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



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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002


                         COMMISSION FILE NUMBER 0-25159

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

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

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

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

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

     As of November 6, 2002,  approximately  31,468,478  shares of the Company's
common stock were outstanding.

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                                   LION, Inc.
                                  Form 10 - QSB
                    For the Quarter Ended September 30, 2002


                                                                           PAGE
                                                                          NUMBER
                                      INDEX

PART I         FINANCIAL INFORMATION

Item 1         Financial Statements

               Balance Sheets at September 30, 2002 (unaudited) and
               December 31, 2001                                               3

               Statements of Operations for the three and nine month
               periods ended September 30, 2002 and 2001 (unaudited)           4

               Statements of Cash Flows for the nine months ended
               September 30, 2002 and 2001 (unaudited)                         5

               Notes to Financial Statements                                   6

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

Item 3         Controls and Procedures                                        21

PART II        OTHER INFORMATION

Item 1         Legal Proceedings                                              21

Item 2         Changes in Securities and Use of Proceeds                      22

Item 5         Other Information                                              22

Item 6         Exhibits and Reports on Form 8 - K                             22

               Signatures                                                     23

                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                                   LION, Inc.
                                 BALANCE SHEETS

                                     ASSETS

                                                    September 30,
                                                         2002       December 31,
                                                     (Unaudited)        2001
                                                     -----------    -----------

CURRENT ASSETS
  Cash and cash equivalents                          $   347,794    $   480,910
  Accounts receivable, less allowance for
    doubtful accounts of $59,000 and
    $58,000 in 2002 and 2001, respectively               358,610        363,168
  Prepaid expenses and other                              84,872         72,579
                                                     -----------    -----------

       Total current assets                              791,276        916,657

PROPERTY AND EQUIPMENT - net                             909,138        875,807

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

                                                     $ 2,007,391    $ 2,099,441
                                                     ===========    ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                   $   183,470    $   129,240
  Accrued liabilities                                    416,775        327,616
  Deferred revenue                                       274,367        277,449
                                                     -----------    -----------

       Total current liabilities                         874,612        734,305

LONG-TERM OBLIGATIONS, less current maturities            33,144         51,325

COMMITMENTS AND CONTINGENCIES                                 --             --

STOCKHOLDERS' EQUITY
  Preferred stock - authorized, 5,000,000 shares
    of $.001 par value, liquidation value $900,000         1,500          1,500
  Common stock - authorized, 50,000,000 shares
    of $.001 par value                                    31,413         31,027
  Additional contributed capital                      11,752,329     11,716,622
  Notes receivable from stockholders                     (21,250)       (21,250)
  Accumulated deficit                                (10,664,357)   (10,414,088)
                                                     -----------    -----------
                                                       1,099,635      1,313,811
                                                     -----------    -----------

                                                     $ 2,007,391    $ 2,099,441
                                                     ===========    ===========


The accompanying notes are an integral part of these statements.

                                       3
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                                   LION, Inc.

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                  Three months ended        Nine months ended
                                     September 30,            September 30,
                                ----------------------   ----------------------
                                   2002        2001         2002        2001
                                ----------  ----------   ----------  ----------

Revenues                        $1,628,238  $1,492,828   $4,745,514  $4,547,159

Expenses
  Direct costs                     293,392     281,689      749,362     802,754
  Selling and marketing            452,907     384,671    1,369,976   1,305,336
  General and administrative       536,048     612,154    1,878,030   1,841,927
  Research and development          67,321      50,411      238,520     154,274
  Depreciation and amortization    120,644     121,079      363,328     367,612
                                ----------  ----------   ----------  ----------
                                 1,470,312   1,450,004    4,599,216   4,471,903
                                ----------  ----------   ----------  ----------

      Operating income             157,926      42,824      146,298      75,256

Other income (expense)
  Interest expense                  (2,599)       (694)      (8,677)     (2,009)
  Interest income                      134         978        1,870       2,345
  Other income                          --          --          240       5,740
  Other expense                    (40,000)     (8,926)    (390,000)    (11,467)
                                ----------  ----------   ----------  ----------

      NET INCOME (LOSS)         $  115,461  $   34,182   $ (250,269) $   69,865
                                ==========  ==========   ==========  ==========

Net income (loss) per common
  share, basic and diluted      $       --  $       --   $     (.01) $       --
                                ==========  ==========   ==========  ==========


The accompanying notes are an integral part of these statements.

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                                   LION, Inc.

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                             Nine months ended
                                                               September 30,
                                                            -------------------
                                                              2002       2001
                                                            --------   --------
Cash flows from operating activities
  Net income (loss)                                         $(250,269) $ 69,865
  Adjustments to reconcile net loss to net cash provided
    by operating activities
      Depreciation and amortization                          363,328    367,612
      Write off of capitalized software development costs     10,436         --
      Stock options issued for services received               6,031     15,536
      Common stock issued in lieu of cash compensation        29,162     13,500
      Changes in assets and liabilities
         Accounts receivable                                   4,558     10,395
         Prepaid expenses and other                          (12,293)    (3,675)
         Accounts payable                                     54,230    (72,021)
         Accrued liabilities                                 118,463    (35,097)
         Deferred revenue                                     (3,082)   (47,585)
         Other assets                                             --     10,342
                                                            --------   --------

             Net cash provided by operating activities       320,564    328,872

Cash flows from investing activities
  Capitalized software development costs                    (286,213)  (180,997)
  Purchase of property and equipment                        (120,882)   (78,545)
                                                            --------   --------

             Net cash used in investing activities          (407,095)  (259,542)

Cash flows from financing activities
  Payments on notes payable and long-term obligations        (47,485)        --
  Proceeds from issuance of common stock and exercise
    of stock options                                             900    177,550
                                                            --------   --------

             Net cash (used in) provided by
               financing activities                          (46,585)   177,550
                                                            --------   --------

Net (decrease) increase in cash and cash equivalents        (133,116)   246,880

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

Cash and cash equivalents at end of period                  $347,794   $364,134
                                                            ========   ========


Supplemental non-cash investing and financing activities:
  Common stock returned for cancellation of
    notes receivable                                        $     --   $969,375
  Exercise of stock options by notes receivable             $     --   $ 21,250


The accompanying notes are an integral part of these statements.

                                       5
<PAGE>


                                   LION, Inc.

                                  Form 10 - QSB

                          NOTES TO FINANCIAL STATEMENTS


NOTE 1.   FINANCIAL STATEMENTS

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


NOTE 2.   LOSS PER SHARE

     Basic net income (loss) per common share is based on the income available
to common stockholders compared to the average number of shares outstanding
during each period. The weighted average number of common shares outstanding
were 31,175,694 and 30,592,491 for the nine months ended September 30, 2002 and
2001, respectively, and 31,342,701 and 30,796,978 for the three months ended
September 30, 2002 and 2001, respectively. The computation for net income (loss)
per common share assuming dilution for the nine and three month periods ended
September 30, 2002 and 2001 was anti-dilutive, and therefore, is not included.


NOTE 3.   CONTINGENCIES

     A jury trial was completed on May 31, 2002, in a matter initiated by Billy
Anders, a former director of LION (BILLY R. ANDERS V. PLENUM COMMUNICATIONS,
INC, A MINNESOTA CORPORATION, ALLEN RINGER, AND THE MARITAL COMMUNITY OF ALLEN
RINGER AND JANE DOE RINGER filed in the Spokane County Superior Court, Case No.
00-207342-3). Prior to the conclusion of the trial, Mr. Anders' claims of
negligent misrepresentation and racial discrimination on the basis of disparate
treatment and retaliation were dismissed. In addition, the Company's
counterclaims against Mr. Anders were also dismissed. The jury found there was a
breach of an oral contract and an intentional misrepresentation made to Mr.
Anders by Allen Ringer, the former President, acting on behalf of the Company,
and awarded plaintiff $357,000 in damages. The judgment, which was recorded in
Other Expense in the second quarter of 2002, was settled in lieu of an appeal
for a payment totaling $340,000 in early July 2002. The Company is currently
pursuing reimbursement from its insurance carriers for coverage on the judgment
and its defense costs as incurred. If negotiations fail, the Company is
reviewing a separate action seeking coverage by its insurance carriers.

     In June 2001, the Company received notification from the Business Software
Alliance (the "BSA"), an organization representing certain members of the
software industry, regarding the presence of unlicensed software products at the
Company. The Company conducted a voluntary audit and corrective actions were
taken. In November 2002, the Company agreed to settle with the BSA for

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<PAGE>


compensation of past software licensing infringements and penalties in the
amount of $50,000. As of September 30, 2002, the settlement amount has been
fully accrued in Other Expense and is payable in full by December 31, 2002.

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


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

     The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the related Notes included elsewhere in this document. Any
statistical information provided in this report is as of September 30, 2002
unless otherwise noted.

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


OVERVIEW

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

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

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<PAGE>


LION PRODUCTS AND SERVICES AND RELATED REVENUES

     LION currently generates revenues through primarily three distinct
categories; membership, marketing and technology. A majority of the underlying
customer base is comprised of mortgage companies that either directly originate
loans from consumers ("Originators") or provide lending services and funds for
the mortgage originators ("Lenders").

MEMBERSHIP FEES

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

     First, LION Pro consists of LION Loan Search, LoanLink, News Now and
Ratesheets on Demand. Through this product, we provide wholesale mortgage rate,
fee, and program information through our LION Pro information service to
approximately 4,400 mortgage brokers nationwide. LION Loan Search provides the
key feature to this password-protected service by allowing easy access to our
extensive lender database. This database is updated daily in 77 regions in the
country. During the third quarter, lender participation increased from 86 to 108
participating lenders. The database has also grown from approximately 25,000 to
approximately 34,000 loan programs.

     The Company has developed its first version of an office-based LION Pro
product known as LION Pro Office. This product will provide productivity tools
offering multi-user agreements combined with a private database that
incorporates the brokers' lenders, new loan program search parameters and other
management tools. Four large companies have signed multi-user agreements so far
in 2002. The Company has completed private databases for 2 of these companies
and anticipates completing the other two during the fourth quarter. The private
databases for LION Pro Office have grown to approximately 13,000 loan programs.
LION Pro Office customers not only see their own lenders and loan programs but
also have access to the LION Pro database which gives them overall access up to
121 participating lenders totaling nearly 48,000 loan programs.

     Beginning approximately January 2003, the Company will migrate LION Pro
users to an "individual" version of LION Pro Office. LION Pro users will be
given the choice of staying with the old version of LION Pro or converting to
the "individual" version of LION Pro Office.

     The second product in the membership category is Mortgage 101, consisting
of hundreds of mortgage information pages, interactive calculators, live
interest rates displayed from LION's Multi-Lender Rate Feed, prequalification
and application tools, and back-end rate and lead management tools. This service
is provided to over 2,900 mortgage brokers nationwide. LION recently completed
producing a Spanish translation of Mortgage101.com, located at Hipoteca101.com,
and has partnered with a large national origination organization to provide
mortgage services for this website.

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

MARKETING FEES

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

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Originators visit the LionInc.com web site to check daily wholesale rates,
submit loans, and access mortgage specific news and content. Wholesale lenders
and industry vendors pay marketing fees for ad banners, web site promotion, and
lead generation.

     Traffic ranging from approximately 900,000 to over 1,000,000 unique
visitors in the third quarter was fed by (i) over 15,500 co-branded electronic
mortgage centers that have been established for realtors, real estate offices,
relocation sites, associations, and city portals, and (ii) over 2,000 mortgage
companies that have their web sites hosted by LION. LION is continuing to
improve its profiling, filtering and routing of leads to mortgage originators to
take advantage of this increased traffic in its marketplace.

     During the third quarter, LION completed the first phase of its alliance
with IMX, Inc. As a result, LION now offers the IMX broker approval, online loan
program and product discovery, real-time pricing engine and lock process to
LION's member brokers, as well as introduces the IMX Exchange(R) technology to
its network of active wholesale lenders.

TECHNOLOGY FEES

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

NEW STRATEGIC ALLIANCES

     During the fourth quarter of 2001, the Company developed a plan to enhance
and broaden its existing core of products and services. The plan included
internal research and development projects along with a search for potential
alliance partners with "best of breed" products and services. In addition, the
plan includes a migration to a performance- or transaction-based model so that
the Company can take advantage of cyclical changes in mortgage industry loan
volumes. As of November 14, 2002, the following partnerships are in place and in
various stages of integration with the LION marketplace.

     In April 2002, LION and IMX, Inc. signed a strategic alliance agreement to
incorporate IMX Exchange(R) technology and its participating lenders and brokers
into the LION marketplace. IMX Exchange(R) is a loan program and price discovery
engine that provides online rate lock and file submission between mortgage
brokers and wholesale lenders. The IMX Exchange(R) was integrated and launched
into the LION marketplace in June 2002. IMX employs LION's established
distribution channels, client service and online marketplace to support and
market to the approximately 2,800 broker companies that currently use IMX
Exchange(R). See also "Marketing fees" above.

     In October 2002, LION and ABC Virtual Communications, Inc. signed a joint
marketing and technology license agreement that empowers LION to deliver ABC
Virtual's unique loan origination software, ECLoanPro, to its network of
mortgage originators and lenders. ECLoanPro is a revolutionary straight-through
processing software system that leverages the Internet and wireless devices to
allow origination teams to easily prospect and process mortgage loans. With
ECLoanPro, originators are empowered to access and share files with others
anytime, anywhere, without having to re-key data, and without traditional
hardware and software expenses. Beginning in the fourth quarter

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of 2002, LION will offer ABC Virtual's software to its marketplace network of
customers and members. Through this partnership LION will be able to offer a
complete "lead to loan" package that will begin to streamline the entire loan
process for its members by bundling the software with its online advertising,
lead generation, web site and membership services.

     In November 2002, LION and LoanRover Decision Systems, Inc. ("LDS") signed
a strategic alliance agreement that empowers LION to deliver LDS's subprime
decision engine, LoanRover(R), to its network of mortgage originators and
lenders. LoanRover(R)'s advanced technology should create substantial
efficiencies for subprime brokers and lenders. The LoanRover(R) multi-lender
decision engine will enable LION members to submit a file and receive instantly
priced, conditional loan approvals from the nations top subprime lenders.
Beginning first quarter of 2003, LION will offer the LoanRover(R) functionality
to its marketplace network of customers and members. In addition, LION will
introduce LoanRover(R) as a private label underwriting engine to the nation's
wholesale and retail lending institutions.


RESULTS OF OPERATIONS

     The net loss for the nine-month period in 2002, which included a one-time
settlement charge of $340,000 related to the judgment from the Billy Anders
litigation, was approximately $250,000 compared to net income of $70,000 for the
same period in the prior year. Excluding the settlement charge and related legal
expenses, LION would have reported net income of approximately $397,000 for the
nine-month period ended September 30, 2002 compared to net income of $97,000 for
the same period in the prior year. The results for the nine months ended
September 30, 2002 include a settlement charge related to past software
licensing infringements and penalties in the amount of $50,000.

     Net income for the quarter was $115,000 as compared to net income of
$34,000 for the same quarter in the prior year. Excluding legal expenses related
to the Anders litigation, LION would have reported net income of approximately
$130,000 for the third quarter of 2002 compared to net income of $45,000 for the
third quarter of 2001. The results for the three months ended September 30, 2002
included a settlement charge related to past software licensing infringements
and penalties in the amount of $40,000.

     At the beginning of 2002, the Company implemented SFAS No. 142 which
eliminates the amortization of goodwill and requires periodic review for
potential impairment. Amortization expense totaling $85,020 and $28,340 was
included in the operating results for the nine and three month periods ended
September 30, 2001. No amortization expense for goodwill has been recorded in
2002.


REVENUES

NINE MONTHS ENDED SEPTEMBER 30, 2002:

     Revenues increased to $4,745,514 from $4,547,159 for the nine months ended
September 30, 2002 and 2001, respectively. This represents an increase of
$198,355 or 4%. Total revenues of $4,745,514 for the nine months ended September
30, 2002 were comprised of mortgage broker fees of $3,990,472 or 84% and lender
fees of $755,042 or 16%. Total revenues of $4,547,159 for the nine months ended
September 30, 2001 were comprised of mortgage broker fees of $3,563,142 or 78%
and lender fees of $984,017 or 22%.

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     Fees from mortgage brokers increased to $3,990,472 from $3,563,142 for the
nine months ended September 30, 2002 and 2001, respectively. This represents an
increase of $427,330 or 12%. The increase was due primarily to growth in
membership fees (LION Pro, Mortgage 101 and Free Dot Com) totaling $35,271,
marketing fees (lead generation and advertising) totaling $265,631, and
technology fees (website development and hosting) totaling $126,462 which were
offset by minor reductions in other transaction-based fees.

     Fees from lenders decreased to $755,042 from $984,017 for 2002 and 2001,
respectively. This represents a decrease of $228,975 or 23%. The decrease was
due to decreases in marketing fees (lead generation and advertising) totaling
$77,054, technology fees (website development and hosting) totaling $141,906 and
transaction-based fees (automated underwriting and other) totaling $10,015.

THREE MONTHS ENDED SEPTEMBER 30, 2002:

     Revenues increased to $1,628,238 from $1,492,828 for the three months ended
September 30, 2002 and 2001, respectively. This represents an increase of
$135,410 or 9%. Total revenues of $1,628,238 for the three months ended
September 30, 2002 were comprised of mortgage broker fees of $1,368,083 or 84%
and lender fees of $260,155 or 16%. Total revenues of $1,492,828 for the three
months ended September 30, 2001 were comprised of mortgage broker fees of
$1,193,463 or 80% and lender fees of $299,365 or 20%.

     Fees from mortgage brokers increased to $1,368,083 from $1,193,463 for the
three months ended September 30, 2002 and 2001, respectively. This represents an
increase of $174,620 or 15%. The increase was primarily due to growth in
membership fees (LION Pro, Mortgage 101 and Free Dot Com) totaling $12,986,
marketing fees (lead generation and advertising) totaling $125,488, and
technology fees (website development and hosting) totaling $33,864. The amount
of and change in broker transaction-based fees was insignificant.

     Fees from lenders decreased to $260,155 from $299,365 for the three months
ended September 30, 2002 and 2001, respectively. This represents a decrease of
$39,210 or 13%. The decrease was primarily due to decreases in marketing fees
(lead generation and advertising) totaling $19,732, technology fees (website
development and hosting) totaling $18,718 and transaction-based fees (automated
underwriting and other) totaling $760.


DIRECT COSTS

     Direct costs are comprised primarily of web site development, technology
infrastructure support, project management, quality control, and salaries
related to the daily updates to rates, fees, and other loan program information
in the mortgage lender database. Direct costs decreased to $749,362 from
$802,754 for the nine months ended September 30, 2002 and 2001, respectively.
This represents a decrease of $53,392 or 7%. Direct costs as a percentage of
revenues decreased to 16% from 18% for 2002 and 2001, respectively. The decrease
is due to (i) LoanCat projects not requiring the same level of fulfillment
resources in the first nine months of 2002 as compared to the same period in the
prior year and (ii) the redeployment of infrastructure resources beginning in
the fourth quarter of 2001 to research and development efforts on new product
initiatives. This decrease was offset by an increase in project management,
quality control and database support functions throughout the Company.

     Direct costs increased to $293,392 from $281,689 for the three months ended
September 30, 2002 and 2001, respectively. This represents an increase of
$11,703 or 4%. Direct costs as a

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percentage of revenues decreased to 18% from 19% for 2002 and 2001,
respectively. The increase is due primarily to (i) the addition of database
support resources related to the development and maintenance of private lender
databases for 4 large mortgage companies and (ii) additional telecommunications
and Internet support costs. These costs are expected to grow in the coming
quarters as the Company launches new products and services.


SELLING AND MARKETING

     Marketing and selling expenses are comprised of marketing and advertising
costs, sales salaries and related support costs. Marketing and selling expenses
increased to $1,369,976 from $1,305,336 for the nine months ended September 30,
2002 and 2001, respectively. This represents an increase of $64,640 or 5%. These
expenses as a percentage of revenues were 29% for both nine month periods ended
September 30, 2002 and 2001. The increase is due to growth in the commissioned
broker sales force, increased advertising costs for lead generation and greater
participation in trade shows. The increase was offset by a reduction in
occupancy costs due to better leasing arrangements for the Company's corporate
headquarters.

     Marketing and selling expenses increased to $452,907 from $384,671 for the
three months ended September 30, 2002 and 2001, respectively. This represents an
increase of $68,236 or 18%. These expenses as a percentage of revenues were 28%
and 26% for the three months ended September 30, 2002 and 2001, respectively.
The increase is due to the same reasons as noted in the paragraph above for the
nine month period.


GENERAL AND ADMINISTRATIVE

     General and administrative expenses are comprised of management and
administrative salaries and related costs, legal and audit fees, outside
consulting services, telecommunications expenses, occupancy costs, and other
administrative related expenses. General and administrative expenses increased
to $1,878,030 from $1,841,927 for the nine months ended September 30, 2002 and
2001, respectively. This represents an increase of $36,103 or 2%. General and
administrative expenses as a percentage of revenues were 40% and 41% for the
nine months ended September 30, 2002 and 2001, respectively. The increase in
costs was due primarily to legal fees related to the Billy Anders litigation
which was offset by a reduction in rent expense due to the move to the new
corporate headquarters in Seattle from Renton, telephone costs due to beneficial
contract changes, improvement in bad debt experience, and the reallocation of
resources to research and development and direct costs.

     General and administrative expenses decreased to $536,048 from $612,154 for
the three months ended September 30, 2002 and 2001, respectively. This
represents a decrease of $76,106 or 12%. General and administrative expenses as
a percentage of revenues were 33% and 41% for the three months ended September
30, 2002 and 2001, respectively. The decrease in costs was due primarily to (i)
a reallocation of resources to research and development and direct costs and
(ii) an improvement in bad debt experience. This increase was offset by legal
expenses related to the development of contracts with alliance partners and
advisory and investment banking services.

                                       12
<PAGE>


RESEARCH AND DEVELOPMENT

     Research and development expenses are comprised primarily of engineering
salaries and related costs. Research and development expenses increased to
$238,520 from $154,274 for the nine months ended September 30, 2002 and 2001,
respectively. This represents an increase of $84,246 or 55%. Research and
development expenses as a percentage of revenues increased to 5% from 3% for the
nine months ended September 30, 2002 and 2001, respectively. The increase is
primarily due to the reallocation of fulfillment, infrastructure and
administrative personnel to the research and development function to work on
three major initiatives for 2002; enhancement of core online services for
brokers, the conversion of consumer traffic into high-value business generation,
and new online management tools for lenders.

     Research and development expenses increased to $67,321 from $50,411 for the
three months ended September 30, 2002 and 2001, respectively. This represents an
increase of $16,910 or 34%. Research and development expenses as a percentage of
revenues increased to 4% from 3% for the three months ended September 30, 2002
and 2001, respectively. The increase is primarily due to the same reasons as
noted in the paragraph above for the nine month period.


DEPRECIATION AND AMORTIZATION

     Depreciation and amortization expense decreased to $363,328 from $367,612
for the nine months ended September 30, 2002 and 2001, respectively. This
represents a decrease of $4,284 or 1%. The decrease was due to the
implementation of SFAS No. 142 at the beginning of 2002 which eliminated the
amortization of goodwill. Amortization of goodwill during the nine months ended
June 30, 2001 that did not recur in the same period in 2002 amounted to $85,020.
This reduction in 2002 was offset by additional depreciation on new fixed asset
additions and amortization of internally developed software.

     Depreciation and amortization expense decreased to $120,644 from $121,079
for the three months ended September 30, 2002 and 2001, respectively. This
represents a decrease of $435 or less than 1%. The decrease was due to the
implementation of SFAS No. 142 which eliminates the amortization of goodwill.
Amortization during the third quarter of 2001 that did not recur in the same
period in 2002 amounted to $28,340. This decrease was offset by additional
depreciation related to new fixed assets and internally developed software.


OTHER EXPENSE

     Other expense totaling $390,000 for the nine months ended September 30,
2002 includes the $340,000 settlement related to the Billy Anders litigation and
$50,000 settlement related to past software licensing infringements and
penalties. See "NOTE 3. CONTINGENCIES" above.


LIQUIDITY AND CAPITAL RESOURCES

RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 2002:

     During the first nine months of 2002, the Company primarily funded its
activities through operations. At September 30, 2002, we had approximately
$348,000 in cash and cash equivalents.

                                       13
<PAGE>


     During the nine months ended September 30, 2002, operating activities
provided net cash of $320,564 compared to $328,872 for the same period in the
prior year. The net cash provided by operating activities for the nine months
ended September 30, 2002 was primarily attributable to (i) revenue growth,
primarily from our mortgage broker customers, (ii) improved bad debt experience,
(iii) a reduction in occupancy costs and other related costs due to moving the
company headquarters to a smaller, more efficient location in Seattle, and (iv)
a reduction in telephone costs due to beneficial contract changes. The increase
was offset by (i) the funding of legal expenses related to the Billy Anders
trial and (ii) the judgment resulting from the trial which was paid in early
July 2002 totaling $340,000. The net cash provided by operating activities for
the nine months ended September 30, 2001, was primarily attributable to
efficiencies gained from (i) the merger of the parent and subsidiary companies,
(ii) the closure of the Spokane sales office (iii) the consolidation of all
originator sales functions in the Denver sales office and (iv) the
reorganization of the engineering department. These cost savings were offset by
payments on accounts payable and other accrued liabilities.

     During the nine months ended September 30, 2002, we used net cash of
$407,095 for our investing activities which was primarily for (i) the
capitalized portion of software development costs related to the Company's three
initiatives; enhancement of core online services for brokers, the conversion of
consumer traffic into high-value business generation, and new online management
tools for lenders and (ii) upgrades to hardware and software for the data center
that delivers the Company's products and services. During the nine months ended
September 30, 2001, we used net cash of $259,542 for our investing activities
which was primarily for the capitalized portion of our software development
costs related to (i) our migration to a new data base platform, (ii) additional
solutions to automated underwriting submissions, and (iii) upgrades to internal
reporting systems.

     During the nine months ended September 30, 2002, the net use of cash for
financing activities was $46,585. Cash used was primarily related to notes
payable on the acquisition of application and database software for the
Company's data center. During the nine months ended September 30, 2001, net cash
proceeds from financing activities were $177,550. Proceeds received from
financing activities were primarily the result of a private placement of the
Company's common stock totaling $175,000.


2002/2003 PLANS:

     The Company is continuing to implement its business plan which includes
enhancing core products and services through internal research and development
projects and strategic alliances with companies providing "best of breed"
products and services. In addition, the Company plans to move to a blend of its
existing business model combined with a performance- or transaction-based model
which will allow the Company to take advantage of cyclical swings in mortgage
loan volumes. We will be focusing our resources on the following:

   o Completing, launching and enhancing the office-based version of LION Pro
     for LION's existing membership with advanced connectivity to lenders,
     private lender pricing databases and multi-user management tools.

   o Increasing lender participation in LION's program and pricing database.

   o Improving the conversion of consumer traffic into high-value lead
     generation through better profiling, filtering and routing processes.

                                       14
<PAGE>


   o Integrating strategic alliances into the LION marketplace; the IMX
     Exchange(R) loan program and price discovery engine with online rate lock
     and file submission functionality, the ECLoanPro loan origination software
     and the LoanRover(R) multi-lender subprime decision engine. See a more
     detailed discussion above under the caption "New strategic alliances" on
     page 9.

     To ensure operational success of our plans for the remainder of 2002 and
into 2003, the Company expects to make greater investments in marketing,
personnel, and professional services. In addition, the Company will pay the
$50,000 software licensing infringement settlement with the BSA by December 31,
2002 referred to in "Note 3 - CONTINGENCIES" to the financial statements. It is
management's belief that working capital from operations will be adequate to
fund the Company's initiatives, integration of strategic alliances and
settlement of licensing issues. During the first part of 2002, we were able to
fund our initiatives from operations. In addition, not including the judgment
from the Anders litigation that totaled $340,000 in July, the Company has been
able to grow its cash balance each quarter along with achieving profitability
for the third quarter of 2002. We further anticipate being profitable in the
fourth quarter of 2002 and all of 2003.


RISK FACTORS

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


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

     We are working toward a goal of sustained profitability and took several
important steps during 2001 by merging our subsidiary with LION, reorganizing
our senior management team, and consolidating our originator sales and service
operations. During the first nine months of 2002, we moved forward with (i) our
three major initiatives; enhancement of core online services for brokers, the
conversion of consumer traffic into high-value business generation, and new
online management tools for lenders and (ii) our strategic alliances with IMX,
Inc. (incorporating the IMX Exchange(R) technology and its participating brokers
and lenders into the LION marketplace), ABC Virtual Communications, Inc. (joint
marketing and licensing agreement that empowers LION to deliver ABC Virtual's
unique loan origination software, ECLoanPro, to LION's network of mortgage
originators and lenders) and LoanRover Decision Systems, Inc. (integration of a
multi-lender subprime decision engine to LION's members). All of these
initiatives and alliances are in various stages of integration with the
Company's operations.

     Annual revenues have remained flat at $6,010,604 and $6,115,316 for 2001
and 2000, respectively. Revenues for the nine-month period ended September 30,
2002 increased to $4,745,514 compared to $4,547,159 for the same period in the
prior year. The growth has come primarily from improvements to existing core
products and services. The potential growth in revenues related to our
initiatives and strategic alliances will not materially impact operations until
early 2003. This assumes the initiatives and alliances achieve market
acceptance.

                                       15
<PAGE>


     We did achieve profitability for the second and third quarters of 2001, and
net income for the year was $41,568 compared to a net loss of $1,243,290 in
2000. The loss for first quarter 2002 totaling $40,896 was anticipated and the
loss for second quarter was $324,834 which included the unanticipated Anders
litigation settlement totaling $340,000. While the third quarter of 2002 was
profitable at $115,461 and the fourth quarter is anticipated to show a profit
also, it does not appear that the Company will show a profit for the year.

     We currently anticipate that 2003 will be a profitable year, however our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in new and rapidly evolving markets,
including uncertainty of revenues, markets, profitability and the need to raise
capital to fund our ongoing operations. We cannot assure you that we will be
successful in addressing these risks or that we can be operated profitably,
which depends on many factors, including the success of our marketing program,
the control of expense levels and the success of our business activities. Our
future operating results will depend on a variety of factors, including those
discussed in the other risk factors set forth below.


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

     Our existing working capital is not sufficient to allow us to execute our
business plan as fast as we would like. We are planning to fund internally the
development and implementation of our three initiatives and new strategic
alliances through funds generated from Company operations.

     While the Company did grow its cash reserves during the first and second
quarters of 2002, we had to pay out $340,000 in early July 2002 related to the
judgment on the Anders lawsuit. In addition, prior to December 31, 2002, we will
be required to pay $50,000 as part of our settlement related to past software
licensing infringements and penalties. We will continue to grow our cash
reserves and fund the development and implementation of our plans through
operations, but additional resources are needed to grow at our desired pace. If
we are unable to obtain adequate capital financing through equity or other
financings, we may not be able to successfully implement our short-term or
long-term plans for expansion or to meet our working capital requirements.
However, even if we succeed in our business plans, we may experience rapid
growth requiring additional funds to expand our operations and organization.

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

                                       16
<PAGE>


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

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

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


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

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

     Much of the architecture that we employ was designed for our original
business model. In the future, we may be required to make significant changes to
our architecture, including moving to a completely new architecture. If we are
required to switch architectures, we may incur substantial costs and experience
delays or interruptions in our service. If we experience delays or interruptions
in our

                                       17
<PAGE>


service due to inadequacies in our current architecture or as a result of a
change in architectures, users may become dissatisfied with our service and move
to competing providers of online services. Further, to the extent that demand
for our services increases, we will need to expand our infrastructure, including
the capacity of our hardware servers and the sophistication of our software.
This expansion is likely to be expensive, complex, and require additional
technical expertise. Any loss of traffic, increased costs, inefficiencies or
failures to adapt to new technologies and the associated adjustments to our
architecture would have a material adverse effect on our business.


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

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


OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

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

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

                                       18
<PAGE>


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


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

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


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

     The trading price of our common stock has been and may continue to be
subject to wide fluctuations. During 2001, the closing sale prices of our common
stock on the OTC Bulletin Board ranged from $.17 to $.05 per share and the sale
price of our common stock closed at $.065 per share on November 6, 2002. Our
stock price may fluctuate in response to a number of events and factors, such as
quarterly variations in operating results, announcements of technological
innovations or new products by us or our competitors, changes in financial
estimates and recommendations by securities analysts, the operating and stock
price performance of other companies that investors may deem comparable, and
news reports relating to trends in our markets. In addition, the stock market in
general, and the market prices for Internet-related companies in particular,
have experienced extreme volatility that often has been unrelated to the
operating performance of these companies. These broad market and industry
fluctuations may adversely affect the price of our stock, regardless of our
operating performance.

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

                                       19
<PAGE>


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

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


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

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


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

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

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

                                       20
<PAGE>


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


ITEM 3.   CONTROLS AND PROCEDURES

     Within 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information required to be included in our periodic
SEC reports. It should be noted that the design of any system of controls is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions, regardless of how remote.

     In addition, we reviewed our internal controls, and there have been no
significant changes in our internal controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation.


                           PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

     As discussed in our Form 8-K previously filed on June 6, 2002, a jury trial
was completed on May 31, 2002, in the matter initiated by Billy Anders, a former
director of LION (Billy R. Anders v. Plenum Communications, Inc, a Minnesota
corporation, Allen Ringer, and the marital community of Allen Ringer and Jane
Doe Ringer filed in the Spokane County Superior Court, Case No. 00-207342-3).
Prior to the conclusion of the trial, Mr. Anders claims of negligent
misrepresentation and racial discrimination on the basis of disparate treatment
and retaliation were dismissed. In addition, the Company's counterclaims against
Mr. Anders were also dismissed. The jury found there was a breach of an oral
contract and an intentional misrepresentation made to Mr. Anders by Allen
Ringer, the former President acting on behalf of the Company, and awarded
plaintiff $357,000 in damages. The judgment, which was recorded in the second
quarter of 2002, was settled in lieu of an appeal for a payment totaling
$340,000 in early July 2002. The Company is currently pursuing reimbursement
from its insurance carriers for coverage on the judgment and its defense costs
as incurred.

                                       21
<PAGE>


ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

     During the third quarter of 2002, common stock totaling 112,500 shares at
prices ranging from $.073 to $.081 per share totaling $8,788 were issued to two
employees in lieu of cash for deferred compensation. The recipients were
accredited, had access to all material information concerning the Company, and
acquired the securities for investment. Appropriate legends were affixed to the
certificates issued in the transactions. The issuances were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.


ITEM 5.   OTHER INFORMATION

NEW DIRECTORS APPOINTED

     As of September 9, 2002, Randall D. Miles and Griffith J. Straw have been
appointed to the Company's Board of Directors.

     Mr. Miles is Managing Director of Investment Banking at D.A. Davidson & Co.
and has over 20 years of experience in investment banking and financial
services. He has served in a senior executive capacity at both large and
mid-sized investment and merchant banks during the course of his career with
particular focus on providing strategic and financial advisory counsel to public
and private companies. His transactional experience includes mergers and
acquisitions, public and private capital raising as well as structured finance
expertise. Mr. Miles graduated from the University of Washington with a degree
in finance and sits on the Board of Directors of several privately held
companies.

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


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits to Part II:

99.1     Certification by Chief Executive Officer and Chief Financial Officer
         Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
         of the Sarbanes - Oxley Act of 2002

(b)  Reports on Form 8-K

     There were no reports on Form 8-K filed during the quarter ended September
30, 2002.

                                       22
<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, 2002                   By:   /s/ David Stedman
                                                         -----------------
                                                         David Stedman
                                                         President and
                                                         Chief Executive Officer

         Date: November 14, 2002                   By:   /s/ Steve Thomson
                                                         -----------------
                                                         Steve Thomson
                                                         Chief Financial Officer

                                       23
<PAGE>


                                  CERTIFICATION

I, David Stedman, certify that:

1.   I have reviewed this quarterly report on Form 10-QSB of LION, Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

          a.   designed such disclosure controls and procedures to ensure that
               material information relating to the registrant, is made known to
               us by others within the organization, particularly during the
               period in which this quarterly report is being prepared;

          b.   evaluated the effectiveness of the registrant's disclosure
               controls and procedures as of a date within 90 days prior to the
               filing date of this quarterly report (the "Evaluation Date"); and

          c.   presented in this quarterly report our conclusions about the
               effectiveness of the disclosure controls and procedures based on
               our evaluation as of the Evaluation Date;

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

          a.   all significant deficiencies in the design or operation of
               internal controls which could adversely affect the registrant's
               ability to record, process, summarize and report financial data
               and have identified for the registrant's auditors any material
               weaknesses in internal controls; and

          b.   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal controls; and

6.   The registrant's other certifying officer and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:    November 14, 2002                               /s/ David Stedman
                                                         -----------------
                                                         David Stedman
                                                         President and
                                                         Chief Executive Officer

                                       24
<PAGE>


                                  CERTIFICATION

I, Steve Thomson, certify that:

1.   I have reviewed this quarterly report on Form 10-QSB of LION, Inc.;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   The registrant's other certifying officer and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

          a.   designed such disclosure controls and procedures to ensure that
               material information relating to the registrant, is made known to
               us by others within the organization, particularly during the
               period in which this quarterly report is being prepared;

          b.   evaluated the effectiveness of the registrant's disclosure
               controls and procedures as of a date within 90 days prior to the
               filing date of this quarterly report (the "Evaluation Date"); and

          c.   presented in this quarterly report our conclusions about the
               effectiveness of the disclosure controls and procedures based on
               our evaluation as of the Evaluation Date;

5.   The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

          a.   all significant deficiencies in the design or operation of
               internal controls which could adversely affect the registrant's
               ability to record, process, summarize and report financial data
               and have identified for the registrant's auditors any material
               weaknesses in internal controls; and

          b.   any fraud, whether or not material, that involves management or
               other employees who have a significant role in the registrant's
               internal controls; and

6.   The registrant's other certifying officer and I have indicated in this
     quarterly report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  November 14, 2002                                 /s/ Steve Thomson
                                                         -----------------
                                                         Steve Thomson
                                                         Chief Financial Officer

                                       25
<PAGE>


EXHIBIT INDEX

EXHIBIT NO.       DESCRIPTION


99.1      Certification by Chief Executive Officer and Chief Financial Officer
          Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
          of the Sarbanes - Oxley Act of 2002





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