================================================================================

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-QSB



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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002


                         COMMISSION FILE NUMBER 0-25159
                                                -------

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


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


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

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

            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 ( )

            As of May 7, 2002, approximately 31,111,978 shares of the Company's
common stock were outstanding.

================================================================================
<PAGE>



                                   LION, Inc.
                                  Form 10 - QSB
                      For the Quarter Ended March 31, 2002


                                                                          PAGE
                               INDEX                                     NUMBER

PART I   FINANCIAL INFORMATION

Item 1   Financial Statements

         Balance Sheets at March 31, 2002 (unaudited) and
         December 31, 2001                                                  3

         Statements of Operations for the three months ended
         March 31, 2002 and 2001 (unaudited)                                4

         Statements of Cash Flows for the three months ended
         March 31, 2002 and 2001 (unaudited)                                5

         Notes to Financial Statements                                      6

Item 2   Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                7

PART II  OTHER INFORMATION

Item 2   Changes in Securities and Use of Proceeds                         19

Item 6   Exhibits and Reports on Form 8 - K                                19

         Signatures                                                        20







                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.        FINANCIAL STATEMENTS

                                   LION, Inc.
                                 BALANCE SHEETS

                                     ASSETS
<TABLE><CAPTION>
                                                                                     March 31,
                                                                                       2002               December 31,
                                                                                    (Unaudited)               2001
                                                                                   ------------           ------------
<S>                                                                                <C>                    <C>
CURRENT ASSETS
     Cash and cash equivalents                                                     $    499,858           $    480,910
     Accounts receivable, less allowance for doubtful accounts of $50,000
         and $58,000 in 2002 and 2001, respectively                                     360,540                363,168
     Prepaid expenses and other                                                         115,195                 72,579
                                                                                   ------------           ------------

            Total current assets                                                        975,593                916,657

PROPERTY AND EQUIPMENT - net                                                            906,612                875,807

OTHER ASSETS
     Goodwill - net                                                                     273,955                273,955
     Other assets                                                                        33,022                 33,022
                                                                                   ------------           ------------

                                                                                   $  2,189,182           $  2,099,441
                                                                                   ============           ============
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable                                                              $    176,786           $    129,240
     Accrued liabilities                                                                394,974                327,616
     Deferred revenue                                                                   289,894                277,449
                                                                                   ------------           ------------

            Total current liabilities                                                   861,654                734,305

LONG-TERM OBLIGATIONS, less current maturities                                           45,518                 51,325

COMMITMENTS AND CONTINGENCIES                                                              --                     --

STOCKHOLDERS' EQUITY
     Preferred stock - authorized, 5,000,000 shares of $.001 par value,
        liquidation value $900,000                                                        1,500                  1,500
     Common stock - authorized, 50,000,000 shares of $.001 par value                     31,094                 31,027
     Additional contributed capital                                                  11,725,650             11,716,622
     Notes receivable from stockholders                                                 (21,250)               (21,250)
     Accumulated deficit                                                            (10,454,984)           (10,414,088)
                                                                                   ------------           ------------
                                                                                      1,282,010              1,313,811
                                                                                   ------------           ------------

                                                                                   $  2,189,182           $  2,099,441
                                                                                   ============           ============
</TABLE>
        The accompanying notes are an integral part of these statements.

                                       3
<PAGE>

                                   LION, Inc.

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE><CAPTION>
                                                     Three months ended March 31,
                                                  ---------------------------------
                                                      2002                  2001
                                                  -----------           -----------
                                                                         (Restated)
<S>                                               <C>                   <C>
Revenues                                          $ 1,510,963           $ 1,491,135

Expenses
     Direct costs                                     219,350               260,178
     Selling and marketing                            482,024               470,325
     General and administrative                       638,637               610,456
     Research and development                          89,805                58,126
     Depreciation and amortization                    119,682               124,730
                                                  -----------           -----------
                                                    1,549,498             1,523,815
                                                  -----------           -----------

            Operating loss                            (38,535)              (32,680)

Other (expense) income
     Interest expense                                  (3,202)                 (646)
     Interest income                                      841                   144
     Other income                                        --                   5,022
                                                  -----------           -----------

            NET LOSS                              $   (40,896)          $   (28,160)
                                                  ===========           ===========

Loss per common share, basic and diluted          $      --             $      --
                                                  ===========           ===========
</TABLE>







        The accompanying notes are an integral part of these statements.

                                       4
<PAGE>

                                   LION, Inc.

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE><CAPTION>
                                                                                     Three months ended March 31,
                                                                                     -----------------------------
                                                                                        2002                2001
                                                                                     ---------           ---------
                                                                                                         (Restated)
<S>                                                                                  <C>                 <C>
Cash flows from operating activities
     Net loss                                                                        $ (40,896)          $ (28,160)
     Adjustments to reconcile net loss to net cash provided by (used in)
           operating activities
              Depreciation and amortization                                            119,682             124,730
              Common stock and stock options issued for services received                3,566               7,195
              Common stock issued in lieu of cash compensation                           4,629              13,500
              Changes in assets and liabilities
                  Accounts receivable                                                    2,628              64,713
                  Prepaid expenses and other                                           (42,616)            (41,402)
                  Accounts payable                                                      47,546             (45,830)
                  Accrued liabilities                                                   86,054                (222)
                  Deferred revenue                                                      12,445                (587)
                                                                                     ---------           ---------

                        Net cash provided by operating activities                      193,038              93,937

Cash flows from investing activities
     Capitalized software development costs                                            (94,317)            (66,324)
     Purchase of property and equipment                                                (56,170)             (8,755)
                                                                                     ---------           ---------

                        Net cash used in investing activities                         (150,487)            (75,079)

Cash flows from financing activities
     Payments on notes payable and long-term obligations                               (24,503)               --
     Proceeds from issuance of common stock and exercise of stock options                  900             177,550
                                                                                     ---------           ---------

                        Net cash provided by (used in) financing activities            (23,603)            177,550
                                                                                     ---------           ---------

Net increase in cash and cash equivalents                                               18,948             196,408

Cash and cash equivalents at beginning of period                                       480,910             117,254
                                                                                     ---------           ---------

Cash and cash equivalents at end of period                                           $ 499,858           $ 313,662
                                                                                     =========           =========

Supplemental non-cash investing and financing activities:
     Common stock returned for cancellation of notes receivable                      $    --             $ 728,750
</TABLE>



        The accompanying notes are an integral part of these statements.

                                       5
<PAGE>

                                   LION, Inc.

                                  Form 10 - QSB

                          NOTES TO FINANCIAL STATEMENTS

NOTE 1.   FINANCIAL STATEMENTS

     The unaudited financial statements and related notes are presented as
permitted by Form 10 - QSB, and do not contain certain information included in
the Company's audited financial statements and notes for the fiscal year ended
December 31, 2001. The information furnished reflects, in the opinion of
management, all adjustments, consisting of normal recurring accruals, necessary
for a fair presentation of the results of the interim periods presented. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the entire fiscal year ending December 31, 2002.
The accompanying unaudited financial statements and related notes should be read
in conjunction with the audited financial statements and the Form 10 - KSB of
LION, Inc. and notes thereto, for its fiscal year ended December 31, 2001.

NOTE 2. LOSS PER SHARE

     Basic loss per share is based on the income available to common
stockholders compared to the average number of shares outstanding during each
period. The weighted average number of common shares outstanding were 31,055,111
and 29,895,329 for the three months ended March 31, 2002 and 2001, respectively.
The effect of potentially dilutive common stock equivalents on the computation
of loss per common share for the three months ended March 31, 2002 and 2001 was
anti-dilutive, and therefore, diluted loss per share is equal to basic loss per
share.

NOTE 3. CONTINGENCIES

     The Company is party to a legal proceeding initiated by a former director.
Management believes that all of the claims are without merit and is vigorously
defending against this claim. The matter is currently scheduled for trial in
late May of 2002. Although damages are speculative, plaintiff seeks an award in
excess of one million dollars, together with emotional distress damages,
punitive damages, and an award of attorneys' fees. No accrual has been made
related to this matter due to the uncertainty of its outcome.

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

     In addition to these matters, the Company from time to time is involved in
certain legal matters arising during the normal course of business. In the
opinion of management, the outcome of

                                        6
<PAGE>

these matters will not have a material effect on the Company's financial
position or results of operations.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION.

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

     IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION AND
ANALYSIS OF MANAGEMENT CONTAINS FORWARD-LOOKING STATEMENTS. ALL STATEMENTS THAT
LOOK FORWARD IN TIME OR INCLUDE ANYTHING OTHER THAN STATEMENTS OF HISTORICAL
FACT ARE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS INVOLVE
RISKS, UNCERTAINTIES AND ASSUMPTIONS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY
FACTORS, INCLUDING BUT NOT LIMITED TO: SUBSTANTIAL DEPENDENCE ON MORTGAGE
BROKERS AND THE MORTGAGE BROKER INDUSTRY; MORTGAGE MARKET TRENDS; INTEREST RATE
CHANGES; HOUSING AND CONSUMER TRENDS EFFECTING HOME PURCHASES; THE EFFECTIVENESS
OF OUR JOINT-MARKETING AND SALES AGREEMENTS; OUR NEED FOR ADDITIONAL FINANCING;
OUR ABILITY TO ATTRACT AND RETAIN HIGH QUALITY EMPLOYEES; CHANGES IN THE OVERALL
ECONOMY AND IN INTERNET TECHNOLOGY; THE NUMBER AND SIZE OF OUR INTERNET
COMPETITORS, AND OTHER RISKS FACED BY US DESCRIBED BELOW IN THE SECTION ENTITLED
"RISK FACTORS" AND ELSEWHERE IN THIS REPORT, AND IN OTHER DOCUMENTS WE FILE WITH
THE SECURITIES AND EXCHANGE COMMISSION. YOU SHOULD NOT PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH ARE BASED ON INFORMATION AVAILABLE TO
THE COMPANY AS OF THE DATE OF THIS REPORT AND WHICH REFLECT MANAGEMENT'S
OPINIONS ONLY. LION UNDERTAKES NO OBLIGATION TO REVISE OR PUBLICLY RELEASE THE
RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS.

OVERVIEW

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

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

LION PRODUCTS AND SERVICES AND RELATED REVENUES

     LION currently generates revenues through primarily three distinct
categories with a majority of the underlying customer base being comprised of
mortgage brokers/originators, lenders or a combination of both. The categories
are membership, marketing, and technology and are described below.

                                        7
<PAGE>

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

     First, LION Pro consists of LION Loan Search, LoanLink, News Now and
Ratesheets on Demand. Through this product, we provide wholesale mortgage rate,
fee, and program information through our LION Pro information service to over
4,700 mortgage brokers nationwide. Lion Loan Search provides the key feature to
this password-protected service by allowing easy access to our extensive lender
database. This database is updated daily in 77 regions in the country for over
100 participating lenders. The database is comprised of over 23,000 loan
programs and 17,000,000 pricing variations. Throughout 2002, the Company will be
enhancing its core online services for brokers. Broker productivity tools will
be offered through a multi-user agreement with a private database that
incorporates the brokers' lenders, new loan program search parameters and other
management tools. Several mortgage companies have signed multi-user agreements
so far in 2002, which could bring over 1,000 new broker members and over 60 new
wholesale lenders into the LION marketplace. To enable brokers to receive loan
decisions from their private databases, the Company is also in the process of
interfacing with various online decision engines connected to the lending
source.

     The second product in the membership category is Mortgage 101, consisting
of hundreds of mortgage information pages, interactive calculators, live
interest rates displayed from LION's Multi-Lender Rate Feed, prequalification
and application tools, and back-end rate and lead management tools. This service
is provided to over 2,700 mortgage brokers nationwide.

     Finally, Free Mortgage Dot Com is a template web site using Mortgage101
technology with the mortgage originators' logo and colors delivered with no set
up fees and free one-year domain name registration. There are approximately
1,100 mortgage brokers using this template web site.

     MARKETING FEES. Marketing fees are generated through LION's marketplace web
sites, LionInc.com and Mortgage101.com. Consumers visiting the Mortgage101.com
web site check live interest rates, use pre-qualification tools, and submit
"1003" loan applications to LION's network of advertisers. Originator
advertisers pay marketing fees for ad banners, web site promotion, and lead
generation. Originators visit the LionInc.com web site to check daily wholesale
rates, submit loans, and access mortgage specific news and content. Wholesale
lenders and industry vendors pay marketing fees for ad banners, web site
promotion, and lead generation. Traffic approximating 750,000 unique visitors a
month and at times reaching 1,000,000 unique visitors is fed by (i) over 10,700
co-branded electronic mortgage centers that have been established for realtors,
real estate offices, relocation sites, associations, and city portals, and (ii)
6,490 brokers that have various LION membership services, have their web sites
hosted by LION, or both. The Company continues to work on a new lead generation
system based on advanced filtering and routing logic. The Company is also
considering collaboration with a potential alliance partner which could bring
this more refined lead generation service to market sooner.

     TECHNOLOGY FEES. Technology fees are related to (i) mortgage originator and
(ii) wholesale and/or retail lender web site development and hosting. For the
mortgage originator, we provide web site technology, content and design that
include news, articles, and calculators to deliver valuable information to the
user. These web sites are both template-driven and customer design solutions
that deliver a combination of standard and custom content. For the wholesale
and/or retail lender, LION developed technology for three lender web sites under
the LoanCAT brand in 2001. This technology allows lenders to electronically
submit rate pricing and receive rate lock requests and "1003" loan application
files. A new online management interface was recently introduced to over 80
lenders in the LION marketplace.

                                        8
<PAGE>

     Effective May 6, 2002, LION announced the signing of a strategic alliance
with IMX, Inc. that will incorporate IMX Exchange(R) technology and its
participating lenders and brokers into the LION marketplace. IMX Exchange(R) is
a robust loan program and price discovery engine that provides online rate lock
and file submission between mortgage brokers and wholesale lenders. This
addition to LION's large loan database and search engine will provide greater
information, access and functionality to LION's member brokers. IMX will employ
LION's established distribution channels, client service and online marketplace
to support and market to the 2,600 broker companies that currently use IMX
Exchange(R). LION will offer the IMX broker approval, online loan program and
product discovery, real-time pricing engine and lock process to LION's member
brokers, as well as introduce the IMX technology to its network of active
wholesale lenders. LION expects to introduce IMX Exchange(R) to its members in
the third quarter of 2002.

RESULTS OF OPERATIONS

     For the first quarter of 2002, the net loss was $40,896 as compared to a
net loss of $28,160 for the first quarter of 2001. The results for the first
quarter of 2002 include legal expenses related to a lawsuit initiated against
LION by Billy Anders, Sr., formerly LION's Chairman, as discussed in the
Company's SEC Form 10-KSB for the year ended December 31, 2001.

     Excluding these legal expenses, LION would have reported net income of
approximately $86,000 for the first quarter of 2002 compared to a loss of
approximately $22,000 in the first quarter of 2001. Until the litigation is
settled, the Company anticipates that additional legal expenses will adversely
affect its operating results in 2002, much as it did during the first quarter of
2002.

     The Company implemented SFAS No. 142 during the first quarter of 2002 which
eliminates the amortization of goodwill. Amortization expense totaling $28,340
was included in the operating results for the first quarter of 2001. No
amortization expense was recorded in the first quarter of 2002.

     We are beginning to see improved performance in different segments of our
business as we continue to execute our new growth strategy as described in our
annual report on Form 10 - KSB and below in this report. In the first quarter of
2002 compared to the same quarter in the prior year, we maintained a consistent
level of membership and technology revenues and saw modest growth in marketing
revenues. We also completed the restructuring of our lender services group and
expect gradual growth in revenue from the introduction of new lender
initiatives.

     We continue to focus on improving our core business. We are encouraged by
our progress in the first quarter and the positive reaction from both brokers
and lenders to our new service offerings. In coming periods, we anticipate
increased adoption of our services by mortgage brokers, lenders and consumers
and improvement in our operating performance.

REVENUES

            Revenues increased to $1,510,963 from $1,491,135 for the three
months ended March 31, 2002 and 2001, respectively. This represents an increase
of $19,828 or 1%. Total revenues of $1,510,963 for the three months ended March
31, 2002 were comprised of mortgage broker fees of $1,274,728 or 84% of total
revenues and lender fees of $236,235 or 16%. Total revenues of

                                        9
<PAGE>

$1,491,135 for the three months ended March 31, 2001 were comprised of mortgage
broker fees of $1,139,985 or 76% of total revenues and lender fees of $351,150
or 24%.

     The overall increase in the first quarter of 2002 totaling $19,828 in
revenues compared to the same quarter in the prior year was primarily due to
growth in marketing fees (collectively lead generating services and ad banners).
Membership based services (collectively Lion Pro, Mortgage 101 and Free Dot Com)
and technology fees (primarily web site development and hosting fees for lenders
and mortgage brokers) remained comparable to the same quarter in the prior year.

     However, revenues in the first quarter of 2002 compared to the fourth
quarter of 2001 increased $47,518 with modest growth in all three revenue
categories of membership, marketing and technology fees.

DIRECT COSTS

     Direct costs are comprised primarily of web site development, technology
infrastructure support, and salaries related to the daily updates to rates,
fees, and other loan program information in the mortgage lender database. Direct
costs decreased to $219,350 from $260,178 for the three months ended March 31,
2002 and 2001, respectively. This represents a decrease of $40,828 or 16%.
Direct costs as a percentage of revenues were 15% and 17% for the three months
ended March 31, 2002 and 2001, respectively. The decrease is due to (i) LoanCat
projects not requiring the same level of fulfillment resources in the first
quarter 2002 as compared to the same quarter in the prior year and (ii) the
redeployment of infrastructure resources beginning in the fourth quarter of 2001
to research and development efforts on new product initiatives. This decrease
was offset by an increase in project management and quality control functions
throughout the Company.

SELLING AND MARKETING

     Marketing and selling expenses are comprised of marketing and advertising
costs, sales salaries and related support costs. Marketing and selling expenses
increased to $482,024 from $470,325 for the three months ended March 31, 2002
and 2001, respectively. This represents an increase of $11,699 or 2%. These
expenses as a percentage of revenues were 32% for the three months ended March
31, 2002 and 2001, respectively. The slight increase is due to incentive
programs for the Company's sales team and customer support efforts which are
both directly related to the increase in revenues noted above.

GENERAL AND ADMINISTRATIVE

            General and administrative expenses are comprised of management and
administrative salaries and related costs, legal and audit fees, outside
consulting services, telecommunications expenses, occupancy costs, and other
administrative related expenses. General and administrative expenses increased
to $638,637 from $610,456 for the three months ended March 31, 2002 and 2001,
respectively. This represents an increase of $28,181 or 5%. General and
administrative expenses as a percentage of revenues were 42% and 41% for the
three months ended March 31, 2002 and 2001, respectively. The increase in costs
was due primarily to legal fees related to the Billy Anders lawsuit which were
offset by a reduction in rent expense due to the move to the new corporate
headquarters in

                                       10
<PAGE>

Seattle from Renton, telephone costs due to beneficial contract changes and bad
debt expense due to improved customer service and better quality sales.

RESEARCH AND DEVELOPMENT

     Research and development expenses are comprised primarily of engineering
salaries and related costs. Research and development expenses increased to
$89,805 from $58,126 for the three months ended March 31, 2002 and 2001,
respectively. This represents an increase of $31,679 or 55%. Research and
development expenses as a percentage of revenues increased to 6% from 4% for the
three months ended March 31, 2002 and 2001, respectively. The increase is
primarily due to the reallocation of fulfillment and infrastructure personnel to
the research and development function to work on three major initiatives for
2002; enhancement of core online services for brokers, the conversion of
consumer traffic into high-value business generation, and new online management
tools for lenders. As funding becomes available, we expect to spend more time
and resources in research and development.

DEPRECIATION AND AMORTIZATION

     Depreciation and amortization expense decreased to $119,682 from $124,730
for the three months ended March 31, 2002 and 2001, respectively. This
represents a decrease of $5,048 or 4%. The decrease was due to the
implementation of SFAS No. 142 during the first quarter of 2002 which eliminates
the amortization of goodwill beginning the first quarter of 2002. Amortization
during the first quarter 2001 that did not recur in the same quarter in 2002
amounted to $28,340. This reduction was offset by additional depreciation on new
fixed asset additions and amortization of internally developed software.

LIQUIDITY AND CAPITAL RESOURCES

FIRST QUARTER 2002 RESULTS:

     During the first quarter of 2002, the Company primarily funded its
activities through operations. Sales for the quarter were better than expected
which allowed the Company to grow its cash reserves compared to the end of 2001.
At March 31, 2002, we had approximately $500,000 in cash and cash equivalents.

     During first quarter 2002, operating activities provided net cash of
$193,038 compared to $93,937 during first quarter 2001. The net cash provided in
operating activities for first quarter 2002 was primarily attributable to (i)
revenue growth, primarily from our mortgage broker customers, (ii) improved bad
debt experience, (iii) and a reduction in occupancy costs and other related
costs due to moving the company headquarters to a smaller, more efficient
location in Seattle. The net cash provided in operating activities for first
quarter 2001 was primarily attributable to efficiencies gained from (i) the
merger of the parent and subsidiary companies, (ii) the closure of the Spokane
sales office (iii) the consolidation of all originator sales functions in the
Denver sales office and (iv) the reorganization of the engineering department.
These cost savings were offset by payments on accounts payable.

                                       11
<PAGE>

     During first quarter 2002, we used net cash of $150,487 for our investing
activities which was primarily for (i) the capitalized portion of software
development costs related to the Company's three initiatives; enhancement of
core online services for brokers, the conversion of consumer traffic into
high-value business generation, and new online management tools for lenders and
(ii) upgrades to hardware and software for the data center that delivers the
Company's products and services. During first quarter 2001, we used net cash of
$75,079 for our investing activities which was primarily for the capitalized
portion of our software development costs related to our planned migration to a
new data base platform.

            During first quarter 2002, the net use of cash for financing
activities was $23,603. Cash used was primarily related to notes payable on the
acquisition of application and database software for the Company's data center.
During first quarter 2001, net cash proceeds from financing activities were
$177,550. Proceeds received from financing activities were primarily the result
of the private placement of the Company's common stock totaling $175,000.

2002 PLANS:

     The Company is continuing to implement its business plan which includes
enhancing its existing core products and services to mortgage originators and
lenders and its three major initiatives for revenue growth. The Company is also
continuing to explore partnerships with leading industry players that may
accelerate delivery of these services. Progress on the initiatives is as
follows:

1.    Launch new online management tools for lenders. LION developed technology
      for three lender web sites under the LoanCAT brand in 2001. This
      technology allows lenders to electronically submit rate pricing and
      receive rate lock requests and "1003" loan application files. A new online
      management interface was recently introduced to over 80 lenders in the
      LION marketplace. In addition, effective May 6, 2002, the Company
      announced the signing of a strategic alliance with IMX, Inc. that will
      incorporate IMX Exchange(R) technology and its participating lenders and
      brokers into the LION marketplace. See additional comments under the
      heading "TECHNOLOGY FEES" on pages 8 and 9 above.

2.    Enhance core online services for brokers. The Company has begun to offer
      its broker productivity tools through a multi-user agreement with a
      private database that incorporates the brokers' lenders, new loan program
      search parameters and other management tools. Several mortgage companies
      have signed multi-user agreements so far in 2002, which could bring over
      1,000 new broker members and over 60 new wholesale lenders into the LION
      marketplace. To enable brokers to receive loan decisions from their
      private databases, the Company is also in the process of interfacing with
      various online decision engines connected to the lending source.

3.    The conversion of consumer traffic into high-value business generation.
      LION saw an increase in consumer leads and originator advertising revenue
      in the first quarter of 2002. This is due to increased realtor traffic
      generated through 10,700 realtor sites (1,600 new affiliate realtor sites
      added during the first quarter of 2002), as well as improvements made to
      Mortgage101.com, LION's consumer mortgage portal. The Company continues to
      work on a new lead generation system based on third party credit profiling
      and advanced filtering and routing logic. The Company is also considering
      collaboration with a potential alliance partner which could bring this
      service to market sooner.

                                       12
<PAGE>

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

     In addition, as disclosed in "ITEM 3. LEGAL PROCEEDINGS" in the SEC Form 10
- KSB for 2001 and NOTE 3 to the financial statements above, the Company is
party to a legal proceeding initiated by a former director. Management believes
that all of the claims are without merit and is vigorously defending against
them. The matter is currently scheduled for trial in late May of 2002. Although
damages are speculative, plaintiff seeks an award in excess of one million
dollars, together with emotional distress damages, punitive damages, and an
award of attorneys' fees. No accrual has been made on the Company's financial
statements related to this matter due to the uncertainty of its outcome. The
Company has budgeted for its own necessary legal expenses.

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

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

RISK FACTORS

     Set forth below and elsewhere in this Quarterly Report and in the other
documents we file with the SEC are risks and uncertainties that could cause
actual results to differ materially from the results contemplated by the
forward-looking statements contained in this Quarterly Report. You should
carefully consider the risks before you decide to buy shares of our common
stock. If any of the following risks actually occur, our business, results of
operations or financial condition would likely suffer. In such case, the trading
price of our common stock could decline, and you may lose all or part of the
money you paid to buy our stock.

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

     We are working toward a goal of sustained profitability and took several
important steps during 2001 and the first quarter of 2002, including, merging
our subsidiary with LION, reorganizing our senior management team, consolidating
our originator sales and service operations, and moving forward with our three
major initiatives; enhancement of core online services for brokers, the
conversion of consumer traffic into high-value business generation, and new
online management tools for lenders. Annual revenues have remained flat at
$6,010,604 and $6,115,316 for 2001 and 2000, respectively. The first quarter
2002 revenues grew to $1,510,963 compared to $1,463,445 and $1,491,135 for the
fourth and first quarter of 2001, respectively. The growth has come primarily
from improvements to existing core products and services. The potential growth
in revenues related to our three new initiatives would not begin to occur until
the last half of 2002.

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<PAGE>

     We did achieve profitability for the second and third quarters of 2001, and
net income for the year was $41,568 in 2001 compared to a net loss of $1,243,290
for 2000. The loss for first quarter 2002 totaling $40,896 was anticipated with
possibly a similar result expected in the second quarter of 2002. We anticipate
profitability in the last half of 2002, and, if the three major initiatives
achieve traction in the market place, a profit for 2002 is also anticipated. Our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in new and rapidly evolving markets,
including uncertainty of revenues, markets, profitability and the need to raise
capital to fund our ongoing operations. We cannot assure you that we will be
successful in addressing these risks or that we can be operated profitably,
which depends on many factors, including the success of our marketing program,
the control of expense levels and the success of our business activities. Our
future operating results will depend on a variety of factors, including those
discussed in the other risk factors set forth below.

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

     Our existing working capital is not sufficient to allow us to execute our
business plan as fast as we would like. We are planning to fund the development
and implementation of our three initiatives for 2002 (focusing on the originator
office rather than the single broker, qualifying leads for brokers and building
connectivity between the lender and the broker) through funds generated from the
Company operations. While the Company did grow its cash reserves during the
first quarter of 2002, the development and implementation of our plans at a
desired pace will require additional resources. If we are unable to obtain
adequate capital financing through equity or other financings, we may not be
able to successfully implement our short-term or long-term plans for expansion
or to meet our working capital requirements. However, even if we succeed in our
business plans, we may experience rapid growth requiring additional funds to
expand our operations and organization.

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

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

     LION's most critical customer continues to be the mortgage broker. Mortgage
broker fees comprised of memberships, website services, lead generation and ad
banners comprised 84% of our total revenues during the first quarter of 2002
with this percentage anticipated to grow throughout the remainder of the year.
Customer agreements are short-term and renewable. There can be no assurance that
these subscribers will continue to participate in the LION programs, or that we
will be able to attract new mortgage brokers at rates sufficient to maintain a
stable or growing revenue base. We cannot assure you that the market for our
products and services will continue to develop as expected. If the mortgage
broker market develops more slowly than expected or becomes saturated with
competitors, or if our products and services do not continue to achieve market
acceptance, our business operating results and financial conditions may be
materially adversely affected.

                                       14
<PAGE>

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

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

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

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

                                       15
<PAGE>

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

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

OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

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

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

                                       16
<PAGE>

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

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

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

     LION is a party to a legal proceeding initiated by Billy Anders, a former
director of LION. Although damages are speculative, plaintiff seeks an award in
excess of one million dollars, together with emotional distress damages,
punitive damages and an award of attorneys' fees. LION believes plaintiff's
claims are without merit. Nevertheless, the outcome of this matter cannot be
predicted at this time and if plaintiff is successful in obtaining a jury
verdict, the award could be substantial and have a material adverse affect on
the Company. See Legal Proceedings in the Company's 10 - KSB for the year ended
December 31, 2001.

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

     The trading price of our common stock has been and may continue to be
subject to wide fluctuations. During 2001, the closing sale prices of our common
stock on the OTC Bulletin Board ranged from $.17 to $.05 per share and the sale
price of our common stock closed at $.08 per share on May 7, 2002. Our stock
price may fluctuate in response to a number of events and factors, such as
quarterly variations in operating results, announcements of technological
innovations or new products by us or our competitors, changes in financial
estimates and recommendations by securities analysts, the operating and stock
price performance of other companies that investors may deem comparable, and
news reports relating to trends in our markets. In addition, the stock market in
general, and the market prices for Internet-related companies in particular,
have experienced extreme volatility that often has been unrelated to the
operating performance of these companies. These broad market and industry
fluctuations may adversely affect the price of our stock, regardless of our
operating performance.

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

                                       17
<PAGE>

included on the OTC Bulletin Board and do not qualify for the NASDAQ, quotes for
the securities may be included in the electronic "pink sheets" for the
over-the-counter market.

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

     As of December 31, 2001, a substantial majority of the 31,026,978
outstanding shares of common stock and 1,500,000 shares of convertible preferred
stock held by existing shareholders were issued and sold by the Company in
private transactions in reliance on exemptions from the registration provisions
of the Securities Act and are restricted securities within the meaning of Rule
144 under the Securities Act. Of the outstanding shares, including shares held
by affiliates, 29,400,311 or 95% were issued on or before December 31, 2000, and
may be currently eligible for resale in the open market, if any, subject to the
volume and other conditions of Rule 144. There are no contractual restrictions
on the resale of the outstanding common stock. The sale in the public market of
these shares of restricted common stock, or the perception that these sales may
occur, may depress prevailing market prices of the common stock.

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

     As of December 31, 2001, there were outstanding stock options to purchase
an aggregate of 5,822,000 shares of common stock at exercise prices ranging from
$.05 to $2.00 per share, and warrants to purchase 1,521,667 shares of common
stock at exercise prices ranging from $.20 to $1.75 per share. Employee options
are subject to a restriction whereby option holders have agreed to not sell or
otherwise transfer or dispose of shares of the common stock issued upon exercise
of options in an amount which shall exceed 250,000 shares during any three-month
period. The exercise of these outstanding options and warrants will dilute the
percentage ownership of common stockholders, and any sales in the public market
of shares of common stock underlying such securities may adversely affect
prevailing market prices for the common stock. Furthermore, the terms upon which
we will be able to obtain additional equity capital may be adversely affected
since the holders of these outstanding securities can be expected to exercise
their respective rights therein at a time when we would, in all likelihood, be
able to obtain any needed capital on terms more favorable to the Company than
those provided in such securities.

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

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

     As long as we do not meet the relevant financial requirements and our
common stock is trading at less than $5.00 per share on the OTC Bulletin Board,
our securities are subject to the penny stock rules. These rules impose
additional sales practice requirements on broker-dealers who sell our securities
to persons other than established customers and accredited investors (generally,
investors with a net worth in excess of $1,000,000 or an individual annual
income exceeding $200,000, or, together with the investor's spouse, a joint
income of $300,000). For transactions covered by the penny stock rules, the
broker-dealer must make a special suitability determination for the purchase of

                                       18
<PAGE>

such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any non-exempt transaction
involving a penny stock, the rules require, among other things, that the
broker-dealer deliver an SEC mandated risk disclosure document relating to the
penny stock market and the risks associated therewith prior to the transaction.
The broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative as well as current quotations
for the securities. If the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, the broker-dealer must send monthly statements
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the penny stock
rules may restrict the ability of broker-dealers to sell our securities and may
affect the ability of our shareholders to sell their securities in the secondary
market.

                           PART II - OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

     In January 2002, we sold 15,000 shares of common stock to 1 person at a
purchase price of $.06 per share in connection with the exercise of outstanding
stock options. Cash consideration was received totaling $900. The recipient was
an accredited person, had access to all material information concerning the
Company, and acquired the securities for investment. The appropriate legend was
affixed to the certificate issued in the transaction. The issuance was deemed to
be exempt from registration under the Securities Act in reliance on Section 4(2)
of the Securities Act as a transaction by an issuer not involving any public
offering.

     During the first quarter of 2002, 52,000 shares of common stock at prices
ranging from $.087 to $.09 per share totaling $4,629 were issued to one employee
in lieu of cash for deferred compensation. The recipient was an accredited
person, had access to all material information concerning the Company, and
acquired the securities for investment. Appropriate legends were affixed to the
certificates issued in the transactions. The issuances were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits to Part II:

     None

(b)  Reports on Form 8-K

     There were no reports on Form 8-K filed during the quarter ended March 31,
2002.

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<PAGE>

                                   SIGNATURES
                                   ----------

     In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                LION, INC.
                                ----------
                               (Registrant)

Date: May 15, 2002              By: /s/ John A. McMillan
                                    -------------------------
                                    John A. McMillan
                                    Chief Executive Officer




























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