UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB


(Mark One)

|X|  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006

|_|  Transition report under Section 13 or 15(d) of the Securities  Exchange Act
     of 1934

                 For the transition period from _____ to _____

                         COMMISSION FILE NUMBER 0-25159

                                   LION, INC.
        (Exact name of small business issuer as specified in its charter)

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


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

                    Issuer's telephone number (206) 577-1440

                                       N/A
          (Former name or former address, if changed since last report)


     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 |_|


     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
defined in Rule 12b-2 of the Exchange Act).

                                                                  Yes |_| No |X|


     As of November 10, 2006,  approximately  38,547,272 shares of the Company's
common stock were outstanding.


     Transitional Small Business disclosure Format (check one):   Yes |_| No |X|


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

                                       1
<PAGE>

                                   LION, Inc.
                                  Form 10 - QSB
                    For the Quarter Ended September 30, 2006


                                                                           PAGE
                                      INDEX                               NUMBER

PART I         FINANCIAL INFORMATION

Item 1         Financial Statements

               Condensed Consolidated Balance Sheets at
               September 30, 2006 (unaudited) and
               December 31, 2005                                               3

               Condensed Consolidated Statements of Operations
               for the three and nine months ended
               September 30, 2006 and 2005 (unaudited)                         4

               Condensed Consolidated Statements of Cash Flows
               for the nine months ended September 30, 2006
               and 2005 (unaudited)                                            5

               Notes to Condensed Consolidated Financial Statements
               (unaudited)                                                     6

Item 2         Management's Discussion and Analysis of Financial
               Condition and Results of Operations                            18

Item 3         Controls and Procedures                                        35

PART II        OTHER INFORMATION

Item 6         Exhibits                                                       36

               Signatures                                                     37


                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

                            LION, Inc. and Subsidiary
                      Condensed Consolidated Balance Sheets
                        (In thousands, except share data)
<TABLE>
<CAPTION>

                                                                         September 30,
                                                                             2006             December 31,
                                                                          (Unaudited)             2005
                                                                       ------------------   ---------------
<S>                                                                        <C>                <C>
Current assets
    Cash and cash equivalents                                                $  3,118          $  3,371
    Short-term investments - available for sale securities                        900               800
    Accounts receivable, less allowance for doubtful accounts of
       $85 and $100 in 2006 and 2005, respectively                              1,101             1,161
    Prepaid expenses and other                                                    646               598
                                                                             --------          --------

         Total current assets                                                   5,765             5,930

Property and equipment, net                                                       604               844
Goodwill                                                                        2,590             2,590
Other assets                                                                      374               325
                                                                             --------          --------

                                                                             $  9,333          $  9,689
                                                                             ========          ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
    Accounts payable                                                         $    352          $    212
    Accrued salaries and benefits                                                 747               709
    Accrued liabilities                                                           374               272
    Deferred revenue                                                              830               649
                                                                             --------          --------

         Total current liabilities                                              2,303             1,842
Long-term obligations, less current maturities                                    982               972
                                                                             --------          --------
             Total liabilities                                                  3,285             2,814
                                                                             --------          --------

Commitments and contingencies                                                      --                --

Stockholders' equity
    Preferred stock, par value $.001 per share; authorized 5,000,000
       shares; none issued or outstanding                                          --                --
    Common stock - authorized, 50,000,000 shares of $.001 par
         value, 38,532,272 issued and outstanding                                  39                38
    Additional contributed capital                                             14,199            14,091
    Accumulated deficit                                                        (8,190)           (7,254)
                                                                             --------          --------
                                                                                6,048             6,875
                                                                             --------          --------

                                                                             $  9,333          $  9,689
                                                                             ========          ========
</TABLE>


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


                                       3
<PAGE>



                            LION, Inc. and Subsidiary
                 Condensed Consolidated Statements of Operations
                    (In thousands, except net loss per share)
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                       Three months ended              Nine months ended
                                                          September 30,                   September 30,
                                                 ------------------------------  -------------------------------
                                                     2006            2005            2006             2005
                                                 --------------  --------------  --------------  ---------------
<S>                                                 <C>               <C>               <C>               <C>
Revenues                                         $  3,327          $  4,020          $ 10,397          $ 12,060
                                                 --------          --------          --------          --------

Expenses
    Direct costs                                    1,496             1,573             4,550             4,884
    Selling and marketing                             547               617             1,673             1,870
    General and administrative                        882               905             3,092             3,158
    Research and development                          532               576             1,726             1,845
    Depreciation and amortization                     110               137               351               401
                                                 --------          --------          --------          --------
                                                    3,567             3,808            11,392            12,158
                                                 --------          --------          --------          --------

         Operating income (loss)                     (240)              212              (995)              (98)

Other income (expense)
    Interest expense                                  (20)              (21)              (59)              (65)
    Interest income                                    48                23               125                56
    Other income                                       --                 3                 2                 3
                                                 --------          --------          --------          --------

         Income (loss) before income tax             (212)              217              (927)             (104)

Income tax expense                                     (3)               (4)               (9)              (11)
                                                 --------          --------          --------          --------

         Net income (loss)                       $   (215)         $    213          $   (936)         $   (115)
                                                 ========          ========          ========          ========

Net income (loss) per common share,
    Basic                                        $   (.01)         $    .01          $   (.02)         $     --
                                                 ========          ========          ========          ========
    Diluted                                      $   (.01)         $    .01          $   (.02)         $     --
                                                 ========          ========          ========          ========

Weighted average number of shares,
    Basic                                          38,505            38,219            38,479            37,870
                                                 ========          ========          ========          ========
    Diluted                                        38,505            39,719            38,479            37,870
                                                 ========          ========          ========          ========
</TABLE>


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


                                       4
<PAGE>

                            LION, Inc. and Subsidiary
                 Condensed Consolidated Statements of Cash Flows
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                    Nine months ended
                                                                                      September 30,
                                                                            -------------------------------
                                                                                2006               2005
                                                                            ------------       ------------
<S>                                                                           <C>              <C>
Cash flows from operating activities
    Net loss                                                                  $  (936)         $  (115)
    Adjustments to reconcile net loss to net cash provided by
        (used in) operating activities
          Depreciation and amortization                                           351              401
          Stock option and restricted stock expense                               103              161
          Changes in assets and liabilities
              Accounts receivable                                                  60              595
              Prepaid expenses and other                                          (97)            (142)
              Accounts payable                                                    140               22
              Accrued salaries and benefits                                        38             (184)
              Accrued liabilities                                                 121              (22)
              Deferred revenue                                                    181             (229)
              Other assets                                                         --               33
                                                                              -------          -------
                  Net cash provided by (used in) operating activities             (39)             520
                                                                              -------          -------

Cash flows from investing activities
    Purchase of available-for-sale securities                                    (100)              --
    Capitalized software development costs                                         --              (39)
    Purchases of property and equipment                                           (96)            (341)
                                                                              -------          -------
                  Net cash used in investing activities                          (196)            (380)
                                                                              -------          -------

Cash flows from financing activities
    Restricted cash for letter of credit                                           --             (280)
    Payments on long-term obligations                                             (24)            (240)
    Proceeds from issuance of common stock and exercise of
        stock options                                                               6              143
                                                                              -------          -------
                  Net cash used in financing activities                           (18)            (377)
                                                                              -------          -------

Net decrease in cash and cash equivalents                                        (253)            (237)
Cash and cash equivalents at beginning of period                                3,371            4,518
                                                                              -------          -------
Cash and cash equivalents at end of period                                    $ 3,118          $ 4,281
                                                                              =======          =======
</TABLE>


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


                                       5
<PAGE>

                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                               September 30, 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 online mortgage leads and advanced business solutions that
streamline  the mortgage  loan  fulfillment  process in the  mortgage  industry.
Through its  subsidiary,  Tuttle Risk  Management  Services LLC  ("TRMS"),  LION
provides hands-on  mortgage pipeline risk management for financial  institutions
that  originate  and then sell loans into the  secondary  market.  From Leads to
Loans to Capital Markets, LION offers consistent,  integrated business solutions
to consumers, mortgage brokers, realtors, originators and lenders. LION provides
an integrated  technology  platform offering online loan productivity,  mortgage
pipeline   hedging  and  risk   management,   software   development   and  data
communications tools through its LockPoint Xtra(R) ("LPX"),  Pipeline Tools, and
Risk Management Services product lines.

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

INTERIM FINANCIAL  STATEMENTS - The unaudited condensed  consolidated  financial
statements and related notes are presented in accordance  with the  instructions
for interim  financial  statements in Rule 310(b) of Regulation  S-B, and do not
contain  certain  information   included  in  the  Company's  audited  financial
statements  and  notes  for  the  fiscal  year  ended  December  31,  2005.  The
information furnished reflects,  in the opinion of management,  all adjustments,
consisting of normal recurring adjustments, 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, 2006 or for any other future interim
period. The accompanying unaudited financial statements and related notes should
be read in conjunction with the audited financial  statements included in LION's
Form 10 - KSB and notes thereto for its fiscal year ended December 31, 2005.

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 the realization of deferred tax assets.

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

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

SHORT-TERM  INVESTMENTS - The Company's short-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 opt out of 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.


                                       6
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                               September 30, 2006

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

REVENUE  RECOGNITION  - LION  generates  revenue  throughout  the mortgage  loan
origination and fulfillment  process.  Subscription  revenues are generated from
mortgage  brokers 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(R),  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.

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(R) product
is  recognized  when all  elements of the  contract  have been  delivered to the
customer.  Revenue from  monthly  recurring  charges  from use of the  LockPoint
Xtra(R),  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 the 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 customers
participating in the mortgage industry,  including lenders and mortgage brokers.
Credit is extended to most customers,  and generally collateral is not required.
Payments for  accounts  receivable  are due upon receipt of the invoice,  but in
some cases they may be due within 15 to 60 days  depending  on the  products  or
services provided.

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


                                       7
<PAGE>

                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                               September 30, 2006


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

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.

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." These costs are
included in computer software in property and equipment and are amortized over a
period of three years.

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.

In accordance  with SFAS No. 142, the Company tests  goodwill for  impairment at
the  reporting  unit level on an annual basis each June 30th and between  annual
tests in certain  circumstances.  The  Company  has  determined  that it has two
reporting  units  consisting of LION's  integrated  software,  services and lead
generation businesses and TRMS' risk management services.  SFAS No. 142 requires
a two-step  goodwill  impairment  test whereby the first step,  used to identify
potential  impairment,  compares  the fair  value of a  reporting  unit with its
carrying  amount  including  goodwill.  If the fair  value of a  reporting  unit
exceeds its carrying  amount,  goodwill is  considered  not  impaired,  thus the
second  step of the  goodwill  impairment  test used to quantify  impairment  is
unnecessary.  Company  management  has  estimated  that the fair  values  of the
Company's  reporting  units to which  goodwill has been  allocated  exceed their
carrying  amounts,  and  accordingly  no  provision  for  impairment  is  deemed
necessary.

NET INCOME  (LOSS) PER COMMON SHARE - Basic income  (loss) per share is based on
the  weighted  average  number  of  shares   outstanding   during  each  period.
Potentially  dilutive  common  stock  equivalents  are  included in  determining
dilutive  earnings per share.  The diluted share  calculation  for the three and
nine months ended  September  30, 2006  excludes  options to purchase  4,157,417
shares and for the nine months  ended  September  30, 2005  excludes  options to
purchase 4,387,609 shares due to their  anti-dilutive  effect.  Stock options to
purchase  1,500,058  shares of common stock were included in the  computation of
diluted earnings per share for the three months ended September 30, 2005.


                                       8
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                               September 30, 2006


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

ADVERTISING COSTS - Advertising costs are expensed as incurred.

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.

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 net operating
loss ("NOL") 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.  Results for
prior   periods   have  not  been   restated,   as   provided   for   under  the
modified-prospective method.

Prior to the  adoption of SFAS No.  123(R),  the Company  adopted the fair value
recognition   provision   of  SFAS  No.   123,   "Accounting   for   Stock-Based
Compensation," prospectively, to all employee awards granted on or after January
1, 2003,  pursuant to SFAS No. 148,  "Accounting for Stock-Based  Compensation -
Transition and Disclosure." Under this adoption, the Company accounted for stock
options  granted  to  employees  based on the fair  value of the  options at the
respective  grant dates  utilizing the  Black-Scholes  model for estimating fair
value and has recorded compensation over the vesting period of the options.

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


                                       9
<PAGE>



                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                               September 30, 2006

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

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  $4.1  million at September  30,  2006.  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.

RECENTLY  ISSUED  ACCOUNTING  PRONOUNCEMENTS  - In June  2006,  the FASB  issued
Interpretation  No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes  - an
interpretation  of FASB  Statement  No.  109" ("FIN  48").  This  interpretation
clarifies  the  accounting  for  uncertainty  in income taxes  recognized  in an
enterprise's  financial  statements in accordance with SFAS No. 109, "Accounting
for Income Taxes." This  Interpretation  prescribes a recognition  threshold and
measurement attribute for the financial statement recognition and measurement of
a  tax  position  taken  or  expected  to  be  taken  in  a  tax  return.   This
Interpretation also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and transition. FIN 48
is effective for fiscal years beginning after December 15, 2006. Although we are
still evaluating the potential  effects of FIN 48, we do not expect its adoption
to have a material impact on our financial position,  results of operations,  or
cash flows.

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.  Earlier adoption is encouraged,
provided  the company has not yet issued  financial  statements,  including  for
interim  periods,  for that fiscal year.  Although we are still  evaluating  the
potential  effects of this  standard,  we do not expect the adoption of SFAS No.
157 to have a material impact on our financial position,  results of operations,
or cash flows.

In September  2006,  the  Securities  and  Exchange  Commission  released  Staff
Accounting Bulletin No. 108,  "Quantifying  Financial  Statement  Misstatements"
("SAB No. 108"). SAB No. 108 gives guidance on how errors, built up over time in
the balance  sheet,  should be  considered  from a materiality  perspective  and
corrected.  SAB No. 108 provides interpretive guidance on how the effects of the
carryover  or  reversal  of prior year  misstatements  should be  considered  in
quantifying a current year misstatement.  SAB No. 108 represents the SEC Staff's
views  on the  proper  interpretation  of  existing  rules  and as  such  has no
effective  date. We do not expect the adoption of SAB No. 108 to have a material
impact on our financial position, results of operations, or cash flows.


                                       10
<PAGE>

                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                               September 30, 2006

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

In October 2006, the FASB issued FASB Staff Position No. 123(R)-5, "Amendment of
FASB Staff  Position  FAS  123(R)-1."  The FSP amends  FSP  123(R)-1  for equity
instruments  that were  originally  issued  as  employee  compensation  and then
modified,  with such  modification made to the terms of the instrument solely to
reflect an equity  restructuring  that  occurs  when the  holders  are no longer
employees.  In  such  circumstances,   no  change  in  the  recognition  or  the
measurement  date of those  instruments  will  result  if both of the  following
conditions  are met:  a. There is no increase in fair value of the award (or the
ratio of intrinsic  value to the exercise price of the award is preserved,  that
is, the holder is made whole), or the antidilution provision is not added to the
terms of the  award in  contemplation  of an  equity  restructuring;  and b. All
holders of the same class of equity instruments (for example, stock options) are
treated in the same manner. The Company believes that FSP 123(R)-5 will not have
a material  impact on our financial  position,  results of  operations,  or cash
flows.


Note 2 - 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.  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.  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.

In 2005, the Company established the 2005 Stock Incentive Plan (the "2005 Plan")
under  which a total of 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.


                                       11
<PAGE>

                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                               September 30, 2006

Note 2 - Stock-based compensation - continued

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 an assumption affecting compensation expense and was not material.

The fair value of option grants 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
the cash  position.  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.

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 employee  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 plan to pay any dividends in the near future.

The assumptions  used to value option grants for the three and nine months ended
September 30, 2006 and 2005 are as follows:
<TABLE>
<CAPTION>

                                                  Three months ended September 30,     Nine months ended September 30,
                                                  ----------------------------------  ----------------------------------
                                                       2006              2005              2006              2005
                                                  ----------------  ----------------  ----------------  ----------------
<S>                                                     <C>               <C>           <C>                <C>
    Expected life (in years)                            2.5               4.0           2.5 to 6.25           4.0
    Volatility                                          74%              125%            74 - 113%           125%
    Risk free interest rate                            5.11%             3.7%           4.6 - 5.11%          3.7%
    Dividend yield                                      --                --                --                --
</TABLE>



                                       12
<PAGE>

                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                               September 30, 2006

Note 2 - Stock-based compensation - continued

The following  table sets forth the summary of option  activity  under our stock
option plans for the nine months ended September 30, 2006:
<TABLE>
<CAPTION>

                                                                   Weighted       Weighted
                                                                   average         average            Aggregate
                                               Number of           exercise       remaining           intrinsic
                                                 shares             price      contractual life         value
                                              -----------      -------------  ------------------    -------------
<S>                                            <C>                <C>              <C>               <C>
 Outstanding at beginning of year              3,789,867          $   0.22
 Granted                                         500,000              0.36
 Forfeited                                       (59,000)             0.16
 Exercised                                       (73,450)             0.08
                                              ----------         ---------

 Outstanding at end of period                  4,157,417          $   0.24         5.3 years         $  513,000
                                              ==========          ========         =========         ==========

Options vested or expected to vest at
  end of period                                3,780,750          $   0.24         5.0 years         $  465,000
                                              ==========          ========         =========         ==========

Options exercisable at end
   of period                                   3,007,880          $   0.24         4.8 years         $  405,000
                                              ==========          ========         =========         ==========

Weighted average fair value of
  options granted during the period                               $   0.36
                                                                  ========
</TABLE>


The aggregate  intrinsic value is based on the Company's average closing bid and
ask stock price of $0.35 as of the last  business  day of the nine months  ended
September  30, 2006,  which would have been  received by the  optionees  had all
in-the-money  options  been  exercised on that date.  As of September  30, 2006,
total unrecognized  stock-based  compensation  expense related to unvested stock
options was  approximately  $141,000,  which is expected to be recognized over a
weighted average period of approximately  2.3 years. The aggregate fair value of
vested options outstanding as of September 30, 2006 was $708,000.


Following is a summary of the Company's  stock options  outstanding at September
30, 2006:
<TABLE>
<CAPTION>

                             Outstanding options                                       Options exercisable
  --------------------------------------------------------------------------    ----------------------------------
                                          Weighted      Weighted                                     Weighted
                                          average       average remaining                            average
   Exercise price          Number          price         contractual life          Number         exercise price
  ------------------    -------------    -----------    --------------------    -------------    -----------------
<S>  <C>               <C>                <C>              <C>                  <C>                 <C>
  $  .04 - $  .25          2,961,000        $  0.18          5.8 years            2,333,588           $   0.19
  $  .26 - $  .50            971,417        $  0.34          4.4 years              471,167           $   0.32
  $  .51 - $  .61            225,000        $  0.59          3.1 years              203,125           $   0.60
                        ------------                                           ------------
                           4,157,417        $  0.24          5.3 years            3,007,880           $   0.24
                        ============                                           ============
</TABLE>


                                       13
<PAGE>

                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                               September 30, 2006

Note 2 - Stock-based compensation - continued

The following  table sets forth the summary of restricted  stock  activity under
our 2005 Plan for the nine months ended September 30, 2006:
<TABLE>
<CAPTION>

                                                                                                      Weighted
                                                                                                      average
                                                                                 Number of          grant-date
                                                                                  shares            fair value
<S>                                                                                  <C>            <C>
    Restricted shares outstanding at beginning of year, nonvested                    40,313         $    .32
    Granted                                                                          10,000         $    .26
    Vested                                                                           (5,250)        $    .30
    Forfeited                                                                       (15,000)        $    .33
                                                                                -----------         --------

   Restricted shares outstanding at end of period, nonvested                         30,063         $    .30
                                                                                ===========         ========
</TABLE>


The following  shares of common stock have been reserved for issuance  under the
Company's stock-based compensation plans as of September 30, 2006:
<TABLE>
<CAPTION>

                                                                 1998 Plan         2005 Plan            Total
                                                              ---------------    --------------    ---------------
<S>                                                             <C>                <C>               <C>
   Outstanding share based compensation awards                  3,857,417             --             3,857,417
   Underlying shares available for grant                        2,648,311          4,962,000         7,610,311
                                                              -----------        -----------       -----------
   Total                                                        6,505,728          4,962,000        11,467,728
                                                              ===========        ===========       ===========
</TABLE>


Total stock-based  compensation expense recognized in the condensed consolidated
statement of operations is as follows:
<TABLE>
<CAPTION>

                                                  Three months ended September 30,     Nine months ended September 30,
                                                  ----------------------------------  ----------------------------------
                                                       2006              2005              2006              2005
                                                  ----------------  ----------------  ----------------  ----------------
<S>                                                 <C>               <C>               <C>               <C>
    Stock option expense                            $      38         $      37         $     101         $     160
    Restricted stock expense                               --                 1                 2                 1
                                                    ---------         ---------         ---------         ---------

    Total stock-based compensation expense          $      38         $      38         $     103         $     161
                                                    =========         =========         =========         =========
</TABLE>


                                       14
<PAGE>

                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                               September 30, 2006

Note 2 - Stock-based compensation - continued

Prior to January 1, 2006, the Company  accounted for all employee awards granted
on or after January 1, 2003 using the fair value  recognition  provision of SFAS
No. 123. The following table illustrates the effect on net income (loss) and net
income  (loss) per share if the Company  had applied the fair value  recognition
provisions  of SFAS No. 123 to all  employee  awards (in  thousands,  except net
income (loss) per share):
<TABLE>
<CAPTION>

                                                                                   Three months          Nine months
                                                                                      ended                 ended
                                                                                  September 30,         September 30,
                                                                                       2005                  2005
                                                                                -------------------   -------------------
<S>                                                                                  <C>                     <C>
Net income (loss), as reported                                                       $  213                  $(115)
Add: Stock-based employee compensation expense included in reported net
    income (loss)                                                                        38                    161
Deduct:  Total stock-based employee compensation expense determined under
    fair value method for all awards, net of related tax effects                        (38)                  (168)
                                                                                     ------                  -----
Pro forma net income (loss)                                                          $  213                  $(122)
                                                                                     ======                  =====

Net income (loss) per share:
    Basic and diluted - as reported                                                  $  .01                  $  --
                                                                                     ======                  =====
    Basic and diluted - pro forma                                                    $  .01                  $  --
                                                                                     ======                  =====
</TABLE>


Note 3 - Commitments and contingent liabilities

In October 2006,  the Company  settled an unasserted  possible claim relating to
the Company's use of third-party  intellectual  property. The Company recorded a
provision inclusive of legal fees totaling $177,000 in second quarter 2006 which
fully covered this claim.


                                       15
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                               September 30, 2006

Note 4 - Segment reporting

The  Company  has two  operating  segments,  TRMS and the  integrated  software,
services  and lead  generation  businesses  in which  the  Company  is  engaged.
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):
<TABLE>
<CAPTION>


                                                  LION             TRMS           Consolidated
------------------------------------------   ---------------   -------------    -----------------
<S>                                            <C>               <C>               <C>
Three months ended September 30, 2006:
      Revenues from external customers         $  1,967          $  1,360          $  3,327
      Revenues from internal customers              907                --                --
      Operating loss                               (192)              (48)             (240)

Three months ended September 30, 2005:
      Revenues from external customers         $  2,352          $  1,668          $  4,020
      Revenues from internal customers              994                --                --
      Operating income                              143                69               212

Nine months ended September 30, 2006:
      Revenues from external customers         $  6,126          $  4,271          $ 10,397
      Revenues from internal customers            2,803                --                --
      Operating loss                               (881)             (114)             (995)

Nine months ended September 30, 2005:
      Revenues from external customers         $  7,205          $  4,855          $ 12,060
      Revenues from internal customers            2,778                --                --
      Operating income (loss)                      (402)              304               (98)
</TABLE>


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):
<TABLE>
<CAPTION>

                                                      Three months ended                   Nine months ended
                                                        September 30,                        September 30,
                                               ---------------------------------   ----------------------------------
                                                    2006              2005              2006              2005
                                               ----------------  ---------------   ---------------   ----------------
<S>                                              <C>               <C>               <C>               <C>
        Operating income (loss)                  $    (240)        $     212         $    (995)        $     (98)
        Non-operating income (expense)                  28                 5                68                (6)
                                                 ---------         ---------         ---------         ---------

           Income (loss) before income tax       $    (212)        $     217         $    (927)        $    (104)
                                                 =========         =========         =========         =========
</TABLE>


                                       16
<PAGE>

                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                               September 30, 2006

The  Company's  product  groupings are  comprised of Leads,  Loans,  and Capital
Markets and associated revenues are as follows (in thousands):
<TABLE>
<CAPTION>

                                                              Three months ended           Nine months ended
                                                                 September 30,               September 30,
                                                           --------------------------  --------------------------
                                                              2006          2005          2006          2005
                                                           ------------  ------------  ------------  ------------
<S>                                                         <C>           <C>           <C>           <C>
    Leads - (Mortgage 101)                                   $    453      $    450      $  1,483      $  1,361
    Loans - (LION Pro, Retail Websites, & LPX)                  1,400         1,714         4,347         5,195
    Capital Markets - (Pipeline Tools & TRMS)                   1,474         1,856         4,567         5,504
                                                             --------      --------      --------      --------

         Total revenues                                      $  3,327      $  4,020      $ 10,397      $ 12,060
                                                             ========      ========      ========      ========
</TABLE>


The Leads product grouping consists of the Company's Mortgage 101 product, which
generates revenues from LION's subscription and pay-per-lead based lead programs
along with broker ad banner programs.

The Loans product grouping consists of LION Pro, Retail Websites,  and LockPoint
Xtra(R).  LION  Pro  revenues  are  comprised  of LION Pro  Corporate,  LION Pro
Individual,  and lenders who  participate  in the  underlying  database.  Retail
Website revenues consist of site development and hosting fees. LockPoint Xtra(R)
revenues,  which include Precision MTS, 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  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 amount
volumes  with monthly  minimums  which may vary from  customer to customer,  and
custom development  services.  Risk Management Services are provided by TRMS and
are generated by recurring  monthly billings based on closed loan amount volumes
with monthly minimums which may vary from customer to customer.


                                       17
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

     LION,  Inc. is a leading  online  mortgage  lead  generator and provider of
advanced  business  solutions  that  streamline  the mortgage  loan  fulfillment
process.  From  Leads to Loans  to  Capital  Markets,  LION  offers  consistent,
integrated  business  solutions  to  consumers,   mortgage  brokers,   realtors,
originators  and  lenders.  LION  provides  an  integrated  technology  platform
offering  online  loan   productivity,   mortgage   pipeline  hedging  and  risk
management, software development and data communication tools.

     The overall  decline in loan  origination  volume in the mortgage  industry
during 2006 has provided a  formidable  challenge  to our  strategic  efforts to
weather a downturn in the industry by broadening our offerings and  diversifying
our revenue base. In a difficult  environment,  we have had some successes while
experiencing  overall revenue  decline.  Our third quarter revenue fell short of
our  objectives  due  largely to this  decline in mortgage  origination  and its
impact on the  variable  revenue  streams we generate in our pricing  engine and
interest rate risk management business lines. During the quarter,  mortgage loan
production  generated by our customers  continued to decline despite some relief
in the form of falling  Treasury  and mortgage  yields.  While the steps we have
taken over the last two years have  enabled us to buffer some of the  challenges
that exist in the current real estate environment, we are not satisfied with our
financial  results  and  believe  that as the  initiatives  we  have  undertaken
continue to take root,  we will restore  revenue  growth and earnings  momentum.
These  initiatives  include  broadening  our Precision MTS product line that has
already  resulted in accelerating  sales momentum,  an expansion of our Mortgage
101  consumer  portal to  include a more  extensive  range of  consumer  finance
offerings and an upcoming redesign of our web presence, among others.

     While  Mortgage  101 revenues for the quarter and first nine months of 2006
are  stronger  compared  to last  year,  lead  generation  has  and is  becoming
increasingly  commoditized  and is coming under pressure.  While lead generation
is, and will continue to be, an important source of revenue for Mortgage 101, we
are  initiating  a number of other  consumer  services  to better  leverage  our
existing  consumer  traffic to increase  transactional  and advertising  revenue
streams.  A more  robust  consumer  finance  platform  is  expected  to  include
automobile  financing,  insurance,  real estate  applications,  credit cards and
other consumer oriented services.  As part of this endeavor, we will undertake a
major site redesign to  accommodate  a broader  range of consumer  offerings and
generate additional advertising opportunities.

     We will undertake the extension into peripheral consumer financial services
through  our  Mortgage  101  business to  consumer  Internet  portal not through
significant  investment  in  development  and  infrastructure,   but  rather  by
leveraging  the expertise of field experts in partnership to create the backbone
of that expansion.  We are actively  negotiating with several potential partners
in the consumer  verticals  mentioned as well as others.  If and when developed,
these relationships will enable us to offer an expanding variety of products and
services to the  consumers  drawn to Mortgage 101 and the other  Internet  entry
points we operate or will be introducing,  and to further  diversify our revenue
streams.  More  specifically,  we expect the effort to generate  higher Internet
consumer  traffic  that  will  yield  stronger  customer  pull  through,  higher
conversion  rates,  greater  advertising  revenue as well as revenue  share from
transactions that occur through our portal partners.

     Notwithstanding  compression in the housing and mortgage industry,  we have
been able to  maintain a high  volume of consumer  traffic in our  Mortgage  101
business to consumer Internet portal and continue to maintain high search engine
placement with industry leaders such as Google,  MSN and Yahoo that consistently
places  Mortgage 101 among the top three search  engine  placements  for keyword
search  "mortgage."  We place as high as number 1 or 2 for as many as a dozen or
more other mortgage related keywords.


                                       18
<PAGE>

     Our  Precision  MTS product  line  reported  slight  revenue  growth in the
quarter  despite the impact of lower mortgage  volume on the  transactional  fee
component of our pricing engine.  This marks our second  consecutive  quarter of
top line  growth.  We have  continued  to meet our sales  objectives  and have a
pipeline of signed clients for which we are  implementing  services that provide
continuing  visibility for growth in revenue at an accelerating  rate. In August
2006, we introduced a sub prime  mortgage  pricing engine into our product line.
As a larger  percentage of mortgage  borrowers exhibit sub prime or non standard
loan characteristics, the features and tools that allow lenders to better screen
for those  attributes  and price for them has grown in  demand.  It has been the
most often requested  enhancement  from existing  customers and prospects alike,
and we have closed on new client  relationships as a result of its availability,
with more in the sales  pipeline.  We have also  added an  experienced  industry
sales  executive  in a key  strategic  sales  management  role,  and are at work
restructuring  our sales  organization,  which  will  likely  include a regional
expansion  to position  proven  sales  executives  closer to their  prospects to
better focus on market niche expertise and account management.

     At a more strategic  level for Precision MTS, the  investments we have made
in our pricing engine and in the  integration  of the various  components of our
broker and lender  offerings  have resulted in a platform that we are working to
integrate with key loan origination  systems  ("LOS's") with the broadest market
penetration.   We  are  working  on  alliances   that  include   cross   selling
opportunities,  an  integration  of our pricing engine into the LOS and more. We
believe  these  mutual-benefit  relationships  will allow us to partner with the
industry's  best while  expanding our respective  software sales and transaction
related revenue opportunities.

     Though we remain  the  leader in custom  web site  development,  our Retail
Websites business line lost ground in the quarter. We have begun to explore ways
to broaden  our  distribution  capabilities  and are  evaluating  web design and
hosting  opportunities beyond our current mortgage broker focus. We are actively
seeking an opportunity to expand strategically  through acquisition or alignment
with other design firms who have the requisite expertise and customer base.

     Our Capital  Markets  product  group,  Pipeline  Tools and Risk  Management
Services,  generated  lower  revenue  in  the  quarter  as  a  result  of  lower
transactional  activity;  our customers closing $1 billion less in mortgage loan
volume  during the period.  Declining  mortgage  volume has  challenged  revenue
growth  despite new customer wins  throughout the year. To supplement and expand
the scope of our Capital Markets sales organization, we are conducting an active
search to identify a strong senior sales  management  executive and believe that
as new customers come on line, and  intermediate  term adjustable rate mortgages
begin to  reset,  our  business  will  benefit  and  resume  revenue  expansion.
Additionally,  we expect to  broaden  our  Capital  Markets  product  group both
organically and strategically. Enhancements forthcoming in our mortgage pipeline
analytics will allow us to attract more service  bureau,  or technology  license
customers.  We are also pursuing  partnerships and strategic  combinations  with
other  service  providers  that  would  expand  our  capability  to offer a full
compliment  of services to our Capital  Markets  customers.  Included  among the
possibilities  are  valuation  of mortgage  servicing  rights and hedging of sub
prime loan products.


                                       19
<PAGE>

RESULTS OF OPERATIONS

REVENUES (dollars in thousands)
<TABLE>
<CAPTION>

                                                              Three months ended           Nine months ended
                                                                 September 30,               September 30,
                                                           --------------------------  --------------------------
                                                              2006          2005          2006          2005
                                                           ------------  ------------  ------------  ------------
<S>                                                          <C>           <C>           <C>           <C>
    Leads - Mortgage 101                                     $    453      $    450      $  1,483      $  1,361
    Loans - LION Pro, Retail Websites, & LPX/Precision          1,400         1,714         4,347         5,195
    Capital Markets - Pipeline Tools & TRMS                     1,474         1,856         4,567         5,504
                                                             --------      --------      --------      --------
         Total revenues                                      $  3,327      $  4,020      $ 10,397      $ 12,060
                                                             ========      ========      ========      ========
</TABLE>

     Our product  groupings  are  organized to align our business  objectives by
product with the customers we serve. These product groups are Leads,  Loans, and
Capital Markets.

LEADS

     Our Leads product group is comprised of Mortgage 101.  Revenue for Mortgage
101  increased  1% in  third  quarter  2006  and 9% for the  nine  months  ended
September 30, 2006 compared to the same periods in the prior year. This increase
is due to the architectural redesign of the underlying Mortgage 101 pay-per-lead
technology  to  improve  lead  routing,  management  and  distribution  systems;
increased ad banner space; completion of a bidding system for rate and directory
listings which are sub-products of Mortgage 101; and an expanded dedicated sales
force for  Mortgage  101.  However,  revenue for  Mortgage 101 did pull back 14%
compared to second quarter 2006.  While some of this decrease is a reflection of
the overall decline in loan  origination  volume in the mortgage  industry,  the
loss of a large  customer who purchased our excess  leads,  commonly  known as a
sweeper,  was the reason for most of the  decrease.  We are actively  working on
multiple replacements for this sweeper  relationship.  We continue to experience
heavy  consumer  traffic to our  mortgage101.com  Internet  portal due to strong
search  engine  placement  and are  number 1 or 2 on  Google,  MSN or Yahoo  for
keyword  search  "mortgage"  along with several  other  keywords.  We anticipate
Mortgage 101 revenue will grow sequentially quarter over quarter.

     MORTGAGE  101  is  an   interactive   service   provided   through   LION's
www.mortgage101.com consumer portal which connects potential mortgage applicants
with a network  of  mortgage  lenders  who offer  mortgage  programs,  rates and
services. Mortgage 101 also provides education to home buyers and owners through
informative  articles,  interactive  calculators  and real-time rate  comparison
technology.  This product is one of the leading sources of leads for real estate
financing by mortgage originators and is a preferred platform for them to market
to their customers.  This product group generates  revenue from our pay-per-lead
program,  participation  by our  customers  in our rate and  directory  listings
offerings, and ad banners.

LOANS

     The  Loans  product  group  is  comprised  of LION  Pro,  Retail  Websites,
LockPoint Xtra(R),  and our Precision MTS product suite, which combines the best
features of all three  products in addition to Pipeline Tools interest rate risk
management software for midsized mortgage originators.

     The  decrease in revenue  for the Loans  product  group  narrowed to 3% for
third  quarter  2006  compared  to second  quarter  2006.  This is due to second
consecutive quarter over quarter growth in our Precision MTS product suite since
we repositioned our pricing engine business within our LockPoint Xtra(R) product
line.  We  anticipate  higher  sustainable  growth in Precision MTS quarter over
quarter to continue throughout 2007. The growth in Precision MTS was offset by a
decrease  in LION Pro and Retail  Website  revenues  due to the  contraction  of
mortgage broker  customers as a result of the rising  interest rate


                                       20
<PAGE>

environment  and  decreasing  loan  origination  volumes.  Revenue for the Loans
product  group  was down 18% for  third  quarter  2006 and down 16% for the nine
months ended  September 30, 2006 compared to the same periods in the prior year.
The  decreases  are primarily  due to the  repositioning  of our pricing  engine
business  within our LockPoint  Xtra(R)  product line  combined  with  declining
refinancing  activity  in the  mortgage  industry  and  the  contraction  of our
mortgage broker customer based for LION Pro and Retail Websites noted above.

     LION  PRO,  used by  mortgage  brokers  nationwide,  consists  of LION Loan
Search, LoanLink (subprime loan exchange platform),  News Now (high-value market
data) and Ratesheets on Demand (aggregated mortgage ratesheets).  It is packaged
and often private labeled for both large  companies and origination  teams along
with  individual or small  mortgage  brokers.  Through this  password  protected
product,  originators  can  access  one of the  nation's  largest  databases  of
wholesale  mortgage rate,  fee, and program  information to instantly  price any
mortgage  loan.  This  database is updated daily for 77 regions  nationwide  and
includes 73 participating  lenders.  Revenues from the LION Pro product line are
generated  from mortgage  brokers and  originators  subscribing  to the service,
origination  teams  private-labeling  this service for their own companies,  and
from participating lenders.

     RETAIL   WEBSITES  are  offered  to  mortgage   companies  and   individual
originators to help educate consumers about mortgages,  market their services to
borrowers,  build brand identity,  generate more business,  efficiently  connect
with  service  providers  and better  serve  their  borrowers.  This  product is
intended  to create and foster  relationships  between  consumers  and  mortgage
originators   while  enabling   mortgage   companies  and  originators  to  more
efficiently  manage  their online  production  channel and maximize the business
value  received  from their online  operations.  Both template and custom design
solutions  deliver a  combination  of standard and custom  content to over 2,900
websites.  Revenues are generated  from website set up and monthly  hosting fees
along with fees for related functionality tools.

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

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

CAPITAL MARKETS

     Our Capital  Markets  product  group is  comprised  of our  Pipeline  Tools
technology  and risk  management  services  provided  by our  subsidiary,  TRMS.
Revenue for third quarter 2006  decreased 6% compared to second quarter 2006 due
to lower loan origination volumes for its customer base. Revenue for the Capital
Markets  product  group was down 21% for third quarter 2006 and down 17% for the
nine months ended  September  30, 2006 compared to the same periods in the prior
year. The decrease was a result of


                                       21
<PAGE>

lower mortgage  origination  levels among our capital  markets  customers due to
higher mortgage interest rates, and the correspondingly lower closed loan volume
of those  customers on which our variable  revenue in both our TRMS trading unit
and our Pipeline Tools service bureau  business is based.  We are refocusing our
sales strategy on larger  potential  clients capable of weathering a market down
turn, in addition to applying greater emphasis on our service bureau business as
key  drivers  in  attaining  higher  levels of  revenue  growth we believe to be
attainable even in an unstable market.

     PIPELINE TOOLS ("PT") is a complete risk  management and pipeline  tracking
system that provides  financial  institutions with the tools necessary to manage
interest rate risk. PT tracks and examines current loan inventory,  which allows
lenders  to  extrapolate  and  manipulate  data to make  more  informed  trading
decisions. Typical users of PT include secondary marketing executives,  traders,
risk managers, pricing desks and shipping managers.

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

OPERATING EXPENSES (dollars in thousands)
<TABLE>
<CAPTION>

                                   Three months ended September 30,                Nine months ended September 30,
                               ---------------------------------------------    -----------------------------------------
                                      2006                    2005                    2006                 2005
                               ---------------------   ---------------------    -------------------- --------------------
                                            % of                    % of                   % of                   % of
                                              Rev                     Rev                   Rev                    Rev
                                            --------                --------               -------                -------

<S>                             <C>              <C>    <C>              <C>    <C>             <C>    <C>             <C>
Direct costs                    $ 1,496          45%    $ 1,573          39%    $ 4,550         44%    $ 4,884         41%
Selling and marketing               547          16%        617          15%      1,673         16%      1,870         16%
General and administrative          882          27%        905          23%      3,092         30%      3,158         26%
Research and development            532          16%        576          14%      1,726         17%      1,845         15%
Depreciation and
     amortization                   110           3%        137           3%        351          3%        401          3%
                                -------     -------     -------     -------     -------    -------     -------    -------
    Total operating expenses    $ 3,567         107%    $ 3,808          94%    $11,392        110%    $12,158        101%
                                =======     =======     =======     =======     =======    =======     =======    =======
</TABLE>


DIRECT COSTS

     Direct costs are  comprised  primarily of website  fulfillment,  technology
infrastructure support,  product and contract support,  product deployment,  and
TRMS trading desk and support services. Direct costs for third quarter 2006 were
down 2% compared to the previous  quarter.  Direct costs  declined 5% and 7% for
the three and nine month periods  ended  September 30, 2006 compared to the same
periods in the prior year.  This is as a result of our  efforts  over the last 2
years to reposition our pricing  engine  business  within our LockPoint  Xtra(R)
product line and migrate to our  Precision  MTS product  suite.  This change has
allowed us to reduce the level of  resources  necessary  to support and maintain
the LockPoint  Xtra(R) product line. In addition,  during that time we have been
consolidating  our IT  infrastructure  resources  and  datacenters  resulting in
reduced IT infrastructure costs.


                                       22
<PAGE>

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 third  quarter  2006 were down 3% compared to the previous  quarter
and declined 11% for both the three and nine month periods  ended  September 30,
2006  compared to the same  periods in the prior year.  The  decreases  were due
primarily to a restructuring of our broker and lender sales forces and marketing
resources and a reduction in advertising  for Mortgage 101 leads due to reliance
on organic generation of traffic in the Mortgage 101 portal.

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.  For third quarter  2006,  general and
administrative  expenses  decreased  31% to $882,000  from $1.3  million for the
previous  quarter.  This decrease is primarily the result of  nonrecurring  fees
incurred in the second  quarter for  strategic  undertakings  and related  costs
totaling  $219,000  and the accrual  for a  contingent  liability  related to an
unasserted potential claim totaling $170,000. The unasserted potential claim was
settled in October 2006 with no  additional  expenses  incurred in third quarter
2006. General and administrative  expenses decreased 3% and 2% for the three and
nine month periods ended  September 30, 2006 compared to the same periods in the
prior year.  The decrease in third  quarter 2006 compared to the same quarter in
the prior year was due to the consolidation of telecommunications infrastructure
and an  improvement in bad debt  experience  offset by  strengthening  our human
resources  group.  For the  comparative  9 month  periods,  the decrease was due
primarily to nonrecurring  expenses during the first and second quarters of 2005
related to Sarbanes-Oxley  section 404 compliance efforts and severance payments
during  second  quarter 2005 offset by the costs  associated  with the strategic
undertakings  and  unasserted  potential  claim during second quarter 2006 noted
above.

RESEARCH AND DEVELOPMENT

     Research and  development  expenses are comprised  primarily of engineering
salaries and related costs. Research and development expenses declined 8% and 6%
for the three and nine month  periods  ended  September 30, 2006 compared to the
same periods in the prior year. The reduction in research and development  costs
reflects  our  consolidation  efforts  related  to product  development  and the
relocation of research and development efforts into one location.

DEPRECIATION AND AMORTIZATION

     The decrease in  depreciation  and  amortization  expense for the three and
nine month periods ended  September 30, 2006 compared to the same periods in the
prior year is the result of equipment,  computers and software that became fully
depreciated at the end of 2005.

INTEREST EXPENSE AND INTEREST INCOME

     For the three and nine months ended Septebmer 30, 2006, interest expense is
comprised of interest on 8% promissory  notes totaling  $972,000  related to the
TRMS acquisition and various debt related to capitalized  leases.  For the three
and nine months  ended  September  30,  2005,  interest  expense is comprised of
interest  on 10 percent  promissory  notes  which were paid off in  mid-February
2005,  the 8%  promissory  notes  totaling  $972,000 and various debt related to
capitalized leases.

     Interest  income  increased to $48,000 for third  quarter 2006  compared to
$23,000 for the same  period in the prior year.  Interest  income  increased  to
$125,000 for the nine months ended  September  30,


                                       23
<PAGE>

2006  compared to $56,000 for the same period in the prior year.  The  increases
are due to additional  funds that could be invested along with a rising interest
rate environment.  Investments  during the nine months of 2006 had maturities of
one to three months so as to take advantage of rising short term interest rates.

OPERATING SEGMENTS

     We have two operating segments, TRMS and the integrated software,  services
and lead  generation  businesses  in which we are engaged.  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):
<TABLE>
<CAPTION>

                                                    Three months ended              Nine months ended
                                                       September 30,                    September 30,
                                               ------------------------------  ------------------------------
                                                   2006            2005            2006            2005
                                               --------------  --------------  --------------  --------------
<S>                                              <C>             <C>             <C>             <C>
    Revenue
        LION                                     $   1,967       $   2,352       $   6,126       $   7,205
        TRMS                                         1,360           1,668           4,271           4,855
                                                 ---------       ---------       ---------       ---------
           Total revenue                         $   3,327       $   4,020       $  10,397       $  12,060
                                                 =========       =========       =========       =========

    Operating income (loss)
        LION                                     $    (192)      $     143       $    (881)      $    (402)
        TRMS                                           (48)             69            (114)            304
                                                 ---------       ---------       ---------       ---------
           Total operating income (loss)         $    (240)      $     212       $    (955)      $     (98)
                                                 =========       =========       =========       =========
</TABLE>

     LION revenue for third  quarter  2006  declined 5% compared to the previous
quarter.  LPX/Precision  and  Pipeline  Tools both had their  second  sequential
quarter  over  quarter  revenue  gains  with  this  trend  anticipated  for  the
foreseeable  future.  Mortgage 101 fell back due to the loss of a large customer
that purchased our excess lead inventory.  Replacement customers are expected to
be added during the fourth quarter.  It is anticipated  that Mortgage 101 should
achieve  quarter over quarter  revenue gains going forward.  LION Pro and Retail
Websites  decreased due to the  contraction of its mortgage broker customer base
as a  result  of  the  rising  interest  rate  environment  and  declining  loan
origination volumes.

     LION  revenue  was down 16% and 15% for the  three and nine  month  periods
ended  September  30, 2006  compared to the same periods in the prior year.  The
revenue  gain in our  Mortgage  101 product  group was due to the  architectural
redesign of the underlying Mortgage 101 pay-per-lead  technology to improve lead
routing,  management  and  distribution  systems;  increased  ad  banner  space;
completion  of a  bidding  system  for rate and  directory  listings  which  are
sub-products of Mortgage 101; and an expanded dedicated sales force for Mortgage
101. The  Mortgage  101  increase was offset by revenue  losses in the LION Pro,
Retail Website,  LPX/Precision,  and Pipeline Tools products. The decreases were
due  primarily to the planned  repositioning  of our LockPoint  Xtra(R)  product
line, lower mortgage origination levels by our Pipeline Tools customer base, and
the  consolidation  of our mortgage broker customer base for LION Pro and Retail
Websites due to the rising interest rate  environment and lower loan origination
volumes.

     TRMS revenue for third  quarter  2006  declined 7% compared to the previous
quarter and for the three and nine months ended  September 2006 was down 18% and
12% compared to the same periods in the prior year.  The decreases were a result
of lower  mortgage  origination  levels among our TRMS  customers  due to higher
mortgage  interest  rates and the  correspondingly  lower  closed loan volume of
those customers on which our variable revenue in TRMS is based.  While TRMS will
continue to be  challenged  in this time of higher  interest  rates,  we will be
restructuring and expanding our sales and marketing initiatives so as to promote
revenue growth in the future.


                                       24
<PAGE>

     LION's operating loss decreased in third quarter 2006 to $192,000  compared
to the  second  quarter  operating  loss of  $532,000  primarily  as a result of
$389,000  of  nonrecurring  second  quarter  expenses  related to the  strategic
undertakings  and  accrual of the settled  claim  mentioned  previously  in this
report.  The quarter over  quarter  reduction  in revenues  mentioned  above was
offset by  expense  reductions  throughout  the  quarter  due to lower  costs to
support our various product lines and IT and telecommunications infrastructure.

     TRMS had operating  losses in the three and nine months ended September 30,
2006 compared to operating income in the comparative  periods in the prior year.
The decreases were primarily  attributable  to lower revenues  discussed  above.
TRMS also  decreased its operating  expenses for the three and nine months ended
September  30,  2006  by  approximately  $104,000  and  $192,000,  respectively,
primarily due to a restructuring of the sales function,  improvement in bad debt
experience, and reduced trade errors. Various selling and marketing expenses for
TRMS will grow in the coming  quarters as we continue to restructure  and expand
our sales and marketing initiatives.


FINANCIAL POSITION

     At September  30, 2006,  we had  approximately  $4.3 million in cash,  cash
equivalents, short-term investments, and restricted cash. During the nine months
end September 30, 2006 and 2005, we funded our  activities  primarily  from cash
provided by operations.  Cash, cash  equivalents and short-term  investments are
expected  to  fund  near-term  operations.   Non-cash  items  are  comprised  of
depreciation and  amortization and stock option expense.  The change in cash and
cash equivalents is as follows (in thousands):

                                                        Nine months ended
                                                          September 30,
                                                  ------------------------------
                                                       2006            2005
                                                  --------------  --------------

Net loss                                              $  (936)      $  (115)

Non-cash items
                                                          454           562
Changes in working capital
                                                          443            73
                                                      -------       -------
    Net cash provided by (used in)
      operating activities                                (39)          520
                                                      -------       -------

    Net cash used in investing activities                (196)         (380)
                                                      -------       -------

Restricted cash for letter of credit                       --          (280)
Payments on long-term obligations                         (24)         (240)
Proceeds from issuance of common stock
  and exercise of stock options                             6           143
                                                      -------       -------
    Net cash used in financing activities                 (18)         (377)
                                                      -------       -------

Net decrease in cash and cash equivalents                (253)         (237)
Cash and cash equivalents at beginning of period        3,371         4,518
                                                      -------       -------
Cash and cash equivalents at end of period            $ 3,118       $ 4,281
                                                      =======       =======

OPERATING ACTIVITIES

     During the nine  months  ended  September  30,  2006,  cash from  operating
activities  decreased slightly due to operating losses from reduced revenues and
payments on strategic  undertakings  and prepaid  maintenance  agreements.  This
decrease was offset by increases in deferred revenue from TRMS and Precision MTS
customer  contracts  and  increases in accounts  payable,  accrued  salaries and
benefits, and accrued liabilities due to our normal business operating cycle.


                                       25
<PAGE>

     During the nine  months  ended  September  30,  2005,  cash from  operating
activities  increased due to increases in payments on accounts receivable and an
increase in accounts payable due to our normal business  operating  cycle.  This
increase was offset by payments of incentive  bonuses  accrued in fourth quarter
2004 to various personnel due to integration  efforts throughout 2004,  payments
related to compliance  activities  mandated by Section 404 of Sarbanes-Oxley and
severance  expenses  related to a second  quarter  headcount  reduction  to take
advantage of the  efficiencies  made possible by progress we made in integrating
our acquisitions.

INVESTING ACTIVITIES

     During the nine months ended September 30, 2006,  investing activities used
cash   of   $196,000,   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.

     During the nine months ended September 30, 2005,  investing activities used
cash of approximately $380,000, which consisted of upgrades to computer hardware
and software and capital  expenditures on our new lease space for our California
operations  which  consolidated our TRMS,  Pipeline Tools and IT  infrastructure
groups.

FINANCING ACTIVITIES

     During the nine months  ended  September  30,  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.

     During the nine months ended September 30, 2005, net cash used in financing
activities  totaled $377,000 which included $280,000 of cash that was restricted
for a  letter  of  credit  related  to  the  office  lease  for  our  California
operations,  payoff of our 10 percent  promissory  notes totaling  approximately
$193,000  related to the TRMS  acquisition,  and payments on  capitalized  lease
obligations  related to the  acquisition of application  and database  software,
computers,  servers, furniture and telecommunications systems upgrades. This was
offset by the exercise of stock options during the period totaling approximately
$143,000.

OVERALL LIQUIDITY AND CAPITAL RESOURCES

     It is  management's  assessment that current working capital and that which
will be created through operations should be sufficient for our growth plans and
capital expenditure needs throughout 2006 and 2007.

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  asset  valuations,  estimated  useful lives and
recoverability, and realizability of deferred tax assets.


                                       26
<PAGE>

     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  condensed  consolidated
financial statements.

     REVENUE RECOGNITION

     We  recognize  revenue  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.

     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.

     INCOME 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 NOL 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  considered  more  likely  than not,  we will  record a  valuation
allowance against deferred tax assets.

     The  Company  has   recognized  a  net  deferred  tax  asset  of  $150,000.
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, 2005, the Company had net operating loss  carryforwards for federal
income tax purposes of  approximately  $3.1 million  available to offset  future
income which expire in 2018 through 2023.  Although  realization is not assured,
management  believes it is more likely than not that the recorded portion of the
deferred  tax asset  will be  realized.  The  amount of the  deferred  tax asset
considered realizable,  however, could be reduced if estimates of future taxable
income during the carryforward period are reduced. The Company has established a
valuation allowance of approximately $1.1 million as of December 31, 2005 due to
the  uncertainty  of  future   realization  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.

     GOODWILL

     We assess  goodwill  for  impairment  each June 30th or whenever  events or
changes in  circumstances  indicate that the carrying amount of an asset may not
be recoverable, in accordance with the provisions of SFAS No. 142, "Goodwill and
Other  Intangible  Assets." This statement  requires that long-lived  assets and


                                       27
<PAGE>

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.

     STOCK-BASED COMPENSATION

     Effective  January 1, 2006,  the  Company  adopted the  provisions  of FASB
Statement No. 123R ("SFAS 123R"), and applied the provisions of Staff Accounting
Bulletin  No.  107,  "Share-Based   Payment,"  using  the   modified-prospective
transition  method.  Compensation  expense  recognized  included  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
123R,  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 123.  Further,  as required under SFAS 123R,  forfeitures are estimated for
share-based awards that are not expected to vest. Results for prior periods have
not been restated, as provided for under the modified-prospective method.

     Prior to the  adoption  of SFAS 123R,  the  Company  adopted the fair value
recognition  provision of FASB Statement No. 123 ("SFAS 123"),  "Accounting  for
Stock-Based Compensation,"  prospectively,  to all employee awards granted on or
after  January 1, 2003,  pursuant to FASB  Statement  No. 148,  "Accounting  for
Stock-Based  Compensation - Transition and Disclosure." Under this election, the
Company has accounted for stock options  granted to employees  based on the fair
value of the options at the respective  grant dates utilizing the  Black-Scholes
model for estimating fair value and has recorded  compensation  over the vesting
period of the options.

     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
materially affect the Company's  results of operations,  it has no impact on the
cash  position.  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,  above  the  grant  price,  in the  market  price of the
Company's stock.  Such an increase in stock price would benefit all shareholders
commensurately.

     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 employee  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 plan to pay any dividends in the near future.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June  2006,  the FASB  issued  Interpretation  No. 48,  "Accounting  for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
48").  This  interpretation  clarifies the accounting for  uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with SFAS
No.  109,  "Accounting  for Income  Taxes."  This  Interpretation  prescribes  a
recognition  threshold and  measurement  attribute  for the financial  statement
recognition and measurement of a tax position taken or


                                       28
<PAGE>

expected to be taken in a tax return. This Interpretation also provides guidance
on derecognition,  classification, interest and penalties, accounting in interim
periods,  disclosure,  and  transition.  FIN 48 is  effective  for fiscal  years
beginning  after  December  15,  2006.  Although  we are  still  evaluating  the
potential  effects of FIN 48, we do not expect its  adoption  to have a material
impact on our financial position, results of operations, or cash flows.

     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.  Earlier adoption is encouraged,
provided  the company has not yet issued  financial  statements,  including  for
interim  periods,  for that fiscal year.  Although we are still  evaluating  the
potential  effects of this  standard,  we do not expect the adoption of SFAS No.
157 to have a material impact on our financial position,  results of operations,
or cash flows.

     In September  2006, the Securities and Exchange  Commission  released Staff
Accounting Bulletin No. 108,  "Quantifying  Financial  Statement  Misstatements"
("SAB No. 108"). SAB No. 108 gives guidance on how errors, built up over time in
the balance  sheet,  should be  considered  from a materiality  perspective  and
corrected.  SAB No. 108 provides interpretive guidance on how the effects of the
carryover  or  reversal  of prior year  misstatements  should be  considered  in
quantifying a current year misstatement.  SAB No. 108 represents the SEC Staff's
views  on the  proper  interpretation  of  existing  rules  and as  such  has no
effective  date. We do not expect the adoption of SAB No. 108 to have a material
impact on our financial position, results of operations, or cash flows.

     In  October  2006,  the FASB  issued  FASB  Staff  Position  No.  123(R)-5,
"Amendment of FASB Staff Position FAS 123(R)-1." The FSP amends FSP 123(R)-1 for
equity instruments that were originally issued as employee compensation and then
modified,  with such  modification made to the terms of the instrument solely to
reflect an equity  restructuring  that  occurs  when the  holders  are no longer
employees.  In  such  circumstances,   no  change  in  the  recognition  or  the
measurement  date of those  instruments  will  result  if both of the  following
conditions  are met:  a. There is no increase in fair value of the award (or the
ratio of intrinsic  value to the exercise price of the award is preserved,  that
is, the holder is made whole), or the antidilution provision is not added to the
terms of the  award in  contemplation  of an  equity  restructuring;  and b. All
holders of the same class of equity instruments (for example, stock options) are
treated in the same manner. The Company believes that FSP 123(R)-5 will not have
a material  impact on our financial  position,  results of  operations,  or cash
flows.


FACTORS THAT MAY AFFECT FORWARD-LOOKING STATEMENTS

     This  Quarterly  Report  on  Form  10-QSB  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 our strategic  direction,  as well as developments beyond
our 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 listed below, in this section  entitled  "Management's  Discussion
and Analysis of Financial Condition and Results of Operations," and elsewhere in
this report.  These factors,  among others,  may adversely impact and impair our
business and should be considered in evaluating our financial outlook.


                                       29
<PAGE>

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

     We are working toward a goal of revenue growth and sustained profitability.
Annual  revenues  increased to $15.8  million in 2005 from $15.2 million in 2004
and from $8.1 million for 2003. However,  during those years revenues quarter to
quarter  have  at  times  remained  flat.  Had it not  been  for  the  strategic
acquisition of the Ignition  assets in December 2003 and the acquisition of TRMS
in  October  2004,  revenue  growth  targets  year over year would not have been
achieved  in 2005 and the  likelihood  of  achieving  targets for 2006 much more
difficult.  Revenue  has been down each  quarter  in 2006  compared  to the same
quarter in the prior year  primarily due to a rising  interest rate  environment
and  decreasing  loan  origination  volumes  which has  negatively  impacted our
customer base. We had ten consecutive  quarters of profitability  beginning with
the third quarter of 2002 through the fourth quarter of 2004, but incurred a net
loss  for  each  of  the  first  two  quarters  of  2005  before   returning  to
profitability in the third and fourth quarters.  We have recorded a net loss for
the first three quarters of 2006.

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

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

     We  are  substantially  dependent  on the  continued  services  of our  key
personnel,  including our officers,  engineers and other significant  employees.
These individuals have acquired specialized knowledge and skills with respect to
LION. We are continuing to create the redundancies that will reduce the reliance
on  these  individuals.   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.  We provide stock options or restricted stock grants, which serve to
retain and motivate key employees as they become vested in their equity. We have
a flexible stock compensation  program which we believe will be important in our
ability 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.

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

     Our  success  depends  on our  ability to expand,  retain and  enhance  our
advanced  business  solution  customers.  Our expanded  product line through the
acquisition  of  Ignition  assets  and TRMS  carries  with it the risk  that our
revenues may be dependent on a limited number of significant  customers,  rather
than a broad-based broker and customer network.  Our larger customer  contracts,
which involve our LPX, Pipeline Tools and TRMS hedging services,  typically have
renewable  successive  one- and two-year  terms.  Revenue  from these  contracts
comprised  approximately  49% of our total  revenue for the first nine months of
2006.

     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.


                                       30
<PAGE>

OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

     We have  multiple  site  capacity for our products and services and 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 unexpected 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 continually  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 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

     Our  mortgage  pipeline  risk  management  services are provided by TRMS, a
Commodity  Trading  Advisor   registered  with  the  Commodity  Futures  Trading
Commission and the National Futures Association.  Commodity Trading Advisors are
subject to detailed disclosure,  reporting, and recordkeeping requirements.  The
U.S.  commodity  markets  are  subject to on-going  and  substantial  regulatory
changes,  and we cannot  predict  what  statutory,  administrative  or  exchange
imposed  restrictions  may become  applicable to or adversely affect TRMS in the
future.

     Our other operations are subject to general business  regulations and laws,
as  well as  regulations  and  laws  specifically  governing  the  Internet  and
e-commerce.  Existing and future laws and  regulations  may impede the growth of
the Internet or other online  services,  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


                                       31
<PAGE>

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.  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.

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,  we will be
required to furnish a report by our  management  on our  internal  control  over
financial  reporting  beginning  with our Annual  Report on Form  10-KSB for the
fiscal year ending  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 fiscal year ending December 31, 2008. Such a report will contain,  among
other matters,  an assessment of the  effectiveness of our internal control over
financial  reporting  as of the end of our fiscal  year.  This  assessment  must
include  disclosure  of any material  weaknesses  in our  internal  control over
financial  reporting  identified  by  management.  Our Annual  Report  must also
contain  a  report  that our  independent  auditors  have  issued  attesting  to
management's assessment of our internal controls.

     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 Auditing Standard No. 2
("Auditing  Standard  No. 2") provides the  professional  standards  and related
performance  guidance  for  auditors  to attest to, and report on,  management's
assessment of the  effectiveness  of internal  control over financial  reporting
under Section 404.  Management's  assessment of internal controls over financial
reporting  requires  management to make subjective  judgments and,  particularly
because  Standard No. 2 is newly  effective,  some of the  judgments


                                       32
<PAGE>

will be in areas that may be open to interpretation and therefore the report may
be  uniquely  difficult  to  prepare,  and  our  auditors  may  not  agree  with
management's  assessments.  We are  still  performing  the  system  and  process
documentation  and  evaluation  needed to comply with Section 404, which is both
costly and challenging.

     During this  process,  if our  management  identifies  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 as of December 31,
2007 (or if our  auditors are unable to attest that our  management's  report is
fairly stated or they are unable to express an opinion on the  effectiveness  of
our internal  controls at December 31, 2008), we could lose investor  confidence
in the accuracy and completeness of our financial  reports,  which would have an
adverse effect on our stock price.

     We cannot be  certain  as to the timing of  completion  of our  evaluation,
testing and any required remediation due in large part to the fact that there is
very little  precedent  available  by which to measure  compliance  with the new
Auditing  Standard  No. 2. If we are not able to complete our  assessment  under
Section 404 in a timely manner, we would be unable to conclude that our internal
control over financial reporting is effective as of December 31, 2007.

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(R),
Lockpoint(R),  and Ratesheet Plus(R) and one pending patent; "User Interface for
On-line Real Estate Service."

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

     Although we believe that our trademarks and  proprietary  technology do not
and will not infringe  patents or violate  proprietary  rights of others,  it is
possible  that our  trademark  and  proprietary  rights may not be valid or that
other parties may claim that we infringed their proprietary rights. In the event
our products infringe proprietary rights of others, we may be required to modify
the design of our  products,  change the name of  products  or obtain a license.
There  can be no  assurance  we will be able to do so in a timely  manner,  upon
acceptable  terms  and  conditions,  or at  all.  The  failure  to do any of the
foregoing could have a material  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.


                                       33
<PAGE>

ALLIANCES,  MERGERS AND  ACQUISITIONS  COULD RESULT IN  OPERATING  DIFFICULTIES,
DILUTION AND OTHER HARMFUL CONSEQUENCES.

     Our industry has experienced  significant  consolidation,  and we regularly
review  and  evaluate  strategic   opportunities,   including  those  identified
internally  by us as well  as  unsolicited  third  party  proposals  that we may
receive from time to time. We may engage in discussions  seeking ways to enhance
our prospects through partnerships,  alliances and mergers and acquisitions.  In
the last couple of years, for example, we have consummated two acquisitions.  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.  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:

     o    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.

     o    Diversion of management  time and focus from operating our business to
          alliance, merger or acquisition integration challenges.

     o    Cultural  challenges  associated with  integrating  employees from the
          acquired company into the acquiring organization.

     o    Retaining employees from the businesses acquired.

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

     The anticipated  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:

     o    Quarterly  variations  in our  results of  operations  or those of our
          competitors.

     o    Announcements  by us or our  competitors  of strategic  relationships,
          alliances,   mergers  or  acquisitions,   new  products,   significant
          contracts, commercial relationships or capital commitments.


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<PAGE>

     o    Disruption to our operations or our data centers.

     o    The emergence of new sales  channels in which we are unable to compete
          effectively.

     o    Our  ability to develop  and market  new and  enhanced  products  on a
          timely basis.

     o    Commencement of, or our involvement in, litigation.

     o    Any major change in our board or management.

     o    Changes in governmental regulations or in the status of our regulatory
          approvals.

     o    Recommendations   by  securities   analysts  or  changes  in  earnings
          estimates.

     o    Announcements  by our  competitors  of their  earnings that are not in
          line with analyst expectations.

     o    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.

ITEM 3.      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) Changes in internal control over financial reporting.

     We are assessing the  effectiveness of our internal controls over financial
reporting on an account by account  basis as a part of our  on-going  accounting
and financial  reporting  review  process in order to comply with Section 404 of
the  Sarbanes-Oxley  Act of 2002,  which  requires our  management to assess the
effectiveness  of our  existing  internal  controls  for the  fiscal  year ended
December 31, 2007.  This effort includes  documenting,  evaluating the design of
and testing the effectiveness of our internal controls over financial reporting.
We intend to continue to refine and improve our internal  controls on an ongoing
basis.  During this process, we may identify items for review or deficiencies in
our system of  internal  controls  over  financial  reporting  that may  require
strengthening or remediation.

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


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                           PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS

EXHIBIT
NUMBER    DESCRIPTION

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


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<PAGE>


                                   SIGNATURES

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


                                   LION, INC.
                                  (Registrant)

      Date: NOVEMBER 14, 2006                 By:      /s/ RANDALL D. MILES
            -----------------                          --------------------
                                                       Randall D. Miles
                                                       Chief Executive Officer


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