cash flows from investing activities
    Capitalized software development costs                                      (288,061)        (309,998)
    Net cash received in connection with purchase of assets                         --          1,721,235
    Cash received on purchase of TRMS                                             21,685             --
    Cash received on sale of assets                                                1,805             --
    Purchases of property and equipment                                         (189,549)        (118,475)
                                                                             -----------      -----------
                  Net cash (used in) provided by investing activities           (454,120)       1,292,762

Cash flows from financing activities
    Tax benefit on stock options exercised                                        55,325             --
    Payments on long-term obligations                                           (192,606)         (58,806)
    Proceeds from issuance of common stock and exercise of stock options         196,973           19,167
                                                                             -----------      -----------
                  Net cash provided by (used in) financing activities             59,692          (39,639)
                                                                             -----------      -----------
Net increase in cash and cash equivalents                                      1,634,986        2,479,397
Cash and cash equivalents at beginning of period                               2,883,314          403,917
                                                                             -----------      -----------
Cash and cash equivalents at end of period                                   $ 4,518,300      $ 2,883,314
                                                                             ===========      ===========

Supplemental cash flow information and non-cash investing and
    financing activities - see Note K
</TABLE>


The accompanying notes are an integral part of these statements.

                                       29
<PAGE>

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

NOTE A - SUMMARY OF ACCOUNTING POLICIES

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

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

   1. PRINCIPLES OF CONSOLIDATION

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

   2. CASH AND CASH EQUIVALENTS

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

   3. REVENUE RECOGNITION

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

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

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

                                       30
<PAGE>

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

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

   4. ACCOUNTS RECEIVABLE

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

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

   5. PROPERTY AND EQUIPMENT

   Property and equipment are stated at cost less  accumulated  depreciation and
   amortization.  Maintenance and repairs are expensed as incurred. Depreciation
   and amortization are provided for in amounts sufficient to relate the cost of
   depreciable   assets  to  operations  over  their  estimated  service  lives,
   principally  on a  straight-line  basis.  The estimated  lives in determining
   depreciation are as follows:

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

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

   6. CAPITALIZED SOFTWARE DEVELOPMENT COSTS

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

                                       31
<PAGE>

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

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

   7. GOODWILL

   Statement  of Financial  Accounting  Standards  (SFAS) No. 142,  GOODWILL AND
   OTHER INTANGIBLE ASSETS,  which became effective  beginning in 2002, provides
   that goodwill should not be amortized, but should rather be reviewed at least
   annually to assess  recoverability.  Impairment  is  recognized  in operating
   results if the fair value of goodwill is less than the carrying  value of the
   goodwill.

   8. USE OF ESTIMATES

   In  preparing  the  consolidated  financial  statements  in  conformity  with
   accounting  principles  generally  accepted in the United  States of America,
   management  is required to make  estimates  and  assumptions  that affect the
   reported  amounts of assets and  liabilities,  the  disclosure  of contingent
   assets  and  liabilities  at the date of the  financial  statements,  and the
   reported amounts of revenues and expenses during the reporting period. Actual
   results could differ from those estimates.

   9. INCOME PER COMMON SHARE

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

   10. ADVERTISING COSTS

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

   11. RESEARCH AND DEVELOPMENT COSTS

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

                                       32
<PAGE>

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

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

   12. INCOME TAXES

   The Company accounts for income taxes in accordance with SFAS 109, ACCOUNTING
   FOR  INCOME  TAXES.  The  Company  records  deferred  income  tax  assets and
   liabilities  based upon the  difference  between the financial  statement and
   income tax bases of assets and  liabilities  using enacted  income tax rates.
   Valuation allowances are established when necessary to reduce deferred income
   tax assets to the amount  expected to be realized.  Income tax expense is the
   taxes paid and payable for the period and the change during the period in net
   deferred income tax assets and liabilities.

   13. STOCK ISSUED FOR SERVICES

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

   14. STOCK OPTIONS

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

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

<TABLE>
<CAPTION>
                                                                      2004               2003
                                                                 --------------     --------------
<S>                                                              <C>                <C>
Net income, as reported                                          $      616,163     $    2,754,729
Add: Stock-based employee compensation expense included in
reported net income                                                     279,143             31,699
Deduct:  Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects                                                    (363,101)          (334,487)
                                                                 --------------     --------------
Pro forma net income                                             $      532,205     $    2,451,941
                                                                 ==============     ==============
Net income per share:
    Basic - as reported                                          $          .02     $          .09
    Diluted - as reported                                        $          .02     $          .08
    Basic - pro forma                                            $          .02     $          .08
    Diluted - pro forma                                          $          .01     $          .07
</TABLE>

                                       33
<PAGE>

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

NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued

   15. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

   16. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

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

                                       34
<PAGE>

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

NOTE B - BUSINESS COMBINATIONS

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

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

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

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

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

            Total assets                          3,207,865

     LIABILITIES
     -----------
     Accrued liabilities                             95,391
     Deferred revenue                               121,000
     Accrued payroll obligations                     88,175
     Notes payable                                  303,049
                                                -----------

            Total liabilities                       607,615
                                                -----------

                 Net assets acquired            $ 2,600,250
                                                ===========

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

                                       35
<PAGE>

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

NOTE B - BUSINESS COMBINATIONS - Continued

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

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

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

                                       36
<PAGE>

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

NOTE B - BUSINESS COMBINATIONS - Continued

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

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

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

     LIABILITIES
     -----------
     Accrued liabilities                                           141,072
     Deferred revenue                                              920,654
     Deferred payroll obligation                                   620,708
     Accrued acquisition costs                                     571,419
                                                               -----------
             Total liabilities                                   2,253,853
                                                               -----------
                 Extraordinary gain on acquisition             $ 2,103,946
                                                               ===========

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

                                                        2004           2003
                                                    ------------   ------------

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

                                       37
<PAGE>

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

NOTE C - PROPERTY AND EQUIPMENT

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

                                                           2004          2003
                                                       -----------   -----------

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

                                                       $   931,079   $ 1,025,153
                                                       ===========   ===========

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

NOTE D - ACCRUED LIABILITIES

   Accrued liabilities consist of the following as of December 31:

                                                          2004           2003
                                                       -----------   -----------

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

                                                       $ 1,334,659   $ 1,647,931
                                                       ===========   ===========

                                       38
<PAGE>

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

NOTE E - LONG-TERM OBLIGATIONS

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

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

Capital lease obligations payable in monthly installments of $1,519 at a fixed
   rate of 17.3%; final payments due at various dates through November 2004               --             14,302

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

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

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

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

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

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

                                                                                   $   995,305      $    85,822
                                                                                   ===========      ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                        Capital           Note
    Year ending December 31,            Leases           Payable          Total
---------------------------------     -----------      -----------     -----------
<S>                                   <C>              <C>             <C>
         2005                         $    70,112      $   192,896     $   263,008
         2006                              23,986             --            23,986
         2007                                --            972,209         972,209
                                      -----------      -----------     -----------

Total minimum payments                     94,098        1,165,105       1,259,203

Less amount representing interest          (8,277)            --            (8,277)
                                      -----------      -----------     -----------

Net principal payments                $    85,821      $ 1,165,105     $ 1,250,926
                                      ===========      ===========     ===========
</TABLE>

                                       39
<PAGE>

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

NOTE F - INCOME TAXES

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

<TABLE>
<CAPTION>
                                                                           2004             2003
                                                                       -----------      -----------
  <S>                                                                  <C>              <C>
  Current:
    Federal                                                            $  (150,000)     $    56,826
    State                                                                   57,094           49,184
                                                                       -----------      -----------
          Total                                                        $   (92,906)     $   106,010
                                                                       ===========      ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                           2004             2003
                                                                       -----------      -----------
  <S>                                                                  <C>              <C>
  Tax provision at statutory rate                                      $   177,907      $   999,177
  State income taxes                                                        57,094           49,184
  Non-deductible expenses                                                   16,838            6,425
  Other                                                                     22,446          (19,488)
  Decrease in valuation allowance                                         (367,191)        (929,288)
                                                                       -----------      -----------
       Total                                                           $   (92,906)     $   106,010
                                                                       ===========      ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                           2004             2003
                                                                       -----------      -----------
 <S>                                                                   <C>              <C>
 Deferred tax assets:
     Intangible assets                                                 $    20,751      $    23,851
     Liabilities not timely paid                                           112,442           50,375
     Allowance for doubtful accounts                                        20,930           46,643
     Stock options and warrants issued to consultants for services            --             41,703
     Stock options issued to employees                                     103,011           11,195
     Deferred revenue                                                      119,324          309,282
     Depreciation                                                            8,514             --
     Federal tax credits                                                      --             56,826
     Net operating loss carryforward                                       836,372        1,340,362
                                                                       -----------      -----------
                                                                         1,221,344        1,880,237
 Deferred tax liabilities:
     Depreciation                                                             --             97,856
     Extraordinary gain deferred                                              --            343,846
                                                                       -----------      -----------
                                                                         1,221,344          441,702
 Valuation allowance                                                    (1,071,344)      (1,438,535)
                                                                       -----------      -----------
                                                                       $   150,000      $      --
                                                                       ===========      ===========
</TABLE>

                                       40
<PAGE>

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

NOTE F - INCOME TAXES - Continued

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

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

NOTE G - COMMITMENTS AND CONTINGENCIES

   The Company  conducts a portion of its operations in leased  facilities under
   operating  lease  agreements.  The  following  is  a  schedule  by  years  of
   approximate minimum rental payments under such operating leases, which expire
   at various dates through March 2009.

                  Year ending December 31,

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

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

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

                                       41
<PAGE>

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

NOTE G - COMMITMENTS AND CONTINGENCIES - Continued

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

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

NOTE H - SETTLEMENT OF LEGAL MATTERS

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

NOTE I - WARRANTS

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

<TABLE>
<CAPTION>
                                                                                        2004                2003
                                                                                   --------------     ---------------
   <S>                                                                                       <C>          <C>
   Warrants issued in conjunction with the Private Placement whereby
      one warrantentitles the holder to purchase one share of common
      stock at an exerciseprice of $.40, expiring through March 2004                         --           1,166,667
                                                                                   --------------     ---------------

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

                                       42
<PAGE>

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

NOTE J - STOCK OPTIONS

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

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

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

<TABLE>
<CAPTION>
                                                               2004                                2003
                                                  -------------------------------     --------------------------------
                                                                       Weighted                            Weighted
                                                                       average                             average
                                                                       exercise                            exercise
                 Stock options                        Shares            price            Shares             price
   -------------------------------------------    ---------------    ------------     --------------     -------------

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

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

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

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

                                       43
<PAGE>

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

NOTE J - STOCK OPTIONS - Continued

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

<TABLE>
<CAPTION>
                              Outstanding Options                                            Options Exercisable
  -------------------------------------------------------------------------------    ------------------------------------
                                           Weighted-            Weighted-                                  Weighted-
                                            average        average remaining                                average
    Exercise price          Number           price           contractual life            Number          exercise price
  -------------------    -------------    -------------    ----------------------    --------------    ------------------

    <S>     <C>            <C>               <C>               <C>                     <C>                  <C>
    $ .04 - $  .25         4,909,775         $ 0.18            6.93 years              2,969,793            $ 0.18
    $ .26 - $  .50           225,334         $ 0.38            2.78 years                120,459            $ 0.39
    $ .51 - $  .75           705,000         $ 0.55            4.76 years                180,000            $ 0.58
    $ .76 - $ 1.00           756,250         $ 0.81             .14 years                756,250            $ 0.81
                          -----------                                                 -----------
                           6,596,359                                                   4,026,502
                          ===========                                                 ===========
</TABLE>

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

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

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

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


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

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

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

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

                                       44
<PAGE>

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

NOTE L - RETIREMENT PLAN

   The Company  adopted a salary  deferral  retirement  plan, or 401(k) plan, in
   April 2000.  The plan covers all  employees  who meet the plan's  eligibility
   requirements.  Employees  are eligible if they are at least age 18, they have
   completed  the earlier of 1 year of service or 3  consecutive  full  calendar
   months  of  employment,  their  employment  is not  governed  by  terms  of a
   collective  bargaining  agreement and they are not non-resident aliens who do
   not  receive  earned  income from LION.  The  Company can make  discretionary
   contributions to the plan. No contributions  were made by the Company for the
   years ended December 31, 2004 and 2003.

NOTE M - CONCENTRATION OF CREDIT RISK

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

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

NOTE N - RELATED PARTY TRANSACTIONS

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

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

                                       45
<PAGE>

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

NOTE O - EARNINGS PER SHARE

<TABLE>
<CAPTION>
The following table represents the calculation of earnings per common share - basic:

                                                                                         2004            2003
                                                                                     -----------     -----------

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

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

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

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

                                                                                         2004            2003
                                                                                     -----------     -----------

Net income before extraordinary gain                                                 $   616,163     $   727,054
    Extraordinary gain - net of income tax expense of $76,271                               --         2,027,675
                                                                                     -----------     -----------
     Net income                                                                          616,163       2,754,729

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

                                       46
<PAGE>

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

NOTE P - PREFERRED STOCK

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

NOTE Q - QUARTERLY RESULTS (UNAUDITED)

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

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

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

Fiscal Year Ended
December 31, 2003:

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

                                       47
<PAGE>

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

         None.

ITEM 8A.   CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.

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

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

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

ITEM 8B.   OTHER INFORMATION

ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

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

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

                                       48
<PAGE>

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

                                    PART III

ITEM 9.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

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

           Name                    Age             Position

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

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


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

         Following is a discussion of the business background of each director
and executive officer. All directors were elected to a one-year term at the
Annual Meeting held June 30, 2004. Directors Randall Miles, CEO, and David
Stedman, Co-President, are full-time employees of the Company. The other
directors devote only such time as may be necessary to our business and affairs.
There are no family relationships among any of the directors or executive
officers of the Company.

DIRECTORS:

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

                                       49
<PAGE>

banking and financial services. He served as Managing Director of Investment
Banking at D.A. Davidson & Co. from September 2001 to October 2003. During the
period from June 1996 to September 2001, Mr. Miles was President and CEO of
Advantage Funding Group, Inc, President of NAFCO Funding LLC, President of
Quadrant Investment Bankers, Inc., and Managing Director of CBA Partners LLC and
The Stone Pine Companies. Mr. Miles has served in a senior executive capacity at
both large and mid-sized investment and merchant banks during the course of his
career with particular focus on providing strategic and financial advisory
counsel to public and private companies in many industry sectors that include
software and technology. His transactional experience includes mergers and
acquisitions, public and private capital raising as well as structured finance
expertise. Mr. Miles graduated from the University of Washington in 1979 with a
degree in finance and sits on the board of directors of privately held companies
as well as non-profit charitable organizations.

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

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

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

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

                                       50
<PAGE>

COO from January 2000 and as its President from October 2000 until its merger
with the Company. Mr. Stedman has over 20 years of marketing experience that
includes expertise in market analysis, systems development, strategic and market
planning, identity creation, advertising and public relations. From 1989 to 1999
Mr. Stedman was a Vice President/Director of Marketing for Safeco Properties, a
real estate development subsidiary of Safeco Insurance. Prior to Safeco
Properties, Mr. Stedman held a number of positions with advertising agencies in
the Northwest. Along with winning a variety of national and local advertising
awards, Mr. Stedman has been a guest speaker for a design class at the
University of Washington and has presented to a variety of business
organizations. Mr. Stedman serves on the Board of Directors of a non-profit
charitable organization.

         J.C. (TUCK) MARSHALL has been a director since July 1999. Mr. Marshall
formerly served as President of the National Association of Mortgage Brokers
(NAMB) and is currently the president of J.C. Marshall Financial Services Inc.,
a licensed brokerage of mortgages, real estate, and insurance in Tinley Park,
Illinois. He is a former president of Margo Financial Services LLC, a national
provider of wholesale residential mortgages and a division of Argo FSB. He is a
former president of the Illinois Association of Mortgage Brokers Education
Foundation and a member of the UG/UIG Advisory Board. He was formerly Advisory
Association Member for Chase Mortgage. His past accomplishments also include
president of the Illinois Association of Mortgage Brokers, NAMB Regional broker
of the Year in 1995, NAMB Volunteer of the Year in 1996/1997, NAMB Legislative
Chairman in 1998, and the receipt of the NAMB 2002 Distinguished Service
Industry Award. As President of NAMB, Mr. Marshall developed contacts at all
levels of congress and state governments through his lobbying efforts. He also
developed strong working relationships with the leadership of the national and
state mortgage broker associations along with the nation's leading mortgage
industry companies. Mr. Marshall served as interim President of LionInc.com from
March 2000 to October 2000.

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

OFFICERS:

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

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

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

                                       51
<PAGE>

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

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

SIGNIFICANT EMPLOYEES:

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

INFORMATION REGARDING THE BOARD AND ITS COMMITTEES

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

COMMITTEES OF THE BOARD OF DIRECTORS

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

                                       52
<PAGE>

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

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

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

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

COMPENSATION OF DIRECTORS

         During 2004, non-employee directors received $1,000 cash compensation
for each face-to-face board meeting and no compensation for committee meetings.
Beginning February 2005, non-employee directors will receive a $2,000 cash
compensation for each board meeting and $500 cash compensation for each
committee meeting. Prior to 2004, no cash compensation was provided to directors
serving on the board. Non-employee directors are reimbursed for reasonable
travel and other out-of-pocket expenses incurred in connection with attendance
at meetings of the board of directors and committees of the board of directors.
Employee directors are eligible to receive option grants and direct stock
issuances under our 1998 Stock Option Plan. Non-employee directors receive as an
initial retainer options to purchase 50,000 shares of common stock, exercisable
at not less than

                                       53
<PAGE>

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

CODE OF ETHICS

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

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

         We believe that there has been compliance with all Section 16(a) filing
requirements applicable to our officers, directors and ten-percent beneficial
owners.

                                       54
<PAGE>

ITEM 10.   EXECUTIVE COMPENSATION

         The following summary compensation table indicates the cash and
non-cash compensation earned during the fiscal years ended December 31, 2004,
2003 and 2002 by our Chief Executive Officer and the other most highly
compensated executive officers serving during the year ended December 31, 2004.

<TABLE>
<CAPTION>
                           Summary Compensation Table*
                           ---------------------------
                                                                            Long-Term
                               Annual Compensation                         Compensation
                               -------------------                         ------------
                                                                            Securities
                                                                            Underlying
                                                                             Options/
Name and Principal Position          Year       Salary        Bonus          Warrants
---------------------------          ----       ------        -----        ------------

<S>                                  <C>      <C>           <C>              <C>
Randall D. Miles, CEO (1)            2004     $ 200,000     $  55,000              --
                                     2003     $  12,200           --         1,000,000

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

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

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

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

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

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

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

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

                                       55
<PAGE>

OPTION GRANTS LAST FISCAL YEAR.

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

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

         The following table provides information with respect to stock options
exercised by our named executive officers during the fiscal year ended December
31, 2004 and unexercised options held as of December 31, 2004. No stock
appreciation rights were exercised during 2004 or were outstanding at December
31, 2004.

<TABLE>
<CAPTION>
                                                                                            Value of Unexercised
                                  Shares              Number of Securities Underlying             In-the-Money
                                 Acquired               Unexercised 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>
Randall Miles, CEO
    Options                          --         --         360,117         708,333          $ 104,911       $ 191,250

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

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

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

EMPLOYMENT AGREEMENTS

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

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

                                       56
<PAGE>

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

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

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

         The following table sets forth certain information that has been
provided to the Company regarding the beneficial ownership as of December 31,
2004 of the Company's common stock by (a) each person who is known by the
Company to be a beneficial owner of more than five percent of the outstanding
common stock of the Company, (b) each director of the Company, (c) each of the
executive officers named in the Summary Compensation Table on this Form 10 -
KSB, and (d) all directors and executive officers of the Company as a group.


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

DIRECTORS AND EXECUTIVE OFFICERS:

John A. McMillan                                1,849,882 (4)         4.93%
J.C. (Tuck) Marshall                              567,249 (5)         1.50%
Sam Ringer                                      1,873,920             5.01%
David Stedman                                   1,394,500 (6)         3.64%
Steve Thomson                                   1,351,500 (7)         3.56%
Randall D. Miles                                  385,117 (8)         1.02%
Griffith J. Straw                                 123,200 (9)          *
Tim Newberry                                      328,767 (10)         *
James Russo                                        99,376 (11)         *

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


* Less than one percent.

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

(2) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares

                                       57
<PAGE>

of common stock subject to options or warrants held by that person that are
exercisable within 60 days of December 31, 2004 are deemed outstanding. These
shares, however, are not deemed outstanding for purposes of computing the
ownership of any other person. To our knowledge, except as indicated in the
footnotes to this table and pursuant to applicable community property laws, the
stockholders named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them.

(3) Percentage of beneficial ownership is based upon 37,431,537 voting shares of
common stock outstanding as of December 31, 2004.

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

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

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

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

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

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

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

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

EQUITY COMPENSATION PLAN INFORMATION.

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

<TABLE>
<CAPTION>
                                                     (a)                      (b)                      (c)
                                                                                                    Number of
                                                                                                    securities
                                                                                                  available for
                                                  Number of                                      future issuance
                                              securities to be                                     under equity
                                                 issued upon            Weighted-average        compensation plans
                                                 exercise of           exercise price of            [excluding
                                                 outstanding              outstanding               securities
                                              options, warrants        options, warrants       reflected in column
              Plan category                       and rights               and rights                  (a)]
------------------------------------------   ---------------------    ---------------------    ---------------------
<S>                                                <C>                        <C>                    <C>
Equity compensation plans approved by
security holders (1)                               6,596,359                  $.30                   1,551,308

Equity compensation plans not approved
by security holders                                     --                     --                         --
                                             ---------------------    ---------------------    ---------------------

Total                                              6,596,359                  $.30                   1,551,308
                                             =====================    =====================    =====================
</TABLE>


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

                                       58
<PAGE>

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

                                       59
<PAGE>

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBITS:

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

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

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

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

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

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

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

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

10.9     Employment Agreement - S. Thomson

10.10    Employment Agreement - D. Stedman

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

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

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

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

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

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

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

                                       60
<PAGE>

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

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

23.1     Consent of Grant Thornton LLP.

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

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

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

                                       61
<PAGE>

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

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

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

<TABLE>
<CAPTION>
                        Fee Category                                 2004                2003
----------------------------------------------------------      ---------------     ----------------

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

                                                                $     285,213       $     175,071
                                                                ===============     ================
</TABLE>


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

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

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

                                       62
<PAGE>

                                   SIGNATURES

         In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Seattle, Washington, on March 31, 2005.

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

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

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

          Signature                          Title                     Date
          ---------                          -----                     ----
   /s/ Randall D. Miles         Chairman of the Board and CEO     March 31, 2005
   /s/ John A. McMillan         Director                          March 31, 2005
   /s/ David Stedman            Director and Co-President         March 31, 2005
   /s/ J.C. (Tuck) Marshall     Director                          March 31, 2005
   /s/ Griffith J. Straw        Director                          March 31, 2005
   /s/ Sam Ringer               Director                          March 31, 2005
   /s/ James Russo              Director                          March 31, 2005
   /s/ Steve Thomson            CFO and Principal Accounting      March 31, 2005
                                   Officer

                                       63
<PAGE>

                                  EXHIBIT INDEX

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

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

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

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

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

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

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

10.9     Employment Agreement - S. Thomson

10.10    Employment Agreement - D. Stedman

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

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

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

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

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

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

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

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

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

23.1     Consent of Grant Thornton LLP.

                                       64
<PAGE>

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

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

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

                                       65