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

                                   FORM 10-KSB

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                         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
                           (Issuers telephone number)

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

          Securities registered pursuant to Section 12 (g) of the Act:
                          Common Stock, $.001 par value

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

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

         Issuer's revenues for its most recent fiscal year   $6,010,604
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         The aggregate market value of the voting common stock held by
non-affiliates of the Company as of March 15, 2002 was approximately $2,431,201
based on the closing price for shares of the Company's common stock as reported
by the OTC Bulletin Board for that date. Shares of common stock held by each
officer and director and by each person who owns 10% or more of the outstanding
common stock have been excluded because these people may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for any other purpose.

         On March 15, 2002, approximately 31,075,978 shares of the Company's
common stock were outstanding.


                      DOCUMENTS INCORPORATED BY REFERENCE:

         No documents are incorporated by reference.

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



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                                     PART I

ITEM 1.    DESCRIPTION OF BUSINESS

         IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION OF THE
COMPANY'S BUSINESS CONTAINS FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS
A RESULT OF MANY FACTORS, INCLUDING BUT NOT LIMITED TO, THOSE DISCUSSED IN THE
SECTIONS IN THIS ANNUAL REPORT ON FORM 10-KSB ENTITLED "COMPETITION,"
"PROPRIETARY RIGHTS," "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT
MANAGEMENT'S OPINIONS ONLY AS OF THE DATE OF THIS REPORT. LION, INC. ("LION" OR
THE "COMPANY") UNDERTAKES NO OBLIGATION TO REVISE OR PUBLICLY RELEASE THE
RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS. READERS SHOULD
CAREFULLY REVIEW THE RISK FACTORS DESCRIBED IN THIS DOCUMENT AS WELL AS OTHER
DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE QUARTERLY REPORTS ON FORM 10-QSB TO BE FILED BY THE
COMPANY DURING 2002.

OVERVIEW

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

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

         LION is a leader in online services for connecting mortgage brokers
with consumers, wholesale lenders, and industry vendors. The Company delivers
tools that attract, capture, and service business for the originator. These
tools help them serve their customers through an efficient and powerful online
system that includes web marketing, wholesale lender connectivity, automated
underwriting systems, and industry vendor links.

         With one of the largest interest rate pricing databases, strong
mortgage broker penetration, and extensive consumer reach, LION is positioned to
become a key player in an integrated mortgage network that connects mortgage
brokers, wholesale lenders, and consumers.

INDUSTRY INFORMATION

         According to the Mortgage Bankers Association, loan originations in the
mortgage industry in the U.S. are expected to total approximately $1.3 trillion
in 2002. The industry is still paper intensive, and industry participants still
interact with one another by phone, fax and express mail. However, approximately
60 percent of consumers search for loans online and online originations are
expected to

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reach $335 billion by 2003. Use of the Internet in the mortgage industry is
expected to reduce both processing time and average cost per transaction.

         Below are various terms related to the mortgage industry:

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

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

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

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

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

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

CUSTOMER BASE

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

         MORTGAGE BROKERS. Recent studies by Wholesale Access indicate that
there are approximately 30,000 mortgage brokerage firms in the country
accounting for approximately 55% of residential mortgage loans. The median
mortgage brokerage firm has one office, originates 125 loans, and employs 5 loan
officers which is consistent with earlier findings. There appears to be a total
market of approximately 150,000 mortgage originators within these brokerage
firms.

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

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

         Wholesale lenders do not incur certain staffing costs, since they rely
on brokers to interface with the consumer. Hence, they quote a "wholesale" rate,
which tends to be about 1-1.5 points less than the

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retail rate. This allows the mortgage broker to "mark up" the loan by that
amount as its fee and still compete with the retail lenders. For instance, the
retail rate might be 7% with two points, but the wholesale rate might be 7% with
one point. The mortgage broker shows his client 7% with two points, paying one
point to the lender and keeping one point as their fee.

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

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

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

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

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

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

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

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

         Some lenders deal primarily in conforming loans, but also will offer
programs for loans that meet most of these requirements except for one or two.
For instance, many will offer programs for "jumbo" loans, those that exceed the
maximum loan size for conforming loans (currently $300,700 for single family
residences), and many will accept less rigorous documentation. The lenders
cannot sell these loans to the GSEs. They can either keep these loans in their
own portfolios or sell them to entities other than the GSEs.

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

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

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

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

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SERVICES AND PRODUCTS

         LION has developed one of the largest online marketplaces of consumers,
realtors, mortgage originators, lenders, and vendors by providing product and
service solutions that simplify the origination process. These buyers
(consumers, realtors, and mortgage originators) and sellers (lenders and
vendors) interact to price and select mortgage products and gain approval for
the mortgage transaction.

         LION currently generates revenues through four distinct categories with
a majority of the underlying customer base being comprised of mortgage
brokers/originators, lenders or a combination of both. The categories are
membership, marketing, technology, and transaction fees and are described below.
Any statistical information is as of December 31, 2001.

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

         First, LION Pro consists of LION Loan Search, LoanLink, News Now and
Ratesheets on Demand. Through this product, we provide wholesale mortgage rate,
fee, and program information through our LION Pro information service to nearly
4,600 mortgage brokers nationwide. Lion Loan Search provides the key feature to
this password-protected service by allowing easy access to our extensive lender
database. This database is updated daily, over one hundred participating lenders
in 77 regions in the country. The database is comprised of over 17,000 loan
programs and 17,000,000 pricing variations.

         LION will be launching a series of productivity tools that will improve
the efficiency of the mortgage broker during the origination process. These
improvements are outline below in "INITIATIVE # 1 FOR 2002".

         INITIATIVE # 1 FOR 2002. Enhance the core online services for brokers.
We plan to enhance the core online service for broker originators with a focus
on the broker office (the entire origination team). The office-based approach
will give all team members access to the Company's productivity tools through a
multi-user license. The online origination system will provide a private
database representing all the organization's lenders and vendors, new loan
program search parameters, management tools, and integrated third party software
providing credit decisions and vendor settlement services. The Company will
focus on delivering technology and services to the broker originator that will
streamline their work process, shorten turn around times, and improve their
profitability.

         The second product in the membership category is Mortgage 101,
consisting of hundreds of mortgage information pages, interactive calculators,
live interest rates displayed from LION's Multi-Lender Rate Feed,
prequalification and application tools, and back-end rate and lead management
tools. This service is provided to approximately 2,450 mortgage brokers
nationwide.

         Finally, Free Mortgage Dot Com is a template web site using Mortgage101
technology with the mortgage originators' logo and colors delivered with no set
up fees and free one-year domain name registration. There are over 970 mortgage
brokers using this template web site.

         MARKETING FEES. Marketing fees are generated through LION's marketplace
web sites, LionInc.com and Mortgage101.com. Consumers visiting the
Mortgage101.com web site check live interest rates, use pre-qualification tools,
and submit "1003" applications to LION's network of advertisers. Originator
advertisers pay marketing fees for ad banners, web site promotion, and lead
generation. Originators visit the LionInc.com web site to check daily wholesale
rates, submit loans, and

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access mortgage specific news and content. Wholesale lenders and industry
vendors pay marketing fees for ad banners, web site promotion, and lead
generation. Traffic totaling up to 1 million unique visitors a month is fed by
(i) over 9,000 co-branded electronic mortgage centers that have been established
for realtors, real estate offices, relocation sites, associations, and city
portals, and (ii) 6,000 brokers that have various LION membership services, have
their web sites hosted by LION, or both.

         These unique visitors are converted into business leads which are
distributed to LION originator customers. Through LION's new consumer
initiative, it will develop processes to increase the value of these leads. See
"INITIATIVE # 2 FOR 2002" below.

         INITIATIVE # 2 FOR 2002. Convert consumer traffic into high-value
business generation. A growing number of consumers visit one of LION's consumer
portals, Mortgage101.com, and its branded sites inquiring about loan programs
offered by the Company's large network of originators. These inquiries are
processed through a lead generation system. This system will be improved through
third party credit profiling and advanced filtering and routing logic. Leads
will then be converted from a flat marketing fee, to a variable "per lead"
pricing model. The Company believes there will be strong demand from both broker
and lender originators and the initiative will setup the streamlined process
from consumer rate inquiry to funding.

         TECHNOLOGY FEES. Technology fees are related to (i) mortgage originator
and (ii) wholesale and/or retail lender web site development and hosting. For
the mortgage originator, we provide web site technology, content and design that
includes news, articles, and calculators to deliver valuable information to the
user. These web sites are both template-driven and customer design solutions
that deliver a combination of standard and custom content. For the wholesale
and/or retail lender, LION provides an Application Service Provider (ASP)
solution referred to as LoanCAT. Through this technology, we allow lenders to
provide brokers with web-based tools that facilitate an efficient and fast loan
process. The product features origination applications such as product and
pricing search engines, real-time rate locking capabilities, electronic 1003
manager, loan status monitoring and a broadcast E-mail center.

         For 2002, LION is launching a strategy designed to streamline the
connection between the broker and the lender. See "INITIATIVE # 3 FOR 2002"
below.

         INITIATIVE # 3 FOR 2002. Launch new online management tools for
lenders. The Company plans to offer a new line of web-based management tools for
lenders providing a streamlined connection to the broker originator. These tools
will allow the lender to electronically submit rate pricing, receive rate locks
and application files and manage user accounts, online documents, broker
originator access, and vendor relationships. Most of the necessary technology
was developed in 2001 through the Company's LoanCAT initiative and will be made
available through a low-cost private label solution. Successful implementation
of this strategy will increase lender participation and the strength of the
large lender program and pricing database.

         TRANSACTION FEES. Transaction fees are generated by providing mortgage
brokers the ability to submit electronic home loan applications for automated
underwriting and quickly delivering an underwriting decision to the customer. To
date, this revenue segment has not been a significant part of LION's revenue
base but could be in the future.

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SALES AND MARKETING

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

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

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

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

         At various times, we advertise in these publications. In addition,
senior managers of the Company have contributed articles on Internet usage by
brokers and lenders to trade magazines such as SECONDARY MARKETING EXECUTIVE,
MORTGAGE PRESS and MORTGAGE MATTERS. For additional information on advertising,
see Note A (9) to the Financial Statements.

         PRESS RELEASES AND OTHER PRESS COVERAGE. We issue press releases on
product introductions and changes, upon entering new states with a database, and
upon achieving certain milestones. We also have been the subject of published
reviews of mortgage technology products, quoted in trade journals and been the
subject of articles written about the Company.

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

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

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

         ORIGINATION SOFTWARE VENDOR INTERFACE INTO LION LOAN SEARCH(TM). We are
participating in an agreement with Calyx Software which allows a Calyx user to
open a borrower file and perform a loan search. The interface extracts the
needed information from the borrower file, launches the user's browser and
accesses the LION Loan Search(TM) results page. This provides another

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entry point for the mortgage broker into our site. Similar agreements are being
pursued with other mortgage software vendors.

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

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

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

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

         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.

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

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

RESEARCH AND DEVELOPMENT

         We develop our own proprietary software for providing products and
services to our customers. These efforts are funded through operations and
equity financing. Research and development expense was approximately $267,000
and $578,000 for 2001 and 2000, respectively.

COMPETITION

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

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         We expect to face competition from various e-commerce businesses and
other companies targeting both consumers and businesses, whether or not they
focus on our business model. A small number of companies have developed a
searchable database of wholesale loan programs.

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

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

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

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

         We currently host over 2,000 web sites. This places us as the third
largest provider of Internet sites for mortgage brokers and retail originators.
We have the ability to deliver competitive technology and aggressive advertising
campaigns. In addition, the broker home page product benefits from the market
share resulting from our product and service offerings.

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

         There can be no assurance that we will be able to compete successfully,
that competitors will not develop technologies, products or strategic alliances
and affiliations that make our products less marketable or less useful or
desirable. Furthermore, we may not be able to successfully enhance our

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products and services, develop new products or services or attain lower costs,
when and as we need them. Increased competition, price or other circumstances,
could result in erosion of our market share, and may require price reductions
and increased spending on marketing and product development. Increasing
competition for our products and services could have a material adverse effect
on our business, operating results and financial condition.

GOVERNMENT REGULATION

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

PROPRIETARY RIGHTS

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

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

                                       12
<PAGE>

EMPLOYEES

         At December 31, 2001, we had 77 full-time associates, which included 18
commissioned marketing associates. Our future success will depend, in part, on
our ability to continue to attract, retain and motivate highly qualified
technical and management personnel, particularly highly skilled technical
engineers involved in new product development. From time to time, we may employ
independent consultants or contractors to support our research and development,
marketing, customer service and administrative organizations. Our employees are
not represented by any collective bargaining unit, and we have never experienced
a work stoppage. We believe relations with our employees are good.

RISK FACTORS

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

WE HAVE NO HISTORY OF PROFITS AND OUR FUTURE PROFITABILITY REMAINS UNCERTAIN. IN
ADDITION, FINANCIAL RESULTS FOR ANY PARTICULAR PERIOD WILL NOT PREDICT RESULTS
FOR FUTURE PERIODS.

         We are working toward a goal of sustained profitability and took
several important steps during 2001, including, merging our subsidiary with
LION, reorganizing our senior management team, and consolidating our originator
sales and service operations. While we are developing and initiating three new
"revenue growth" initiatives (focusing on the originator office rather than the
single broker, qualifying leads for brokers and building connectivity between
the lender and the broker) during the first half of 2002, revenues for the year
have remained flat at $6,010,604 and $6,115,316 for 2001 and 2000, respectively.

         We did achieve profitability for the second and third quarters of 2001,
and net income for the year was $41,568 in 2001 compared to a net loss of
$1,243,290 (restated) for 2000. However, we anticipate a loss for the first
quarter and possibly the second quarter of 2002 while we develop and promote our
new products and initiatives and are adversely affected by legal expenses. See
Legal Proceedings. Our prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in new and rapidly
evolving markets, including uncertainty of revenues, markets, profitability and
the need to raise capital to fund our ongoing operations. We cannot assure you
that that we will be successful in addressing these risks or that we can be
operated profitably, which depends on many factors, including the success of our
marketing program, the control of expense levels and the success of our business
activities. Our future operating results will depend on a variety of factors,
including those discussed in the other risk factors set forth below.

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

         Our existing working capital is not sufficient to allow us to execute
our business plan as fast as we would like. We are planning to fund the
development and implementation of our three initiatives for

                                       13
<PAGE>

2002 (focusing on the originator office rather than the single broker,
qualifying leads for brokers and building connectivity between the lender and
the broker) through funds generated from the Company operations. The development
and implementation of our plans at a desired pace will require additional
resources. If we are unable to obtain adequate capital financing through equity
or other financings, we may not be able to successfully implement our short-term
or long-term plans for expansion or to meet our working capital requirements.
However, even if we succeed in our business plans, we may experience rapid
growth requiring additional funds to expand our operations and organization.

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

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

         LION's most critical customer continues to be the mortgage broker.
Mortgage broker fees comprised of memberships, website services, lead generation
and ad banners comprised 79% of our total revenues during 2001 compared to 72%
in 2000. Customer agreements are short-term and renewable. There can be no
assurance that these subscribers will continue to participate in the LION
program, or that we will be able to attract new mortgage brokers at rates
sufficient to maintain a stable or growing revenue base. We cannot assure you
that the market for our products and services will continue to develop as
expected. If the mortgage broker market develops more slowly than expected or
becomes saturated with competitors, or if our products and services do not
continue to achieve market acceptance, our business operating results and
financial conditions may be materially adversely affected.

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

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

         The performance of our web site will continue to be dependent on the
successful operation of the Internet and on certain third parties and services
(such as Internet service providers, Internet backbone providers and Web
browsers). Our Internet services will be designed around certain technology
standards. Current and future success of our services may become subject to
additional industry

                                       14
<PAGE>

standards as Internet commerce rapidly evolves. As a result our business may
incur additional costs of unknown proportions as we are confronted with new
technology standards. In addition, we may not be successful in our efforts to
enhance existing services and to develop, introduce and market new services.
Furthermore, our enhancements and new services may not adequately meet the
requirements of the marketplace and achieve market acceptance. As the Internet
develops, it is possible that incompatibility or lack of appropriate features
could impact our business. In addition, the widespread adoption of new Internet
or telecommunications technologies or standards could require us to make
substantial expenditures to modify or adapt our services. In this case, the new
Internet or telecommunications services or enhancements that we offer could
contain design flaws or other defects. Although we expect to be responsive to
changes in the Internet and technology, we may not be successful in achieving
widespread acceptance of our services before competitors offer services with
speed and performance equal to or greater than ours.

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

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

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

                                       15
<PAGE>

OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

         We have in place comprehensive data tape backup procedures for our
operational and administrative databases. Our replication software provides a
high level of hardware backup for the database by duplicating our database
across several powerful PCs. However, despite protective measures, our
operations could be vulnerable to damage from floods, fire, earthquakes, power
loss, telecommunications failures, break-ins, terrorism, and similar events. In
addition, the majority of our network infrastructure is located in Seattle,
Washington, an area susceptible to earthquakes. The prospect of such unscheduled
interruptions are quite possible in the foreseeable future, and we are unable to
predict either their occurrence, duration or cessation. We do not have multiple
site capacity for all of our services in the event of any such occurrence.

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

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

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

WE ARE ENGAGED IN LITIGATION WITH A FORMER DIRECTOR INVOLVING A SIGNIFICANT
CLAIM FOR DAMAGES.

         LION is a party to a legal proceeding initiated by Billy Anders, a
former director of LION. Although damages are speculative, plaintiff seeks an
award in excess of one million dollars, together with emotional distress
damages, punitive damages and an award of attorneys' fees. LION believes
plaintiff's claims are without merit. Nevertheless, the outcome of this matter
cannot be predicted at this time and if plaintiff is successful in obtaining a
jury verdict, the award could be substantial and have a material adverse affect
on the Company. See Legal Proceedings.

                                       16
<PAGE>

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

         The trading price of our common stock has been and may continue to be
subject to wide fluctuations. During 2001, the closing sale prices of our common
stock on the OTC Bulletin Board ranged from $.17 to $.05 per share and the sale
price of our common stock closed at $.09 per share on March 15, 2002. Our stock
price may fluctuate in response to a number of events and factors, such as
quarterly variations in operating results, announcements of technological
innovations or new products by us or our competitors, changes in financial
estimates and recommendations by securities analysts, the operating and stock
price performance of other companies that investors may deem comparable, and
news reports relating to trends in our markets. In addition, the stock market in
general, and the market prices for Internet-related companies in particular,
have experienced extreme volatility that often has been unrelated to the
operating performance of these companies. These broad market and industry
fluctuations may adversely affect the price of our stock, regardless of our
operating performance.

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

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

         As of December 31, 2001, a substantial majority of the 31,026,978
outstanding shares of common stock and 1,500,000 shares of convertible preferred
stock held by existing shareholders were issued and sold by the Company in
private transactions in reliance on exemptions from the registration provisions
of the Securities Act and are restricted securities within the meaning of Rule
144 under the Securities Act. Of the outstanding shares, including shares held
by affiliates, 29,400,311 were issued on or before December 31, 2000, and may be
currently eligible for resale in the open market, if any, subject to the volume
and other conditions of Rule 144. There are no contractual restrictions on the
resale of the outstanding common stock. The sale in the public market of these
shares of restricted common stock, or the perception that these sales may occur,
may depress prevailing market prices of the common stock.

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

         As of December 31, 2001, there were outstanding stock options to
purchase an aggregate of 5,822,000 shares of common stock at exercise prices
ranging from $.05 to $2.00 per share, and warrants to purchase 1,521,667 shares
of common stock at exercise prices ranging from $.20 to $1.75 per share.
Employee options are subject to a restriction whereby option holders have agreed
to not sell or otherwise transfer or dispose of shares of the common stock
issued upon exercise of options in an amount which shall exceed 250,000 shares
during any three-month period. The exercise of these outstanding options and
warrants will dilute the percentage ownership of common stockholders, and any
sales in the public market of shares of common stock underlying such securities
may adversely affect prevailing market

                                       17
<PAGE>

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

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

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

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

ITEM 2.   DESCRIPTION OF PROPERTY

         We have relocated from our corporate offices in Renton, Washington. A
lease termination agreement was signed effective August 1, 2001 whereby we were
allowed to terminate the remainder of our lease with office space totaling
20,093 square feet for the time period of August 1, 2001 through July 31, 2004.
There was no penalty and only minimal cost to the Company. In addition, any
amounts owed to the Company, such as security deposits, have been paid in full
to us, and we in turn completed all financial obligations to the Renton office
lessor as of July 31, 2001.

         Our executive offices are now located in Seattle, Washington, where we
currently lease approximately 8,274 square feet. The lease began August 1, 2001
and 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 5,485 square feet in Denver,
Colorado. This lease expires October 31, 2004.

                                       18
<PAGE>

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

ITEM 3.  LEGAL PROCEEDINGS

         During January 2001, LION, together with Allen Ringer, a former
executive officer and director of LION, became parties to a legal proceeding
initiated by Billy Anders, a former director of LION (BILLY R. ANDERS V. PLENUM
COMMUNICATIONS, INC, A MINNESOTA CORPORATION, ALLEN RINGER, AND THE MARITAL
COMMUNITY OF ALLEN RINGER AND JANE DOE RINGER filed in the Spokane County
Superior Court, Case No. 00-207342-3). Mr. Anders seeks damages from LION and
Allen Ringer on three theories of relief, including breaches of oral contract,
torts associated with the making of such oral contracts including without
limitation intentional misrepresentation, and racial discrimination on the basis
of disparate treatment and retaliation. Although damages are speculative,
plaintiff seeks an award in excess of one million dollars, together with
emotional distress damages, punitive damages and an award of attorneys' fees.
LION has counterclaimed against Mr. Anders for breach of fiduciary duty to the
Company and its shareholders in the failure of Mr. Anders to disclose a material
conflict of interest and for engaging in negligent mismanagement. LION seeks all
of the damages awarded to Mr. Anders, if any, together with additional damages
caused by Mr. Anders' breach of duty and negligence. The matter is currently
scheduled for a jury trial on May 20, 2002.

         LION believes plaintiff's claims are without merit and that plaintiff
will have serious problems establishing the Company's liability. Furthermore,
LION could receive an award from plaintiff, together with an award of attorneys'
fees. Nevertheless, the outcome of this matter cannot be predicted at this time
and if plaintiff is successful in obtaining a jury verdict, the award could be
substantial and have a material adverse affect on the Company.


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, 2001.

                                       19
<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,         2001                  2000
                                        ------------------  --------------------
                                        High          Low    High          Low
                                        ----          ---    ----          ---
       First Quarter                   $0.172       $0.063  $1.375       $0.625
       Second Quarter                   0.100        0.060   0.875        0.406
       Third Quarter                    0.110        0.080   0.500        0.187
       Fourth Quarter                   0.090        0.050   0.266        0.125

         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 1,234 holders of record of our common stock as
of March 15, 2002.

DIVIDEND POLICY

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

SHARES ELIGIBLE FOR FUTURE SALE

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

                                       20
<PAGE>

manner of sale provisions or notice requirements. . See Risk Factors -- VOLUME
OF SHARES ELIGIBLE FOR SALE COULD IMPAIR OUR STOCK PRICE AND HINDER FUTURE
FINANCING EFFORTS.

RECENT SALES OF UNREGISTERED SECURITIES

         During the year ended December 31, 2001, the Company issued and sold
the following securities:

          1.  In March 2001, the Company sold an aggregate of 1,166,667 units
              consisting of common stock and warrants to three accredited
              individuals for an aggregate purchase price of $175,000. The
              recipients had access to all material information concerning the
              Company and acquired the securities for investment. Appropriate
              legends were affixed to the certificates issued in the
              transactions. The issuances were deemed to be exempt from
              registration under the Securities Act in reliance on Section 4(2)
              of the Securities Act as transactions by an issuer not involving
              any public offering.

          2.  In May 2001, the Company sold an aggregate of 125,000 shares of
              common stock to 1 person at a purchase price of $.17 per share in
              connection with the exercise of outstanding options. A promissory
              note was received in the total amount of $21,250. The promissory
              note accrues interest at 10% per annum with a maturity date of
              November 15, 2002. The recipient had access to all material
              information concerning the Company. An appropriate legend was
              affixed to the certificate issued in the transaction. This
              issuance was deemed exempt from registration under the Securities
              Act in reliance on Section 4(2) of the Securities Act as a
              transaction by an issuer not involving any public offering.

          3.  In October and December 2001, common stock totaling 175,000 shares
              and 55,000 shares, respectively, at $.10 per share totaling
              $23,000 were issued to one employee in lieu of cash for deferred
              compensation. The recipient was an accredited person, had access
              to all material information concerning the Company, and acquired
              the securities for investment. Appropriate legends were affixed to
              the certificates issued in the transactions. The issuances were
              deemed to be exempt from registration under the Securities Act in
              reliance on Section 4(2) of the Securities Act as transactions by
              an issuer not involving any public offering.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS

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

         IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION AND
ANALYSIS OF MANAGEMENT CONTAINS FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, INCLUDING BUT NOT
LIMITED TO, THOSE DISCUSSED BELOW AND IN THE SECTIONS IN THIS ANNUAL REPORT ON
FORM 10-KSB ENTITLED "COMPETITION," "PROPRIETARY RIGHTS," AND "RISK FACTORS."
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH REFLECT MANAGEMENT'S OPINIONS ONLY AS OF THE DATE OF THIS
REPORT. LION UNDERTAKES NO OBLIGATION TO REVISE OR PUBLICLY RELEASE THE RESULTS
OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS. READERS SHOULD CAREFULLY
REVIEW THE RISK FACTORS DESCRIBED IN THIS DOCUMENT AS WELL AS OTHER DOCUMENTS
THE

                                       21
<PAGE>

COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING THE QUARTERLY REPORTS ON FORM 10-QSB TO BE FILED BY THE COMPANY DURING
2002.

RESULTS OF OPERATIONS

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

         During 2001, one of the Company's main goals was to reach
profitability. While second and third quarters were profitable, the fourth
quarter had a net loss of $28,297 with net income for the year totaling $41,568.
The results for the fourth quarter and full year of 2001 include unbudgeted
legal expenses primarily related to a lawsuit initiated against LION by Billy
Anders, Sr., formerly LION's Chairman, see Item 3 - LEGAL PROCEEDINGS above.
Excluding these legal expenses, LION would have reported a profit for the fourth
quarter and higher net income for the full year of 2001 in the amount of $28,000
and $125,000, respectively. Until the litigation with Billy Anders is settled,
the Company anticipates that additional legal expenses will adversely affect its
operating results in the first half of 2002, much as it did during the fourth
quarter of 2001.

         For the fourth quarter of 2001, revenues were approximately $1.5
million, approximately the same as the fourth quarter of 2000. Revenues for the
full year 2001 were approximately $6.0 million, compared to approximately $6.1
million for 2000. As stated above, the net loss for the fourth quarter was
$28,297 and net income for the full year 2001 was $41,568, a significant
improvement from a net loss of approximately $234,000 (restated) or ($0.01) per
share for the fourth quarter of 2000, and from a net loss of approximately $1.2
million (restated) or ($0.04) per share in 2000.

         The move toward profitability was achieved primarily by reducing
expenses. The Company merged its parent company with its subsidiary, closed the
Spokane sales office, consolidated all sales and customer services functions in
the Denver operation, and reorganized senior management and the engineering
department.

         The goal for 2002 will be revenue growth on a quarterly basis while
continuing to control costs. See LIQUIDITY AND CAPITAL RESOURCES below under the
heading "2002 Plans" and Note C to the Financial Statements for further
discussion on the Company's plans.

REVENUES

         Revenues decreased to $6,010,604 from $6,115,316 for the years ended
December 31, 2001 and 2000, respectively. This represents a decrease of $104,712
or 2%. Total revenues of $6,010,604 for 2001 were comprised of mortgage broker
fees of $4,768,822 or 79% of total revenues and lender fees of $1,241,782 or
21%. Total revenues of $6,115,316 for 2000 were comprised of mortgage broker
fees of $4,411,870 or 72% of total revenues and lender fees of $1,703,446 or
28%.

         Fees from mortgage brokers increased to $4,768,822 from $4,411,870 for
2001 and 2000, respectively. This represents an increase of $356,952 or 8%. The
increase was due primarily to growth in membership fees (LION Pro and Mortgage
101) totaling $124,903, marketing fees (lead generation and advertising)
totaling $206,986, and technology fees (website development and hosting)
totaling $33,297 which were offset by a reduction in transaction fees (vended
services such as credit reports) totaling $8,234.

                                       22
<PAGE>

         Fees from lenders decreased to $1,241,782 from $1,703,446 for 2001 and
2000, respectively. This represents a decrease of $461,664 or 27%. The decrease
was due primarily to a decrease in marketing fees (lead generation and
advertising) totaling $231,535, technology fees (website development and
hosting) totaling $212,134 and transaction fees (automated underwriting and
other) totaling $17,995.

DIRECT COSTS

         Direct costs are comprised primarily of web site development,
technology infrastructure support, and salaries related to the daily updates to
rates, fees, and other loan program information in the mortgage lender database.
Direct costs increased to $1,053,960 from $695,356 for 2001 and 2000,
respectively. This represents an increase of $358,604 or 52%. Direct costs as a
percentage of revenues increased to 18% from 11% for 2001 and 2000,
respectively. The increase is primarily due to (i) the cost of labor to
maintain, monitor and improve the systems and databases that deliver the
Company's core products and services to its mortgage broker and lender customers
and (ii) the establishment and strengthening of project management and quality
assurance functions at the beginning of 2001 that did not formally exist in
2000.

SELLING AND MARKETING

         Marketing and selling expenses are comprised of marketing and
advertising costs, sales salaries and related support costs. Marketing and
selling expenses decreased to $1,725,005 from $2,343,677 for 2001 and 2000,
respectively. This represents a decrease of $618,672 or 26%. These expenses as a
percentage of revenues improved to 29% from 38% for 2001 and 2000, respectively.
The decrease in selling and marketing expenses is primarily due to (i) the
closure of the Company's Spokane sales office, (ii) the consolidation of
mortgage originator sales, lender sales and customer service functions in the
Denver sales office, and (iii) a reduction in advertising and tradeshow
expenses.

GENERAL AND ADMINISTRATIVE

         General and administrative expenses are comprised of management and
administrative salaries and related costs, legal and audit fees, outside
consulting services, telecommunications expenses, occupancy costs, and other
administrative related expenses. General and administrative expenses decreased
to $2,418,803 from $3,050,505 for 2001 and 2000, respectively. This represents a
decrease of $631,702 or 21%. General and administrative expenses as a percentage
of revenues improved to 40% from 50% for 2001 and 2000, respectively. The
decrease in costs was due primarily to (i) the merger of LION, Inc. (parent) and
LionInc.com (subsidiary) on January 1, 2001, (ii) prior year consulting services
related to obtaining and analyzing alternatives for funding that did not recur
in the current year, (iii) improved bad debt experience in the current year and
(iv) reduced travel and entertainment expenses. These decreases were offset by
an increase in occupancy costs.

COMPENSATION FROM STOCK OPTIONS ISSUED UNDER FAIR MARKET VALUE

         During the first quarter of 2000, certain long-time employees exercised
stock options in consideration for nonrecourse promissory notes. Under APB
Opinion No. 25, the issuance of stock options under such notes is in essence a
new granting of options. By issuing nonrecourse notes, we extended the original
terms of the fixed award, creating a new measurement date. As such, additional
compensation cost is recognized to the extent that the intrinsic value of the
new award exceeds the intrinsic value of the original award. For the three
months ended March 31, 2000, we recorded compensation expense of $181,260 for
the difference between the original intrinsic value and the

                                       23
<PAGE>

intrinsic value of the new award. For the three months ended June 30, 2000, the
remeasurement of variable stock option awards resulted in a reduction to expense
totaling $79,680. For the six month period ended June 30, 2000 and for the year,
compensation expense from stock options issued under fair market value totaled
$101,580. No compensation expense related to stock options was recorded during
2001.

RESEARCH AND DEVELOPMENT

         Research and development expenses are comprised primarily of
engineering salaries and related costs. Research and development expenses
decreased to $267,113 from $577,550 for 2001 and 2000, respectively. This
represents a decrease of $310,437 or 54%. Research and development expenses as a
percentage of revenues decreased to 4% from 9% for 2001 and 2000, respectively.
The decrease is primarily due to (i) the reallocation of research and
development personnel to direct cost efforts in order to maintain and improve
the systems that deliver the Company's core products and services, (ii) a
reduction in other research and development resources to match up with the
current availability of funding and (iii) a one-time write-off of a $56,200
database project during the first quarter of 2000.

DEPRECIATION AND AMORTIZATION

         Depreciation and amortization expenses increased to $498,535 from
$461,655 (restated) for 2001 and 2000, respectively. This represents an increase
of $36,880 or 8%. Depreciation and amortization expenses were 8% of revenues for
2001 and 2000. The increase was due primarily to the capitalization of
internally developed software needed to expand and improve our
telecommunications and computer systems infrastructure.

INTEREST EXPENSE

         Interest expense decreased to $2,720 from $148,032 for 2001 and 2000,
respectively. The decrease is primarily due to the pay off of the Company's line
of credit in September of 2000.

INTEREST INCOME

         Interest income decreased to $3,011 from $21,696 for 2001 and 2000,
respectively. Interest earned is primarily due to nonrecourse promissory notes
related to the exercise of stock options by employees.

LIQUIDITY AND CAPITAL RESOURCES

2001 RESULTS:

         During 2001, the Company funded its activities through two sources.
First, we received $175,000 from a limited number of accredited individuals
participating in a private placement through the issuance of 1,166,667 units
consisting of common stock and warrants. Second, we achieved positive cash flow
from operations. At December 31, 2001, we had approximately $481,000 in cash and
cash equivalents compared to approximately $117,000 at the end of 2000.

         During 2001, operating activities provided net cash of $527,638
compared to the net use of cash of $709,195 for operations during prior year.
The net cash provided by operating activities for 2001 was primarily
attributable to efficiencies gained from (i) the merger of the parent and
subsidiary companies,

                                       24
<PAGE>

(ii) the closure of the Spokane sales office (iii) the consolidation of all
originator sales and customer service functions into the Denver sales office,
and (iv) the reorganization of senior management and the engineering department.
These cost savings were offset by payments on accounts payable and other accrued
liabilities. The net use of cash in operating activities for 2000 was primarily
attributable to (i) research and development in internal software for automated
underwriting and wholesale origination and fulfillment services (LoanCAT
technology), (ii) a focus on delivering our core business, and (iii) occupancy
and related costs for future growth.

         During 2001, we used net cash of $339,266 for our investing activities
which was primarily for the capitalized portion of our (i) software development
costs related to migration to new data base platforms, additional solutions to
automated underwriting submissions, and upgrades to internal reporting systems
and (ii) the purchase of operating system and application software for our
network of servers and PC's. In the prior year, we used net cash in investing
activities totaling $259,812 which was primarily related to the capitalized
portion of our LoanCAT project (developing solutions for online wholesale
origination and fulfillment services for lenders).

         During 2001, net cash proceeds from financing activities were $175,284.
Proceeds received from financing activities were primarily the result of the
private placement of the Company's common stock totaling $175,000. During 2000,
net cash proceeds from financing activities were $717,612. Proceeds were
primarily from warrant exercises and the private placement of preferred stock
totaling $472,232 and $807,000, respectively. This enabled us to pay down our
line of credit by $587,550 while at the same time reducing other current
obligations throughout 2000.

2002 PLANS:

         The Company is continuing to implement its business plan which includes
enhancing its existing core products and services to mortgage originators and
lenders. In addition, several new initiatives are planned for revenue growth.
The Company is also exploring partnerships with leading industry players that
may accelerate delivery of these services. The initiatives are:

1.   The launch of new online management tools for lenders. These web-based
     management tools will provide a streamlined connection between the lender
     and broker originator. Successful implementation of this strategy should
     increase lender participation and strengthen the Company's large lender
     program and pricing database.

2.   The enhancement of core online services for originators. These enhancements
     will focus on the originator office (the entire origination team),
     resulting in streamlined work processes and shortened turn around times.

3.   The conversion of consumer traffic into high-value business generation. A
     large number of consumers visit Mortgage101.com and its branded sites
     inquiring about loan programs offered by the Company's large network of
     originators. These inquiries are processed through a lead generation
     system. This system will be improved through third party credit profiling
     and advanced filtering and routing logic. Leads will then be converted from
     a flat marketing fee to a variable "per lead" pricing model. The Company
     believes there will be strong demand from both broker and lender
     originators. The initiative should enhance the setup of a streamlined
     process from consumer rate inquiry to funding.

                                       25
<PAGE>

         To ensure operational success of these initiatives, the Company expects
to make greater investments in marketing, personnel, and professional services
in coming periods. In addition, as disclosed above in "ITEM 3. LEGAL
PROCEEDINGS" and below in "NOTE J - CONTINGENCIES" of the Financial Statements,
the Company is party to a legal proceeding initiated by a former director.
Management believes that all of the claims are without merit and is vigorously
defending against them. The matter is currently scheduled for trial in May of
2002. The Company has budgeted for the necessary legal expenses.

         Also, the Company has received notification from an organization
representing certain members of the software industry regarding the presence of
unlicensed software products at the Company. The Company conducted a voluntary
audit and corrective actions were taken. This organization has made a demand
from the Company for compensation of past infringements and penalties in the
amount of $165,000. The Company is currently in negotiation with this
organization and believes that the liability, if any, will be substantially less
than the amount claimed by them. The Company has not accrued or budgeted for
potential infringements or penalties due to the uncertainty of the outcome of
this contingency.

         While the first half of 2002 is not anticipated to be profitable,
sustained quarterly profitability is anticipated beginning the second half of
2002. Management believes that working capital from operations is adequate to
fund its initiatives, legal costs related to the lawsuit brought on by the past
director, and a negotiated settlement, if any, related to the software
infringements of the past. Cash flow from operations will be negative during the
first half of 2002 but positive during the latter half, which should result in a
net gain in cash flow and working capital for the year.

         If there is improvement in the capital markets and/or there is an
increase in the Company's stock price, the Company will pursue additional equity
funding. The Company believes it has a number of accredited investors who are
friends of the Company who would participate in private placements. This would
allow the Company to complete its initiatives more quickly and be more
aggressive in pursuing potential alliances throughout 2002.

ITEM 7.   FINANCIAL STATEMENTS

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

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

                                       26
<PAGE>


Report of Independent Certified Public Accountants

Board of Directors and Stockholders
LION, Inc.

We have audited the accompanying balance sheets of LION, Inc. as of December 31,
2001 and 2000, and the related statements of operations, stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LION, Inc. as of December 31,
2001 and 2000, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.

As discussed in Note B of Notes to Financial Statements, the 2000 financial
statements have been restated.


/s/  Grant Thornton LLP
Portland, Oregon
February 8, 2002

                                       27
<PAGE>

                                   LION, Inc.

                                 BALANCE SHEETS

                                  December 31,

                                     ASSETS
<TABLE><CAPTION>
                                                                                      2001                 2000
                                                                                ----------------     ---------------
<S>                                                                            <C>                  <C>
CURRENT ASSETS                                                                                          (Restated)
    Cash and cash equivalents                                                   $      480,910       $     117,254
    Accounts receivable, less allowance for doubtful accounts of $58,000
       and $82,390 in 2001 and 2000, respectively                                      363,168             457,705
    Prepaid expenses and other                                                          72,579              92,615
                                                                                ----------------     ---------------
         Total current assets                                                          916,657             667,574

PROPERTY AND EQUIPMENT, net                                                            875,807             861,847

OTHER ASSETS
    Goodwill - net                                                                     273,955             387,315
    Other assets                                                                        33,022              45,377
                                                                                ----------------     ---------------

                                                                                $    2,099,441       $   1,962,113
                                                                                ================     ===============
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                                            $       129,240     $      236,836
    Accrued liabilities                                                                 327,616            381,087
    Deferred revenue                                                                    277,449            305,100
                                                                                ----------------    ----------------

         Total current liabilities                                                      734,305            923,023

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

COMMITMENTS                                                                                 -                   -

STOCKHOLDERS' EQUITY
    Preferred stock, par value $.001 per share;
       authorized 5,000,000 shares; liquidation value $900,000                            1,500              1,500
    Common stock - authorized, 50,000,000 shares of $.001 par value                      31,027             32,665
    Additional contributed capital                                                   11,716,622         12,429,956
    Notes receivable from stockholders                                                  (21,250)          (969,375)
    Accumulated deficit                                                             (10,414,088)       (10,455,656)
                                                                                ----------------    ----------------
                                                                                      1,313,811          1,039,090
                                                                                ----------------    ----------------

                                                                                $     2,099,441     $    1,962,113
                                                                                ================    ================
</TABLE>
        The accompanying notes are an integral part of these statements.

                                       28
<PAGE>

                                   LION, Inc.

                            STATEMENTS OF OPERATIONS

                             Year ended December 31,
<TABLE><CAPTION>
                                                                                       2001                 2000
                                                                               -----------------    -----------------
                                                                                                         (Restated)
<S>                                                                           <C>                  <C>
Revenues                                                                       $     6,010,604      $     6,115,316

Expenses

    Direct costs                                                                     1,053,960              695,356
    Selling and marketing                                                            1,725,005            2,343,677
    General and administrative                                                       2,418,803            3,050,505
    Compensation from stock options issued below fair market value                          -               101,580
    Research and development                                                           267,113              577,550
    Depreciation and amortization                                                      498,535              461,655
                                                                               -----------------    -----------------
                                                                                     5,963,416            7,230,323
                                                                               -----------------    -----------------
         Operating income (loss)                                                        47,188           (1,115,007)

Other income (expense)
    Interest expense                                                                    (2,720)            (148,032)
    Interest income                                                                      3,011               21,696
    Other expense                                                                       (5,911)              (1,947)
                                                                               -----------------    -----------------

         NET INCOME (LOSS)                                                     $        41,568      $    (1,243,290)
                                                                               =================    =================

Loss per common share - basic and diluted                                      $            -       $          (.04)
                                                                               =================    =================
</TABLE>


The accompanying notes are an integral part of these statements.

                                       29
<PAGE>

                                   LION, Inc.

                        STATEMENT OF STOCKHOLDERS' EQUITY

                     Years ended December 31, 2001 and 2000

<TABLE><CAPTION>

                                                             Preferred stock                 Common stock
                                                       ---------------------------   ----------------------------
                                                          Shares         Amount         Shares          Amount
                                                       ------------   ------------   ------------    ------------
<S>                                                    <C>            <C>            <C>            <C>
Balance at January 1, 2000                                        -    $         -     31,415,622    $     31,416
Issuance of common stock in conjunction
   with exercise of warrants                                      -              -        980,964             981
Issuance of common stock in conjunction
   with exercise of stock options                                 -              -        544,167             544
Issuance of warrants for services received                        -              -              -               -
Issuance of Preferred stock in
   conjunction with financing                             1,500,000          1,500              -               -
Issuance of warrants as finders fee
   for financing                                                  -              -              -               -
Issuance of stock options for
   consulting services received                                   -              -              -               -
Issuance of stock options to employees
   under fair market value                                        -              -              -               -
Common stock returned for cancellation
   of notes receivable                                            -              -       (860,000)           (860)
Payment of notes receivable                                       -              -              -               -
Issuance of common stock in conjunction
   with purchase of Imark (Restated)                              -              -        584,558             584
Net loss for the year (Restated)                                  -              -              -               -
                                                       ------------   ------------   ------------    ------------
Balance at December 31, 2000 (Restated)                   1,500,000   $      1,500     32,665,311    $     32,665
                                                       ============   ============   ============    ============


                                                                         Notes
                                                        Additional     receivable
                                                       contributed        from       Accumulated
                                                         capital      stockholders     deficit          Total
                                                       ------------   ------------   ------------    ------------
Balance at January 1, 2000                             $ 11,187,120   $ (1,289,063)  $ (9,212,366)   $    717,107
Issuance of common stock in conjunction
   with exercise of warrants                                471,251              -              -         472,232
Issuance of common stock in conjunction
   with exercise of stock options                           329,639       (309,375)             -          20,808
Issuance of warrants for services received                  129,940              -              -         129,940
Issuance of Preferred stock in
   conjunction with financing                               743,090              -              -         744,590
Issuance of warrants as finders fee
   for financing                                             62,410              -              -          62,410
Issuance of stock options for
   consulting services received                              23,713              -              -          23,713
Issuance of stock options to employees
   under fair market value                                  101,580              -              -         101,580
Common stock returned for cancellation
   of notes receivable                                     (618,203)       619,063              -               -
Payment of notes receivable                                       -         10,000              -          10,000
Issuance of common stock in conjunction
   with purchase of Imark (Restated)                           (584)             -              -               -
Net loss for the year (Restated)                                  -              -     (1,243,290)     (1,243,290)
                                                       ------------   ------------   ------------    ------------
Balance at December 31, 2000 (Restated)                $ 12,429,956   $   (969,375)  $(10,455,656)   $  1,039,090
                                                       ============   ============   ============    ============
</TABLE>

The accompanying notes are an integral part of these statements.

                                       30
<PAGE>

                                   LION, Inc.

                        STATEMENT OF STOCKHOLDERS' EQUITY

                     Years ended December 31, 2001 and 2000
<TABLE><CAPTION>
                                                            Preferred stock                 Common stock
                                                      ---------------------------   ----------------------------
                                                         Shares         Amount         Shares          Amount
                                                      ------------   ------------   ------------    ------------
<S>                                                   <C>            <C>             <C>            <C>
Balance at December 31, 2000 (Restated)                  1,500,000   $      1,500     32,665,311    $     32,665
Issuance of common stock in conjunction
   with exercise of stock options                                -              -        140,000             140
Common stock issued in lieu of compensation                      -              -        320,000             320
Issuance of  common stock in
   conjunction with a Private Placement Offering                 -              -      1,166,667           1,167
Issuance of stock options for
   consulting services received                                  -              -              -               -
Common stock returned for cancellation
   of notes receivable                                           -              -     (3,265,000)         (3,265)
Net income for the year                                          -              -              -               -
                                                      ------------   ------------   ------------    ------------
Balance at December 31, 2001                             1,500,000   $      1,500     31,026,978    $     31,027
                                                      ============   ============   ============    ============

                                                                        Notes
                                                        Additional    receivable
                                                       contributed       from        Accumulated
                                                         capital     stockholders      deficit          Total
                                                      ------------   ------------   ------------    ------------

Balance at December 31, 2000 (Restated)               $ 12,429,956   $   (969,375)  $(10,455,656)   $  1,039,090
Issuance of common stock in conjunction
   with exercise of stock options                           23,660       (21,250)              -           2,550
Common stock issued in lieu of compensation                 36,180              -              -          36,500
Issuance of  common stock in
   conjunction with a Private Placement Offering           173,833              -              -         175,000
Issuance of stock options for
   consulting services received                             19,103              -              -          19,103
Common stock returned for cancellation
   of notes receivable                                    (966,110)       969,375              -               -
Net income for the year                                          -              -         41,568          41,568
                                                      ------------   ------------   ------------    ------------
Balance at December 31, 2001                          $ 11,716,622   $    (21,250)  $(10,414,088)   $  1,313,811
                                                      ============   ============   ============    ============
</TABLE>

The accompanying notes are an integral part of these statements.

                                       31
<PAGE>

                                   LION, Inc.

                            STATEMENTS OF CASH FLOWS

                             Year ended December 31,
<TABLE><CAPTION>
                                                                                      2001                2000
                                                                                 ---------------     ---------------
                                                                                                       (Restated)
<S>                                                                             <C>                 <C>
Cash flows from operating activities
    Net income (loss)                                                            $      41,568       $  (1,243,290)
    Adjustments to reconcile net income (loss) to net cash provided by
       (used in) operating activities
          Depreciation and amortization                                                498,535             461,655
          Write off of capitalized software development costs                           15,000              56,200
          Interest earned on notes receivable                                                -              10,584
          Warrants issued for services received                                              -             129,940
          Warrants issued for financing costs                                                -             115,500
          Common stock and stock options issued for services received                   19,103              23,713
          Common stock issued in lieu of cash compensation                              36,500                   -
          Compensation expense on stock options issued below fair market value               -             101,580
          Changes in assets and liabilities
              Accounts receivable                                                       94,537             (77,158)
              Prepaid expenses and other                                                20,036             (37,738)
              Accrued liabilities                                                      (74,749)            (59,065)
              Accounts payable                                                        (107,596)           (198,086)
              Deferred revenue                                                         (27,651)             15,170
              Other assets                                                              12,355              (8,200)
                                                                                 ---------------     ---------------

                  Net cash provided by (used in) operating activities                  527,638            (709,195)

Cash flows from investing activities
    Capitalized software development costs                                            (224,742)           (224,870)
    Purchase of property and equipment                                                (114,524)            (34,942)
                                                                                 ---------------     ---------------

                  Net cash used in investing activities                               (339,266)           (259,812)

Cash flows from financing activities
    Payments on related party payables                                                       -             (60,500)
    Payments on line of credit                                                               -            (587,550)
    Payments on long-term obligations                                                   (2,266)                  -
    Proceeds from notes receivable                                                           -              65,622
    Proceeds from issuance of common stock and exercise of stock options               177,550              20,808
    Net proceeds from issuance of preferred stock                                            -             807,000
    Proceeds from exercise of warrants                                                       -             472,232
                                                                                 ---------------     ---------------

                  Net cash provided by financing activities                            175,284             717,612
                                                                                 ---------------     ---------------

Net increase (decrease) in cash and cash equivalents                                   363,656            (251,395)

Cash and cash equivalents at beginning of period                                       117,254             368,649
                                                                                 ---------------     ---------------

Cash and cash equivalents at end of period                                       $     480,910       $     117,254
                                                                                 ===============     ===============

Supplemental cash flow information and non-cash investing and financing
 activities See note N
</TABLE>

The accompanying notes are an integral part of these statements.

                                       32
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

NOTE A - SUMMARY OF ACCOUNTING POLICIES

LION, Inc., formerly Plenum Communications, Inc., and its subsidiary,
LionInc.com, (collectively, the Company), are Washington corporations. Effective
December 31, 2000, LION, Inc. moved its state of domicile from Minnesota to
Washington. Effective January 1, 2001, LION, Inc. and LionInc.com were merged
into one company in the State of Washington. LION, Inc., dba LionInc.com,
provides its subscribers, principally mortgage brokers and agents, electronic
access to a database of mortgage offerings by a multitude of lenders throughout
the United States. LION, Inc. also generates revenue from advertisers who pay
marketing fees for ad banners, web site promotion, and lead generation.
Additionally, fees are earned related to mortgage originator and lender web site
development and hosting.


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

1.       Principles of Consolidation
         ---------------------------

The financial statements at December 31, 2000 are consolidated and include the
accounts of the Company and its wholly-owned subsidiary. All significant
intercompany balances and transactions have been eliminated. Effective January
1, 2001, LION, Inc. and LionInc.com were merged into one company in the State of
Washington.

2.       Cash and Cash Equivalents
         -------------------------

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

3.       Revenue Recognition
         -------------------

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

4.       Property and Equipment
         ----------------------

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

                                       33
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

5.       Capitalized Software Development Costs
         --------------------------------------

The Company capitalized software development costs, intended for internal use,
totaling $224,742 and $249,870 for the years ended December 31, 2001 and 2000,
respectively. These costs are included in computer software in property and
equipment and are amortized over a period of three years.

6.       Goodwill
         --------

Goodwill represents the excess cost of acquiring the assets of IMark, LLC over
the fair value of net assets acquired at the date of acquisition, which is
amortized using a straight-line method over five years. In conjunction with the
purchase, it was agreed that if on the date one year from the date of closing
(May 17, 2000), the average market price of the LION shares was less than
$600,000, the Company, at its discretion, would make up the difference by either
a payment of cash or through the issuance of additional shares of the Company's
common stock. As the average market price of the shares issued was less than
$600,000 at May 17, 2000, an additional 584,558 shares were issued at $.64 per
share. The Company periodically reviews goodwill to assess recoverability.
Impairment is recognized in operating results if expected future operating
undiscounted cash flows of the acquired assets is less than the carrying value
of the goodwill. Accumulated amortization totaled $292,847 and $179,487
(restated) at December 31, 2001 and 2000, respectively.

7.       Use of Estimates
         ----------------

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

8.       Loss Per Common Share
         ---------------------

Loss per share is based on the weighted average number of shares outstanding
during each period. The weighted average number of common shares outstanding was
30,673,978 and 32,871,000 for the years ended December 31, 2001 and 2000,
respectively. Preferred shares outstanding were included in the computation of
diluted EPS during 2001, but excluded during 2000 as their effect was
anti-dilutive. Warrants and options to purchase 7,343,667 and 4,563,250 shares
of common stock were outstanding at the years ended December 31, 2001 and 2000
but were not included in the computation of diluted earnings per share because
their exercise price was greater than the average market price of the common
shares.

9.       Advertising Costs
         -----------------

Advertising costs are expensed as incurred. Advertising expense was
approximately $198,000 and $234,300 for the years ended December 31, 2001 and
2000, respectively.

10.      Research and Development Costs
         ------------------------------

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

                                       34
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

11.      Income Taxes
         ------------

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

12.      Stock Issued for Services
         -------------------------

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

13.      Stock Options
         -------------

The Company accounts for its stock option plan under SFAS No. 123 "Accounting
for Stock-Based Compensation." As allowed under this statement, the Company
continues to account for stock options for employees under APB No. 25,
"Accounting for Stock Issued to Employees," and has adopted the disclosure only
requirements of SFAS No. 123.

14.      Recent Accounting Pronouncements
         --------------------------------

On July 20, 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets." These statements make
significant changes to the accounting for business combinations, goodwill, and
intangible assets.

SFAS No. 141 establishes new standards for accounting and reporting requirements
for business combinations and will require that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
SFAS No. 142 establishes new standards for goodwill acquired in a business
combination, eliminates amortization of goodwill and instead sets forth methods
to periodically evaluate goodwill for impairment. Intangible assets with a
determinable useful life will continue to be amortized over that period. The
Company expects to adopt SFAS No. 142 during the first quarter of fiscal 2002.
Management is in the process of evaluating the requirements of this statement.
The final determination of the impact of this statement has not been completed.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses the financial accounting and reporting
for the retirement of tangible long-lived assets and the associated asset
retirement costs. The Company believes the adoption of SFAS 143 will have no
significant impact on its financial statements.

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets.
The Company believes the adoption of SFAS 144 will have no significant impact on
its financial statements.

                                       35
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

NOTE B - RESTATEMENT

The financial statements as of and for the year ended December 31, 2000 have
been restated to correct an error with respect to accounting for additional
consideration issued in 2000 in connection with a business combination. The
effect of the restatement was to reduce the net loss for the year ended December
31, 2000 by $54,559 and to decrease goodwill and shareholders' equity by
$319,558 at December 31, 2000. There was no effect on previously reported
earnings (loss) per share or net cash flows.

The effect of the restatement on each of the quarters for the years 2001 and
2000 is as follows (unaudited and restated):

<TABLE><CAPTION>
                                                                          Three months ended
                                                 ---------------------------------------------------------------------
                                                       March 31,       June 30,      September 30,      December 31,
                                                         2001            2001             2001              2001
                                                 ---------------------------------------------------------------------
  <S>                                            <C>             <C>             <C>              <C>
   Net income (loss), as previously reported      $     (51,542)  $     40,461    $       10,800   $        (51,680)
   Effect of restatement                                 23,382         23,382            23,382             23,383
                                                 ---------------------------------------------------------------------
   Net income (loss), as restated                 $     (28,160)  $     63,843    $       34,182   $        (28,297)
                                                 =====================================================================

                                                       March 31,       June 30,      September 30,      December 31,
                                                         2000            2000             2000              2000
                                                 ---------------------------------------------------------------------

   Net loss, as previously reported               $    (413,855)  $   (266,766)   $     (359,804)  $       (257,424)
   Effect of restatement                                    -            7,794            23,382             23,383
                                                 ---------------------------------------------------------------------
   Net loss, as restated                          $    (413,855)  $   (258,972)   $     (336,422)  $       (234,041)
                                                 =====================================================================
</TABLE>
                                       36
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

NOTE C - MANAGEMENT PLANS

The Company is continuing to implement its business plan which includes
enhancing its existing core of products and services to mortgage originators and
lenders. In addition, several new initiatives are planned for revenue growth.
The Company is also exploring partnerships with leading industry players that
may accelerate delivery of these services. The initiatives are:

1.       The launch of new online management tools for lenders. These web-based
         management tools will provide a streamlined connection between the
         lender and broker originator. Successful implementation of this
         strategy should increase lender participation and strengthen the
         Company's large lender program and pricing database.

2.       The enhancement of core online services for broker originators. These
         enhancements will focus on the originator office (the entire
         origination team), resulting in streamlined work processes and
         shortened turn around times.

3.       The conversion of consumer traffic into high-value business generation.
         A large number of consumers visit Mortgage101.com and its branded sites
         inquiring about loan programs offered by the Company's large network of
         originators. These inquiries are processed through a lead generation
         system. This system will be improved through third party credit
         profiling and advanced filtering and routing logic. Leads will then be
         converted from a flat marketing fee to a variable "per lead" pricing
         model. The Company believes there will be strong demand from both
         broker and lender originators. The initiative should enhance the setup
         of a streamlined process from consumer rate inquiry to funding.

To ensure operational success of these initiatives, the Company expects to make
greater investments in marketing, personnel, and professional services in coming
periods.

If the ability to obtain additional funding outside of operations presents
itself, the Company will do so. However, management believes that cash flow from
operations is adequate to fund the initiatives.

Management believes these plans provide for continuance of operations through
January 1, 2003. However, there can be no assurance that the Company will be
successful in implementing its planned initiatives or obtain adequate funding
from internal or external sources for its future operations.

                                       37
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

NOTE D - PREPAID EXPENSES AND OTHER

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

                                                2001                 2000
                                          ----------------     ---------------

 Prepaid expenses                         $      65,588        $      84,485
 Other receivables                                6,991                8,130
                                          ----------------     ---------------

                                          $      72,579        $      92,615
                                          ================     ===============
NOTE E - PROPERTY AND EQUIPMENT

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

                                                2001                 2000
                                          ----------------     ---------------

 Computer equipment                       $     524,741        $     467,953
 Computer software                            1,058,496              771,867
 Equipment                                      288,185              237,617
 Leasehold improvements                          18,396               37,714
                                          ----------------     ---------------
                                              1,889,818            1,515,151
 Less accumulated depreciation
  and amortization                            1,014,011              653,304
                                          ----------------     ---------------

                                          $     875,807        $     861,847
                                          ================     ===============

At December 31, 2001, the Company had $50,115 in fixed assets which were
acquired under capital leases. Accumulated amortization on equipment under
capital leases totaled $4,284 at December 31, 2001.

NOTE F - ACCRUED LIABILITIES

Accrued liabilities consist of the following as of December 31:

                                               2001                2000
                                          ---------------     ----------------

 Salaries                                 $    126,040        $    139,689
 Payroll taxes                                  44,328              63,405
 Vacation                                       99,948              86,007
 Accrued software costs capitalized             25,000              25,000
 Other                                          32,300              66,986
                                          ---------------     ----------------

                                          $    327,616        $    381,087
                                          ===============     ================

                                       38
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

NOTE G - LONG-TERM OBLIGATIONS


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

<TABLE><CAPTION>
                                                                                        2001                     2000
                                                                                 -------------------      -------------------
   <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        $         24,754         $              -

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

    Capital lease obligations payable in monthly installments of $1,519 at a
       fixed rate of 17.3%; final payments due at various dates through
       November 2004                                                                       40,799                        -
                                                                                 -------------------      -------------------
                                                                                           72,603                        -
    Less current maturities                                                               (21,278)                       -
                                                                                 -------------------      -------------------

                                                                                 $         51,325         $              -
                                                                                 ===================      ===================
</TABLE>

2.       Notes Payable:

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

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

             2002                  $          7,137
             2003                             8,055
             2004                             9,562
                                   ------------------

                                   $         24,754
                                   ==================

                                       39
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

NOTE G - LONG-TERM OBLIGATIONS - Continued


3.       Capital Lease Obligations:

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

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

                           2002                             $        21,134
                           2003                                      21,134
                           2004                                      18,383
                                                            ------------------

     Total minimum lease payments                                    60,651

     Less amount representing interest                              (12,802)
                                                            ------------------

     Present value of net minimum lease payments            $        47,849
                                                            ==================

NOTE H - INCOME TAXES

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

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

                                                   2001               2000
                                              ---------------   ----------------
                                                                   (Restated)
  Tax provision (benefit) at statutory rate   $      14,133     $    (422,719)
  Non-deductible expenses                            41,924            43,838
  Other                                              85,785           (14,528)
  (Decrease) increase in valuation allowance       (141,842)          393,409
                                              ---------------   ----------------

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

                                       40
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

NOTE H - INCOME TAXES - Continued

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

                                                  2001              2000
                                             ----------------  ----------------
 Deferred tax asset:
     Intangible assets                       $       29,750    $          -
     Depreciation                                         -             1,199
     Liabilities not timely paid                     33,132            28,732
     Allowance for doubtful accounts                 19,720            28,013
     Stock options and warrants issued
      to consultants for services                     6,494            52,242
     Stock options issued to employees
      below fair value                                    -            34,543
     Net operating loss carryforward              2,218,460         2,287,959
                                             ----------------  ----------------
                                                  2,307,556         2,432,688
 Deferred tax liability:
     Depreciation                                    16,710                 -

 Valuation allowance                             (2,290,846)       (2,432,688)
                                             ----------------  ----------------

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

The Company has established a valuation allowance of $2,290,846 and $2,432,688
as of December 31, 2001 and 2000, respectively, due to the uncertainty of future
realization of the net deferred tax assets. The valuation allowance was
(decreased)/increased by $(141,842) and $393,409 during the years ended December
31, 2001 and 2000, respectively, based upon management's estimate of the
realizability of the net deferred tax assets. The deferred tax asset related to
net operating loss carryforwards and the valuation allowance at December 31,
2000 have been reduced by $630,887 to correct the amount of carryforwards
available at that date. At December 31, 2001, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $6,525,000
available to offset future income which expire in 2004 through 2021. Utilization
of these carryforwards are dependent on future taxable income and could further
be limited due to a change of control in the Company's ownership as defined by
the Internal Revenue Code Section 382.

NOTE I - COMMITMENTS

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 September 2007.

          Year ending December 31,
                    2002                               $     311,000
                    2003                                     323,400
                    2004                                     315,700
                    2005                                     226,800
                    2006                                     235,100
                 Thereafter                                  140,000
                                                       ---------------

       Total minimum payments required                 $   1,552,000
                                                       ===============

                                       41
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

NOTE I - COMMITMENTS - Continued

The leases provide for payment of taxes and other expenses by the Company. Rent
expense for leased facilities totaled approximately $475,000 and $426,000 for
the years ended December 31, 2001 and 2000, respectively.

NOTE J - CONTINGENCIES

The Company has received notification from an organization representing certain
members of the software industry regarding the presence of unlicensed software
products at the Company. The Company conducted a voluntary audit and corrective
actions were taken. This organization has made a demand from the Company for
compensation of past infringements and penalties in the amount of $165,000. The
Company is currently in negotiation with this organization and believes that the
liability, if any, will be substantially less than the amount claimed by them.
No accrual for potential infringements or penalties has been made at this time
due to the uncertainty of the outcome of this contingency.

The Company is party to a legal proceeding initiated by a former director.
Management believes that all of the claims are without merit and is vigorously
defending against this claim. The matter is currently scheduled for trial in May
of 2002. No accrual has been made related to this matter due to the uncertainty
of its outcome.

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

NOTE K - WARRANTS

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

<TABLE><CAPTION>
                                                                                         2001              2000
                                                                                    --------------    --------------

  <S>                                                                              <C>                <C>
   Warrants issued in conjunction with marketing services whereby one warrant
      entitles the holder to purchase one share of common stock at an exercise

      price of $0.63, expiring through 2001                                                    -            50,000

   Warrants issued in conjunction with guarantees on the line of credit whereby
      one warrant entitles the holder to purchase one share of common stock at

      an exercise price of $1.06, expiring through 2001                                        -           280,000

   Warrants issued in conjunction with marketing services whereby one warrant
      entitles the holder to purchase one share of common stock at an exercise

      price of $1.75, expiring through 2002                                               50,000            50,000

   Warrants issued as a finders fee for financing whereby one warrant entitles
      the holder to purchase one share of common stock at an exercise price of

      $.60, expiring through 2003                                                        105,000           105,000
</TABLE>
                                       42
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

NOTE K - WARRANTS - Continued

<TABLE><CAPTION>
                                                                                        2001              2000
                                                                                   --------------    --------------

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

   Warrants issued in conjunction with the Private Placement whereby one warrant
      entitles the holder to purchase one share of common stock at an exercise
      price of $.20 if exercised in the first 18 months of the contract and $.40
      if exercised in the second 18 months of the contract, expiring through
      2004
                                                                                       1,166,667                 -
                                                                                   --------------    --------------

        Total                                                                          1,521,667           685,000
                                                                                   ==============    ==============
</TABLE>

NOTE L - STOCK OPTIONS

The Company has a stock option plan accounted for under APB Opinion No. 25 and
related Interpretations. The plan allows the Company to grant options to
employees for up to 50,000 shares of common stock per employee. At December 31,
2001, 2,937,583 shares are available for future issuance under the plan. Options
currently outstanding vest over a zero to five year period. Stock options are
exercisable at not less than the market value of the Company's common stock on
the date of grant. Accordingly, no compensation cost has been recognized for
stock options granted.

The fair value of option grants are estimated using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
fiscal year 2001: expected volatility of 145.51%; risk-free interest rate of
5.07%; expected lives ranging from 5 to 10 years; and, a zero percent dividend
yield. The following weighted average assumptions were used for grants in fiscal
year 2000: expected volatility ranging from 105.32% to 144.6%; risk-free
interest rates ranging from 5.00% to 6.82%; expected lives ranging from 2 to 10
years; and, a zero percent dividend yield. Had compensation cost for the plan
been determined based on the fair value of the options at the grant dates,
consistent with the method required by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the
Company's net loss would have been increased to the pro forma amounts indicated
below for the years ended December 31.

                                             2001                  2000
                                      -------------------    ------------------
                                                                (Restated)
 Net income (loss):
     As reported                      $       41,568         $   (1,243,290)
     Pro forma                        $     (626,737)        $   (1,947,044)

 Net loss per common share:
     As reported                      $            -         $         (.04)
     Pro forma                        $         (.02)        $         (.06)

                                       43
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

NOTE L - STOCK OPTIONS - Continued

During 2001 and 2000, certain officers and employees exercised stock options in
consideration for nonrecourse promissory notes. Under APB Opinion No. 25, the
issuance of stock under such notes is in essence a new grant of options. By
issuing nonrecourse notes, the Company extended the original terms of the fixed
awards, creating a new measurement date. As such, additional compensation cost
is recognized to the extent that the intrinsic value of the new award exceeds
the intrinsic value of the original award. For the year ended December 31, 2001,
no compensation expense was recorded as there was no difference between the
intrinsic value of the new and old awards. For the year ended December 31, 2000,
the Company recorded compensation expense of $101,580 for the difference between
the original intrinsic value and the intrinsic value of the new award. In
conjunction with the Company issuing the notes, the officers and employees also
exercised their option to purchase the Company's common stock. As a result, the
shares are reflected as issued and outstanding, however, the shares are held by
the Company as collateral on the notes. The Company recorded notes receivable
from shareholders totaling $21,250 and $309,375 during 2001 and 2000,
respectively, for the exercise of these stock options.

At December 31, 2001, the Company has a note receivable from a stockholder for
$21,250 resulting from the exercise of stock options. This promissory note plus
accrued interest is due on November 15, 2002. During 2001, promissory notes
totaling $969,375 were canceled and the related shares totaling 3,265,000 were
retired due to non-payment of accrued interest.

At December 31, 2000, the Company had notes receivable from stockholders
totaling $969,375. During 2000, notes receivable of $619,063 were canceled and
the related shares totaling 860,000 were retired due to non-payment of accrued
interest.

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

<TABLE><CAPTION>
                                                            2001                                  2000
                                              ---------------------------------     ---------------------------------
                                                                   Weighted                               Weighted
                                                                    average                                average
                                                                   exercise                               exercise
             Stock options                        Shares             price              Shares             price
-----------------------------------------     ---------------    --------------     ---------------     -------------
<S>                                             <C>             <C>                   <C>              <C>
 Outstanding at beginning of year                3,878,250       $      .89            5,182,500        $     1.04
 Granted                                         3,060,000              .12            2,213,875               .63
 Forfeited                                        (976,250)             .57           (2,973,958)             1.01
 Exercised                                        (140,000)             .17             (544,167)              .61
                                              ---------------    --------------     ---------------     -------------

 Outstanding at end of year                      5,822,000       $      .56            3,878,250        $      .89
                                              ===============    ==============     ===============     =============

 Options exercisable at end of year              3,102,625       $      .65            1,310,713        $      .81
                                              ===============    ==============     ===============     =============
Weighted-average fair value of options
  granted during the year                                        $      .12                             $      .49
                                                                 ==============                         =============
</TABLE>
                                       44
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000


NOTE L - STOCK OPTIONS - Continued

The following is a summary of stock options outstanding at December 31, 2001:

<TABLE><CAPTION>
                              Outstanding Options                                         Options Exercisable
--------------------------------------------------------------------------------    ---------------------------------
                                          Weighted-             Weighted-                              Weighted-
    Exercise                               average          average remaining                           average
     price                 Number           price            contractual life          Number        exercise price
------------------    --------------    -------------    -----------------------    ------------    -----------------
<S>                     <C>               <C>                 <C>                         <C>           <C>
  $ .05 - $ .25          3,010,000         $  0.19             8.07 years                  1,096,563     $   0.19
  $ .42 - $ .50            147,000         $  0.49              .29 years                     96,875     $   0.49
  $ .53 - $ .75            665,000         $  0.65              .97 years                    592,000     $   0.65
  $ .78 - $1.00          1,415,000         $  0.85             2.34 years                  1,023,437     $   0.85
  $1.01 - $2.00            585,000         $  1.68             2.28 years                    293,750     $   1.70
</TABLE>

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

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

On April 27, 2000, the Company filed a Certificate of Designation with the State
of Minnesota providing for the designation of a series of preferred stock to be
named "Series A Preferred Stock," consisting of 4,782,608 shares for financing
of up to $3,000,000. On May 1, 2000, the Company received $900,000 during "the
first closing" on the issuance of 1.5 million shares of Series A Preferred
Stock. Issue costs totaled approximately $93,000. The Preferred Stock is not
redeemable and one share of Preferred Stock can be converted at the option of
the holder at any time after the date of issuance into one share of Common
Stock. The Certificate of Designation requires that the Company adjust the
conversion price for the holders of Series A Preferred Stock as a result of
certain sales of stock. Because of the Private Placement Offering in 2001, the
conversion price of Series A Preferred Stock has been automatically adjusted so
that each share is now convertible at the rate of approximately 1.04 shares of
Common Stock for each share of Series A Preferred Stock. The holder of each
share of Series A Preferred Stock has the right to one vote for each share of
Common Stock into which such Preferred Stock could then be converted. The
remaining unissued shares of Series A Preferred Stock totaling 3,282,608 shares
may be issued based on a schedule covering 180 days beginning April 28, 2000. On
October 28, 2000, the subscribers' right to purchase these remaining unissued
shares of Series A Preferred Stock expired. The proceeds from the sale of the
Series A Preferred Stock were used to payoff certain Company obligations,
enhance core products, and support future Company initiatives.

                                       45
<PAGE>

                                   LION, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

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

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

<TABLE><CAPTION>
                                                                               2001                  2000
                                                                          ----------------      ---------------
<S>                                                                      <C>                   <C>
 Supplemental disclosure of cash flow information:
    Cash paid during the year for interest                                $           -         $     146,450

 Non-cash investing and financing activities
    Exercise of stock options by note receivable                          $      21,250         $     309,375
    Common stock retired for cancellation of notes receivable             $     969,375         $     619,063
    Assets acquired under capital leases and notes payable                $      74,869         $           -
    Issuance of warrants as finders fee for financing                     $           -         $      62,410
    Capitalized software costs incurred through accrued liability         $           -         $      25,000
</TABLE>

NOTE O - RETIREMENT PLAN

The Company adopted a salary deferral retirement plan, or 401(k) plan, in April
2000. The plan covers all employees who meet the plan's eligibility
requirements. The Company can make discretionary contributions to the plan. No
contributions were made by the Company for the years ended December 31, 2001 and
2000.

NOTE P - QUARTERLY RESULTS (UNAUDITED)

The following is a summary of unaudited results of operations for the two years
ended December 31, 2001 and 2000:

<TABLE><CAPTION>
                                                                                        Net loss        Net loss
                                                                                        per basic      per diluted
Fiscal Year Ended                                Operating               Net             common          common
December 31, 2001:            Revenues          Income (Loss)      Income(Loss)          share            share
                              --------          -------------      ------------          -----            -----
                                                 (Restated)         (Restated)
<S>                      <C>               <C>                    <C>                  <C>              <C>
First Quarter             $     1,491,135   $        (32,680)      $ (28,160)           $    -           $    -
Second Quarter            $     1,563,196   $         65,112       $  63,843            $    -           $    -
Third Quarter             $     1,492,828   $         42,824       $  34,182            $    -           $    -
Fourth Quarter            $     1,463,445   $        (28,069)      $ (28,297)           $    -           $    -

Fiscal Year Ended
December 31, 2000:

First Quarter             $     1,542,082   $       (366,755)      $ (413,855)          $(.01)           $(.01)
Second Quarter            $     1,483,772   $       (218,332)      $ (258,972)          $(.01)           $(.01)
Third Quarter             $     1,574,605   $       (322,227)      $ (336,422)          $(.01)           $(.01)
Fourth Quarter            $     1,514,857   $       (207,693)      $ (234,041)          $(.01)           $(.01)
</TABLE>

                                       46
<PAGE>

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

         None.

                                    PART III

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

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

           Name                   Age               Position
           ----                   ---               --------
    DIRECTORS:
    John A. McMillan (1)          70         Chairman
    J.C. (Tuck) Marshall (1)      55         Director
    Jacob L. Smith  (2) (3)       62         Director
    Sam Ringer                    41         Director

    EXECUTIVE OFFICERS:
    John A. McMillan              70         CEO
    David Stedman                 52         President
    Chuck Aikens                  30         COO
    Steve Thomson                 49         CFO, Corporate Secretary, Treasurer


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

         Following is a discussion of the business background of each director
and executive officer. All directors serve until the next annual meeting of
stockholders or until their successors are duly elected and qualified. Sam
Ringer, co-founder, is a full-time employee of the Company. The other directors
devote only such time as may be necessary to our business and affairs.

DIRECTORS:

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

                                       47
<PAGE>

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

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

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

OFFICERS:

         DAVID STEDMAN, President of LION as of January 2001, joined LionInc.com
in May 1999 as Vice President of Marketing & Sales. In January 2000, Mr. Stedman
was promoted to COO of LionInc.com and has been its President since October
2000. Mr. Stedman has over 20 years of marketing experience that includes
expertise in market analysis, systems development, strategic and market
planning, identity creation, advertising and public relations. Most recently Mr.
Stedman was a Vice President/Director of Marketing for Safeco Properties, a real
estate development subsidiary of Safeco Insurance. Prior to Safeco Properties,
Mr. Stedman held a number of positions with advertising agencies both here in
the Northwest and in Alaska. Along with winning a variety of national and local
advertising awards, Mr. Stedman has been a guest speaker for a design class at
the University of Washington and has presented to a variety of business
organizations.

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

                                       48
<PAGE>

background, Mr. Aikens has also gained expertise in several programming
languages, database architecture, internet software design, and web development.

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

Board of Directors

         Our board of directors is composed of four members. Each director
currently serves until the next annual meeting of stockholders or until his
successor is duly elected and qualified. At each annual meeting of stockholders,
the directors' successors will be elected to serve until the next annual meeting
of stockholders. In addition, our bylaws provide that the authorized number of
directors will be between three and nine, with the exact number to be determined
by a majority of our board of directors or stockholders.

COMMITTEES OF THE BOARD OF DIRECTORS

         The standing committees of the Board of Directors of the Company are
the Executive Committee, Audit Committee and the Compensation Committee. There
is no standing nominating committee. The Executive Committee exercises all
powers of the Board in the management of the Company between meetings of the
Board, to the maximum extent permitted by law, except those functions assigned
to specific committees or reserved to the Board by the bylaws of the Company.
Messrs. McMillan and Marshall serve on the Executive Committee.

         The Audit Committee is responsible for reviewing the results and scope
of audits and other services provided by the Company's independent auditors and
the fees for related services performed during the year. The Audit Committee
also recommends to the Board of Directors the firm to be appointed as
independent auditors. The Audit Committee discusses audited financial statements
with management and generally meets with and considers suggestions from members
of management and our internal accounting personnel, as well as our independent
accountants, concerning our financial operations. The Audit Committee reviews
our annual financial statements, discusses with the auditors matters relating to
specific auditing standards, the accountants' independence, and difficulties
encountered during the course of the audit. The Audit Committee further reviews
its own independence and recommends to the Board of Directors that the audited
financial statements be included in our annual report. Mr. Smith serves as the
sole member of the Audit Committee.

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

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

                                       49
<PAGE>

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

         Based upon a review of the copies of the Section 16(a) reports
furnished to us, or written representations from one or more of these persons,
no annual Form 5 reports were required to be filed by them for the 2001 fiscal
year. We believe that there has been compliance with all Section 16(a) filing
requirements applicable to our officers, directors and ten-percent beneficial
owners; except that Sam Ringer failed to file one monthly report covering one
transaction, but did report this transaction late on a Form 4; Jack McMillan
failed to file two monthly reports covering two transactions, however, these
transactions were filed late on a Form 4; and Jake Smith filed a Form 5 late
that included one deferred transaction and one unreported transaction.

ITEM 10.   EXECUTIVE COMPENSATION

         The following summary compensation table indicates the cash and
non-cash compensation earned during the fiscal years ended December 31, 2001,
2000 and 1999 by our Chief Executive Officer and the other most highly
compensated executive officers serving during the year ended December 31, 2001.

<TABLE><CAPTION>
                                            Summary Compensation Table*
                                            ---------------------------

                                           Annual Compensation             Long-Term Compensation
                                    --------------------------------     ---------------------------
                                                                                        Securities
                                                                         ---------      Underlying
                                                                           Stock         Options/
Name and Principal Position          Year       Salary        Other        Awards        Warrants
---------------------------         ------     --------      -------     ---------      -----------
<S>                                  <C>            <C>          <C>         <C>          <C>
John A. McMillan, CEO                2001            -            -           -            15,000
                                     2000            -            -           -            30,000
                                     1999            -      $16,250           -           440,000

David Stedman, President             2001     $119,900            -           -           500,000

Steve Thomson, CFO                   2001     $ 76,100      $36,500(1)        -           400,000
</TABLE>


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

 (1)  320,000 shares of common stock were issued in lieu of cash compensation at
      fair market value with prices ranging from $.10 to $.15 per share.

                                       50
<PAGE>

 OPTION GRANTS LAST FISCAL YEAR.

         The following table sets forth information regarding options granted to
our executive officers during 2001.

<TABLE><CAPTION>
                                                 Number of       Percent of total
                                                 securities        stock options
                                                 underlying         granted to       Exercise or
                                               stock options       employees in       base price      Expiration
        Name and Principal Position               granted           fiscal year         ($/Sh)           date
        ---------------------------            -------------     ----------------    -----------      ----------
       <S>                                     <C>                  <C>            <C>            <C>   <C>
        John A. McMillan, CEO                       15,000               .5%            $0.06          12/17/05

        David Stedman, President                   500,000             16.3%            $0.20            2/2/11

        Steve Thomson, CFO                         400,000             13.1%            $0.20            2/2/11
</TABLE>

            During the year ended December 31, 2001, we granted employees
options to purchase shares of our common stock. The options vest at 6 1/4 % each
quarter over sixteen quarters, with some of the options vesting at 12 1/2 % per
quarter in profitable quarters. The options have a ten-year term, but are
subject to earlier forfeiture or cancellation in connection with termination of
employment or upon the optionee's death or disability.

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

         The following table provides information with respect to stock options
exercised by our named executive officers during the fiscal year ended December
31, 2001 and unexercised options or warrants held as of December 31, 2001. No
stock appreciation rights were exercised during 2001 or were outstanding at
December 31, 2001.

<TABLE><CAPTION>
                                                      Number of Securities Underlying       Value of Unexercised
                              Shares                    Unexercised Options/Warrants            In-the-Money
                             Acquired                 -------------------------------         Options/Warrants
                                on          Value         at Fiscal Year-End (#)            at Fiscal Year-End ($)
                             Exercise      Realized   -------------------------------    --------------------------
          Name                 (#)           ($)        Exercisable  Unexercisable       Exercisable  Unexercisable
          ----                 ---           ---        -----------  -------------       -----------  -------------
<S>                           <C>           <C>        <C>          <C>                 <C>          <C>
John A. McMillan,
     CEO
      Options                   -             -           345,000           -                   -            -
      Warrants                  -             -           833,333           -                   -            -

David Stedman, President
      Options                   -             -           503,125        446,875                -            -

Stephen Thomson,
     CFO
      Options                   -             -           521,875        328,125                -            -
</TABLE>

                                       51
<PAGE>

STOCK OPTION PLAN

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

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

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

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

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

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

                                       52
<PAGE>

remain exercisable for a period of one year after the termination of employment
or relationship with the Company.

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

         As of December 31, 2001, the Company had granted options to purchase an
aggregate of 17,351,375 shares of common stock (before reversion of 5,288,958
underlying shares due to stock option expirations and forfeitures), of which
5,822,000 underlying shares were outstanding at December 31, 2001. Of the
options granted, 5,240,000 of underlying shares were issued to our directors, of
which 915,000 were outstanding at December 31, 2001.

COMPENSATION OF DIRECTORS

         Tuck Marshall, Executive Committee member, receives $3,500 per month
for assisting LION on a regular basis with key strategic alliances. We provide
no cash compensation to any of our directors for serving on our board of
directors or for attendance of meetings of committees of the board of directors.
Non-employee directors are reimbursed for reasonable travel and other
out-of-pocket expenses incurred in connection with attendance at meetings of the
board of directors and committees of the board of directors. Employee directors
are eligible to receive option grants and direct stock issuances under our 1998
Stock Option Plan. Non-employee directors receive as an initial retainer options
to purchase 50,000 shares of common stock, exercisable at not less than the fair
market value of the Company's common stock on the day of grant. Thereafter,
under our 1998 Stock Plan, non-employee directors receive automatic option
grants each year to purchase 15,000 shares of common stock upon their reelection
at the annual meeting of shareholders.

                                       53
<PAGE>

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

         The following table sets forth certain information that has been
provided to the Company regarding the beneficial ownership as of December 31,
2001 of the Company's common stock by (a) each person who is known by the
Company to be a beneficial owner of more than five percent of the outstanding
common stock of the Company, (b) each director of the Company, (c) each of the
executive officers named in the Summary Compensation Table on this Form 10 -
KSB, and (d) all directors and executive officers of the Company as a group.

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

DIRECTORS AND EXECUTIVE OFFICERS:

John A. McMillan                                2,760,966  (4)       8.19%
J.C. (Tuck) Marshall                              555,000  (5)       1.69%
Jacob L. Smith                                     85,000  (6)         *
Sam Ringer                                      1,710,420  (7)       5.23%
David Stedman                                     571,875  (8)       1.73%
Steve Thomson                                     870,000  (9)       2.63%

OTHER BENEFICIAL OWNERS:

ICM Asset Management, Inc.                      1,879,000 (10)       5.78%

All directors and executive officers as a       7,155,683           20.09%
group (7 persons)


* Less than one percent.

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

(2) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
or warrants held by that person that are exercisable within 60 days of December
31, 2001 are deemed outstanding. These shares, however, are not deemed
outstanding for purposes of computing the ownership of any other person. To our
knowledge, except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the stockholders named in the table have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them.

(3) Percentage of beneficial ownership is based upon 32,526,978 voting shares
outstanding as of December 31, 2001, consisting of 31,026,978 shares of common
stock and 1,500,000 shares of Series A Convertible Preferred Stock. The Series A
Convertible Preferred Stock held by the person or group noted in the footnotes
to this table is convertible into an equivalent number of shares of common
stock.

(4) John McMillan is deemed the beneficial owner of 1,582,633 shares of common
stock, 345,000 shares underlying stock options and 833,333 shares underlying
warrants granted but not yet exercised, because

                                       54
<PAGE>

of his power to vote and dispose of those shares. The address of Mr. McMillan is
500 Pine Street, Seattle, WA 98101.

(5) Includes 355,000 shares underlying stock options not yet exercised. The
address of Mr. Marshall is 23600 S. Sheer Rd., Frankfort, IL 60423.

(6) Includes 45,000 shares underlying stock options not yet exercised. The
address of Mr. Smith is 3800 Ft. Bellingham Rd., Bellingham, WA 98225.

(7) Sam Ringer is deemed the beneficial owner of 1,543,753 shares of common
stock and 166,667 shares underlying warrants not yet exercised, because of his
power to vote and dispose of those shares.

(8)   Includes 571,875 shares underlying stock options not yet exercised.

(9)   Includes 550,000 shares underlying stock options not yet exercised.

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

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

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

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

                                       55
<PAGE>

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

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


















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<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 and Plan of Merger (change of domicile from Minnesota to
         Washington) (2)
3.3      Articles of Incorporation of LION, Inc. (3)
3.4      By-laws of LION, Inc., a Washington corporation (4)
4.1      Specimen Common Stock Certificate (1)
10.1     1998 Stock Option Plan with Form of Option Agreement (1)
10.5     Premises Lease Agreement (Renton Property) dated as of June 30, 1999
         (lease term beginning September 13, 1999 (5)
10.6     Office Suite Lease Agreement (Denver Property) dated as of September
         19, 2000 (6)
10.7     Lease Termination Agreement dated June 21, 2001; effective August 1,
         2001 - Renton Property (7)
10.8     Premises Lease Agreement (Seattle Property) - effective date August 1,
         2001 (7)
10.9     Employment Agreement - S. Thomson
10.10    Employment Agreement - D. Stedman


(1)      Incorporated by reference to the same exhibit number to the Company's
         Registration Statement on Form 10-SB (File No. 0-25159).
(2)      Incorporated by reference to Exhibit A in the Company's Definitive
         Proxy Statement dated October 20, 2000.
(3)      Incorporated by reference to Exhibit B in the Company's Definitive
         Proxy Statement dated October 20, 2000.
(4)      Incorporated by reference to Exhibit C in the Company's Definitive
         Proxy Statement dated October 20, 2000.
(5)      Incorporated by reference to the same exhibit number to the Company's
         Form 10 - QSB for the quarter ended September 30, 1999.
(6)      Incorporated by reference to the same exhibit number to the Company's
         Form 10 - QSB for the quarter ended September 30, 2000.
(7)      Incorporated by reference to the same exhibit number to the Company's
         Form 10 - QSB for the quarter ended June 30, 2001.

(b)      REPORTS ON FORM 8-K

         No Reports on Form 8-K were filed during the quarter ended December 31,
         2001.

                                       57
<PAGE>

                                   SIGNATURES
                                   ----------

         In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Seattle, Washington, on April 1, 2002.

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

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

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

          Signature                        Title                      Date

   /s/ John A. McMillan          Chairman of the Board and CEO     April 1, 2002
   /s/ J.C. (Tuck) Marshall      Director                          April 1, 2002
   /s/ Sam Ringer                Director                          April 1, 2002
   /s/ Jacob L. Smith            Director                          April 1, 2002
   /s/ Steve Thomson             CFO                               April 1, 2002
   /s/ Lisa Bouchakian Dunn      Controller                        April 1, 2002



                                       58

<PAGE>



                                  EXHIBIT INDEX


2.1      Agreement and Plan of Merger (change of domicile from Minnesota to
         Washington) (2)
3.3      Articles of Incorporation of LION, Inc. (3)
3.4      By-laws of LION, Inc., a Washington corporation (4)
4.1      Specimen Common Stock Certificate (1)
10.1     1998 Stock Option Plan with Form of Option Agreement (1)
10.5     Premises Lease Agreement (Renton Property) dated as of June 30, 1999
         (lease term beginning September 13, 1999 (5)
10.6     Office Suite Lease Agreement (Denver Property) dated as of September
         19, 2000 (6)
10.7     Lease Termination Agreement dated June 21, 2001; effective August 1,
         2001 - Renton Property (7)
10.8     Premises Lease Agreement (Seattle Property) - effective date August 1,
         2001 (7)
10.9     Employment Agreement - S. Thomson
10.10    Employment Agreement - D. Stedman

(1)      Incorporated by reference to the same exhibit number to the Company's
         Registration Statement on Form 10-SB (File No. 0-25159).
(2)      Incorporated by reference to Exhibit A in the Company's Definitive
         Proxy Statement dated October 20, 2000.
(3)      Incorporated by reference to Exhibit B in the Company's Definitive
         Proxy Statement dated October 20, 2000.
(4)      Incorporated by reference to Exhibit C in the Company's Definitive
         Proxy Statement dated October 20, 2000.
(5)      Incorporated by reference to the same exhibit number to the Company's
         Form 10 - QSB for the quarter ended September 30, 1999.
(6)      Incorporated by reference to the same exhibit number to the Company's
         Form 10 - QSB for the quarter ended September 30, 2000.
(7)      Incorporated by reference to the same exhibit number to the Company's
         Form 10 - QSB for the quarter ended June 30, 2001.





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