U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10 - KSB

|[X]                                         | ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES    
|------------------------------------------- | --------------------------------------------------------------
|                                            | EXCHANGE ACT OF 1934                                          
|                                           
|For the fiscal year ended December 31, 2007
|                                           
|[ ]                                         | TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
|                                            | EXCHANGE ACT OF 1934                                          

For the transition period from _____ to _____

Commission file number0-25159

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)  |  |                                  

|2801 Hollycroft St., Gig Harbor, WA      | 98116     
|---------------------------------------- | ----------
|(Address of principal executive offices) | (Zip code)




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

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

None

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

Common Stock - $.001 par value

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [   ]

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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 there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10 - KSB or any amendment to this Form 10  KSB. [X]

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes [   ] No [X]

State issuers revenues for its most recent fiscal year $9,744,000

The aggregate market value of the voting common stock held by non-affiliates of the Company as of March 10, 2008 was approximately $2,772,000 based upon 30,794,558 shares held by such
persons and the closing bid price of $.09 per share on that date. Shares of common stock held by each officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded because these people may be
deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.

On March 10, 2008, approximately 38,626,335 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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LION, Inc.

FORM 10-KSB

For the Fiscal Year Ended December 31, 2007

INDEX

|         |                                                                |  | Page
|-------- | -------------------------------------------------------------- |  | ----
|PART I   |                                                                |  |     
|ITEM 1.  | Description of Business                                        |  | 1   
|ITEM 2.  | Description of Property                                        |  | 7   
|ITEM 3.  | Legal Proceedings                                              |  | 7   
|ITEM 4.  | Submission of Matters To a Vote of Security Holders            |  | 7   
|        
|PART II  |                                                                |  |     
|ITEM 5.  | Market for Common Equity, Related Stockholder Matters and      |  |     
|         | Purchases of Equity Securities                                 |  | 8   
|ITEM 6.  | Managements Discussion and Analysis                           |  | 9   
|ITEM 7.  | Financial Statements                                           |  | 30  
|ITEM 8.  | Changes In and Disagreements With Accountants on Accounting    |  |     
|         | and Financial Disclosure                                       |  | 57  
|ITEM 8A  | Controls and Procedures                                        |  | 57  
|ITEM 8B  | Other Information                                              |  | 58  
|        
|PART III |                                                                |  |     
|ITEM 9.  | Directors, Executive Officers, Promoters, Control Persons and  |  |     
|         | Corporate Governance; Compliance
    with Section 16(a) of the |  |     
|         | Exchange Act                                                   |  | 59  
|ITEM 10. | Executive Compensation                                         |  | 63  
|ITEM 11. | Security Ownership of Certain Beneficial Owners and            |  |     
|         | Management and Related Stockholder Matters                     |  | 67  
|ITEM 12. | Certain Relationships and Related Transactions, and Director   |  |     
|         | Independence                                                   |  | 69  
|ITEM 13. | Exhibits                                                       |  | 70  
|ITEM 14. | Principal Accounting Fees and Services                         |  | 72  
|         | Signatures                                                     |  | 73  

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

LION, Inc. provides software and services that enable mortgage loan brokers and lenders to increase their productivity in originating single family residential mortgage loans. The
Companys flagship product, Precision LPX is a suite of products consisting of a loan pricing engine, a database of industry leading lenders loan programs and pricing information, web enabled tools and other transactional services
designed to enable large lenders to originate, price, and lock loans. LIONs Precision Access and Precision Lion Broker product suites, which are based on the Precision LPX technology platform, are aimed at medium-sized lenders and individual
brokers, respectively. Precision Lion Broker gives subscribing brokers access to LIONs well known, proprietary business-to business Internet portal, LION Broker (formerly known as LION Pro). LION also designs, develops and hosts retail
websites for mortgage lenders, origination companies, and individual mortgage brokers.

LION maintains executive offices at 2801 Hollycroft St., Gig Harbor, Washington 98335. Our telephone number is 206-577-1440. We maintain a website at www.lionmts.com. Our SEC reports can be
accessed through the investor relations section of our website. There we make available, free of charge, our annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K and any amendments to those reports as soon as
reasonably practicable after we electronically file such material with, or furnish to, the Securities and Exchange Commission (SEC). These reports are also available from the SEC website at www.sec.gov. The information found on our
website is not part of this or any other report we file with or furnish to the SEC.

Discontinued Operations

On September 28, 2007, we sold our Mortgage 101 website and certain associated assets to Internet Brands, Inc. (Internet Brands) for cash in the amount of $5.35 million (of
which $350,000 was subject to post-closing adjustment by December 31, 2007). Internet Brands also assumed liabilities arising from the purchased assets after closing, including all post-closing liabilities for performance under the assumed
contracts.

On November 15, 2007, we sold our TRMS business and certain associated assets, including our Pipeline Tools technology, to Compass Analytics, LLC (Compass) for cash in the amount of
$1.267 million. In addition, the sale price contemplates a post-closing contingent payment to LION of up to $500,000 by May 15, 2008 based on the value of client revenues associated with the TRMS business six months after the closing date,
subject to valid claims by Compass against the Company under the indemnification provisions of the agreement. Due in part to current serious operating and financial challenges in the mortgage industry, we cannot assure you that any portion of the
post-closing contingent payment will be collected. Compass also assumed liabilities arising from the purchased assets after closing, including all post-closing liabilities for performance under the contracts assumed by Compass in the
transaction.

TRMS is a registered Commodity Trading Advisor and is reported as a separate operating segment. Both the TRMS segment and Mortgage 101 and Pipeline Tools (part of the LION segment) are
accounted for as discontinued operations in the financial statements contained in this report.

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As such, throughout this report, discontinued operations refers to the TRMS segment, Mortgage 101 and Pipeline Tools, collectively. For the year ended December 31, 2007, LION
generated revenue of approximately $9.744 million, including $4.256 million related to its TRMS and Pipeline Tools business, and $1.062 million related to its Mortgage 101 business. For further information on the discontinued operations
see Note 2 to the Notes to the Consolidated Financial Statements included in Item 7 of this report.

Customers, Products and Services

Precision LPX (LPX), also known as LockPoint Xtra®,is a suite
of products consisting of a loan pricing engine, a database of a lenders own loan programs and pricing information (the Loan & Price Database), web enabled tools and other transactional services designed to enable large lenders
to originate, price, and lock loans. The pricing engine together with the database of the lenders loan programs enables lenders to determine and transmit risk-based lockable loan prices to their own loan officers, brokers or correspondents.
Lenders generally integrate the LPX pricing engine into their LOS and processing workflows, using the LPX pricing engine transactional services and various exports. In addition, lenders can tie the LPX Precision pricing and locking tool into their
wholesale, retail, or correspondent lending website. Through utilizing the Precision LPX product suite of tools, lenders can automate the process of loan origination, product selection and eligibility, generate real-time risk based adjusted loan
pricing, loan locking, and fulfillment.

LION generates revenues from Precision LPX through implementation fees, recurring monthly billings based on locked loan volumes subject to monthly minimums, and custom development services.
Contracts typically provide for a two year initial term followed by automatic renewals for successive one year terms.

Precision Accessis a repackaging of Precision LPX for community banks, small mortgage lenders who both fund and broker loans, and mortgage loan
brokerage firms with multiple originators. Precision Access offers these small to medium-sized originators a simplified version of Precision LPXs pricing engine. Large lenders, which originate loans for their own account, require a robust
pricing engine that works on detailed data input and reduces human intervention in the pricing process. Brokerage firms, on the other hand, use pricing engines solely to determine product eligibility and pricing prior to submitting loan files to a
lender for approval. As such, they require a less complicated and less expensive alternative.

Precision Access also differs from Precision LPX in regard to the database of loan programs and pricing information. For Precision Access customers, LION builds and maintains a database which
is designed for small and medium-sized originators. The database consists of the originators own loan programs, if any, and the loan programs of the originators lenders. LION also builds a private label website portal to contain
Precision Access.

Precision Access generates revenue from implementation fees, recurring monthly billings based on flat contract rates, and custom development services. Contracts typically provide for a two year
initial term followed by automatic renewals for successive one year terms.

Precision LION Brokerrepackages LPX for individual brokers. Like Precision Access, Precision Lion Broker uses a simplified version of LPX. However,
rather than build for each individual broker a private label website to contain the pricing engine and related productivity tools, Precision LION Broker gives each broker access to LIONs proprietary Internet portal, LION Broker.

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LION Broker also provides subscribers with access to all wholesale programs in the Loan & Price Database. The database together with the pricing engine enables originators to offer their customers real-time product
eligibility and pricing information. In addition, the LION Broker portal contains information about lenders and provides access to lenders loan documents. LION Broker also contains the popular Market Commentary that is published
twice each day, a Market Snapshot, which shows indicative pricing for treasury securities and forward pricing for FNMA and FHLMC MBS, and Ratesheets on Demand, which provides mortgage ratesheets for each of a lenders
loan programs. Finally, LoanLink, a loan exchange platform, enables brokers to quickly contact lenders for non-conforming, subprime, commercial and other niche loans.

Precision LION Broker generates revenue from subscribing mortgage brokers and participating lenders. Subscribing brokers pay recurring monthly subscription fees. Participating lenders, who
regard LION Broker as a vehicle to market themselves to brokers, pay LION for advertising through banner ads. Advertisers pay LION a flat fee, initially for a ninety day term, and thereafter monthly. Lenders also pay LION for heightened profiles on
LION Broker and for marketing intelligence, such as the identification of brokers that visit lenders websites, search their ratesheets or examine other information about them on LION Broker.

Retail Websitesare offered to mortgage companies and individual originators to help them attract new customers, build brand identity, efficiently
connect with service providers and better serve their borrowers. This product is intended to create and foster relationships between consumers and mortgage originators while enabling originators to more efficiently manage their online production
channel and maximize the business value of their online operations. Template and custom design solutions deliver a combination of standard and custom content to customers each of whom may have multiple websites and Loan Officer pages. LION also
sells Web tools to developers for the purpose of enabling them to integrate websites not developed by LION with LIONs retail website content library and various mortgage toolsets.

In keeping with LIONs goal of offering many products from a single technology platform, the Company developed a new custom product which was released in October 2007. The new Retail
Website FX product upgrades to a new platform that integrates many tools and features available through the Precision product suite. Customers can bundle the various services within the Precision LPX suite to create a custom package of features to
meet their business needs. In addition to providing users with a more feature rich, price competitive product, the offering enables the customer to fully manage all content on its site.

The retail website business generates revenue from custom design and template fees, setup and monthly hosting fees, administrative site management fees and the sale of related functionality
tools.

Sales and Marketing

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

SALES FORCE. We maintain two professional sales groups in Denver and Gig Harbor. Each group is targeted toward a specific market segment representing corresponding product offerings. With our
Precision product group, each sales group has the opportunity to sell this product, creating better synergies and up sell opportunities across all product lines. The sales associates are compensated on a commission basis largely derived from setup
and hosting fees. Initial sales efforts are made through a

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combination of outbound calls following a marketing campaign, inbound phone inquires, and brokers who register online for services. For our more complex products with longer sales cycles, formal presentations are made
through customer site visits or by multimedia conferencing achieved via the Internet.

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

PRESS RELEASES AND OTHER PRESS COVERAGE. We issue press releases on product launches, new product releases, new customer acquisitions and achievement of certain milestones. We also have been
the subject of published reviews of mortgage technology products, quoted in trade journals and have been the subject of articles written about the Company.

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

Research and Development

We develop our own proprietary software for providing products and services to our customers. These efforts are funded primarily through operations. Research and development expense was approximately $1,448,000 and
$1,649,000 for 2007 and 2006, respectively.

Competition

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

LION distinguishes itself through its ability to streamline the mortgage fulfillment process while providing the tools and technology to enhance the ability of its customers to market
themselves to potential customers. LION sells directly to mortgage brokers through a telephonic and email sales effort, markets to realtors directly and through third parties and sells to mortgage originators and lenders through a professional sales
staff.

The market for Internet-based products and services remains intensely competitive, continually evolving, and subject to rapid technological change. We expect competition to intensify and
increase in the future. Additionally, 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.

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

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

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

The field of competitors providing sophisticated lender pricing solutions that compete with our LockPoint Xtra® product has been expanded. LockPoint Xtra® provides hosted pricing
capabilities coupled with loan application capture interfaces. It is differentiated from competitive products by integration of pricing interfaces with its central price engine.

Government Regulation

Until discontinuing operations in November 2007, our mortgage pipeline risk management services were provided by TRMS, a Commodity Trading Advisor registered with the Commodity Futures Trading
Commission and the National Futures Association. Commodity Trading Advisors are subject to detailed disclosure, reporting, and recordkeeping requirements.

Our continuing operations are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future laws and
regulations could impede the growth of the Internet or other online services which in turn could decrease the demand for our products and services, increase the cost of doing business, or otherwise have an adverse effect on our business, operating
results or financial condition. These regulations and laws may cover taxation, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, the provision of online
payment services, broadband Internet access, and the characteristics and quality of products and services not currently subject to direct regulation by any government agency. Other than regulations applicable to businesses generally, there are
currently few laws or regulations directly applicable to access to or commerce on the Internet. However, the applicability to the Internet of existing laws governing issues such as property ownership, sales and other taxes, libel and personal
privacy is developing. We cannot predict the impact, if any, that future regulation or regulatory changes might have on our business. Unfavorable resolution of these issues may harm our business, diminish the demand for our products and services or
increase our cost of doing business.

Proprietary Rights

We rely on a combination of copyright and trademark laws, trade secrets, software security measures, license agreements and nondisclosure agreements to protect our proprietary technology
and

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software products. We have a variety of registered Internet domain names. Regulations governing domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third parties from
acquiring domain names that are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights. We currently have federally registered trademarks on LockPoint Xtra® and Lockpoint®.

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

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

Employees

At December 31, 2007, we had 45 employees of which 40 were full-time. There are 5 commissioned marketing associates. 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.

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ITEM 2. DESCRIPTION OF PROPERTY

Our executive offices are located in Gig Harbor, Washington, where we currently lease approximately 8,376 square feet. We also use this space for research and development, computer information
services, product support, sales, and related business use. The lease expires on March 31, 2009. There is a renewal option for one 5-year term.

We currently lease 7,534 square feet of office space in San Rafael, California. We discontinued using this space during fourth quarter 2007 after the sale of our TRMS business. We currently
sublease 37 percent of the space to the acquirer of the TRMS business and are in the process of sub-leasing the remaining space. The lease expires on July 17, 2010.

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

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

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

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2007.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND PURCHASES OF EQUITY SECURITIES.

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, |  | 2007  |  | 2006 
|------------------------------ |  | ----- |  | -----
|                               |  | High  |  | Low  
|First Quarter                  |  | $0.30 |  | $0.18
|Second Quarter                 |  | 0.26  |  | 0.12 
|Third Quarter                  |  | 0.20  |  | 0.06 
|Fourth Quarter                 |  | 0.13  |  | 0.07 

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 1,346 holders of record of our common stock as of March 10, 2008. Most shares of our common stock are held by brokers and other institutions on behalf of
shareholders.

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.

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ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS

OVERVIEW

On September 28, 2007, we sold our Mortgage 101 website and certain assets to Internet Brands, Inc. (Internet Brands). The agreement provided for payment of $5,000,000 at closing and an additional payment of up to $350,000 by December 31, 2007, subject to a subsequent adjustment to reconcile certain revenues and customer deposits
related to Mortgage 101 and to satisfy valid claims by Internet Brands against the Company under the indemnification provisions of the agreement. Internet Brands also assumed liabilities arising from the purchased assets after closing, including all
post-closing liabilities for performance under the contracts assumed by Internet Brands in the transaction. Of the additional payment of $350,000, $319,000 was received by December 31, 2007 with the balance in early January 2008. Mortgage
101, which is part of the LION segment, is accounted for as a discontinued operation, and, accordingly, its results of operations and the gain on the sale of Mortgage 101 are reported separately in our financial statements.

On November 15, 2007, we completed the sale of the Companys TRMS business and certain assets to Compass Analytics, LLC (Compass). Compass paid $1,266,921 to the Company at closing, based on the value at closing of client revenues associated with the TRMS business. In addition, the agreement contemplates a post-closing contingent payment to the
Company of up to $500,000 based on the value of client revenues associated with the TRMS business six months after the closing date, subject to valid claims by Compass against the Company under the indemnification provisions of the agreement.
Due in part to current serious operating and financial challenges in the mortgage industry, we cannot assure you that any portion of the post-closing contingent payment will be collected. Compass also assumed liabilities arising from the purchased
assets after closing, including all post-closing liabilities for performance under the contracts assumed by Compass in the transaction. The agreement contains indemnities by the parties for breaches of representations, warranties, and covenants made
by each party in the agreement. At September 30, 2007, the TRMS business was considered an asset group held for sale per SFAS No. 144. SFAS No. 144 requires an asset group that is held for sale to be recorded at the lower of its carrying amount or
fair value less costs to sell. Accordingly, we recorded an impairment loss in our TRMS segment during third quarter 2007 totaling $1.4 million. The TRMS business, which is primarily comprised of the TRMS segment, is accounted for as a
discontinued operation, and, accordingly, its results of operations, the impairment loss, and the gain on the sale are reported separately in our financial statements.

Due to the significant decline in the mortgage industry during the third quarter of 2007, the Company viewed this as a trigger event and tested goodwill for impairment at September 30, 2007. As
a result of the impairment test, a goodwill impairment loss of $274,000 was recognized for the LION segment during the third quarter of 2007.

In connection with our restructuring efforts during fourth quarter 2007, it was determined that estimated undiscounted future cash flows from continuing operations from the use of our fixed
assets, including disposition, would be less than the carrying value of the fixed assets. Accordingly, the Company incurred a non-cash charge for impairment of fixed assets totaling $549,000. The remaining net book value of these operating
assets is classified as Property and Equipment in the consolidated balance sheets.

Throughout this report, discontinued operations refers to the TRMS segment, Mortgage 101 and Pipeline Tools, collectively. For the year ended December 31, 2007, LION generated
revenue of

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approximately $9.744 million, including $4.256 million related to its TRMS operating segment and Pipeline Tools, and $1.062 million related to its Mortgage 101 business. For further information on the
discontinued operations see Note 2 to the Notes to the Consolidated Financial Statements included in Item 7 of this report.

Going forward, our remaining business is comprised of our Loans product group. We provide software and services that enable mortgage loan brokers and lenders to increase their productivity in
originating single family residential mortgage loans. Our flagship product, Precision LPX is a suite of products consisting of a loan pricing engine, a database of industry leading lenders loan programs and pricing information, web enabled
tools and other transactional services designed to enable large lenders to originate, price, and lock loans. LIONs Precision Access and Precision Lion Broker product suites, which are based on the Precision LPX technology platform, are aimed
at medium-sized lenders and individual brokers, respectively. Precision Lion Broker gives subscribing brokers access to LIONs well known, proprietary business-to-business Internet portal, LION Broker (formerly known as LION Pro). LION also
designs, develops and hosts retail websites for mortgage lenders, origination companies, and individual mortgage brokers.

Our financial performance continues to be adversely affected by challenging conditions in the mortgage lending markets. Higher interest rates, falling refinance activity, rising home loan
delinquency and foreclosure rates, and industry pressure on subprime lending, continued to exert pressures on the lenders and brokers we serve. Revenue from continuing operations for 2007 totaled $4.4 million, a decrease of 23% from $5.7
million for 2006.

We have continued to implement our cost cutting plans that have been scheduled to be phased in throughout 2007 and into 2008. We have reduced approximately 60% of our workforce year over year,
consolidated our Seattle, San Rafael and Denver operations into our Gig Harbor operations, and continue to reduce discretionary spending, occupancy costs and marketing. Reductions have been made across all reporting units of the Company. Achieving
cost cutting and operational realignment is just one component of our strategy. A redesign of our LION Pro Corporate offering, now known as Precision Access, was launched in February 2007. Precision LION Broker, which includes LION Pro, was launched
at the end of second quarter 2007. We launched the custom version of our new retail website suite of products in early October 2007.

Operating expenses from continuing operations for fourth quarter 2007 decreased 5% to $2.4 million compared to $2.5 million for fourth quarter 2006. The decrease was offset by an
impairment loss on fixed assets totaling $549,000 in fourth quarter 2007. For the year 2007, operating expenses decreased 8% to $9.9 million compared to $10.7 million for the prior year. We reported net income for 2007 of $126,000
inclusive of a gain on the sale of Mortgage 101 of approximately $5.2 million offset by an impairment of goodwill totaling $1.6 million and impairment of fixed assets totaling $549,000 compared to a net loss of $1.3 million or
$.03 per share for 2006.

Our Strategic Review Committee continues to evaluate a full range of strategic alternatives available to the Company. The Committee is currently using an investment banker to assist in this
process. Strategic alternatives may include, without limitation, continued execution of the Companys operating plan, partnering or other collaboration agreements, a merger or other strategic transaction, the sale of some or all of the
Companys remaining assets, or discontinuing our operations and distributing our remaining available assets to shareholders. There can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions,
or that, if completed, any agreements or transactions will be successful or on attractive terms. The Company typically will

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not disclose developments with respect to this process unless and until the evaluation of strategic alternatives has been completed or it has entered into a material definitive agreement.

In March 2008, we entered into negotiations to sell the remaining assets of the Company. If current negotiations result in a definitive agreement which is acceptable to the Board of Directors,
it is anticipated that the asset-disposition transaction would be presented to LIONs shareholders for approval.

In February 2008, auctions failed for $1.3 million of our auction rate securities, and as a result, our ability to liquidate our investment and fully recover the carrying value of our
investment in the near term may be limited or not exist. An auction failure means that the parties wishing to sell securities could not do so. All of our auction rate securities are currently rated AAA, the highest rating by a rating agency. If the
issuers are unable to successfully close future auctions and their credit ratings deteriorate, we may in the future be required to record an impairment charge on these investments. We do not believe these securities are currently impaired, primarily
due to the collateral guarantees and AAA ratings of the underlying securities. Based on our expected operating cash flows, and our other sources of cash, we do not anticipate the potential lack of liquidity on these investments to affect our ability
to execute our current business plan. As of December 31, 2007, the Company held $1.3 million of auction rate securities which are included in long-term investments available for sale in the consolidated balance sheets.

RESULTS OF OPERATONS(dollars in thousands, except per share data)

|                                                      |  |   | For the year ended |  
|----------------------------------------------------- |  | - | ------------------ | -
|                                                      |  |   | December 31,       |  
|                                                      |  |   | 2007               |  
|Revenues                                              |  | $ | 4,426              |  
|Operating expenses                                    |  |   | 9,889              |  
|Operating loss                                        |  |   | (5,463             | )
|Other income  net                                    |  |   | 117                |  
|Loss from continuing operations before tax            |  |   | (5,346             | )
|Income tax benefit (expense)                          |  |   | 13                 |  
|Net loss from continuing operations                   |  |   | (5,333             | )
|Income from discontinued operations net of tax        |  |   | 5,459              |  
|Net income (loss)                                     |  | $ | 126                |  
|Net income (loss) per common share, basic and diluted |  | $ | -                  |  

Revenues and products from continuing operations

Revenues from continuing operations include Precision LPX, which enables large lenders to originate, price, and lock loans; Precision Access and Precision LION Broker (including LION Pro),
which are based on the Precision LPX technology platform and are aimed at medium-sized lenders and individual brokers, respectively; and Retail Websites for mortgage lenders, origination companies and individual mortgage brokers.

We are continuing to make strategic changes to our products. A redesign of our LION Pro Corporate offering, now known as Precision Access, was launched in February 2007. Precision LION

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Broker, which includes LION Pro, was launched at the end of second quarter 2007. The custom version of our new Retail Website product was launched in October 2007. In addition, our business-to-business Internet portal,
Lioninc.com, was redesigned to accommodate the changes for Precision LION Broker and Retail Websites and also allow us to take advantage of a more traditional advertising model. The Lioninc.com redesign includes an e-commerce application to
facilitate purchase and delivery of our more commoditized Precision LION Broker and template Retail Website products which allows our customers to order, pay for and use these products immediately after point of sale, requiring less of our resources
and development time to maintain.

Revenue from continuing operations decreased 23% to $4.4 million in 2007 compared to $5.7 million for 2006. We continue to see contraction in our mortgage broker and lender customer
base resulting from higher interest rates, lower loan origination volumes, rising home loan delinquency and foreclosure rates, lender consolidation, mortgage brokers leaving the industry, and industry pressure on subprime lending. While our revenues
from Precision LPX have increased $100,000 or 14% when comparing the year over year results, fourth quarter 2007 revenue compared to the previous quarter are flat. We continue to see signs that the sales cycle is getting longer.

Operating expenses from continuing operations(dollars in thousands)

%2007
      
      
      
      2006
      
      
      
      Change
      
      
      ChangeDirect costs
      
      $
      3,093
      
      
      $
      3,505
      
      
      $
      (412
      )
      
      (12
      )%Selling and marketing
      
      
      982
      
      
      
      1,359
      
      
      
      (377
      )
      
      (28
      )%General and administrative
      
      
      3,237
      
      
      
      3,806
      
      
      
      (569
      )
      
      (15
      )%Research and development
      
      
      1,448
      
      
      
      1,649
      
      
      
      (201
      )
      
      (12
      )%Depreciation and amortization
      
      
      306
      
      
      
      385
      
      
      
      (79
      )
      
      (20
      )%Fixed asset impairment
      
      
      549
      
      
      
      -
      
      
      
      549
      
      
      NAGoodwill impairment
      
      
      274
      
      
      
      -
      
      
      
      274
      
      
      NATotal
          operating expenses
      
      $
      9,889
      
      
      $
      10,704
      
      
      $
      (815
      )
      
      (8
      )%


Direct costs

Direct costs are comprised primarily of website fulfillment, technology infrastructure support, product and contract support, and product deployment. Direct costs for 2007 decreased 12% to
$3.1 million compared to $3.5 million for 2006. The decrease is primarily due to a reduction in certain maintenance support services related to our production datacenters, lower lender database support costs, and fewer retail website
deployment resources due to decreased volumes in retail website sales.

Selling and Marketing

Selling and marketing expenses are comprised primarily of advertising and marketing costs, sales salaries and related support costs. Selling and marketing expenses for 2007 decreased 28% to
$982,000 compared to $1.4 million for 2006. The decrease is due primarily to a reduction in sales commissions and resources due to lower sales volume, lower advertising and fewer tradeshows attended.

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General and Administrative

General and administrative expenses are comprised primarily of management and administrative salaries and related costs, legal and audit fees, outside consulting services, certain
  telecommunications expenses, occupancy costs, and other administrative related expenses. General and administrative expenses for 2007 decreased 15% to $3.2 million compared to $3.8 million for 2006. The decrease was primarily due to lower
  finance, accounting and administrative support costs and occupancy costs due to consolidation of offices; lower stock option expense as a result of the resignation of our CEO effective April 2007 and no new grants of stock options to non-employee
  directors during 2007; and expenses included in 2006 that did not recur during 2007 for strategic undertakings and the accrual for the settlement of an unasserted possible claim. The overall decrease was offset by increased bad debt expense
  throughout 2007.

Research and Development

Research and development expenses are comprised primarily of engineering salaries and related costs. Research and development expenses for 2007 decreased 12% to $1.4 million compared to
$1.6 million for 2006. The decrease is primarily a result of certain payroll costs capitalized on our Precision LION Broker (inclusive of LION Pro) and Retail Website product initiatives and fewer resources needed as these initiatives are
completed.

Depreciation and Amortization

The decrease in depreciation and amortization expense for 2007 compared to the prior year is the result of certain equipment, computers and software being fully depreciated at the end of
2006.

Impairment of Goodwill and Fixed Assets

The Company tested goodwill for impairment at September 30, 2007. As a result of the impairment test, a goodwill impairment loss of $274,000 was recognized for the LION segment during the
third quarter of 2007. There was no impairment charge in 2006.

In connection with our restructuring efforts during fourth quarter 2007, it was determined that estimated undiscounted future cash flows from continuing operations from the use of our fixed
assets, including disposition, would be less than the carrying value of the fixed assets. Accordingly, the Company incurred a non-cash charge for impairment of fixed assets totaling $549,000. The remaining net book value of these operating
assets is classified as Property and Equipment in the consolidated balance sheets.

Interest Expense and Interest Income

For 2007 and 2006, interest expense is primarily comprised of interest on 8% promissory notes totaling $972,000 related to the TRMS acquisition in October 2004. The decrease in interest
expense in 2007 compared to the prior year is due to the payment in full of these notes in October 2007.

For 2007 and 2006, interest income is comprised of interest earned on cash, cash equivalents and marketable securities. Interest earned increased slightly in 2007 due to cash proceeds from the
sale of Mortgage 101 in late September 2007 and the sale of the TRMS business in mid-November 2007.

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Income Tax Expense

The income tax expense for 2007 was $79,000 compared to income tax expense of $161,000 for the prior year from both continuing and discontinued operations. The 38.5% effective tax rate
for 2007 is primarily due to payment of AMT and certain minimum state LLC fees and taxes which were offset by a federal income tax refund. The (14)% effective tax rate for 2006 is primarily due to payment of certain minimum state LLC fees and taxes
and the recording of full deferred tax valuation allowances totaling $150,000 due to the uncertainty of realization.

Realization of deferred tax assets is primarily dependent upon the Company reporting taxable income prior to expiration of net operating losses. At December 31, 2005, the Company had net
deferred income tax assets of $150,000, which were the result of an income tax benefit recorded in the prior year, and which represented a portion of its net operating loss carryforwards that Company management determined was more likely than
not to be realized by offsetting future taxable income. During the fourth quarter of 2006, the Company recognized income tax expense of $150,000 as a result of increasing the deferred tax valuation allowance, such that the allowance is in the
full amount of deferred tax assets.

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Operating Segments

Throughout most of 2007, the Company had two operating segments, TRMS and the integrated software, services and lead generation businesses in which the Company is engaged which is referred to
as the LION segment. On November 15, 2007 we consummated the sale of TRMS including our Pipeline Tools technology. In addition, the assets of Mortgage 101 were sold on September 28, 2007. The operating results of TRMS (the TRMS segment) and Mortgage
101 and Pipeline Tools (part of the LION segment) are included in discontinued operations in the consolidated statements of operations.

TRMS is a registered Commodity Trading Advisor and generates revenues through hands-on delivery of Risk Management Services, while LIONs other combined operations generate revenues
primarily for sales of software related products and services. Intercompany revenues represent fees for Pipeline Tools technology and services purchased by TRMS from its parent, LION, which are generally accounted for at current market prices and
are eliminated in consolidation. Condensed operating segment information is as follows (in thousands):

|                               |  |   | 2007   |   |  |   | 2006   |  
|------------------------------ |  | - | ------ | - |  | - | ------ | -
|Revenue                        |  |   |        |   |  |   |        |  
|LION  continuing operations   |  | $ | 4,426  |   |  | $ | 5,723  |  
|LION  discontinued operations |  |   | 1,447  |   |  |   | 2,294  |  
|                               |  |   | 5,873  |   |  |   | 8,017  |  
|TRMS  discontinued operations |  |   | 3,871  |   |  |   | 5,685  |  
|Total                          |  | $ | 9,744  |   |  | $ | 13,702 |  
|                              
|Operating income (loss)        |  |   |        |   |  |   |        |  
|LION  continuing operations   |  | $ | (5,463 | ) |  | $ | (4,981 | )
|LION  discontinued operations |  |   | (200   | ) |  |   | 135    |  
|                               |  |   | (5,663 | ) |  |   | (4,846 | )
|TRMS  discontinued operations |  |   | 501    |   |  |   | 3,592  |  
|Total                          |  | $ | (5,162 | ) |  | $ | (1,254 | )

The following discussion relates to the combined results for both continuing and discontinued operations in the LION segment. LION revenue for 2007 declined 38% to $5.9 million compared to
$8.0 million for 2006. Our financial performance continued to be impacted by challenging conditions in the mortgage lending markets. With the exception of Precision LPX (which was flat for fourth quarter 2007 compared to the previous quarter but
increased year over year), LIONs other products declined as a result of continued contraction in loan origination volumes for our broker and lender customers.

LION operating expenses for 2007 remained unchanged compared to 2006, however, 2007 included an impairment loss on goodwill of $274,000, an impairment loss on fixed assets of $549,000,
and increased bad debt expense which were offset by a cost reduction from capitalization of research and development costs related to our product initiatives, reduction in lead advertising for Mortgage 101 as a result of reliance on organic
generation of traffic, reduced sales commissions due to lower sales volume, and lower salaries and stock option expense.

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TRMS revenue for 2007 declined 32% to $3.9 million compared to $5.7 million for the prior year. There continued to be a sharp decline in industry mortgage volume which has adversely
affected the fees we collected in connection with the variable pricing component of our pricing structure.

TRMS operating expenses for 2007 declined 4% compared to 2006 due primarily to increased trade errors during the first half of the year, bad debt expense and sales costs which were offset by
lower software licensing fees paid to LION for use of the Pipeline Tools technology. The decreased operating income for 2007 compared to the prior year is primarily due to decreasing revenues, trade errors and bad debt expense.

FINANCIAL POSITION

December 31, 2007, we had approximately $4.9 million in cash and cash equivalents. Historically, we have funded our activities primarily from cash provided by operations, however our
operating activities used cash during 2007. Other non-cash items are primarily comprised of depreciation and amortization, stock option and restricted stock expense, and change in allowance for doubtful accounts. The change in cash and cash
equivalents is as follows (in thousands):

|                                                     |  |  
|---------------------------------------------------- |  | -
|                                                     |  |  
|                                                    
|Net income (loss)                                    |  | $
|Non-cash items:                                      |  |  
|Impairment loss on TRMS Business held for sale       |  |  
|Goodwill impairment                                  |  |  
|Fixed asset impairment                               |  |  
|Gain on sale of Mortgage 101                         |  |  
|Other                                                |  |  
|                                                     |  |  
|Changes in working capital                           |  |  
|Net cash used in operating activities                |  |  
|                                                    
|Proceeds from sale of Mortgage 101 assets            |  |  
|Proceeds from sale of TRMS assets                    |  |  
|Other                                                |  |  
|Net cash provided by (used) in investing activities  |  |  
|                                                    
|Payment of long-term obligations                     |  |  
|Other                                                |  |  
|Net cash used in financing activities                |  |  
|                                                    
|Net increase (decrease) in cash and cash equivalents |  |  
|Cash and cash equivalents at beginning of period     |  |  
|Cash and cash equivalents at end of period           |  | $

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Operating Activities

During 2007, cash from operating activities decreased due to operating losses from reduced revenues, resources used for LIONs product initiatives, a decrease in accrued salaries and
benefits as a result of down-sizing the Companys organization, and a decrease in deferred revenue due to the loss of several large lender customers. This decrease was offset primarily by an increase in accounts payable and accrued liabilities,
increases in payments on customer contracts and decreases in prepaids and other assets due primarily to reductions in various maintenance agreements related to our datacenters.

During 2006, cash from operating activities decreased due to operating losses from reduced revenues, payments on strategic undertakings, settlement of an unasserted possible claim relating to
the Companys use of third-party intellectual property, and decreases in accounts payable due to our normal business operating cycle. This decrease was offset primarily by increases in payments on customer contracts.

Investing Activities

During 2007, investing activities provided cash of $5.2 million which primarily consisted of proceeds from the sale of Mortgage 101 assets totaling $5.3 million and the sale of TRMS
assets totaling $1.1 million which were offset by hardware and software upgrades to our datacenters in advance of implementation of our product initiatives for LION Pro, Retail Websites and Mortgage 101 totaling $334,000, capitalized
software development costs from vendors and LIONs research and development resources related to these product initiatives totaling $388,000, and the purchase of available-for-sale securities totaling $400,000.

During 2006, investing activities used cash of $241,000, which consisted of the purchase of short-term available-for-sale securities totaling $100,000 with the remainder of the increase
due to upgrades to computer hardware and software.

Financing Activities

During 2007, financing activities primarily related to payments in October 2007 on 8% promissory notes totaling $972,000 related to the TRMS acquisition.

During 2006, financing activities primarily related to payments on capitalized lease obligations related to the acquisition of application and database software, computers, servers, furniture
and telecommunications systems upgrades which were offset by proceeds from the exercise of stock options.

Overall Liquidity and Capital Resources

We incurred a net loss of $5.3 million from continuing operations for 2007 and used cash from operations of approximately $1.9 million. Cash provided by investing activities during 2007
approximated $5.2 million. Cash used in financing activities approximated $972,000 for payment in full of promissory notes. LION had approximately $4.9 million in cash and cash equivalents and working capital of $4.4 million at
December 31, 2007.

17

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In February 2008, auctions failed for $1.3 million of our auction rate securities, and as a result, our ability to liquidate our investment and fully recover the carrying value of our
investment in the near term may be limited or not exist. An auction failure means that the parties wishing to sell securities could not do so. All of our auction rate securities are currently rated AAA, the highest rating by a rating agency. If the
issuers are unable to successfully close future auctions and their credit ratings deteriorate, we may in the future be required to record an impairment charge on these investments. We do not believe these securities are currently impaired, primarily
due to the collateral guarantees and AAA ratings of the underlying securities. Based on our expected operating cash flows, and our other sources of cash, we do not anticipate the potential lack of liquidity on these investments to affect our ability
to execute our current business plan. As of December 31, 2007, the Company held $1.3 million of auction rate securities which are included in long-term investments available for sale in the consolidated balance sheets.

As a result of the disposition of our discontinued operations, we have sufficient cash reserves to satisfy our liabilities and maintain operations through 2008. However, over the last two
fiscal years we have experienced declining revenues, material losses and negative cash flows which may continue. We are aggressively consolidating our operations and will continue to do so during 2008 to reduce our underlying cost structure. We
typically expect to meet our future cash requirements through a combination of cash generated from operations, existing cash balances and investments. There can be no assurance, however, that our business will generate sufficient cash flow from
operations. Additional funds may be required to fund our operations and these funds may not be available on favorable terms or at all. If adequate funds are not available, we may need to curtail operations significantly.

The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and the amount and classification of liabilities that
might be necessary should LION be unable to continue as a going concern.

We regularly review and evaluate strategic opportunities, including those identified internally by us as well as unsolicited third party proposals. Our Strategic Review Committee continues to
evaluate a full range of strategic alternatives available to the Company. The Committee is currently using an investment banker to assist in this process. Strategic alternatives may include, without limitation, continued execution of our operating
plan, partnering or other collaboration agreements, a merger or other strategic transaction, the sale of some or all of our remaining assets, or discontinuing our operations and distributing our remaining available assets to shareholders. It is
possible that nothing may result from our exploration or that we may acquire, be acquired or enter into some other strategic relationship, and that in consummating or further exploring such avenues, we may incur additional costs. Furthermore, we may
enter into letters of intent and other non-definitive agreements that do not culminate in a completed transaction, engage in contract negotiations, or incur due diligence expenses which affect our quarterly earnings prior to or without entering into
a material definitive agreement required to be disclosed publicly. There can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions, or that, if completed, any agreements or transactions will be
successful, on attractive terms or enhance shareholder value. The negotiation or consummation of any of these transactions could be material to our financial condition and results of operations.

18

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Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The reporting of results of our operations and financial condition in the preparation of our financial statements
could differ significantly from our estimates under different assumptions and conditions. Significant estimates include allowances for doubtful accounts, long-lived assets valuation, estimated useful lives and recoverability, realizability of
deferred tax assets, and the allocation of purchase price.

We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of
operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. For a summary of our significant accounting policies, including
the critical accounting policies discussed below, see Note 1, Description of Business and Summary of Significant Accounting Policies, to our consolidated financial statements.

Revenue Recognition

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

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

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

19

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Deferred Taxes

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

Realization of the net deferred tax asset is dependent on generating sufficient taxable income prior to expiration of net operating loss carryforwards. At December 31, 2007, the Company had net operating loss
carryforwards for federal tax purposes of approximately $2.0 million available to offset future income which expire in 2018 through 2027. The Company has established a valuation allowance of approximately $1.0 million as of December 31,
2007, the full amount of the net deferred tax assets. Utilization of these carryforwards could be limited due to a change of control in the Companys ownership as defined by the Internal Revenue Code Section 382.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment upon the occurrence of events or changes in circumstances that would indicate that the carrying value of the assets may not be recoverablein accordance withSFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.An impairment loss may be recognized when estimated undiscounted future cash flows expected to result from the use of the asset, including disposition, are less than the carrying value of the asset. The
measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying amounts of the assets. Fair value is generally determined based on a discounted cash flow analysis. In order to determine if an
asset has been impaired, assets are grouped and tested at the lowest level for which identifiable, independent cash flows are available.

Impairment of Goodwill

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

Recently Issued Accounting Pronouncements

Effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109 (FIN 48). FIN 48 prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or

20

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expected to be taken in a tax return. FIN 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition.
Based on Company management's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's financial statements. Tax years subsequent to 2004 remain subject to examination by federal
and state tax jurisdictions. The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although such assessments historically have been minimal and immaterial to the Company's financial results. In the event the
Company has received an assessment for interest and/or penalties, it has been classified in the financial statements as general and administrative expense.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which establishes guidelines for measuring fair value and expands disclosures regarding fair value
measurements. SFAS No. 157 does not require any new fair value measurements, but rather it eliminates inconsistencies in the guidance found in various prior accounting pronouncements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. However, on December 14, 2007, the FASB issued proposed FSP FAS 157-b which would delay the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually). This proposed FSP partially defers the effective date of Statement 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for
items within the scope of this FSP. Although management is still evaluating the potential effects of SFAS No. 157, except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in proposed FSP FAS 157-b, the partial
adoption is not expected to have a material impact on the Companys financial position, results of operations, or cash flows.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities(SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the guidance is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective as of
the beginning of the first fiscal year after November 15, 2007. Although management is still evaluating the potential effects of SFAS No. 159, the adoption is not expected to have a material impact on the Companys financial position, results
of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination. This statement is effective beginning January 1, 2009. Management is currently evaluating the potential impact of the adoption of SFAS 141R on the Companys financial position,
results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of Accounting Research Bulletin No. 51 (SFAS 160).
 SFAS 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than
the parent, the amount of consolidated net income attributable to the parent
and to the noncontrolling interest, changes in a parents ownership interest,
and the valuation of retained

21

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noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the
noncontrolling owners. This statement is effective beginning January 1, 2009. Management is currently evaluating the potential impact of the adoption of SFAS 160 on the Companys financial position, results of operations, or cash
flows.

FACTORS THAT MAY AFFECT FORWARD-LOOKING STATEMENTS

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

We have a history of operating losses and our future profitability remains uncertain. In addition, financial results for any particular period will not predict results for future periods.

Over the last couple of years, annual and quarterly revenues have been decreasing as a result of mortgage brokers leaving the industry, lender consolidation and decreased loan origination
activity. We have not achieved consistent profitability quarter over quarter or year over year during the same time period. While we show net income for the year ended December 31, 2007, this is primarily due to the gain on the sale of our Mortgage
101 business during the third quarter of 2007.

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

The current disruption in the housing, mortgage finance and credit markets has adversely affected our business and created uncertainty. Our business is also materially affected by economic conditions generally, both
in the U.S. and elsewhere around the world.

The current global credit crisis and downturn in the mortgage industry is expected to continue to adversely affect our business and financial results. The challenging conditions in the mortgage
lending markets have exerted pressure across various mortgage sectors, including the lenders and brokers we serve. Many companies operating in the mortgage sector have failed and others are facing serious operating and financial challenges. During
2007, the mortgage industry and the residential housing market were adversely affected by higher interest rates, falling property prices and refinance activity, and a significant increase in the number of subprime mortgage delinquencies. At the same
time, many mortgage securities have been downgraded and delinquencies and credit performance of mortgage loans in the industry have deteriorated. The current disruption in the U.S. economy in

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general and the housing and mortgage markets in particular is expected to continue and worsen in 2008. In particular, we expect that the onset of a recession, either in the United States as a whole or in specific regions of
the country, would adversely affect our business and financial results. We may be further adversely affected by changes in general market and economic conditions abroad. These conditions include short-term and long-term interest rates, the value of
the U.S. dollar compared with the value of foreign currencies, the rate of inflation, fluctuations in both the debt and equity capital markets, and the strength of the U.S. national economy and economies of other countries with investors that hold
our debt. In addition, a variety of legislative, regulatory and other proposals have been or may be introduced in an effort to address the disruption. Depending on the scope and nature of legislative, regulatory or other initiatives, if any, that
are adopted to respond to this disruption, our earnings, liquidity, capital position and financial condition are expected to continue to be adversely affected.

Our cash flows from operations will be materially reduced due to discontinued operations; our capital resources may not be adequate to sustain operations

For 2007, Mortgage 101 and TRMS together represented approximately 55% of our consolidated revenues and provided positive cash flows. On September 28, 2007, Mortgage 101 was sold, and on
November 15, 2007, TRMS was sold. We do not have sufficient history to ascertain whether the remaining assets of the Loans product group will be viable going forward. We are undertaking an analysis of future cash flow streams, and cannot assure you
that our business will generate sufficient cash flow from operations. Our inability to generate adequate revenues or cash flows will have a material adverse effect on our profitability, financial condition, and results of operations.

At December 31, 2007, we had approximately $4.9 million in cash and cash equivalents which we believe is sufficient to satisfy our liabilities and maintain operations through 2008. However,
if we continue to sustain significant operating losses and negative cash flows, we may be unable to continue our operations without additional funding. Additional funds may not be available on favorable terms or at all. If adequate funds are not
available, we may need to curtail operations significantly.

We have disposed of significant assets in connection with our recent restructuring efforts and may continue to sell our remaining assets. We may ultimately discontinue our operations.

We faced significant challenges during 2007 due to adverse conditions in the mortgage industry, and are continuing to face these challenges in 2008. There is no assurance that these conditions
have stabilized or that they will not worsen. In connection with our restructuring efforts, we sold our Mortgage 101 website and certain associated assets in September 2007, and our TRMS business and certain associated assets, including our Pipeline
Tools technology in November 2007. We continue to evaluate a full range of strategic alternatives available to the Company. These alternatives may include continued execution of the Companys operating plan, the sale of some or all of the
Companys remaining assets, partnering or other collaboration agreements, a merger or other strategic transaction, the sale of some or all of the Companys remaining assets, or discontinuing our operations and distributing our remaining
available assets to shareholders. In March 2008, we entered into a non-binding letter of intent to sell our Loans product group, the remaining assets of the Company. If current negotiations result in a definitive agreement which is acceptable to the
Board of Directors, the asset-disposition transaction would be presented to LION shareholders for approval.

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Our investment portfolio includes auction rate securities. Uncertainty in the credit market may negatively affect the value of these auction rate securities and our ability to liquidate them. If we are unable to
successfully close future auctions and their credit rating deteriorates, we may be required to adjust the carrying value of our investment through an impairment charge.

Our long-term investments as of December 31, 2007 include auction rate securities with a market value of $1.3 million. All of our auction rate securities are currently rated AAA, the
highest rating by a rating agency. Auction rate securities are variable-rate debt securities. While the underlying security has a long-term maturity, the interest rate is reset through auctions that are held at pre-determined intervals, usually
every 28 days. In the past, liquidity for auction rate securities was provided by this auction process that allowed investors to roll over their holdings or obtain immediate liquidity by selling the auction rate securities at market. Recent
uncertainty in the credit market has negatively affected these auctions and certain of these auctions have not had sufficient bidders to allow investors to complete a sale of auction rate securities. In February 2008, auctions related to $1.3
million of auction rate securities owned by us failed. These are the only auction rate security investments in our portfolio. In the future, failed auctions for our auction rate securities may affect our ability to liquidate these auction rate
securities until a future auction is successful or until we decide and are able to sell the auction rate securities in a secondary market. There is a risk that there could be a decline in value of our auction rate securities. Failed auctions may
affect the fair value of these securities, and require us to adjust the carrying value of the investment through an impairment charge. In the future, should we determine that these declines in value of auction rate securities are other than
temporary, we would recognize a loss in our consolidated statement of operations, which could be material.

We are largely dependent on key personnel who may not continue to work for us.

We are substantially dependent on the continued services of our key personnel, including our officers, engineers and other significant employees. These individuals have acquired specialized
knowledge and skills with respect to LION. We are continuing to create the redundancies that will reduce the reliance on these individuals. Furthermore, we have not entered into employment agreements with these significant employees except for our
executive officers. 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. Our 2005 Stock Incentive Plan provides us flexibility to attract and retain the best available employees. 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.

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We are substantially dependent on a limited number of significant customers.

Our success depends on our ability to expand, retain and enhance our advanced business solution customers. Certain elements of our product line carry with them the risk that our revenues may be
dependent on a limited number of significant customers, rather than a broad-based broker and customer network. Our larger customer contracts, which involve our Precision LPX services, typically have renewable successive one- and two-year terms.
Revenue from these contracts comprised approximately 19% of our total revenue from continuing operations for the fourth quarter and the year ended December 31, 2007.

There can be no assurance that the existing customers will renew their contracts, or that we will be able to attract new customers at rates sufficient to maintain a stable or growing revenue
base. If we are unsuccessful in enrolling new customers to equalize any attrition we might have with existing customers, or to offset a decline in transactional volume, our overall share of the advanced business solution market could be reduced, and
consequently our business operating results and financial condition may be materially adversely affected.

Our operations may be vulnerable to disruption problems.

We have in place comprehensive data tape backup procedures for our operational and administrative databases. Our replication software provides a high level of hardware backup for the database
by duplicating our database across several powerful servers. However, despite protective measures, our operations could be vulnerable to damage from floods, fire, earthquakes, power loss, telecommunications failures, break-ins, terrorism, and
similar events. The prospect of such unscheduled interruptions is possible in the foreseeable future, and we are unable to predict their occurrence, duration or cessation.

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

Our business depends on increasing use of the Internet by users searching for information, advertisers marketing products and services and web sites seeking to earn revenue to support their web content. If the
Internet infrastructure does not grow and is not maintained to support these activities, our business will be harmed.

Our success will depend on the continued growth and maintenance of the Internet infrastructure. This includes maintenance of a reliable network backbone with the necessary speed, data capacity
and security for providing reliable Internet services. Internet infrastructure may be unable to support the demands placed on it if the number of Internet users continues to increase, or if existing or future Internet users access the Internet more
often or increase their bandwidth

25

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requirements. In addition, viruses, worms and similar programs may harm the performance of the Internet. The Internet has experienced a variety of outages and other delays as a result of damage to portions of its
infrastructure, and it could face outages and delays in the future. These outages and delays could reduce the level of Internet usage as well as our ability to provide our solutions.

Government Regulation

Until discontinuing operations in November 2007, our mortgage pipeline risk management services were provided by TRMS, a Commodity Trading Advisor registered with the Commodity Futures Trading
Commission and the National Futures Association. Commodity Trading Advisors are subject to detailed disclosure, reporting, and recordkeeping requirements.

Our continuing operations are subject to general business regulations and laws, as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future laws and
regulations may impede the growth of the Internet or other online services, which in turn could decrease the demand for our products and services, increase the cost of doing business, or otherwise have an adverse effect on our business, operating
results or financial condition. These regulations and laws may cover taxation, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, the provision of online
payment services, broadband Internet access, and the characteristics and quality of products and services not currently subject to direct regulation by any government agency, other than regulations applicable to businesses generally. There are
currently few laws or regulations directly applicable to access or do commerce on the Internet. However, the applicability to the Internet of existing laws governing issues such as property ownership, sales and other taxes, libel and personal
privacy is developing. We cannot predict the impact, if any, that future regulation or regulatory changes might have on our business. Unfavorable resolution of these issues may harm our business, diminish the demand for our products and services or
increase our cost of doing business.

If we do not continue to innovate and provide products and services that are useful to our users and customers, we may not remain competitive, and our revenues and operating results could suffer.

Our success depends on providing products and services that our users and customers use for a high quality Internet experience, and we face substantial competitive challenges in the changing
mortgage industry and in each of our vertical markets. For the last two years, we have sought to substantially upgrade our technology into a scalable platform to enable us to develop and link a more robust set of products and services. Our
competitors are constantly developing innovations in web search, web functionality, and online advertising along with providing information to people. As a result, we must continue to invest significant resources in research and development in order
to enhance our technology and our existing products and services and introduce new high-quality products and services that our users and customers can easily and effectively use. If we are unable to ensure that our users and customers have a high
quality experience with our products and services, then these users and customers may become dissatisfied and move to other competitors products. In addition, if we are unable to predict user and customer preferences or industry changes, or if
we are unable to modify our products and services on a timely basis, we may lose users and customers. Our operating results would also suffer if our innovations are not responsive to the needs of our users and customers, are not appropriately timed
with market opportunity or are not effectively brought to market. As technology continues to develop, our competitors may be able to offer results that are, or that are perceived to be, substantially similar or better than those generated by our
products and services. This may force us to expend significant resources in order to remain competitive.

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We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes Oxley Act of 2002, and any adverse results from such evaluation could result in a loss of investor confidence
in our financial reports and have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, under current SEC rules, we are required to furnish a report by our management assessing the effectiveness of our internal control
over financial reporting beginning with this Annual Report on Form 10-KSB for the fiscal year ended December 31, 2007. In addition, we must comply with Section 404(b) requirements to provide an auditors attestation report on internal control
over financial reporting beginning with our Annual Report on Form 10-KSB for the year ending December 31, 2009. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides a framework for companies to assess and improve
their internal control systems. The Public Company Accounting Oversight Boards (PCOAB) Auditing Standard No. 5, adopted by the SEC on July 27, 2007, provides the professional standards and related performance guidance for auditors
to report on the effectiveness of our internal controls over financial reporting under Section 404. Our assessment of internal controls over financial reporting requires us to make subjective judgments and, particularly because Standard No. 5 is
newly effective, some of the judgments will be in areas that may be open to interpretation.

During this process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert such internal control is effective. If we are
unable to assert that our internal control over financial reporting is effective for a particular year (or if our auditors are unable to state that we have maintained, in all material respects, effective internal controls), we could lose investor
confidence in the accuracy and completeness of our financial reports. That would likely have an adverse effect on our stock price.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.

We rely on a combination of copyright and trademark laws, trade secrets, software security measures, license agreements and nondisclosure agreements to protect our proprietary technology and
software products. We have a variety of registered Internet domain names. Regulations governing domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third parties from acquiring domain names that
are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights. We currently have federally registered trademarks on LockPoint Xtra® and Lockpoint®.

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

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

Alliances, mergers and acquisitions could result in operating difficulties, dilution and other harmful consequences.

Our industry has experienced significant consolidation. LIONs board of directors through its Strategic Review Committee continues to evaluate a full range of strategic alternatives
available to the Company. The Committee is currently using an investment banker to assist in this process. Strategic alternatives may include, without limitation, continued execution of our operating plan, the sale of some or all of our continuing
operations, partnering or other collaboration agreements, or a merger or other strategic transaction. This year we sold Mortgage 101 in third quarter 2007 and our TRMS business in fourth quarter 2007. There can be no assurance that the exploration
of strategic alternatives will result in any additional agreements or transactions, or that, if completed, any agreements or transactions will be successful, on attractive terms or enhance shareholder value. It is possible that nothing may result
from our exploration or that we may acquire, be acquired or enter into some other strategic relationship, and that in consummating or further exploring such avenues, we may incur additional costs. Furthermore, we may enter into letters of intent and
other non-definitive agreements that do not culminate in a completed transaction, engage in contract negotiations, or incur due diligence expenses which affect our quarterly earnings prior to or without entering into a material definitive agreement
required to be disclosed publicly. We do not intend to disclose developments with respect to this process unless and until the evaluation of strategic alternatives has been completed or we have entered into a material definitive agreement. The
negotiation or consummation of any of these transactions could be material to our financial condition and results of operations. In addition, the process of integrating an acquired company, business or technology may create unforeseen operating
difficulties and expenditures and is risky. The areas where we may face risks include:

- The need to implement or remediate controls, procedures and policies appropriate for a public company at companies that prior to the acquisition lacked these controls,
procedures and policies.
- Diversion of management time and focus from operating our business to alliance, merger or acquisition integration challenges.
- Cultural challenges associated with integrating employees from the acquired company into the acquiring organization.
- Retaining employees from the businesses acquired.

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- The need to integrate each companys accounting, management information, human resource and other administrative systems to permit effective management.

The expected benefit of many of these strategic relationships may not materialize. Future alliances, mergers or acquisitions or dispositions could result in potentially dilutive issuances of
our equity securities, the incurrence of debt, contingent liabilities or amortization expenses, or write-offs of goodwill, any of which could harm our financial condition. Future acquisitions may require us to obtain additional equity or debt
financing, which may not be available on favorable terms or at all.

The trading price for our common stock is and may continue to be volatile.

The Companys common stock trades on the OTC Bulletin Board under the symbol LINN. The trading price of our common stock has been historically volatile and will likely continue
to be volatile. The trading price of our common stock may fluctuate widely in response to various factors, some of which are beyond our control. These factors include:

- Quarterly variations in our results of operations or those of our competitors.
- Announcements by us or our competitors of strategic relationships, alliances, mergers or acquisitions, new products, significant contracts, commercial relationships or
capital commitments.
- Disruption to our operations or our data centers.
- The emergence of new sales channels in which we are unable to compete effectively.
- Our ability to develop and market new and enhanced products on a timely basis.
- Commencement of, or our involvement in, litigation.
- Any major change in our board or management.
- Changes in governmental regulations or in the status of our regulatory approvals.
- Recommendations by securities analysts or changes in earnings estimates.
- Announcements by our competitors of their earnings that are not in line with analyst expectations.
- The volume of shares of common stock available for public sale.

In addition, the OTC Bulletin Board, stock market in general, and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our actual operating performance.

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ITEM 7. FINANCIAL STATEMENTS

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

Report of Independent Registered
      Public Accounting FirmConsolidated Balance SheetsConsolidated Statements of OperationsConsolidated Statement of Stockholders EquityConsolidated Statements of Cash FlowsNotes to Consolidated Financial Statements






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Report of Independent Registered Public Accounting Firm

Board of Directors and StockholdersLION, Inc.

We have audited the accompanying consolidated balance sheets of LION, Inc. and Subsidiary as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders equity and cash flows for
the years then ended. These financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LION, Inc. and Subsidiary as of December 31, 2007 and 2006, and the results of
their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLPSeattle, WashingtonMarch 28, 2008

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LION, Inc. and SubsidiaryConsolidated Balance SheetsDecember 31,(In thousands, except share data)

ASSETS

|                                                               |  |   | 2007   |   |  |   | 2006   |  
|-------------------------------------------------------------- |  | - | ------ | - |  | - | ------ | -
|Current assets                                                 |  |   |        |   |  |   |        |  
|Cash and cash equivalents                                      |  | $ | 4,879  |   |  | $ | 2,587  |  
|Short-term investments  available for sale securities         |  |   | -      |   |  |   | 900    |  
|Accounts receivable, less allowance for doubtful accounts of   |  |   |        |   |  |   |        |  
|$120 and $67 in 2007 and 2006, respectively                    |  |   | 339    |   |  |   | 1,101  |  
|Prepaid expenses and other                                     |  |   | 422    |   |  |   | 530    |  
|TRMS assets held for sale                                      |  |   | -      |   |  |   | 2,455  |  
|Mortgage 101 assets held for sale                              |  |   | -      |   |  |   | 21     |  
|Total current assets                                           |  |   | 5,640  |   |  |   | 7,594  |  
|                                                              
|Long-term investments  available for sale securities          |  |   | 1,300  |   |  |   | -      |  
|Property and equipment, net                                    |  |   | 200    |   |  |   | 395    |  
|Goodwill                                                       |  |   | -      |   |  |   | 274    |  
|Other assets                                                   |  |   | 20     |   |  |   | 224    |  
|                                                               |  | $ | 7,160  |   |  | $ | 8,487  |  
|                                                              
|LIABILITIES AND STOCKHOLDERS EQUITY                          
|                                                              
|Current liabilities                                            |  |   |        |   |  |   |        |  
|Accounts payable                                               |  | $ | 214    |   |  | $ | 162    |  
|Accrued salaries and benefits                                  |  |   | 356    |   |  |   | 708    |  
|Accrued liabilities                                            |  |   | 319    |   |  |   | 267    |  
|Current maturities of long-term obligations                    |  |   | 5      |   |  |   | 977    |  
|Deferred revenue                                               |  |   | 357    |   |  |   | 631    |  
|Total current liabilities                                      |  |   | 1,251  |   |  |   | 2,745  |  
|                                                              
|Long-term obligations, less current maturities                 |  |   | 3      |   |  |   | 8      |  
|Total liabilities                                              |  |   | 1,254  |   |  |   | 2,753  |  
|                                                              
|Commitments and contingencies                                  |  |   | -      |   |  |   | -      |  
|                                                              
|Stockholders equity                                           |  |   |        |   |  |   |        |  
|Preferred stock, par value $.001 per share; authorized         |  |   |        |   |  |   |        |  
|5,000,000 shares; none issued or outstanding                   |  |   | -      |   |  |   | -      |  
|Common stock, par value $.001 per share; authorized 50,000,000 |  |   |        |   |  |   |        |  
|shares; 38,626,335 and 38,614,272 issued and outstanding       |  |   |        |   |  |   |        |  
|at December 31, 2007 and 2006, respectively                    |  |   | 39     |   |  |   | 39     |  
|Additional contributed capital                                 |  |   | 14,315 |   |  |   | 14,269 |  
|Accumulated deficit                                            |  |   | (8,448 | ) |  |   | (8,574 | )
|                                                               |  |   | 5,906  |   |  |   | 5,734  |  
|                                                               |  | $ | 7,160  |   |  | $ | 8,487  |  

The accompanying notes are an integral part of these consolidated financial statements.

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LION, Inc. and SubsidiaryConsolidated Statements of OperationsYear ended December 31,(In thousands, except per share data)

|                                               |  |   | 2007   |   |  |   | 2006   |  
|---------------------------------------------- |  | - | ------ | - |  | - | ------ | -
|                                              
|Revenues                                       |  | $ | 4,426  |   |  | $ | 5,723  |  
|                                              
|Expenses                                       |  |   |        |   |  |   |        |  
|Direct costs                                   |  |   | 3,093  |   |  |   | 3,505  |  
|Selling and marketing                          |  |   | 982    |   |  |   | 1,359  |  
|General and administrative                     |  |   | 3,237  |   |  |   | 3,806  |  
|Research and development                       |  |   | 1,448  |   |  |   | 1,649  |  
|Depreciation and amortization                  |  |   | 306    |   |  |   | 385    |  
|Impairment loss on fixed assets                |  |   | 549    |   |  |   | -      |  
|Goodwill impairment                            |  |   | 274    |   |  |   | -      |  
|Total operating expenses                       |  |   | 9,889  |   |  |   | 10,704 |  
|                                              
|Operating loss                                 |  |   | (5,463 | ) |  |   | (4,981 | )
|                                              
|Other income (expense)                         |  |   |        |   |  |   |        |  
|Interest expense                               |  |   | (62    | ) |  |   | (79    | )
|Interest income and other                      |  |   | 179    |   |  |   | 174    |  
|Loss from continuing operations before tax     |  |   | (5,346 | ) |  |   | (4,886 | )
|Income tax benefit (expense)                   |  |   | 13     |   |  |   | (145   | )
|Net loss from continuing operations            |  |   | (5,333 | ) |  |   | (5,031 | )
|                                              
|Income from discontinued operations before tax |  |   | 5,551  |   |  |   | 3,727  |  
|Income tax expense                             |  |   | (92    | ) |  |   | (16    | )
|Income from discontinued operations            |  |   | 5,459  |   |  |   | 3,711  |  
|Net income (loss)                              |  | $ | 126    |   |  | $ | (1,320 | )
|                                              
|Basic net income (loss) per share:             |  |   |        |   |  |   |        |  
|Loss from continuing operations                |  | $ | (.14   | ) |  | $ | (.13   | )
|Income from discontinued operations            |  |   | .14    |   |  |   | .10    |  
|Net income (loss)                              |  | $ | -      |   |  | $ | (.03   | )
|Weighted average number of shares              |  |   | 38,617 |   |  |   | 38,502 |  
|                                              
|Diluted net income (loss) per share:           |  |   |        |   |  |   |        |  
|Loss from continuing operations                |  | $ | (.14   | ) |  | $ | (.13   | )
|Income from discontinued operations            |  |   | .14    |   |  |   | .10    |  
|Net income (loss)                              |  | $ | -      |   |  | $ | (.03   | )
|Weighted average number of shares              |  |   | 38,638 |   |  |   | 38,502 |  

The accompanying notes are an integral part of these consolidated financial statements.

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LION, Inc. andSubsidiaryConsolidatedStatementofStockholdersEquityYears endedDecember31, 2007 and 2006(Inthousands,except share data)

|                                                                       |  |              |   |        |             |    |         |  |             | Additional |         |  |   |        |       |  |   |        |  
|---------------------------------------------------------------------- |  | ------------ | - | ------ | ----------- | -- | ------- |  | ----------- | ---------- | ------- |  | - | ------ | ----- |  | - | ------ | -
|                                                                       |  | Common stock |   |        | contributed |    |         |  | Accumulated |            |         |  |   |       
|                                                                       |  | Shares       |   | Amount |             |    | capital |  |             |            | Deficit |  |   |        | Total | 
|Balance at December 31, 2005                                           |  | 38,463,822   |   |        |             | 38 |         |  |             | 14,091     |         |  |   | (7,254 | )     |  |   | 6,875  |  
|Issuance of common stock in conjunction with exercise of stock options |  | 140,450      |   |        |             | 1  |         |  |             | 15         |         |  |   | -      |       |  |   | 16     |  
|Employee compensation from stock options and restricted stock          |  | 10,000       |   |        |             | -  |         |  |             | 163        |         |  |   | -      |       |  |   | 163    |  
|Net loss for the year                                                  |  | -            |   |        |             | -  |         |  |             | -          |         |  |   | (1,320 | )     |  |   | (1,320 | )
|Balance at December 31, 2006                                           |  | 38,614,272   |   |        | $           | 39 |         |  | $           | 14,269     |         |  | $ | (8,574 | )     |  | $ | 5,734  |  
|Issuance of common stock in conjunction with exercise of stock options |  | 50,000       |   |        |             | -  |         |  |             | 4          |         |  |   | -      |       |  |   | 4      |  
|Employee compensation from stock options and restricted stock          |  | (37,937      | ) |        |             | -  |         |  |             | 42         |         |  |   | -      |       |  |   | 42     |  
|Net income for the year                                                |  | -            |   |        |             | -  |         |  |             | -          |         |  |   | 126    |       |  |   | 126    |  
|Balance at December 31, 2007                                           |  | 38,626,335   |   |        | $           | 39 |         |  | $           | 14,315     |         |  | $ | (8,448 | )     |  | $ | 5,906  |  

Theaccompanyingnotes are anintegralpart of theseconsolidatedfinancialstatements.

34

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LION, Inc. and SubsidiaryConsolidated Statements of Cash FlowsYear ended December 31,(In thousands)

|                                                                    |  |   | 2007   |   |  |   | 2006   |  
|------------------------------------------------------------------- |  | - | ------ | - |  | - | ------ | -
|Cash flows from operating activities                                |  |   |        |   |  |   |        |  
|Net income (loss)                                                   |  | $ | 126    |   |  | $ | (1,320 | )
|Adjustments to reconcile net income (loss) to net cash              |  |   |        |   |  |   |        |  
|used in operating activities                                        |  |   |        |   |  |   |        |  
|Depreciation and amortization                                       |  |   | 414    |   |  |   | 445    |  
|Impairment loss on TRMS assets held for sale                        |  |   | 1,366  |   |  |   | -      |  
|Impairment loss on fixed assets                                     |  |   | 549    |   |  |   | -      |  
|Goodwill impairment                                                 |  |   | 274    |   |  |   | -      |  
|Change in allowance for doubtful accounts                           |  |   | 53     |   |  |   | (33    | )
|Stock options and restricted stock expense                          |  |   | 42     |   |  |   | 163    |  
|Deferred income taxes                                               |  |   | -      |   |  |   | 150    |  
|Gain on disposition of property and equipment                       |  |   | (22    | ) |  |   | -      |  
|Gain on sale of Mortgage 101 assets                                 |  |   | (5,244 | ) |  |   | -      |  
|Gain on sale of TRMS assets                                         |  |   | (6     | ) |  |   | -      |  
|Changes in assets and liabilities                                   |  |   |        |   |  |   |        |  
|Accounts receivable                                                 |  |   | 709    |   |  |   | 93     |  
|Accounts payable                                                    |  |   | 52     |   |  |   | (50    | )
|Accrued salaries and benefits                                       |  |   | (352   | ) |  |   | (1     | )
|Accrued liabilities                                                 |  |   | 51     |   |  |   | 18     |  
|Deferred revenue                                                    |  |   | (274   | ) |  |   | (18    | )
|Other assets                                                        |  |   | 313    |   |  |   | 19     |  
|Net cash used in operating activities                               |  |   | (1,949 | ) |  |   | (534   | )
|Cash flows from investing activities                                |  |   |        |   |  |   |        |  
|Purchase of available-for-sale securities                           |  |   | (400   | ) |  |   | (100   | )
|Capitalized software development costs                              |  |   | (388   | ) |  |   | (13    | )
|Proceeds from sale of Mortgage 101  net of selling costs           |  |   | 5,260  |   |  |   | -      |  
|Proceeds from sale of TRMS assets  net of selling costs            |  |   | 1,061  |   |  |   | -      |  
|Cash received on sale of fixed assets                               |  |   | 14     |   |  |   | -      |  
|Purchases of property and equipment                                 |  |   | (334   | ) |  |   | (128   | )
|Net cash provided by (used in) investing activities                 |  |   | 5,213  |   |  |   | (241   | )
|Cash flows from financing activities                                |  |   |        |   |  |   |        |  
|Payments on long-term obligations                                   |  |   | (976   | ) |  |   | (25    | )
|Proceeds from issuance of common stock on exercise of stock options |  |   | 4      |   |  |   | 16     |  
|Net cash used in financing activities                               |  |   | (972   | ) |  |   | (9     | )
|Net increase (decrease) in cash and cash equivalents                |  |   | 2,292  |   |  |   | (784   | )
|Cash and cash equivalents at beginning of year                      |  |   | 2,587  |   |  |   | 3,371  |  
|Cash and cash equivalents at end of year                            |  | $ | 4,879  |   |  | $ | 2,587  |  
|Supplemental cash flow information and non-cash investing and       |  |   |        |   |  |   |        |  
|financing activities:                                               |  |   |        |   |  |   |        |  
|Cash paid for interest                                              |  | $ | 79     |   |  | $ | 79     |  
|Cash paid for income taxes                                          |  | $ | 85     |   |  | $ | 20     |  
|Equipment acquired under capital lease                              |  | $ | -      |   |  | $ | 15     |  

The accompanying notes are an integral part of these consolidated financial statements.

35

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 1  Description of business and summary of significant accounting policies

Description of business- LION, Inc. (the Company or LION), a Washington corporation, provides advanced business solutions that streamline the mortgage loan
fulfillment process in the mortgage industry.  LION provides an integrated technology platform offering online loan productivity tools featuring lender loan program and pricing databases, a suite of comprehensive website products and a pricing
engine configured to serve the broker/banker, community banks and large to medium sized lenders.

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

Use of Estimates- In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required
to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant estimates include allowances for doubtful accounts, long-lived assets valuation, estimated useful lives and recoverability and realizability of deferred tax assets.

Principles of Consolidation- The consolidated financial statements include the accounts of LION, Inc. and its wholly-owned subsidiary, Tuttle Risk Management Services
(TRMS).  All significant intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents- The Company considers all highly-liquid instruments purchased with a remaining maturity of three months or less to be cash equivalents.

Long-term Investments- The Companys long-term investments consist primarily of Auction Rate Securities. These securities are variable rate securities with underlying interest
rates that reset periodically (7-28 days) based on a Dutch auction. At the reset date, the holders can choose to hold their securities at the rate determined by auction or sell the investment. These securities are classified as available-for-sale.
Available-for-sale securities with remaining maturities of less than one year and those identified by management at time of purchase for funding operations in less than one year are classified as short-term. Subsequent to year end, the auctions
failed on these investments. See Note 12.

Revenue Recognition- LION generates revenue throughout the mortgage loan origination and fulfillment process. Subscription revenues are generated from mortgage brokers and agents who
are provided electronic access to a database of mortgage offerings from LIONs proprietary network of lenders throughout the United States.  LION also generates revenue from advertisers who pay marketing fees for ad banners, web site promotion,
and lead generation. Additionally, fees are earned related to mortgage originator and lender web site development and hosting.  Revenues from the LockPoint Xtra®,
Pipeline Tools, and Risk Management Services product lines are generated primarily from transaction fees on closed and locked loan volumes as well as fees for related website development and implementation.

36

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 1  Description of business and summary of significant accounting policies - continued

The Company accounts for its software products with external licensing in accordance with Statement of Position 97-2, Software Revenue Recognition, and Staff Accounting Bulletin 104, Revenue Recognition in Financial
Statements.  Revenue from licensing fees relating to the use of the LockPoint Xtra®product is recognized when all elements of the contract have been delivered
to the customer.  Revenue from monthly recurring charges from use of the Pipeline Tools and Risk Management Services products is recognized in the period in which the service is provided.

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

Subscription and service fees are recognized as revenue over the respective subscription periods or when services are provided. Revenue from services is generally determined based on time and materials. Deferred revenue is
recorded on prepaid subscriptions and on advance billings or cash received for contracts that have undelivered elements.

Accounts Receivable- The Companys accounts receivable are due from companies in the mortgage industry, including lenders and mortgage brokers. Credit is extended to most
customers, and generally collateral is not required. Payments for accounts receivable are due upon receipt of the invoice, or in some cases may be due within 30 days depending on the products or services provided.

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

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 of 3 to 5 years for computer hardware and software and 5 years for equipment on a straight-line basis.
Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter.

37

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 1  Description of business and summary of significant accounting policies - continued

Capitalized Software Development Costs-
The Company accounts for internally developed software costs in accordance with
SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use.  Capitalized
software development costs, intended for internal use, approximated $388,000
and $13,000 for the years ended
December 31, 2007 and 2006, respectively. These costs are included in computer
software in property and equipment and are amortized over three years. However,
as discussed in Note 3, these capitalized costs were determined to be fully impaired
 during the fourth quarter of 2007, and an impairment loss of $387,000 was
 recorded for the year ended December 31, 2007.

Impairment of Long-Lived Assets- The Company reviews long-lived assets for impairment upon the occurrence of events or changes in circumstances that would indicate that the carrying
value of the assets may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.  An impairment loss may be recognized when estimated undiscounted future cash flows expected to
result from the use of the asset, including disposition, are less than the carrying value of the asset. The measurement of the impairment loss to be recognized is based on the difference between the fair value and the carrying amounts of the assets.
Fair value is generally determined based on a discounted cash flow analysis. In order to determine if an asset has been impaired, assets are grouped and tested at the lowest level for which identifiable, independent cash flows are available. See
Note 3 for the impact of SFAS No. 144 in the current year.

Goodwill- Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, provides that goodwill should not be amortized, but should
rather be reviewed at least annually to assess recoverability. This statement requires that goodwill and long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net discounted cash flows expected to be generated by the asset or other
valuation methods. If such assets are considered to be impaired, impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the assets fair value.

Net Income (Loss) Per Common Share- Basic income (loss) per common share is based on the weighted average number of shares outstanding during each period.  Potentially dilutive
common stock equivalents are included in determining dilutive earnings per share.  The diluted share calculation for 2007 includes options to purchase 40,000 shares and excludes 2,681,917 shares related to employee stock options because the option
exercise price was greater than the average market price for the shares. The diluted share calculation for 2006 excludes options to purchase 6,090,417 shares due to their anti-dilutive effect.

Advertising Costs- Advertising costs are expensed as incurred.  Advertising expense was approximately $407,000 and $728,000 for 2007 and 2006, respectively.

Research and Development Costs- All expenditures for research and development costs are expensed as incurred.  These expenses consist of costs incurred for proprietary research and
include related salaries and benefits, contract and other outside service fees, and facilities and overhead costs.

38

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 1  Description of business and summary of significant accounting policies - continued

Income Taxes- The Company accounts for income taxes in accordance with SFAS 109, Accounting for Income Taxes. In accordance with SFAS No. 109, deferred tax assets arise from the tax benefit of amounts expensed for financial reporting purposes, but not yet deducted for tax purposes and from unutilized tax credits and net operating loss
carry forwards. The Company records deferred income tax assets and liabilities based upon differences between financial statement and income tax bases of assets and liabilities using enacted income tax rates. Deferred tax assets are evaluated on a
regular basis to determine if a valuation allowance is required.  To the extent it is determined the recoverability of deferred tax assets is not considered more likely than not, a valuation allowance against deferred tax assets is recorded. Income
tax expense is comprised of taxes paid and payable for the period and change during the period in net deferred income tax assets and liabilities.

Stock-Based Compensation- Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), and applied the provisions of Staff Accounting Bulletin (SAB)
No. 107, Share-Based Payment, using the modified-prospective transition method.  Compensation expense recognized includes the estimated expense for stock options granted on and subsequent to January 1, 2006, based on the grant date fair
value estimated in accordance with the provisions of SFAS No. 123(R), and the estimated expense for the portion vesting in the period for options granted prior to, but not vested as of December 31, 2005, based on the grant date fair value estimated
in accordance with the original provisions of SFAS No. 123. Further, as required under SFAS No. 123(R), forfeitures are estimated for share-based awards that are not expected to vest.

Fair Value of Financial Instruments- The fair value of financial instruments are determined in accordance with SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, which requires that the Company disclose the fair value of its financial instruments for which it is practicable to estimate fair value. The carrying amounts of cash and cash equivalents, short-term investments, accounts
receivables, prepaid expenses and other current assets, accounts payable, accrued salaries and benefits, and accrued liabilities meet the definition of a financial instrument approximate fair value because of the short term maturity of these
instruments.  The fair value of long-term obligations, including the current portion, approximates fair value based on the incremental borrowing rate currently available to the Company for loans with similar terms and maturities.

Concentration of Credit Risk- Cash is held in interest bearing or demand deposit bank accounts. Short-term investments are comprised of marketable debt securities. The Company and
its subsidiary maintain cash balances and short-term investments at several financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. Uninsured balances aggregated approximately
$6.2 million and $3.5 million at December 31, 2007 and 2006, respectively. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents and short-term
investments, as these deposits and investments are held by high credit quality financial institutions.

39

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 1  Description of business and summary of significant accounting policies - continued

Recently Issued Accounting Pronouncements Effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (FIN 48).  FIN 48 prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. Based on Company
management's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's financial statements.  Tax years subsequent to 2004 remain subject to examination by federal and state tax
jurisdictions.  The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although such assessments historically have been minimal and immaterial to the Company's financial results. In the event the Company has
received an assessment for interest and/or penalties, it has been classified in the financial statements as general and administrative expense.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS No. 157 does not
require any new fair value measurements, but rather it eliminates inconsistencies in the guidance found in various prior accounting pronouncements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007.  However, on December
14, 2007, the FASB issued proposed FSP FAS 157-b which would delay the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). This proposed FSP partially defers the effective date of Statement 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP.
Although management is still evaluating the potential effects of SFAS No. 157, except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in proposed FSP FAS 157-b, the partial adoption is not expected to have a material
impact on the Companys financial position, results of operations, or cash flows.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities(SFAS 159).  SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of the guidance is to improve financial reporting by providing entities with
the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.  SFAS 159 is effective as of the beginning of the first fiscal
year after November 15, 2007. Although management is still evaluating the potential effects of SFAS No. 159, the adoption is not expected to have a material impact on the Companys financial position, results of operations, or cash flows.

40

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 1  Description of business and summary of significant accounting policies  continued

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial
effects of the business combination.  This statement is effective beginning January 1, 2009. Management is currently evaluating the potential impact of the adoption of SFAS 141R on the Companys financial position, results of operations, or
cash flows.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of Accounting Research Bulletin No. 51 (SFAS 160). SFAS 160 establishes accounting
and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parents ownership
interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated.  SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. This statement is effective beginning January 1, 2009. Management is currently evaluating the potential impact of the adoption of SFAS 160 on the Companys financial position, results of operations, or
cash flows.

Reclassifications In September 2007, we sold our Mortgage 101 website and certain related assets. In November 2007, we sold certain assets related to TRMS and Pipeline Tools.
The revenues and identifiable costs for Mortgage 101, TRMS (including impairment loss) and Pipeline Tools have been classified as discontinued operations for all periods presented in the consolidated statements of operations. Additionally, certain
assets for TRMS and Mortgage 101 have been classified as assets held for sale in the consolidated balance sheets.

41

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 2  Discontinued operationsLeads Business Product Group

On September 28, 2007, we entered into and consummated an agreement with Internet Brands, Inc. (Internet Brands) for the sale to Internet
Brands of the Companys Mortgage 101 website and certain assets associated therewith.  The agreement provided for payment of $5,000,000 which was received at closing and an additional payment of $350,000 of which $319,000 was
received by December 31, 2007 with the remaining balance received in early January 2008. Internet Brands assumed liabilities arising from the purchased assets after closing, including all post-closing liabilities for performance under the contracts
assumed by Internet Brands in the transaction. The Company provided transition services to Internet Brands to effect the timely delivery and installation of the technology platform, databases and software comprising Mortgage 101 during the 90 days
after the closing (the transition services).  At closing, the Company received $112,500 from Internet Brands as payment in advance for the estimated costs of providing the transition services (based on a detailed work plan), and paid
Internet Brands $112,500 for estimated amounts of customer deposits for assumed contracts.  The prepayment of transition services was recognized as additional gain along with related expenses as services were provided during fourth quarter 2007.
Accounts receivable for services provided prior to the close date were retained by LION.

The gain on the sale approximates $5.2 million representing the initial sales price of $5 million, additional payment of $350,000 held back at closing and transition services of $112,500 less related selling
costs of $202,000, less the net book value of assets sold, which related to fixed assets and unamortized capitalized software and which together approximated $17,000.

Mortgage 101, which is part of the LION segment, represents a component of an entity as set forth in Statement of Financial Accounting Standards No. 144 Accounting for the
impairment of disposal of long-lived assets(SFAS No. 144).Accordingly, the results of operations relating to this
component, including related gain on sale, are reported as discontinued operations in accordance with SFAS No. 144. The assets and liabilities of Mortgage 101 have been classified as held for sale in our financial statements at December
31, 2006.

Capital Markets Product Group

On November 15, 2007, LION, Inc. consummated an agreement with Compass Analytics, LLC (Compass) for the sale to Compass of the
Companys TRMS business and certain assets associated therewith. Compass paid approximately $1.3 million to the Company at closing, based on the value at closing of client revenues associated with the TRMS business. In addition, the
agreement contemplates a contingent payment to the Company of up to $500,000 based on the value of client revenues associated with the TRMS business six months after the closing date, subject to valid claims by Compass against the Company under
the indemnification provisions of the agreement. Because of the uncertainty of collecting the $500,000, this amount was not included in the calculation of the gain. Compass also assumed liabilities arising from the purchased assets after
closing, including all post-closing liabilities for performance under the contracts assumed by Compass in the transaction.

The gain on the sale approximated $6,000 representing the sales price of approximately $1.3 million less related selling costs of $206,000 and the net book value of assets sold which related to fixed assets and
goodwill attributable to TRMS which together approximated $1.1 million.

42

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LION, Inc. and SubsidiaryNotes to condensed consolidated financial statementsSeptember 30, 2007

Note 2  Discontinued operations - continued

The assets and liabilities of the TRMS business to be sold have been classified as held for sale in our financial statements in accordance with SFAS No. 144 at December 31, 2006. SFAS No. 144 requires an asset
group that is held for sale to be recorded at the lower of its carrying amount or fair value less costs to sell. The Company took an impairment loss of $1.4 million for the TRMS segment at September 30, 2007. The results of operations relating
to this component are reported as discontinued operations in accordance with SFAS No. 144.

The following table provides additional income statement information related to the discontinued operations (in thousands):

|                                                                  |  |   | 2007  |   |  |              | 2006  |  
|----------------------------------------------------------------- |  | - | ----- | - |  | ------------ | ----- | -
|                                                                 
|Revenues                                                          |  |   |       |   |  |              |       |  
|Mortgage 101                                                      |  | $ | 1,062 |   |  | $            | 1,870 |  
|TRMS Business                                                     |  |   | 4,256 |   |  |              | 6,109 |  
|                                                                  |  | $ | 5,318 |   |  | $            | 7,979 |  
|                                                                 
|Income from operations of Mortgage 101, including gain            |  |   |       |   |  |              |       |  
|of $5,244 in 2007                                                 |  | $ | 5,462 |   |  | $            | 765   |  
|Income from operations of TRMS Business, including gain of $6 and |  |   |       |   |  |              |       |  
|impairment provision of $1,366 in 2007                            |  |   | 89    |   |  |              | 2,962 |  
|Income from discontinued operations, before income taxes          |  |   | 5,551 |   |  |              | 3,727 |  
|Income tax provision                                              |  |   | (92   | ) |  |              | (16   | )
|Income from discontinued operations                               |  | $ | 5,459 |   |  | $            | 3,711 |  
|                                                                 
|Assets held for sale are as follows (in thousands):               |  |   |       |   |  |              |       |  
|                                                                 
|                                                                  |  |   |       |   |  | At          
|                                                                  |  |   |       |   |  | December 31,
|                                                                  |  |   |       |   |  | 2006        
|TRMS assets held for sale:                                        |  |   |       |   |  |              |       |  
|Goodwill                                                          |  |   |       |   |  | $            | 2,316 |  
|Property and Equipment, net                                       |  |   |       |   |  |              | 139   |  
|                                                                  |  |   |       |   |  | $            | 2,455 |  
|Mortgage 101 assets held for sale:                                |  |   |       |   |  |              |       |  
|Property and Equipment, net                                       |  |   |       |   |  | $            | 21    |  

43

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 3  Property and Equipment

Property and equipment consists of the following as of December 31 (in thousands):

2007
  
  
  2006Computer equipment
  $
  717
  
  $
  911Computer software
  
  1,293
  
  
  1,724Equipment
  
  172
  
  
  370Leasehold improvements
  
  8
  
  
  182,190
  
  
  3,023Less accumulated depreciation and amortization
  
  1,990
  
  
  2,628$
  200
  
  $
  395


Fixed assets acquired under capital leases approximated $156,000 and $241,000 at December 31, 2007 and 2006, respectively, and related accumulated amortization approximated $156,000 and $220,000 at December
31, 2007 and 2006, respectively.

In connection with our restructuring efforts during fourth quarter 2007 and in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, it was determined that  estimated
undiscounted future cash flows from continuing operations from the use of our fixed assets, including disposition, would be less than the carrying value of the fixed assets. Accordingly, the Company incurred a non-cash charge for impairment of fixed
assets totaling $549,000 which related to the LION segment. The remaining net book value of these operating assets is classified as Property and Equipment in the consolidated balance sheets. The Company determined the fair value of
the remaining fixed assets using a combination of quoted market price and projected discounted cash flows.

Note 4  Goodwill

Goodwill by reporting segment is as follows (in thousands):

LION
  
  
  TRMS
  
  
  ConsolidatedBalance as of December 31, 2006
  $
  274
  
  $
  2,316
  
  $
  2,590Impairment loss on TRMS Business held for sale
  
  -
  
  
  (1,366
  )
  
  (1,366
  )Sale of TRMS Business
  
  
  
  
  (950
  )
  
  (950
  )Impairment loss
  
  (274
  )
  
  -
  
  
  (274
  )Balance at December 31, 2007
  $
  -
  
  $
  -
  
  $
  -


Due to the significant decline in the mortgage industry during the third quarter of 2007, the Company viewed this as a trigger event and tested goodwill for impairment at September 30, 2007 in accordance with SFAS No. 142
Goodwill and Other Intangible Assets. As a result of the impairment test, a goodwill impairment loss of $274,000 was recognized for the LION segment during the third quarter of 2007. The fair value of the LION segment was estimated
using the quoted market price of the Company at September 30, 2007 less the estimated fair value for the TRMS business.

The adjustment to the TRMS segment totaling approximately $1.4 million was the result of the impairment loss on the anticipated sale of the TRMS business at September 30, 2007 and is included in discontinued
operations.



44

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LION, Inc. and Subsidiary 
Notes to consolidated financial statementsDecember 31, 2007 and 2006

Note 5  Long-term Obligations

The Companys long-term obligations are comprised of the following at December 31 (in thousands):

|                                                                                          |  |   | 2007 |        |   | 2006   
|----------------------------------------------------------------------------------------- |  | - | ---- | ------ | - | -------
|Notes payable to various TRMS shareholders at a fixed interest rate                       |  |   |      |        |   |        
|of 8%; interest is accrued and payable annually; final payment due                        |  |   |      |        |   |        
|October 2007                                                                              |  | $ | -    |        | $ | 972    
|Capital lease obligations payable in monthly installments of $474 at a                    |  |   |      |        |   |        
|fixed rate of 9.5%; final payment due July 2009                                           |  |   | 8    |        |   | 13     
|                                                                                          |  |   | 8    |        |   | 985    
|Less current maturities                                                                   |  |   | 5    |        |   | 977    
|                                                                                          |  | $ | 3    |        | $ | 8      
|                                                                                         
|Following is a schedule of annual minimum payments under such obligations (in thousands): |  |   |     
|                                                                                          |  |   |      |        |   | Capital
|Year ending December 31,                                                                  |  |   |      | Leases
|2008                                                                                      |  |   |      | 6     
|2009                                                                                      |  |   |      | 3     
|Total minimum payments                                                                    |  |   |      |        |   | 9      
|Less amount representing interest                                                         |  |   |      |        |   | 1      
|Net principal payments                                                                    |  |   |      |        | $ | 8      

At December 31, 2007, the Company had $180,000 of restricted cash which is included in prepaid expenses and other. The restricted cash is collateral for an irrevocable letter of credit with respect to a lease for the
Companys San Rafael, California office space. The cash is held in custody by the bank that issued the letter of credit, is restricted as to withdrawal or use, and is currently invested in money market funds. In July 2008, the letter of credit
may be cancelled and replaced by a security deposit equal to the then current monthly rent.

Note 6  Income taxes

The income tax benefit (expense) is comprised of the following for the years ended December 31 (in thousands):

|                        |  |   | 2007 |   |  |   | 2006 |  
|----------------------- |  | - | ---- | - |  | - | ---- | -
|Continuing operations   |  |   |      |   |  |   |      |  
|Current  federal       |  | $ | 15   |   |  | $ | -    |  
|Current  state         |  |   | (2   | ) |  |   | 5    |  
|                        |  |   | 13   |   |  |   | 5    |  
|Deferred  federal      |  |   | -    |   |  |   | (150 | )
|                        |  |   | 13   |   |  |   | (145 | )
|Discontinued operations |  |   |      |   |  |   |      |  
|Current  federal       |  |   | (55  | ) |  |   | -    |  
|Current  state         |  |   | (37  | ) |  |   | (16  | )
|                        |  |   | (92  | ) |  |   | (16  | )
|Total                   |  | $ | (79  | ) |  | $ | (161 | )



45

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LION, Inc. and Subsidiary  Notes to consolidated financial statements  December 31, 2007 and 2006


Note 6  Income taxes - continued

Income tax expense reconciled to the tax computed at the statutory federal rate was as follows for the years ended December 31 (in thousands):

|                                                                               |  |   | 2007   |   |  |   | 2006   |  
|------------------------------------------------------------------------------ |  | - | ------ | - |  | - | ------ | -
|Tax (expense) benefit at statutory rate                                        |  | $ | (70    | ) |  | $ | 380    |  
|State income taxes                                                             |  |   | (39    | ) |  |   | (11    | )
|State income tax benefit                                                       |  |   | -      |   |  |   | 40     |  
|Non-deductible expenses                                                        |  |   | (568   | ) |  |   | (16    | )
|Other                                                                          |  |   | (26    | ) |  |   | 20     |  
|(Increase) decrease in valuation allowance                                     |  |   | 624    |   |  |   | (574   | )
|Total                                                                          |  | $ | (79    | ) |  | $ | (161   | )
|                                                                              
|The components of deferred taxes are as follows at December 31 (in thousands): |  |   |        |   | 
|                                                                              
|                                                                               |  |   | 2007   |   |  |   | 2006   |  
|Deferred tax assets:                                                           |  |   |        |   |  |   |        |  
|Intangible assets                                                              |  | $ | 10     |   |  | $ | 14     |  
|Impairment of fixed assets                                                     |  |   | 198    |   |  |   | -      |  
|Accrued liabilities                                                            |  |   | 42     |   |  |   | 78     |  
|Accrued bonuses                                                                |  |   | 34     |   |  |   | -      |  
|Allowance for doubtful accounts                                                |  |   | 42     |   |  |   | 24     |  
|Stock based compensation                                                       |  |   | -      |   |  |   | 121    |  
|AMT                                                                            |  |   | 55     |   |  |   |        |  
|Net operating loss carryforwards                                               |  |   | 658    |   |  |   | 1,431  |  
|Total deferred tax assets                                                      |  |   | 1,039  |   |  |   | 1,668  |  
|Deferred tax liabilities:                                                      |  |   |        |   |  |   |        |  
|Depreciation                                                                   |  |   | 23     |   |  |   | 28     |  
|                                                                               |  |   | 1,016  |   |  |   | 1,640  |  
|Valuation allowance                                                            |  |   | (1,016 | ) |  |   | (1,640 | )
|                                                                              
|                                                                               |  | $ | -      |   |  | $ | -      |  

At December 31, 2007, the Company had net operating loss carryforwards for federal income tax purposes of approximately $2.0 million available to offset future income which expire in 2018 through 2027. Utilization of
these carryforwards could be limited due to a change of control in Company ownership as defined by the Internal Revenue Code Section 382.

The valuation allowance was decreased by $624,000
for 2007 and increased by $574,000 for 2006. Realization of deferred tax assets is primarily dependent upon the Company reporting taxable income prior to expiration
of net operating losses. At December 31, 2005, the Company had net deferred income tax assets of $150,000, which were the result of an income tax benefit recorded in the prior year, and which represented a portion of its net operating loss
carryforwards that Company management determined was more likely than not to be realized by offsetting future taxable income.  During the fourth quarter of 2006, the Company recognized income tax expense of $150,000 as a result of increasing the
deferred tax valuation allowance, such that the allowance is in the full amount of deferred tax assets.

46

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 7  Commitment and Contingencies

The Company conducts a portion of its operations in leased facilities under operating lease agreements. Various leases provide for payment of taxes and other expenses by the Company. Rent expense for leased facilities
approximated $836,000 and $906,000 for 2007 and 2006, respectively. The following is a schedule of minimum annual rental payments under such operating leases, which expire at various dates through July 2010 (in thousands):

|Year ending December 31,        |  |   |    
|------------------------------- |  | - | ---
|2008                            |  |   | 361
|2009                            |  |   | 263
|2010                            |  |   | 125
|Total minimum payments required |  | $ | 749

The Company is currently subleasing a portion of its lease space to another company. The minimum annual rental payments under the sublease agreement to be received are as follows (in thousands):

|Year ending December 31,              |  |   |    
|------------------------------------- |  | - | ---
|2008                                  |  |   | 82 
|2009                                  |  |   | 85 
|2010                                  |  |   | 46 
|Total minimum payments to be received |  | $ | 213

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.

In May 2007, the Company entered into renewed employment agreements with its President and Chief Financial Officer, which provide for annual salaries of $162,700 and $153,000, respectively.  Each agreement expires
May 31, 2010 and provides that the compensation will include a base and may include a bonus. In the event that employment is terminated by the Company without cause, they will be entitled to a severance payment of 50% of annual compensation.  The
officers are also entitled to receive, at the Companys expense, continuation of medical, dental and disability benefits for 6 months following termination without cause.

Our TRMS business, including Pipeline Tools, and our IT operations resided in our San Rafael office. On November 15, 2007, the Company sold its TRMS business and Pipeline Tools to Compass Analytics. Compass Analytics has
subleased a portion of the San Rafael office to the end of the lease term.  The remaining IT operations were consolidated with our Gig Harbor operations as part of our restructuring during fourth quarter 2007.  Per SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities, a liability for costs that will continue to be incurred under a contract for its remaining term without economic benefit to the Company shall be recognized and measured at fair value at the cease use
date. Accordingly, we have accrued $125,000 of rent expense to fourth quarter 2007 which is included in direct expense for continuing operations representing that portion of the Companys San Rafael lease that no longer has an economic
benefit to the Company.

47

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 8  Stock-based compensation

The Company maintains two stock equity incentive plans under which it may grant non-qualified stock options, incentive stock options or restricted stock to employees, non-employee directors and consultants. In 1998, the
Company established the 1998 Stock Option Plan (the 1998 Plan) under which 15 million shares have been reserved for issuance as incentive stock options and non-qualified stock options. The 1998 Plan allows the Company to grant options to
employees for up to 50,000 shares of common stock per employee. Employee directors are eligible to receive option grants and direct stock issuances.

In 2005, the Company established the 2005 Stock Incentive Plan (the 2005 Plan) under which 5 million shares have been reserved for issuance as incentive stock options, non-qualified stock options, restricted
stock awards, restricted stock units and stock appreciation rights. Not more than 2.5 million shares may be used for restricted stock awards and restricted stock units. In 2005, the Company began granting employees restricted stock awards in
addition to stock options.  The stock award program offers employees the opportunity to earn shares of stock over time rather than options that give employees the right to purchase stock at a set price. Restricted stock awards are grants that
entitle the holder to shares of common stock as the award vests. The restricted stock unit awards require no payment from the employee and compensation cost is recorded based on the market price on the grant date and is recorded equally over the
vesting period of four years.

Non-employee directors receive as an initial grant options to purchase 50,000 shares of common stock, exercisable at not less than the fair market value of the Companys common stock on the day of grant. Thereafter,
non-employee directors receive automatic option grants each year to purchase 50,000 shares of common stock upon their reelection at the annual meeting of shareholders. Non-employee chairs of the audit and compensation committees receive an automatic
option grant each year to purchase an additional 25,000 shares of common stock.  During 2007, the non-employee directors waived the right to receive these automatic grants for just 2007 since the Company was going through cost restructuring. Options
granted to non-employee directors generally vest quarterly over one year and generally expire in four years from the date of grant. Options granted to employees vest quarterly over four years beginning at the date of grant and generally expire 10
years from the date of grant. All outstanding stock options are non-qualified stock options. The Company issues new shares of common stock upon exercise of stock options.

Stock options to purchase the Companys common stock are granted at prices at the fair market value on the date of grant. Compensation expense is recognized only for those options expected to vest, with forfeitures
estimated at the date of grant based on the Companys historical experience and future expectations. Prior to the adoption of SFAS No. 123(R), the effect of forfeitures was not included as a compensation expense assumption and was not material.

The fair value of option grants with service conditions are estimated using the Black-Scholes option pricing model.  The Black-Scholes option valuation model was developed for use in estimating the fair value of traded
options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, particularly for the expected term and expected stock price volatility.  The
Companys employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. While estimates of fair value and the
associated charge to earnings may materially affect the Companys results of operations, it has no impact on cash flow. Because Company stock options do not trade on a secondary exchange, employees do not derive a benefit from holding stock
options unless there is an increase in the market price above the grant price of the Companys stock. Such an increase in stock price would benefit all shareholders commensurately.

48

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 8  Stock-based compensation - continued

The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms, vesting schedules and
expectations of future option holder behavior. Expected stock price volatility is based exclusively on historical volatility of the Companys common stock. The risk-free interest rate is based on the implied yield available on U.S. Treasury
zero-coupon issues with an equivalent remaining term. The Company has not paid dividends in the past and does not have any plans to pay any dividends in the future.

Using the Black-Scholes option pricing model to estimate the fair value of options, the following weighted average assumptions were used for grants during 2006: expected volatility ranged from 74% to 113%; risk-free
interest rate ranged from 4.6% to 5.1%; expected lives ranged from 2.5 to 6.25 years; and, a zero percent dividend yield. There were no stock option grants during 2007.

The following table sets forth the summary of option activity under our stock option plans for the year ended December 31, 2007:

|                                   |  |            |   |   | Weighted |  | Weighted         |  |   |          
|---------------------------------- |  | ---------- | - | - | -------- |  | ---------------- |  | - | ---------
|                                   |  |            |   |   | average  |  | average          |  |   | Aggregate
|                                   |  | Number of  |   |   | exercise |  | remaining        |  |   | intrinsic
|                                   |  | shares     |   |   | price    |  | contractual life |  |   | value    
|                                  
|Outstanding at beginning of year   |  | 6,090,417  |   | $ | 0.26     |  |                  |  |   |          
|Granted                            |  | -          |   |   | -        |  |                  |  |   |          
|Forfeited                          |  | (3,318,500 | ) |   | 0.25     |  |                  |  |   |          
|Exercised                          |  | (50,000    | ) |   | 0.09     |  |                  |  |   |          
|                                  
|Outstanding at end of year         |  | 2,721,917  |   | $ | 0.27     |  | 3.3 years        |  | $ | 800      
|                                  
|Options vested or expected to vest |  |            |   |   |          |  |                  |  |   |          
|at end of year                     |  | 2,687,576  |   | $ | 0.27     |  | 3.2 years        |  | $ | 800      
|                                  
|Options exercisable at end         |  |            |   |   |          |  |                  |  |   |          
|of year                            |  | 2,645,605  |   | $ | 0.27     |  | 3.1 years        |  | $ | 800      

49

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 8  Stock-based compensation  continued

The following table sets forth the summary of option activity under our stock option plans for the year ended December 31, 2006:

|                                   |  |           |   |   | Weighted |  | Weighted         |  |   |          
|---------------------------------- |  | --------- | - | - | -------- |  | ---------------- |  | - | ---------
|                                   |  |           |   |   | average  |  | average          |  |   | Aggregate
|                                   |  | Number of |   |   | exercise |  | remaining        |  |   | intrinsic
|                                   |  | shares    |   |   | price    |  | contractual life |  |   | value    
|                                  
|Outstanding at beginning of year   |  | 3,789,867 |   | $ | 0.22     |  |                  |  |   |          
|Granted                            |  | 2,549,167 |   |   | 0.30     |  |                  |  |   |          
|Forfeited                          |  | (108,167  | ) |   | 0.21     |  |                  |  |   |          
|Exercised                          |  | (140,450  | ) |   | 0.11     |  |                  |  |   |          
|                                  
|Outstanding at end of year         |  | 6,090,417 |   | $ | 0.26     |  | 6.7 years        |  | $ | 531,000  
|                                  
|Options vested or expected to vest |  |           |   |   |          |  |                  |  |   |          
|at end of year                     |  | 4,774,122 |   | $ | 0.25     |  | 6.1 years        |  | $ | 451,000  
|                                  
|Options exercisable at end         |  |           |   |   |          |  |                  |  |   |          
|of year                            |  | 3,152,817 |   | $ | 0.24     |  | 4.6 years        |  | $ | 353,000  

The weighted average grant date fair value per share of options granted in 2006 was $.30. There were no grants during 2007.

The aggregate intrinsic value is based on the Companys closing stock price of $0.09 as of the last business day of the year ended December 31, 2007, which would have been received by the optionees had all
in-the-money options been exercised on that date.  As of December 31, 2007, total unrecognized stock-based compensation expense related to unvested stock options was approximately $13,000, which is expected to be recognized over a weighted
average period of approximately 1.9 years. The aggregate fair value of vested options outstanding as of December 31, 2007 was $706,000.

Following is a summary of the Companys stock options outstanding at December 31, 2007:

|Outstanding options |  | Options exercisable
|------------------- |  | -------------------
|                    |  |                    
|                    |  |                    
|Exercise price      |  | Number             
|                   
|$.05 - $.25         |  | 1,722,500          
|$.26 - $.50         |  | 784,417            
|$.51 - $.61         |  | 215,000            
|                    |  | 2,721,917          

50

---



LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 8  Stock-based compensation  continued

The following table sets forth the summary of restricted stock activity under our 2005 Plan for the year ended December 31, 2007:

|                                                              |  |           |   |   | Weighted  
|------------------------------------------------------------- |  | --------- | - | - | ----------
|                                                              |  |           |   |   | average   
|                                                              |  | Number of |   |   | grant-date
|                                                              |  | shares    |   |   | fair value
|                                                             
|Restricted shares outstanding at beginning of year, nonvested |  | 43,313    |   | $ | .31       
|Granted                                                       |  | 10,000    |   |   | .28       
|Vested                                                        |  | (5,376    | ) |   | .32       
|Forfeited                                                     |  | (47,937   | ) |   | .30       
|                                                             
|Restricted shares outstanding at end of year, nonvested       |  | -         |   | $ | -         

The following shares of common stock have been reserved for issuance under the Companys stock-based compensation plans as of December 31, 2007:

|                                            |  | 1998 Plan |  |  | 2005 Plan |  |  | Total    
|------------------------------------------- |  | --------- |  |  | --------- |  |  | ---------
|Outstanding share based compensation awards |  | 2,471,917 |  |  | 250,000   |  |  | 2,721,917
|Underlying shares available for grant       |  | 2,046,681 |  |  | 4,734,937 |  |  | 6,781,618
|Total                                       |  | 4,518,598 |  |  | 4,984,937 |  |  | 9,503,535

Total stock-based compensation expense recognized in the consolidated statement of operations is as follows (in thousands):

|                                       |  |   | Years endedDecember 31,
|-------------------------------------- |  | - | -----------------------
|                                       |  |   | 2007                   
|Stock option expense                   |  | $ | 41                     
|Restricted stock expense               |  |   | 1                      
|Total stock-based compensation expense |  | $ | 42                     

Note 9  Retirement Plan

The Company has adopted a salary deferral retirement plan, or 401(k) plan. 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 2007 and 2006.

51

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 10  Segment Reporting

Throughout most of 2007, the Company had two operating segments, TRMS and the integrated software, services and lead generation businesses in which the Company is engaged which is referred to as the LION segment.  On
November 15, 2007, we consummated the sale of TRMS including our Pipeline Tools technology. In addition, the assets of Mortgage 101 were sold on September 28, 2007. The operating results of TRMS (the TRMS segment) and Mortgage 101 and Pipeline Tools
(part of the LION segment) are included in discontinued operations in the consolidated statements of operations.

Management reports on each segment based upon, among other things, TRMS being a registered Commodity Trading Advisor and generating revenues through delivery of Risk Management Services, while LIONs other combined
operations generate revenues primarily for sales of software related products and services. Intercompany revenues represent fees for Pipeline Tools technology and services purchased by TRMS from its parent, LION, which are generally accounted for at
current market prices and are eliminated in consolidation. Accounting policies for segments are the same as those described in Note 1. The following sets forth information for reportable segments and consolidated totals (in thousands):

|                                  |  |   | LION   |   |   | TRMS  |  |   | Consolidated |  
|--------------------------------- |  | - | ------ | - | - | ----- |  | - | ------------ | -
|Year ended December 31, 2007:     |  |   |        |   |   |       |  |   |              |  
|Revenues from external customers: |  |   |        |   |   |       |  |   |              |  
|From continuing operations        |  | $ | 4,426  |   | $ | -     |  | $ | 4,426        |  
|From discontinued operations      |  |   | 1,447  |   |   | 3,871 |  |   | 5,318        |  
|                                  |  |   | 5,873  |   |   | 3,871 |  |   | 9,744        |  
|Revenues from TRMS                |  |   | 2,470  |   |   | -     |  |   | -            |  
|Operating income (loss):          |  |   |        |   |   |       |  |   |              |  
|From continuing operations        |  |   | (5,463 | ) |   | -     |  |   | (5,463       | )
|From discontinued operations      |  |   | (200   | ) |   | 501   |  |   | 301          |  
|                                  |  |   | (5,663 | ) |   | 501   |  |   | (5,162       | )
|Depreciation and amortization     |  |   |        |   |   |       |  |   |              |  
|From continuing operations        |  |   | 306    |   |   | -     |  |   | 306          |  
|From discontinued operations      |  |   | 97     |   |   | 11    |  |   | 108          |  
|                                  |  |   | 403    |   |   | 11    |  |   | 414          |  
|Capital expenditures              |  |   |        |   |   |       |  |   |              |  
|From continuing operations        |  |   | 718    |   |   | -     |  |   | 718          |  
|From discontinued operations      |  |   | -      |   |   | 4     |  |   | 4            |  
|                                  |  |   | 718    |   |   | 4     |  |   | 722          |  
|Total assets                      |  |   | 7,160  |   |   | -     |  |   | 7,160        |  

52

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 10  Segment Reporting - continued

|                                  |  |   | LION   |   |   | TRMS  |  |   | Consolidated |  
|--------------------------------- |  | - | ------ | - | - | ----- |  | - | ------------ | -
|Year ended December 31, 2006:     |  |   |        |   |   |       |  |   |              |  
|Revenues from external customers: |  |   |        |   |   |       |  |   |              |  
|From continuing operations        |  | $ | 5,723  |   | $ | -     |  | $ | 5,723        |  
|From discontinued operations      |  |   | 2,294  |   |   | 5,685 |  |   | 7,979        |  
|                                  |  |   | 8,017  |   |   | 5,685 |  |   | 13,702       |  
|Revenues from TRMS                |  |   | 3,677  |   |   | -     |  |   | -            |  
|Operating income (loss):          |  |   |        |   |   |       |  |   |              |  
|From continuing operations        |  |   | (4,981 | ) |   | -     |  |   | (4,981       | )
|From discontinued operations      |  |   | 135    |   |   | 3,592 |  |   | 3,727        |  
|                                  |  |   | (4,846 | ) |   | 3,592 |  |   | (1,254       | )
|Depreciation and amortization     |  |   |        |   |   |       |  |   |              |  
|From continuing operations        |  |   | 385    |   |   | -     |  |   | 385          |  
|From discontinued operations      |  |   | 48     |   |   | 12    |  |   | 60           |  
|                                  |  |   | 433    |   |   | 12    |  |   | 445          |  
|Capital expenditures              |  |   |        |   |   |       |  |   |              |  
|From continuing operations        |  |   | 139    |   |   | -     |  |   | 139          |  
|From discontinued operations      |  |   | -      |   |   | 2     |  |   | 2            |  
|                                  |  |   | 139    |   |   | 2     |  |   | 141          |  
|Goodwill                          |  |   |        |   |   |       |  |   |              |  
|From continuing operations        |  |   | 274    |   |   | -     |  |   | 274          |  
|From discontinued operations      |  |   | -      |   |   | 2,316 |  |   | 2,316        |  
|                                  |  |   | 274    |   |   | 2,316 |  |   | 2,590        |  
|Total assets                      |  |   |        |   |   |       |  |   |              |  
|From continuing operations        |  |   | 5,142  |   |   | -     |  |   | 5,142        |  
|From discontinued operations      |  |   | 123    |   |   | 3,222 |  |   | 3,345        |  
|                                  |  |   | 5,265  |   |   | 3,222 |  |   | 8,487        |  

A reconciliation of the totals reported for the operating segments to the applicable line items in the consolidated financial statements is as follows (in thousands):

|                                    |  |   | 2007   |   |   | 2006   |  
|----------------------------------- |  | - | ------ | - | - | ------ | -
|                                   
|Operating loss                      |  | $ | (5,162 | ) | $ | (1,254 | )
|Gain on sale of Mortgage 101        |  |   | 5,244  |   |   | -      |  
|Other non-operating income  net    |  |   | 122    |   |   | 95     |  
|Income tax expense  net            |  |   | (78    | ) |   | (161   | )
|                                   
|Net income (loss) before income tax |  | $ | 126    |   | $ | (1,320 | )



53

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LION, Inc. and Subsidiary 
Notes to consolidated financial statementsDecember 31, 2007 and 2006

Note 10  Segment Reporting - continued

The Companys product groupings for continued and discontinued operations are comprised of Leads, Loans, and Capital Markets and associated revenues are as follows (in thousands):

|                                            |  |   | 2007  |  |   | 2006  
|------------------------------------------- |  | - | ----- |  | - | ------
|                                           
|Revenue from continuing operations:         |  |   |       |  |   |       
|Loans                                       |  | $ | 4,426 |  | $ | 5,723 
|Revenue included in discontinued operations |  |   |       |  |   |       
|Leads                                       |  |   | 1,062 |  |   | 1,870 
|Capital Markets                             |  |   | 4,256 |  |   | 6,109 
|                                            |  |   | 5,318 |  |   | 7,979 
|                                           
|Total                                       |  | $ | 9,744 |  | $ | 13,702

The Leads product grouping (included in discontinued operations) consists of the Companys Mortgage 101 product, which generates revenues from LIONs subscription and pay-per-lead based lead programs along with
consumer-facing ad banner programs.

The Loans product grouping consists of Precision LION Broker (inclusive of LION Pro), Precision Access (formerly known as LION Pro Corporate), Retail Websites, and Precision LPX (LockPoint Xtra®). LION Pro revenues include lenders who participate in the underlying loan program database.  Retail Website revenues consist of site development and hosting fees.  Precision LPX revenues
are generated from implementation fees with new customers, recurring monthly billings based on locked loan amount volumes with monthly minimums which may vary from customer to customer, and custom development services.

The Capital Markets product grouping (included in discontinued operations) consists of Pipeline Tools and Risk Management Services.  Pipeline Tools revenues are generated from implementation fees from new customers,
recurring monthly billings based on closed loan volumes with monthly minimums which may vary from customer to customer, and custom development services. Risk Management Servicesare
provided by TRMSand are generated by recurring monthly billings based on closed loan volumes with monthly minimums which may vary from customer to customer.

54

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 11  Quarterly Financial Data (Unaudited)

Following is a summary of unaudited quarterly results of operations in 2007 and 2006 (in thousands, except income per share):

|                                        |  |   | First   |   |   | Second  |   |   | Third   |   |   | Fourth  |   |   | Fiscal |  
|--------------------------------------- |  | - | ------- | - | - | ------- | - | - | ------- | - | - | ------- | - | - | ------ | -
|Fiscal year ended December 31, 2007:    |  |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Year   |  
|Revenues                                |  | $ | 1,368   |   | $ | 1,161   |   | $ | 1,014   |   | $ | 883     |   | $ | 4,426  |  
|Operating loss                          |  | $ | (1,351  | ) | $ | (1,329  | ) | $ | (1,281  | ) | $ | (1,502  | ) | $ | (5,463 | )
|Loss from continuing operations         |  | $ | (1,332  | ) | $ | (1,322  | ) | $ | (1,265  | ) | $ | (1,414  | ) | $ | (5,333 | )
|Discontinued operations, net of tax     |  |   | 667     |   |   | 335     |   |   | 3,801   |   |   | 656     |   |   | 5,459  |  
|Net income (loss)                       |  | $ | (665    | ) | $ | (987    | ) | $ | 2,536   |   | $ | (758    | ) | $ | 126    |  
|Basic and diluted net loss per common   |  |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|share from continuing operations        |  | $ | (.03    | ) | $ | (.04    | ) | $ | (.03    | ) | $ | (.04    | ) | $ | (.14   | )
|Basic and diluted net income per common |  |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|share from discontinued operations      |  |   | .01     |   |   | .01     |   |   | .10     |   |   | .02     |   |   | .14    |  
|Basic and diluted net income (loss) per |  |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|common share                            |  | $ | (.02    | ) | $ | (.03    | ) | $ | .07     |   | $ | (.02    | ) | $ | -      |  
|                                       
|                                       
|                                        |  |   | First   |   |   | Second  |   |   | Third   |   |   | Fourth  |   |   | Fiscal |  
|Fiscal year ended December 31, 2006:    |  |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Quarter |   |   | Year   |  
|Revenues                                |  | $ | 1,501   |   | $ | 1,447   |   | $ | 1,399   |   | $ | 1,376   |   | $ | 5,723  |  
|Operating loss                          |  | $ | (1,118  | ) | $ | (1,563  | ) | $ | (1,156  | ) | $ | (1,144  | ) | $ | (4,981 | )
|Loss from continuing operations         |  | $ | (1,102  | ) | $ | (1,538  | ) | $ | (1,128  | ) | $ | (1,263  | ) | $ | (5,031 | )
|Discontinued operations, net of tax     |  |   | 916     |   |   | 1,003   |   |   | 913     |   |   | 879     |   |   | 3,711  |  
|Net income (loss)                       |  | $ | (186    | ) | $ | (535    | ) | $ | (215    | ) | $ | (384    | ) | $ | (1,320 | )
|Basic and diluted net loss per common   |  |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|share from continuing operations        |  | $ | (.03    | ) | $ | (.04    | ) | $ | (.03    | ) | $ | (.03    | ) | $ | (.13   | )
|Basic and diluted net income per common |  |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|share from discontinued operations      |  |   | .03     |   |   | .03     |   |   | .02     |   |   | .02     |   |   | .10    |  
|Basic and diluted net income (loss) per |  |   |         |   |   |         |   |   |         |   |   |         |   |   |        |  
|common share                            |  | $ | -       |   | $ | (.01    | ) | $ | (.01    | ) | $ | (.01    | ) | $ | (.03   | )

55

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LION, Inc. and SubsidiaryNotes to consolidated financial statementsDecember 31, 2007 and 2006

Note 12  Subsequent Events

In February 2008, auctions failed for $1.3 million of our auction rate securities, and as a result, our ability to liquidate our investment and fully recover the carrying value of our investment in the near term may be
limited or not exist. An auction failure means that the parties wishing to sell securities could not do so. All of our auction rate securities are currently rated AAA, the highest rating by a rating agency. If the issuers are unable to successfully
close future auctions and their credit ratings deteriorate, we may in the future be required to record an impairment charge on these investments.  We do not believe these securities are currently impaired, primarily due to the collateral guarantees
and AAA ratings of the underlying securities. Based on our expected operating cash flows, and our other sources of cash, we do not anticipate the potential lack of liquidity on these investments to affect our ability to execute our current business
plan. As of December 31, 2007, the Company held $1.3 million of auction rate securities which are included in long-term investments available for sale in the consolidated balance sheets.

In March 2008, we entered into a non-binding letter of intent to sell the remaining assets of the Company which is non-definitive and currently under negotiation.

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

None.

ITEM 8A(T). CONTROLS AND PROCEDURES

(a) Disclosure controls and procedures.

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures are defined under SEC rules as controls and other procedures that are designed to ensure that information
required to be disclosed by a company in reports that it files under the Exchange Act are recorded, processed, summarized and reported within the required time periods. Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective.

(b) Managements Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934) which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time
specified in the Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our management including our CEO and our CFO, as appropriate to allow timely decisions regarding required
disclosure.

Management conducted an assessment of the effectiveness of the Companys internal control over financial reporting as of December 31, 2007 based on the framework published by the Committee
of Sponsoring Organizations of the Treadway Commission, referred to as the Internal ControlIntegrated Framework. The objective of this assessment is to determine whether the Companys internal control over financial reporting was
effective as of December 31, 2007. Based on its assessment using the criteria in the Internal ControlIntegrated Framework, management believes that, as of December 31, 2007, the Companys internal control over financial reporting was
effective.

This Annual Report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Management's report was
not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this Annual Report.

There are inherent limitations
to the effectiveness of any system of internal control over financial reporting.
Accordingly, even an effective system of internal control over financial reporting
can only provide reasonable assurance with respect to financial statement preparation
and presentation in accordance with accounting principles generally accepted
in the United States of

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America. Our internal controls over financial reporting
are subject to various inherent limitations, including cost limitations, judgments
used in decision making, assumptions about the likelihood of future events, the
soundness of our systems, the possibility of human error and the risk of fraud.
Moreover, projections of any evaluation  of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with policies or procedures may
deteriorate over time.

(c) Changes in internal control over financial reporting.

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

ITEM 8B. OTHER INFORMATION

None.

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PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; 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 (2) (3)   |  | 76  |  | Chairman, Director                 
|Griffith J. Straw (2) (3)  |  | 59  |  | Director                           
|James D. Russo (1) (2) (3) |  | 61  |  | Director                           
|David Stedman              |  | 58  |  | Director                           
|J.C. Tuck Marshall (1)   |  | 61  |  | Director                           
|                          
|Executive Officers:        |  |     |  |                                    
|David Stedman              |  | 58  |  | Interim CEO and President          
|Steve Thomson              |  | 55  |  | CFO, Corporate Secretary, Treasurer

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

All directors were elected at the Annual Meeting held June 20, 2007. Directors hold office until the next annual meeting or until their successors have been elected and qualified. Director
David Stedman, Interim CEO and President, is a full-time employee of the Company. The other directors devote only such time as may be necessary to our business and affairs. There are no family relationships among any of the directors or executive
officers of the Company. Following is a discussion of the business background of each director and executive officer.

DIRECTORS:

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

GRIFFITH J. STRAW has been a director of the Company since September 2002. Since May 2002, Mr. Straw has served as Regional Vice President of United Guaranty Residential Insurance
Company. Mr. Straw has more than 20 years experience in the mortgage banking industry. His previous positions include Director of Business Development at Freddie Mac, McLean, Virginia from

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October 1994 to March 2002. He served as Senior Vice President, Director of Marketing at Frontline Mortgage from May 1993 to October 1994 and Senior Vice President at National Pacific Mortgage from 1987 to 1992. Mr. Straw
received his designation as a CMB (Certified Mortgage Banker) from the Mortgage Bankers Association of America (MBA) in 2000. He is also a Faculty Fellow for the MBAs School of Mortgage Banking and was designated as a member of the
Master Faculty in 2001. In November 1998,Mortgage Technologymagazine named Mr. Straw as one of the years top seven mortgage technologists in recognition of
his role in creating online business opportunities for Freddie Mac.

JAMES D. RUSSO has been a director since August 2004. Since 2001, Mr. Russo has served as the Executive Director Finance of MiddleBrook Pharmaceuticals, Inc. He has over 25 years of executive
financial and operational management experience with US and international based businesses in the pharmaceutical, engineering, environmental consulting and banking industries. Mr. Russo has been CFO of public and privately held companies and is a
founding director of Cardinal Financial Corporation since 1997.

DAVID STEDMAN has been a director since August 2002 and has served as President since June 2005 and became Interim CEO in April 2007. Previously, Mr. Stedman served as President of LION from
January 2001 to December 2003, as Chief Executive Officer from August 2002 to December 2003, and as Co-President from December 2003 to May 2005. Mr. Stedman joined LionInc.com, the former subsidiary of LION, in May 1999 as Vice President of
Marketing and Sales. He served as its COO from January 2000 and as its President from October 2000 until its merger with the Company. Mr. Stedman has over 20 years of marketing experience that includes expertise in market analysis, systems
development, strategic and market planning, identity creation, advertising and public relations. From 1989 to 1999 Mr. Stedman was a Vice President/Director of Marketing for Safeco Properties, a real estate development subsidiary of Safeco
Insurance.

J.C. (TUCK) MARSHALL has been a director since July 1999. Mr. Marshall formerly served as President of the National Association of Mortgage Brokers (NAMB) and is currently the president of J.C.
Marshall Financial Services Inc., a licensed brokerage of mortgages, real estate, and insurance in Tinley Park, Illinois. He is a former president of Margo Financial Services LLC, a national provider of wholesale residential mortgages and a division
of Argo FSB. He is a former president of the Illinois Association of Mortgage Brokers Education Foundation and a member of the UG/UIG Advisory Board. He was formerly Advisory Association Member for Chase Mortgage. His past accomplishments also
include president of the Illinois Association of Mortgage Brokers, NAMB Regional broker of the Year in 1995, NAMB Volunteer of the Year in 1996/1997, NAMB Legislative Chairman in 1998, and the receipt of the NAMB 2002 Distinguished Service Industry
Award. Mr. Marshall served as interim President of LionInc.com from March 2000 to October 2000.

OFFICERS:

DAVID STEDMAN has served as President of the Company since June 2005 and as Interim CEO since April 2007. See background information above for Mr. Stedman under the heading
DIRECTORS.

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. From 1988 to 1995, Mr. Thomson served as Controller
and

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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.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

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

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

CODE OF ETHICS

We have adopted a Code of Ethics that applies to our executive officers, including financial officers and other finance organization employees. The Code of Ethics is publicly available on the
investor relations portion of our website at www.lionmts.com. Our Board did not grant any waivers of any ethics policies in 2007 to our directors or executive officers. If we make any substantive amendments to the Code of Ethics or grant any waiver,
including any implicit waiver, from a provision of the code to our Chief Executive Officer, Chief Financial Officer or Corporate Controller, we will disclose the nature of such amendment or waiver on that website or in a report on Form 8-K. The
charters of the Audit, Compensation and Nominating Committees are also available at the same website address.

INFORMATION REGARDING THE BOARD AND ITS COMMITTEES

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

Committees of the Board of Directors

The principal committees of the Board of Directors of the Company are the Audit Committee, Compensation Committee and Nominating Committee. Our board of directors may establish other committees
to facilitate the management of our business. During 2007, the board utilized for special purposes a Proxy Contest Committee, a Strategic Review Committee and a Negotiations Committee. Below is a description of each of the committees of the Board of
Directors.



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

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

Compensation Committee. The Compensation Committee reviews retirement and benefit plans and salaries and incentive compensation to be provided to
our executive personnel, employees, and consultants, and recommends appropriate compensation and benefit levels. The Compensation Committee also administers our current stock option and equity incentive plans, including the approval of grants and
options under the plans to our employees, consultants and directors and, in general, oversees general policy matters relating to our various compensation plans, including payroll, option, stock, medical and bonus plans. The Compensation Committee
consists of Messrs. Straw, Russo and McMillan, each of whom is considered independent as defined by Rule 4200 of the NASDAQ Marketplace Rules.

Nominating Committee. The Nominating Committee is responsible for identifying and recommending to the Board of Directors qualified nominees to
become board members and considers shareholder recommendations for nominees to fill Board positions if such recommendations are received. The Nominating Committee also recommends to the Board of Directors regarding the size and composition of the
Board as well as carrying out the duties set forth in the LION Nominating Committee Charter. The Nominating Committee consists of Messrs. Straw, Russo and McMillan, each of whom is considered independent as defined by Rule 4200 of the NASDAQ
Marketplace Rules.

Strategic Review Committee. The Board of Directors appointed the Strategic Review Committee in June 2007 to evaluate opportunities by which the
Company could maximize shareholder value. The committee is comprised of our four independent directors, Messrs. Straw, Russo, Marshall and McMillan. The committee engaged a financial advisor to assist in the evaluation of strategic options available
to the Company. As a result of the process instituted by the committee, the Board acted during 2007 to sell the Companys Mortgage 101 and TRMS operations. The committee continues to evaluate a full range of strategic alternatives available to
the Company, including executing the Companys current operating plan, modifying the current operating plan, the sale of

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some or all of the Companys remaining assets,
  partnering or other collaboration agreements, or a merger or other strategic
transaction.

ITEM 10. EXECUTIVE COMPENSATION

The following table provides summary information about compensation expensed or accrued by the Company during the fiscal years ended December 31, 2007 and 2006 for (a) our Chief Executive
  Officer, (b) the next two most highly compensated executive officers serving at the end of the fiscal year ended December 31, 2007, and (c) up to two additional individuals for whom disclosure would have been provided but for the fact that they were
  not serving as executive officers at the end of fiscal 2007 (collectively, the named executive officers):

|Summary Compensation Table*
|---------------------------
|Name and Principal         
|Position                   
|                           
|David Stedman, Interim     
|CEO and President(4)       
|                           
|Randall D. Miles, CEO(5)   
|                           
|Steve Thomson, CFO         
|                           



(*)Columns in the Summary Compensation Table that were not relevant to the compensation paid to the named executive officers were omitted.

(1)Represents cash bonuses earned for the indicated fiscal year.

(2)This column represents the dollar amount recognized for financial statement reporting purposes with respect to the indicated fiscal year for the fair value of stock options
granted to each of the named executives in accordance with SFAS 123R. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The stock options for Mr. Miles were granted in
2006 in four tranches that vest only if the average closing price of the Companys common stock over a preceding 20-day period hits the relevant target price for that tranche within 10 years from the date of grant. The fair value and derived
service periods were determined by a third party valuation expert using a Monte Carlo model to simulate the Companys stock prices for the performance period with the following assumptions: expected volatility of approximately 75%; risk-free
interest rate of 4.56%; expected life of 10 years; and, a zero percent dividend yield. These amounts reflect the Companys accounting expense for these awards, and do not correspond to the actual value that would be recognized by the named
executives. The actual value that would be recognized by Mr. Miles would depend on whether the market price of LIONs common stock achieved certain specified levels. During 2007, the options for Mr. Miles were forfeited due to his resignation.

(3)During the six-month period following his resignation, Mr. Miles was paid severance totaling $125,000 for consulting services and $6,100 for continued coverage of
employee medical benefits.

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(4) Mr. Stedman was appointed Interim CEO in April 2007. Salary includes payments made to the named executive officer for forfeited vacation
  time.

(5)Mr. Miles resigned as CEO of the Company effective April 2007. He contributed a portion of his salary to the Companys 401(k) savings plan. Salary includes payments made
to the named executive officers for forfeited vacation time.

(6)Salary includes payments made to the named executive officer for forfeited vacation time.

Narrative to Summary Compensation Table

Employment and Change in Control Agreements.In May 2007, employment agreements for each of Mr. Stedman
and Mr. Thomson were renewed with LION. Each employment agreement expires May 31, 2010 and sets forth, among other things, the officers base salary, bonus opportunities, entitlement to participate in our benefit plans and to receive equity
awards, and post-termination benefits and obligations. The employment agreements provide that each executive is entitled to four weeks paid vacation, use of cell phone and wireless connectivity, and reimbursement of business expenses. The employment
agreements also provide for payment of a severance benefit equal to 50% of the officers current annual salary upon termination of employment as a result of death or permanent disability, termination by the Company without cause, or termination
by the executive for cause. Cause for the executive includes any one of the following events which occurs without executives consent: (i) any reduction of executives then existing compensation or benefits, except to the
extent that such compensation of all other senior executives of the Company is equally reduced; (ii) any material diminution of executives duties, responsibilities, authority, reporting structure, titles or offices provided executive gives the
Company written notice of such material diminution and it is not remedied by the Company within thirty (30) days of receipt of such notice; (iii) any request that executive relocate to a work site that would increase executives one-way commute
distance by more than fifty (50) miles from executives then principal residence; (iv) any material breach by the Company of its obligations under the agreement that is not remedied by the Company within thirty (30) days of written notice of
such breach from executive; (v) another entity or person becoming the majority owner through a hostile takeover of the Company; or (vi) a slate of directors is elected, a majority of which were not recommended by the existing directors and
management prior to the vote. If the Company terminates the agreement for cause, or the executive terminates the agreement other than for cause, the executive will be entitled to receive his salary only through the effective date of
termination.

Unless entitled to severance benefits, the executives accrual of, or participation in plans providing for benefits will cease at the effective date of termination, provided however, that
the executive will have the right to continue coverage under the Companys group health plans as provided by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA). If entitled to severance benefits, the
executive is also entitled to receive Company health insurance benefits for 6 months following the termination date. Under the agreements, the executives are subject to certain confidentiality, non-competition and non-solicitation
provisions.

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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END.

The following table provides information with respect to the holdings of stock options by the named executive officers on December 31, 2007. This table includes unexercised and unvested option
awards. Each stock option grant is shown separately for each named executive. The vesting schedule for each grant is shown following this table, based on the option grant date.

|                       |  |         |  | Number of Securities   |  |               |     |  |   |         
|---------------------- |  | ------- |  | ---------------------- |  | ------------- | --- |  | - | --------
|                       |  |         |  | Underlying Unexercised |  |               |     |  |   |         
|                       |  |         |  | Options                |  |               |     |  |   |         
|                       |  | Option  |  |                        |  |               |     |  |   | Option  
|                       |  | Grant   |  |                        |  |               |     |  |   | Exercise
|Name                   |  | Date    |  | Exercisable            |  | Unexercisable |     |  |   | Price   
|David Stedman, Interim |  |         |  |                        |  |               |     |  |   |         
|CEO and President      |  | 2/2/01  |  | 419,500                |  |              | (1) |  | $ | 0.20    
|                       |  | 7/14/03 |  | 300,000                |  |              | (2) |  | $ | 0.19    
|Steve Thomson, CFO     |  | 2/2/01  |  | 273,000                |  |              | (1) |  | $ | 0.20    

|(1) | 2001 option grant vests 6 1⁄4 percent on a quarterly basis, and 12 1⁄2 percent in profitable quarters.
|--- | --------------------------------------------------------------------------------------------------
|   
|(2) | 2003 option grant vests 12 1⁄2 percent on a quarterly basis.                                        
|   

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DIRECTOR COMPENSATION

Directors who are employees of LION receive no compensation for service on the Board. Non-employee directors receive a cash fee of $2,000 for each board meeting attended in person and a
cash fee of $500 for each telephonic board meeting attended. Non-employee directors receive a cash fee of $500 for each committee meeting attended whether telephonically or in person. 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. Each new non-employee director receives a one-time grant of 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, each non-employee director receives an annual grant of options to purchase 50,000 shares of common stock
upon reelection at the annual meeting of shareholders. Options have generally vested over a one-year period. Non-employee chairs of the audit and compensation committees receive an annual grant of options to purchase an additional 25,000 shares of
common stock at the fair market value on the date of grant. For 2007 only, the annual grants of 50,000 shares to the non-employee directors and 25,000 shares to the non-employee chairs of the audit and compensation committees were waived by the
directors in view of the Companys restructuring efforts. The options and restricted shares, if any, granted to directors are subject to the terms and conditions of the 1998 Stock Option Plan or the 2005 Stock Incentive Plan.

The following summary compensation table indicates the cash and non-cash compensation earned during the fiscal year ended December 31, 2007 by the non-employee directors.

|                   |  |   | Fees Earned |  |   |         |     |  |   |       
|------------------ |  | - | ----------- |  | - | ------- | --- |  | - | ------
|                   |  |   | or Paid in  |  |   | Option  |     |  |   |       
|Name               |  |   | Cash        |  |   | Awards* |     |  |   | Total 
|John A. McMillan   |  | $ | 9,500       |  | $ | 4,288   | (1) |  | $ | 13,788
|Griffith J. Straw  |  | $ | 10,500      |  | $ | 6,431   | (2) |  | $ | 16,931
|James D. Russo     |  | $ | 16,500      |  | $ | 6,431   | (3) |  | $ | 22,931
|JC (Tuck) Marshall |  | $ | 15,000      |  | $ | 4,288   | (4) |  | $ | 19,288

|* | For a discussion of the relevant assumptions used in calculating grant date fair value with respect to option grants, refer to Note 6 of the Consolidated Financial Statements included in this Form 10 
KSB.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 

|(1) | Options totaling 50,000 shares were granted during 2006 of which half were earned in 2007. Options totaling 137,500 shares were outstanding at December 31, 2007.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) | Options totaling 75,000 shares were granted during 2006 of which half were earned in 2007. Options totaling 253,750 shares were outstanding at December 31, 2007.
|   
|(3) | Options totaling 75,000 shares were granted during 2006 of which half were earned in 2007. Options totaling 268,750 shares were outstanding at December 31, 2007.
|   
|(4) | Options totaling 50,000 shares were granted during 2006 of which half were earned in 2007. Options totaling 470,417 shares were outstanding at December 31, 2007.
|   

66

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

Five Percent Owners of Company Stock

The following table sets forth information as to those holders, other than directors and executive officers of the Company, known to LION to be the beneficial owners of more than 5% of the outstanding shares of Common Stock
as of December 31, 2007.

|                                   |  | Shares       |  | Percent   |  
|---------------------------------- |  | ------------ |  | --------- | -
|Name and Address                   |  | Beneficially |  | of Voting |  
|Of Beneficial Owner                |  | Owned        |  | of Shares |  
|Continental Advisors LLC(1)        |  | 4,303,277    |  | 11.14     | %
|227 West Monroe Street, Suite 5050 |  |              |  |           |  
|Chicago, IL 60606                  |  |              |  |           |  

(1)Based on a Schedule 13D/A filed on June 14, 2007, Continental Advisors LLC, Continental Partners LP and David P. Purcell have shared power to vote and dispose of the
shares.

Stock Ownership of Directors and Executive Officers

The following table sets forth certain information that has been provided to the Company regarding the beneficial ownership as of December 31, 2007 of the Companys common stock by (a) each director or director
nominee of the Company, (b) each of the named executive officers, and (c) all directors and executive officers of the Company as a group.

|                                        |  | Shares(2)    |     |  | Percent(3) |  
|--------------------------------------- |  | ------------ | --- |  | ---------- | -
|Name and Address(1)                     |  | Beneficially |     |  | of Voting  |  
|Of Beneficial Owner                     |  | Owned        |     |  | of Shares  |  
|                                       
|Directors and Executive Officers:       |  |              |     |  |            |  
|John A. McMillan                        |  | 1,999,050    | (4) |  | 5.16       | %
|J.C. (Tuck) Marshall                    |  | 700,417      | (5) |  | 1.79       | %
|David Stedman                           |  | 1,219,500    | (6) |  | 3.10       | %
|Steve Thomson                           |  | 1,101,500    | (7) |  | 2.83       | %
|Griffith J. Straw                       |  | 322,200      | (8) |  | *          |  
|James Russo                             |  | 308,750      | (9) |  | *          |  
|                                       
|All directors and executive officers as |  |              |     |  |            |  
|a group (6 persons)                     |  | 5,651,417    |     |  | 13.87      | %

* Less than one percent.

(1)Except as noted below, the business address of the directors and executive officers is c/o LION, Inc., 2801 Hollycroft St., Gig Harbor, WA 98335.

(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

67

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of common stock subject to options or warrants held by that person that are exercisable within 60 days of December 31, 2007 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 38,626,335 voting shares of common stock outstanding as of December 31, 2007.

(4)Includes 1,335,550 shares held by the John A. & Alexandra McMillan Living Trust, 137,500 underlying shares of vested stock options and 6,000 shares owned by spouse.

(5)Includes 470,417 underlying shares of vested stock options.

(6)Includes 719,500 underlying
shares of vested stock options.

(7)Includes 273,000 underlying shares of vested stock options.

(8)Includes 253,750 underlying shares of vested stock options.

(9)Includes 268,750 underlying shares of vested stock options.

Securities authorized for issuance under equity compensation plans

The following table gives information about equity awards under the Companys 1998 Stock Option Plan or the 2005 Stock Incentive Plan and the individual equity arrangements as of December
31, 2007.

|                                |  | (a)               |  |  | (b)               |  | (c)                 
|------------------------------- |  | ----------------- |  |  | ----------------- |  | --------------------
|                                |  |                   |  |  |                   |  | Number of           
|                                |  | Number of         |  |  |                   |  | securities available
|                                |  | securities to be  |  |  | Weighted-         |  | for future issuance 
|                                |  | issued upon       |  |  | average exercise  |  | under equity        
|                                |  | exercise of       |  |  | price of          |  | compensation plans  
|                                |  | outstanding       |  |  | outstanding       |  | [excluding          
|                                |  | options, warrants |  |  | options, warrants |  | securities reflected
|Plan category                   |  | and rights        |  |  | and rights        |  | in column (a)]      
|Equity compensation plans       |  |                   |  |  |                   |  |                     
|approved by security holders(1) |  | 2,721,917         |  |  | $.27              |  | 6,781,618           
|Equity compensation plans not   |  |                   |  |  |                   |  |                     
|approved by security holders    |  | -                 |  |  | -                 |  | -                   
|                               
|Total                           |  | 2,721,917         |  |  | $.27              |  | 6,781,618           

(1)The Company maintains the 1998 Stock Option Plan pursuant to which it may grant options to eligible persons and the 2005 Stock Incentive Plan pursuant to
which it may grant incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units and stock appreciation rights to eligible persons.

68

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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions

LION and its subsidiary had no transactions, nor are there any currently proposed transactions, in which LION or its subsidiary was or is to be a participant, the amount involved exceeded
$84,000 (one percent of the average of our year-end total assets for the last three years), and any director or director nominee, executive officer or any of their immediate family members, or any promoter or control person, had a material
direct or indirect interest.

Director Independence

Our common stock is not listed on a national securities exchange which requires that a majority of our Board must be independent directors according to independence standards
established by the exchange. In determining whether our directors or the members of a specific committee of the board of directors are independent, we have utilized the definition of independent as defined by Rule 4200 of the NASDAQ
Marketplace Rules. Following is a list of our independent directors as of the date of this Form 10-KSB:

John A. McMillan
     Griffith J. Straw
     James D. Russo
     J.C. Tuck Marshall

For an identification of members of committees of the board of directors, including each director that is not independent, see Item 9 above, under INFORMATION REGARDING THE BOARD AND ITS COMMITTEES.

69

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ITEM 13. EXHIBITS

|(a)   | EXHIBITS:                                                                                                                                                                                                                                                                                                                    
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                              
|      | Exhibits are incorporated as part of this Annual
        Report by reference or are filed with this report as indicated below
    (numbered in accordance with Item 601 of Regulation S-B)                                                                                                                                   
|      |                                                                                                                                                                                                                                                                                                                              
|2.1   | Agreement of Merger, dated October 12, 2004, by and among LION, Inc., LION Acq. LLC, Tuttle Risk Management Services Inc., Anthony Berris (individually and as the Stockholders Representative), and Sern
Clementson, incorporated by reference to the same exhibit number to the Companys Form 8-K dated October 18, 2004.
|     
|2.2   | Asset Purchase and Sale Agreement dated September 28, 2007 by and between Internet Brands and LION, Inc., incorporated by reference to exhibit number 2.1 in the Companys Form 8-K dated September 28,
2007.                                                                                                                
|     
|2.3   | Asset Purchase Agreement, dated as of October 11, 2007, by and among LION, Inc., Tuttle Risk Management Services, LLC, and Compass Analytics, LLC, incorporated by reference to exhibit number 2.1 in the
Companys Form 8-K dated October 11, 2007.                                                                         
|     
|3.3   | Articles of Incorporation of LION, Inc., incorporated by reference to Exhibit B to the Companys Definitive Proxy Statement dated October 20, 2000.                                                                                                                                                                          
|     
|3.4   | Bylaws of LION, Inc., a Washington corporation, incorporated by reference to Exhibit C to the Companys Definitive Proxy Statement dated October 20, 2000.                                                                                                                                                                   
|     
|10.1  | 1998 Stock Option Plan with Form of Option Agreement, incorporated by reference to Registration Statement on Form S-8 filed July 28, 2003 (File No. 333-107402).                                                                                                                                                             
|     
|10.2  | 2005 Stock Incentive Plan with Form of Stock Option Agreement and Form of Restricted Stock Agreement, incorporated by reference to Registration Statement on Form S-8 filed August 11, 2005 (File No.
333-127434).                                                                                                           
|     
|10.6  | Office Suite Lease Agreement (Denver Property) dated as of September 19, 2000, incorporated by reference to the same exhibit number to the Companys Form 10 - QSB for the quarter ended September 30,
2000.                                                                                                                 
|     
|10.8  | Premises Lease Agreement (Seattle Property)  effective date August 1, 2001, incorporated by reference to the same exhibit number to the Companys Form 10  QSB for the quarter ended June 30,
2001.                                                                                                                        
|     
|10.9  | Employment Agreement  S. Thomson, incorporated by reference to exhibit number 10.2 in the Companys Form 8-K dated May 22, 2007.                                                                                                                                                                                            
|     
|10.10 | Employment Agreement  D. Stedman, incorporated by reference to exhibit number 10.1 in the Companys Form 8-K dated May 22, 2007.                                                                                                                                                                                            
|     
|10.12 | Lease Amendment # 2 (Denver Property) dated as of October 21, 2002, incorporated by reference to the same exhibit number to the Companys Form 10-KSB for the year ended December 31, 2002.                                                                                                                                  
|     
|10.13 | Asset Purchase Agreement dated December 8, 2003, by and among LION, Inc., Freddie Mac, and Ignition Mortgage Technology Solutions, Inc., incorporated by reference to the Report on Form 8-K filed December 23,
2003.                                                                                                        
|     
|10.14 | Employment Agreement  Randall D. Miles, incorporated by reference to the Report on Form 8-K filed December 14, 2006.                                                                                                                                                                                                        
|     
|10.16 | Put Agreement, dated October 12, 2004, between LION, Inc. and certain stockholders of Tuttle Risk Management Services Inc., incorporated by reference as Exhibit 10.1 to the Companys Form 8-K October
18, 2004.                                                                                                            
|     

70

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|10.17 | Secured Notes Agreement, dated October 13,
        2004, between Tuttle Risk Management Services Inc., the stockholders
    of Tuttle Risk Management Services Inc., LION, Inc., and Anthony Berris,
        as Stockholders Representative, incorporated by reference as Exhibit
    10.2 to the Companys Form 8-K dated October 18, 2004.
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|10.18 | Unconditional Guaranty, dated October 13, 2004, by LION, Inc., incorporated by reference as Exhibit 10.3 to the Companys Form 8-K dated October 18, 2004.                                                                                                                                                                                   
|     
|10.19 | Form of Indemnification Agreement, incorporated by reference to the Report on Form 8-K filed August 25, 2005.                                                                                                                                                                                                                                
|     
|14.1  | Code of Ethics for CEO and Senior Financial Officers, incorporated by reference to the same exhibit number to the Companys Form 10  KSB for the year ended December 31, 2003.                                                                                                                                                              
|     
|21.1  | Subsidiaries of LION, Inc.                                                                                                                                                                                                                                                                                                                   
|     
|23.1  | Consent of Grant Thornton LLP.                                                                                                                                                                                                                                                                                                               
|     
|31.1  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                          
|     
|31.2  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                          
|     
|32.1  | Certification by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes  Oxley Act of 2002                                                                                                                                                                                                             
|     

71

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

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

The following table presents fees for professional audit services rendered by Grant Thornton LLP for the audit of our annual financial statements for the years ended December 31, 2007 and 2006,
and the reviews of the financial statements included in each of our quarterly reports on Form 10-QSB during the fiscal years ended December 31, 2007 and 2006, and fees billed for other services rendered by Grant Thornton LLP during those
periods.

|Fee Category         |  |   | 2007    |  |   | 2006   
|-------------------- |  | - | ------- |  | - | -------
|                    
|Audit fees           |  | $ | 178,706 |  | $ | 157,224
|Audit  related fees |  |   | -       |  |   | -      
|Tax fees             |  |   | 24,325  |  |   | 37,649 
|All other fees       |  |   | -       |  |   | 7,245  
|                    
|                     |  | $ | 203,031 |  | $ | 202,118

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

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

All Other Fees. Fees in 2006 relate to reviews of various SEC correspondence.

72

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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 Gig Harbor, Washington, on March 31, 2008.

LION, Inc.(Registrant)By:
  /s/ David StedmanDavid StedmanInterim CEO


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

|Signature                |  | Title                               |  | Date          
|------------------------ |  | ----------------------------------- |  | --------------
|/s/ John A. McMillan     |  | Chairman of the Board and CEO       |  | March 31, 2008
|/s/ David Stedman        |  | Director, Interim CEO and President |  | March 31, 2008
|/s/ J.C. (Tuck) Marshall |  | Director                            |  | March 31, 2008
|/s/ Griffith J. Straw    |  | Director                            |  | March 31, 2008
|/s/ James D. Russo       |  | Director                            |  | March 31, 2008
|/s/ Steve Thomson        |  | CFO                                 |  | March 31, 2008

73

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EXHIBIT INDEX

|2.1   | Agreement of Merger, dated October 12, 2004, by and among LION, Inc., LION Acq. LLC, Tuttle Risk Management Services Inc., Anthony Berris (individually and as the Stockholders Representative), and Sern
Clementson, incorporated by reference to the same exhibit number to the Companys Form 8-K dated October 18, 2004.
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|2.2   | Asset Purchase and Sale Agreement dated September 28, 2007 by and between Internet Brands and LION, Inc., incorporated by reference to exhibit number 2.1 in the Companys Form 8-K dated September 28,
2007.                                                                                                                
|     
|2.3   | Asset Purchase Agreement, dated as of October 11, 2007, by and among LION, Inc., Tuttle Risk Management Services, LLC, and Compass Analytics, LLC, incorporated by reference to exhibit number 2.1 in the
Companys Form 8-K dated October 11, 2007.                                                                         
|     
|3.3   | Articles of Incorporation of LION, Inc., incorporated by reference to Exhibit B to the Companys Definitive Proxy Statement dated October 20, 2000.                                                                                                                                                                          
|     
|3.4   | Bylaws of LION, Inc., a Washington corporation, incorporated by reference to Exhibit C to the Companys Definitive Proxy Statement dated October 20, 2000.                                                                                                                                                                   
|     
|10.1  | 1998 Stock Option Plan with Form of Option Agreement, incorporated by reference to Registration Statement on Form S-8 filed July 28, 2003 (File No. 333-107402).                                                                                                                                                             
|     
|10.2  | 2005 Stock Incentive Plan with Form of Stock Option Agreement and Form of Restricted Stock Agreement, incorporated by reference to Registration Statement on Form S-8 filed August 11, 2005 (File No.
333-127434).                                                                                                           
|     
|10.6  | Office Suite Lease Agreement (Denver Property) dated as of September 19, 2000, incorporated by reference to the same exhibit number to the Companys Form 10 - QSB for the quarter ended September 30,
2000.                                                                                                                 
|     
|10.8  | Premises Lease Agreement (Seattle Property)  effective date August 1, 2001, incorporated by reference to the same exhibit number to the Companys Form 10  QSB for the quarter ended June 30,
2001.                                                                                                                        
|     
|10.9  | Employment Agreement  S. Thomson, incorporated by reference to exhibit number 10.2 in the Companys Form 8-K dated May 22, 2007.                                                                                                                                                                                            
|     
|10.10 | Employment Agreement  D. Stedman, incorporated by reference to exhibit number 10.1 in the Companys Form 8-K dated May 22, 2007.                                                                                                                                                                                            
|     
|10.12 | Lease Amendment # 2 (Denver Property) dated as of October 21, 2002, incorporated by reference to the same exhibit number to the Companys Form 10-KSB for the year ended December 31, 2002.                                                                                                                                  
|     
|10.13 | Asset Purchase Agreement dated December 8, 2003, by and among LION, Inc., Freddie Mac, and Ignition Mortgage Technology Solutions, Inc., incorporated by reference to the Report on Form 8-K filed December 23,
2003.                                                                                                        
|     
|10.14 | Employment Agreement  Randall D. Miles, incorporated by reference to the Report on Form 8-K filed December 14, 2006.                                                                                                                                                                                                        
|     
|10.16 | Put Agreement, dated October 12, 2004, between LION, Inc. and certain stockholders of Tuttle Risk Management Services Inc., incorporated by reference as Exhibit 10.1 to the Companys Form 8-K October
18, 2004.                                                                                                            
|     
|10.17 | Secured Notes Agreement, dated October 13, 2004, between Tuttle Risk Management Services Inc., the stockholders of Tuttle Risk Management Services Inc., LION, Inc., and Anthony Berris, as Stockholders
Representative, incorporated by reference as Exhibit 10.2 to the Companys Form 8-K dated October 18, 2004.        
|     
|      |                                                                                                                                                                                                                                                                                                                              
|     

74

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|10.18 | Unconditional Guaranty, dated October 13, 2004,
      by LION, Inc., incorporated by reference as Exhibit 10.3 to the Companys
    Form 8-K dated October 18, 2004.           
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                
|10.19 | Form of Indemnification Agreement, incorporated by reference to the Report on Form 8-K filed August 25, 2005.                                                                  
|     
|14.1  | Code of Ethics for CEO and Senior Financial Officers, incorporated by reference to the same exhibit number to the Companys Form 10  KSB for the year ended December 31, 2003.
|     
|21.1  | Subsidiaries of LION, Inc.                                                                                                                                                     
|     
|23.1  | Consent of Grant Thornton LLP.                                                                                                                                                 
|     
|31.1  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                            
|     
|31.2  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                            
|     
|32.1  | Certification by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes  Oxley Act of 2002                                               
|     

75

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