--------------------------------------------------------------------------------

                       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 JUNE 30, 2005

|_|  Transition report pursuant to 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)

           Registrant's telephone, including area code (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 August 9, 2005, approximately 38,203,204 shares of the Company's
common stock were outstanding.

                                       1
<PAGE>


                                   LION, Inc.
                                  Form 10 - QSB
                       For the Quarter Ended June 30, 2005


                                                                           PAGE
                                                                          NUMBER
                                      INDEX

PART I   FINANCIAL INFORMATION

Item 1   Financial Statements

         Balance Sheets at June 30, 2005 (unaudited) and December 31, 2004     3

         Statements of Operations for the three and six month periods
         ended June 30, 2005 and 2004 (unaudited)                              4

         Statements of Cash Flows for the six months ended June 30, 2005
         and 2004 (unaudited)                                                  5

         Notes to Financial Statements                                         6

Item 2   Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                            11

Item 3   Controls and Procedures                                              25

PART II  OTHER INFORMATION

Item 4   Submission of Matters to a Vote of Security Holders                  25

Item 6   Exhibits                                                             27

         Signatures                                                           27


                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

                            LION, Inc. and Subsidiary
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                     June 30,
                                                       2005        December 31,
                                                    (Unaudited)        2004
                                                   ------------    ------------

CURRENT ASSETS
    Cash and cash equivalents                      $  4,350,998    $  4,518,300
    Accounts receivable, less allowance for
      doubtful accounts of $67,250 and
      $58,000 in 2005 and 2004, respectively          1,439,547       1,841,840
    Deferred taxes                                      150,000         150,000
    Prepaid expenses and other                          631,724         436,888
                                                   ------------    ------------

         Total current assets                         6,572,269       6,947,028

PROPERTY AND EQUIPMENT - net                            829,068         931,079

OTHER ASSETS
    Goodwill - net                                    2,590,130       2,590,130
    Other assets                                        324,408          76,980
                                                   ------------    ------------

                                                   $ 10,315,875    $ 10,545,217
                                                   ============    ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                               $    525,329    $    294,235
    Accrued liabilities                               1,198,689       1,334,659
    Current maturities of long-term obligations          51,711         255,621
    Deferred revenue                                  1,012,040       1,050,128
                                                   ------------    ------------

         Total current liabilities                    2,787,769       2,934,643

LONG-TERM OBLIGATIONS, less current maturities          975,386         995,305

COMMITMENTS AND CONTINGENCIES                                --              --

STOCKHOLDERS' EQUITY
    Common stock - authorized, 50,000,000 shares
      of $.001 par value                                 38,203          37,431
    Additional contributed capital                   13,994,969      13,730,121
    Accumulated deficit                              (7,480,452)     (7,152,283)
                                                   ------------    ------------
                                                      6,552,720       6,615,269
                                                   ------------    ------------

                                                   $ 10,315,875    $ 10,545,217
                                                   ============    ============


The accompanying notes are an integral part of these statements.

                                       3
<PAGE>


                            LION, Inc. and Subsidiary

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                        Three months ended June 30,    Six months ended June 30,
                                        --------------------------    --------------------------
                                            2005           2004           2005           2004
                                        -----------    -----------    -----------    -----------
<S>                                     <C>            <C>            <C>            <C>
Revenues                                $ 3,998,794    $ 3,576,094    $ 8,039,710    $ 7,446,275

Expenses
    Direct costs                          1,620,778      1,328,280      3,310,349      2,792,630
    Selling and marketing                   610,125        552,086      1,253,917      1,048,665
    General and administrative            1,200,537        899,277      2,252,829      2,064,427
    Research and development                606,469        696,557      1,268,315      1,296,807
    Depreciation and amortization           133,521        144,210        263,712        278,582
                                        -----------    -----------    -----------    -----------
                                          4,171,430      3,620,410      8,349,122      7,481,111
                                        -----------    -----------    -----------    -----------

         Operating loss                    (172,636)       (44,316)      (309,412)       (34,836)

Other income (expense)
    Interest expense                        (21,425)        (5,142)       (44,563)       (10,665)
    Interest income                          18,636          2,178         32,889          4,441
    Other income                                 --        433,388             --        433,388
    Other expense                              (682)            --           (682)            --
                                        -----------    -----------    -----------    -----------

         Net income (loss) before tax      (176,107)       386,108       (321,768)       392,328

Income tax expense                            3,201          1,500          6,401          2,009
                                        -----------    -----------    -----------    -----------

         NET INCOME (LOSS)              $  (179,308)   $   384,608    $  (328,169)   $   390,319
                                        ===========    ===========    ===========    ===========

Net income (loss) per common share,
    Basic and diluted                   $        --    $       .01    $      (.01)   $       .01
                                        ===========    ===========    ===========    ===========
</TABLE>


The accompanying notes are an integral part of these statements.

                                       4
<PAGE>


                            LION, Inc. and Subsidiary

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                 Six months ended June 30,
                                                                --------------------------
                                                                    2005           2004
                                                                -----------    -----------
<S>                                                             <C>            <C>
Cash flows from operating activities
  Net (loss) income                                             $  (328,169)   $   390,319
  Adjustments to reconcile net (loss) income to net cash
    provided by operating activities
      Depreciation and amortization                                 263,712        278,582
      Loss on disposition of assets                                     682             --
      Write off of capitalized software development costs                --         13,954
      Stock options issued to employees and contractors             122,945        151,175
      Common stock issued for services received                          --         60,000
      Changes in assets and liabilities
        Accounts receivable                                         402,293        355,957
        Other receivables                                                --        620,708
        Prepaid expenses and other                                 (194,836)      (276,637)
        Accounts payable                                            231,094         97,763
        Accrued liabilities                                        (135,970)      (649,594)
        Deferred revenue                                            (38,088)       (95,175)
        Other assets                                                 32,572             --
                                                                -----------    -----------

          Net cash provided by operating activities                 356,235        947,052

Cash flows from investing activities
  Capitalized software development costs                            (11,746)      (199,048)
  Purchase of property and equipment                               (150,637)       (83,593)
                                                                -----------    -----------

          Net cash used in investing activities                    (162,383)      (282,641)

Cash flows from financing activities
  Restricted cash for letter of credit                             (280,000)            --
  Payments on notes payable and long-term obligations              (223,829)       (40,672)
  Proceeds from issuance of common stock on exercise
    of stock options and warrants                                   142,675        170,684
                                                                -----------    -----------

          Net cash (used in) provided by financing activities      (361,154)       130,012
                                                                -----------    -----------

Net (decrease) increase in cash and cash equivalents               (167,302)       794,423

Cash and cash equivalents at beginning of period                  4,518,300      2,883,314
                                                                -----------    -----------

Cash and cash equivalents at end of period                      $ 4,350,998    $ 3,677,737
                                                                ===========    ===========
</TABLE>


The accompanying notes are an integral part of these statements.

                                       5
<PAGE>


                            LION, Inc. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A.   ORGANIZATION AND DESCRIPTION OF BUSINESS

      LION, Inc. (the "Company" or "LION"), a Washington corporation, generates
mortgage leads through the Internet and is a technology and service provider of
advanced business solutions that streamline the loan fulfillment process in the
mortgage industry. From Leads to Loans to Capital markets, LION offers
consistent, seamless business solutions to consumers, 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. Through its
subsidiary, Tuttle Risk Management Services LLC, LION provides hands-on mortgage
pipeline risk management for financial institutions that originate and then sell
loans into the secondary market.

NOTE B.   FINANCIAL STATEMENTS

      The unaudited 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, 2004. 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, 2005.
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, 2004.

NOTE C.   SIGNIFICANT ACCOUNTING POLICIES

1.    PRINCIPLES OF CONSOLIDATION

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

2.    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.

3.    REVENUE RECOGNITION

      LION generates revenue throughout the mortgage loan origination and
fulfillment process. Subscription revenues are generated from mortgage brokers
and agents who are provided electronic access to a database of mortgage
offerings by a multitude 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.

                                       6
<PAGE>


                            LION, Inc. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE C.   SIGNIFICANT ACCOUNTING POLICIES - Continued

3.    REVENUE RECOGNITION - CONTINUED

      Subscription and service fees are recognized as revenue over the
respective subscription periods or at the time the services are provided. The
Company accounts for its software products for 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 Pipeline Tools
and Risk Management Services products is recognized in the period in which the
service is provided.

      Deferred revenue is recorded on prepaid subscriptions for periods ranging
from 3 to 12 months and on advance billings or cash received for contracts that
have undelivered elements.

4.    ACCOUNTS RECEIVABLE

      The Company's accounts receivable are due from companies in the mortgage
industry, including lenders and mortgage brokers. Credit is extended to most
customers, and generally collateral is not required. Payments for accounts
receivable are due upon receipt of the invoice, 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.

5.    PROPERTY AND EQUIPMENT

      Property and equipment are stated at cost less accumulated depreciation
and amortization. Maintenance and repairs are expensed as incurred. Depreciation
and amortization are provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives, principally
on a straight-line basis. The estimated lives in determining depreciation are as
follows:

      Computer equipment             3 to 5 years
      Computer software              3 to 5 years
      Equipment                           5 years

      Leasehold improvements are amortized over the lives of the respective
leases or the service lives of the improvements, whichever is shorter.

                                       7
<PAGE>


                            LION, Inc. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C.   SIGNIFICANT ACCOUNTING POLICIES - Continued

6.    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.

7.    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. Impairment
is recognized in operating results if the fair value of goodwill is less than
the carrying value of the goodwill.

8.    USE OF ESTIMATES

      In preparing the 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 the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

9.    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. Common
stock equivalents include options to purchase common stock. The weighted average
number of common shares outstanding were 37,693,459 and 32,923,615 for the six
months ended June 30, 2005 and 2004, respectively, and 37,876,837 and 33,899,023
for the three months ended June 30, 2005 and 2004, respectively.

      Options to purchase 7,757,410 shares of common stock were included in the
computation of diluted earnings per share at June 30, 2004, however, options to
purchase 4,387,609 shares of common stock at June 30, 2005 were anti-dilutive,
and therefore, diluted loss per share is equal to basic loss per share.

10.   ADVERTISING COSTS

      Advertising costs are expensed as incurred.

11.   RESEARCH AND DEVELOPMENT COSTS

      All expenditures for research and development costs are expensed in the
year 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. In instances where we enter into
agreements with third parties for research and development, costs are expensed
upon the earlier of when non-refundable amounts are due or as services are
performed. Amounts due under such arrangements may be either fixed fee or fee
for service, and may include upfront payments, monthly payments, and payments
upon the completion of milestones or receipt of deliverables.

                                       8
<PAGE>


                            LION, Inc. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C.   SIGNIFICANT ACCOUNTING POLICIES - Continued

12.   INCOME TAXES

      The Company accounts for income taxes in accordance with SFAS 109,
ACCOUNTING FOR INCOME TAXES. The Company records deferred income tax assets and
liabilities based upon the difference between the financial statement and income
tax bases of assets and liabilities using enacted income tax rates. Valuation
allowances are established when necessary to reduce deferred income tax assets
to the amount expected to be realized. Income tax expense is the taxes paid and
payable for the period and the change during the period in net deferred income
tax assets and liabilities.

13.   STOCK ISSUED FOR SERVICES

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

14.   STOCK OPTIONS

      Effective January 1, 2003, the Company adopted the fair value recognition
provision of FASB Statement No. 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." Compensation expense is based on the fair value of
the options at the respective grant dates utilizing the Black-Scholes model for
estimating fair value. 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 123 to all employee awards.

                                    Three months ended      Six months ended
                                         June 30,               June 30,
                                  ---------------------   ---------------------
                                     2005        2004        2005        2004
                                  ---------   ---------   ---------   ---------

Net (loss) income, as reported    $(179,308)  $ 384,608   $(328,169)  $ 390,319

Add: Stock-based employee
compensation expense included
in reported net (loss) income        57,814      29,377     122,945     151,175

Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards*        (61,050)    (36,227)   (129,192)   (207,692)
                                  ---------   ---------   ---------   ---------

Pro forma net (loss) income       $(182,544)  $ 377,758   $(334,416)  $ 333,802
                                  =========   =========   =========   =========
Net (loss) income per share:
Basic and diluted - as reported   $      --   $     .01   $    (.01)  $     .01
                                  =========   =========   =========   =========
Basic and diluted - pro forma     $      --   $     .01   $    (.01)  $     .01
                                  =========   =========   =========   =========


*  ALL AWARDS refers to awards granted, modified, or settled in fiscal periods
   beginning after December 15, 1994 - awards for which the fair value was
   required to be measured under Statement 123.

                                       9
<PAGE>


                            LION, Inc. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE C.   SIGNIFICANT ACCOUNTING POLICIES - Continued

15.   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, prepaid expenses and other current assets, accounts
receivables, accounts payable 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 debt approximates fair value
based on the incremental borrowing rate currently available to the Company for
loans with similar terms and maturities.

16.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

      In December 2004, the FASB issued SFAS No. 123 (revised 2004) (SFAS No.
123R), SHARE-BASED PAYMENT. This Standard requires companies to measure
share-based payments at grant-date fair value and recognize the compensation
expense in their financial statements. We previously adopted the fair value
based method of accounting pursuant to SFAS No. 123, ACCOUNTING FOR STOCK BASED
COMPENSATION, prospectively. Management is in the process of evaluating the
requirements of SFAS No. 123R. The final determination of the impact of this
statement has not been completed.

      In March 2005, the Securities and Exchange Commission announced that the
compliance date for non-accelerated filers and foreign private issuers pursuant
to Section 404 of the Sarbanes-Oxley Act has been extended. Under the latest
extension, a company that is not required to file its annual and quarterly
reports on an accelerated basis and a foreign private issuer filing its annual
report on Form 20-F or 40-F, must begin to comply with the internal control over
financial reporting requirements for its first fiscal year ending on or after
July 15, 2006. This is a one-year extension from the previously established July
15, 2005 compliance date. The Commission similarly has extended the compliance
date for these companies relating to requirements regarding evaluation of
internal control over financial reporting and management certification
requirements. LION, Inc. will, therefore, be required to comply with Section 404
of the Sarbanes-Oxley Act as of December 31, 2006.

NOTE D.   RESTRICTED CASH FOR LETTER OF CREDIT

      At June 30, 2005, the Company has $280,000 of restricted cash which is
classified as a noncurrent asset. The restricted cash serves as collateral for
an irrevocable letter of credit that provides financial assurance that the
Company will fulfill its obligations with respect to a lease for its San Rafael,
California office space. The cash is held in custody by the issuing bank, is
restricted as to its withdrawal or use, and is currently invested in money
market funds. After eighteen months, the letter of credit may be reduced to
$180,000. After thirty six months, the letter of credit may be cancelled and
replaced by a security deposit equal to the then current monthly rent.

                                       10
<PAGE>


ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

      We accomplished a number of important goals in the quarter and in the
first half of the year, most notably completing critical technological and
personnel integration milestones related to our acquisitions, launching new and
improving existing product offerings, signing 12 new risk management lender
customers and completing a strategic hire to head our Leads business unit.

      Our financial results for the first half of 2005 were generally in line
with our internal expectations, albeit slightly lower than we were targeting, in
part due to non-recurring expenses for severance charges and additional
Sarbanes-Oxley compliance work. Our integration plan has taken longer and has
been more intrusive on operations than we had hoped, but with most critical
aspects of our acquisition integration, as well as a number of other
initiatives, now completed, we are now fully focused on executing our growth
plan and can begin to reap the benefit of our product bundling efforts.

      Revenue in second quarter 2005 was just under $4.0 million, down
approximately $42,000 or 1.0% from first quarter 2005. Revenue for the first
half of 2005 was $8.0 million, up $593,000 or 8.0% from the same period a year
ago. Revenue early in the second quarter was affected by seasonal mortgage
origination patterns. LION has historically witnessed its strongest period of
mortgage origination activity from its customers beginning in April and lasting
into November. We typically begin to see the effect of the seasonal increase in
origination volume in mid to late second quarter, which is consistent with our
observations this year. We believe that the origination activity we have
observed late in the quarter will be a bellwether for the balance of the year,
and we are well positioned in each of our business units to leverage that
activity to deliver the revenue growth and profitability we expect to achieve in
the balance of the year.

      We reported a net loss of approximately $179,000 for the second quarter
compared to net income of $385,000 for the same period last year. Year to date,
we have recorded a net loss of approximately $328,000 compared to net income of
approximately $390,000 for the first six months of 2004, which included a
$433,000 gain in second quarter 2004 related to an insurance settlement. The net
loss in second quarter 2005 was primarily attributable to higher planned
expenses associated with our sales and marketing initiatives, expected legal and
accounting expenses relating to regulatory compliance activities mandated by
Section 404 of Sarbanes-Oxley that totaled more than $71,000 in the quarter,
annual shareholder meeting expenses of about $41,000 and approximately $151,000
in severance expenses related to a second quarter headcount reduction reflecting
the efficiencies made possible by progress in integrating our acquisitions.
While every quarter includes some form of non-recurring expense, the $263,000
for those mentioned specifically are of a scope we don't expect the remainder of
the year.

      Our net loss notwithstanding, we are cash flow positive and continue to
maintain a strong balance sheet. We ended the quarter with approximately $4.6
million in cash, cash equivalents and $280,000 of restricted funds, up slightly
from the prior quarter despite the non-recurring cash outlays mentioned above.
During the first quarter, we elected to retire the remaining $193,000 balance of
the short term notes assumed in connection with the October 2004 acquisition of
Tuttle Risk Management Services. At this time, we have no intention of
accelerating retirement of the 3-year notes also related to the acquisition
totaling $972,000. We expect to have positive cash flow during the last half of
2005.

                                       11
<PAGE>


DETAILED RESULTS OF OPERATIONS

REVENUES

<TABLE>
<CAPTION>
                            For three months ended June 30,        For six months ended June 30,
                           ----------------------------------    --------------------------------
(Dollars in thousands)          2005               2004               2005              2004
                           ---------------    ---------------    ---------------    -------------
<S>                        <C>          <C>   <C>          <C>   <C>          <C>   <C>        <C>
LEADS
Mortgage 101               $  455       11%   $  523       15%   $  911       11%   $1,071     14%

LOANS
LION Pro                      750       19%      762       21%    1,501       19%    1,531     21%
Retail Websites               658       16%      641       18%    1,316       16%    1,240     17%
LockPoint Xtra                313        8%      421       12%      664        8%    1,185     19%
                           ------    -----    ------    -----    ------    -----    ------    ---
                            1,721       43%    1,824       51%    3,481       43%    3,956     53%

CAPITAL MARKETS
Pipeline Tools                188        5%    1,229       34%      461        6%    2,419     33%
Risk Management Services    1,635       41%       --       --     3,187       40%       --     --
                           ------    -----    ------    -----    ------    -----    ------    ---
                            1,823       46%    1,229       34%    3,648       46%    2,419     45%

    Total revenues         $3,999      100%   $3,576      100%   $8,040      100%   $7,446    100%
                           ======    =====    ======    =====    ======    =====    ======    ===
</TABLE>

      As summarized above, we have organized our product groupings to more
closely align our business objectives by product with the customers we serve.
These business units are Leads, Loans, and Capital Markets.

LEADS

      Our Leads business unit comprised 11% of total revenue for the three and
six months ended June 30, 2005. Revenue for our Leads unit, which consists of
Mortgage 101, was flat in the second quarter compared to the first quarter. We
continue to experience heavy consumer traffic to our mortgage101.com Internet
portal due to strong search engine placement attributable to being number 1, 2
or 3 on Google, MSN or Yahoo for keyword search "mortgage." We recently
announced the hiring of a seasoned mortgage industry veteran, most recently of
Lending Tree's ServiceMagic unit, to head our Leads business unit. This is an
important strategic hire for us, the goal of which is to generate new business
and revenue. Currently, Mortgage 101 opportunities include: leveraging our
strong consumer distribution channel by expanding partnering arrangements,
establishing affiliate and private label relationships; expanding our customer
base to include more realtors, lenders and vendors; pursuing incremental ways to
monetize our consumer traffic; improving lead conversion ratios; selling more
advertising and expanding our licensing strategies. Several of these initiatives
are already underway. Our new business unit leader has also successfully
implemented national accounts strategies in the past, and we expect to be able
to utilize that experience by pursuing similar strategies in Mortgage 101.

      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. Through the Mortgage 101 brand, LION has grown its
co-branded real estate sites to over 57,500 which consist of realtors, real
estate offices, relocation sites, associations, and city portals. Traffic from
these branded and co-branded sites along with search engine activity has
averaged approximately 1.3 million unique visitors each month during second
quarter 2005 to this consumer portal. This compliments the consumer traffic
received by our customers through the

                                       12
<PAGE>


Mortgage 101 domain associated with the websites provided to them. Revenues are
generated from mortgage brokers or originators who participate in the
pay-per-lead program or advertise through the Mortgage 101 site.

LOANS

      Our Loans business unit comprised 43% of total revenue for the three and
six months ended June 30, 2005. It includes our LION Pro, Retail Websites, and
LockPoint Xtra(R) products. Revenue was flat during the second quarter in LION
Pro and Retail Websites while LockPoint Xtra(R) recorded a quarter over quarter
decline. LockPoint Xtra(R) has generally experienced revenue decline through the
year due to a combination of the loss of some legacy customers, a reduction in
overall loan volume that reflects both seasonality and declining refinancing
activity, and a retargeting of our sales efforts to focus on mid sized mortgage
originators through our Precision MTS product platform. Loan volumes began to
pick up late in the quarter reflective of having reached a floor in the
LockPoint Xtra(R) product line revenue, coupled with the positive impact of our
middle market sales strategy. With the completion of our technology platform
migration mentioned below, we expect to be able to merge the strengths of each
of our LION Pro and LockPoint Xtra(R) product and feature sets to offer more
flexibility to a broader spectrum of lender customers.

      The completion in early July 2005 of the migration from LION's legacy
technology to the Oracle-based platform acquired as part of the Ignition
acquisition provides a number of important advantages. We now have a
substantially more robust and stable platform to accommodate our expanding
customer base and facilitate expansion of the product bundling opportunities
associated with our Precision MTS marketing initiative. Before the year is out,
we plan to add alternative mortgage products, such as subprime, second mortgages
and interest only mortgages, to name a few, which will add new customers and
enable us to more effectively capture transaction fee revenue. These revenue
opportunities were either not available to us previously or would have been
difficult and costly to implement with our legacy technology platform.
Streamlining our technology support needs and maintenance requirements will also
result in expense savings and greater productivity and efficiency.

      LION PRO, used by approximately 7,400 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 comprised of 89 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, 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 approximately 2,800 websites and over 6,300 user accounts.
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

                                       13
<PAGE>


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 loan amount volumes with monthly
minimums which may vary from customer to customer, and custom development
services.

      PRECISION MARKETING PRODUCTIVITY SUITE 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

      The Capital Markets business unit comprised 46% of total revenue for the
three and six months ended June 30, 2005. It includes Pipeline Tools and Tuttle
Risk Management Services' hedged advisory services. Revenue for the group as a
whole was relatively flat in the second quarter. A one-time licensing fee
recognized in the first quarter totaling $80,000 was matched by revenue growth
in the second quarter due to the addition of new TRMS customers and increases in
loan origination volumes. We expect the group to continue to enhance its revenue
in part as a result of our continuing success in attracting new customers. Year
to date, we have signed 12 new lender customers, and we believe we can continue
this momentum in the second half of the year. Our Capital Markets sales pipeline
continues to exhibit strength, and we have added to our sales force and support
group to aid our expansion plans. This is our highest margin business unit, so
adding to our customer base is an important part of our growth and profitability
strategy.

      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. Revenues are generated from
implementation fees, recurring monthly billings based on loan amount volumes
with monthly minimums which may vary from customer to customer, and custom
development services.

      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.

                                       14
<PAGE>


OPERATING EXPENSES

<TABLE>
<CAPTION>
                                     For three months ended June 30,          For six months ended June 30,
                                  -------------------------------------   -------------------------------------
(Dollars in thousands)                   2005                2004                2005                2004
                                  -----------------   -----------------   -----------------   -----------------
                                           % of Rev            % of Rev            % of Rev            % of Rev
                                           --------            --------            --------            --------
<S>                               <C>         <C>     <C>         <C>     <C>         <C>     <C>         <C>
Direct costs                      $1,620      41%     $1,328      37%     $3,310      41%     $2,793      38%
Selling and marketing                610      15%        552      15%      1,254      16%      1,049      14%
General and administrative         1,201      30%        899      25%      2,253      28%      2,064      28%
Research and development             606      15%        697      20%      1,268      16%      1,297      17%
Depreciation and amortization        134       3%        144       4%        264       3%        278       4%
                                  ------     ---      ------     ---      ------     ---      ------     ---

    Total operating expenses      $4,171     104%     $3,620     101%     $8,349     104%     $7,481     101%
                                  ======     ===      ======     ===      ======     ===      ======     ===
</TABLE>

      Quarterly operating expenses remained unchanged overall as anticipated at
$4.2 million for both the first and second quarters of 2005. As mentioned in the
overview, there were higher planned expenses in both quarters associated with
our sales and marketing initiatives, expected legal and accounting expenses
relating to regulatory compliance activities mandated by Sarbanes-Oxley that
totaled more than $71,000 in the second quarter, annual shareholder meeting
expenses in the second quarter of about $41,000 and approximately $151,000 in
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. Again, while every quarter includes some form of non-recurring
expense, the $263,000 for those mentioned specifically, are of a scope we don't
expect the remainder of the year. Operating expenses are expected to decrease in
the latter half of the year due to a planned decrease in the regulatory
compliance activities related to Sarbanes-Oxley and continued reduction in other
core expenses due to further planned consolidation and integration of the
Company's operations.

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 remained relatively
unchanged at $1.6 million for the second quarter 2005 compared to the first
quarter. For the first half of 2005, direct costs were approximately $3.3
million, up from $2.8 million for the comparable period in the prior year. Most
of the increase is due to the TRMS operation which was not acquired until
October 2004. This increase was offset by lower headcount required for LION in
2005 compared to 2004 due to product and IT integration efforts throughout 2004.

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 decreased slightly to $610,000 in second quarter 2005 from $644,000 in
the first quarter. For the first half of 2005, selling and marketing expenses
were $1.3 million compared to $1.0 million for the same period last year. This
increase was due to the addition of the TRMS operations, ads in quarterly
periodicals and increased advertising for Mortgage 101 leads.

GENERAL AND ADMINISTRATIVE

      General and administrative expenses are comprised primarily of management
and administrative salaries and related costs, legal and audit fees, outside
consulting services, certain telecommunications expenses, occupancy costs, and
other administrative related expenses. General and administrative expenses

                                       15
<PAGE>


for second quarter 2005 were $1.2 million, up slightly from $1.1 million for
first quarter 2005. For the first half of 2005, general and administrative
expenses were $2.3 million compared to $2.1 million for the same period a year
ago. The increases are primarily due to severance payments related to reducing
headcount during the second quarter and Sarbanes-Oxley section 404 compliance
efforts.

RESEARCH AND DEVELOPMENT

      Research and development expenses are comprised primarily of engineering
salaries and related costs. Research and development expenses decreased to
$606,000 for second quarter 2005 from $662,000 for the first quarter, which was
primarily due to planned reductions in headcount. For the first half of 2005,
research and development expenses were $1.3 million which were comparable to the
first half of 2004.

DEPRECIATION AND AMORTIZATION

      The decrease in depreciation in the first half of 2005 compared to the
same period in the prior year is due to certain internally development software
for internal use being fully depreciated by the end of 2004, although offset by
additional depreciation related to the purchase of equipment, computers and
software.

INTEREST EXPENSE AND INTEREST INCOME

      Interest expense is comprised of interest on 10 percent promissory notes
which were paid off in mid-February 2005, 8 percent promissory notes totaling
$972,000 related to the Tuttle Risk Management Services acquisition, and various
debt related to capitalized leases. The promissory notes did not exist during
the first half of 2004.

      Interest income in first half of 2005 compared to the same period in the
prior year has increased due to additional funds that can be invested along with
a rising interest rate environment. Investments during the first half of 2005
have maturities of not greater than three months so as to take advantage of the
rising interest rate environment.

                                       16
<PAGE>


FINANCIAL POSITION

      We have financed our liquidity needs over the last several years through
proceeds generated from operations. To a lesser extent, some of our cash flow
has been derived from equipment lease financing, and since the beginning of
2004, the exercise of stock warrants and stock options. As of the end of 2004,
no stock warrants exist, but stock options continue to be exercised.

      At June 30, 2005, we had approximately $4,351,000 in cash and cash
equivalents after reclassifying $280,000 to noncurrent assets as restricted cash
for a letter of credit on leased office space for our California operations and
approximately $3.8 million of working capital. The change in cash and cash
equivalents is as follows:

<TABLE>
<CAPTION>
                                                              Three months ended
                                                            ------------------------        Six months ended June 30,
                                                            March 31,       June 30,        ------------------------
(Dollars in thousands)                                        2005            2005            2005            2004
                                                            --------        --------        --------        --------
<S>                                                         <C>             <C>             <C>             <C>
Net (loss) income                                           $   (149)       $   (179)       $   (328)       $    390
Non-cash items                                                   195             192             387             504
Changes in working capital                                       176             121             297              53
                                                            --------        --------        --------        --------
    Net cash provided by operating activities                    222             134             356             947

    Net cash used in investing activities                        (80)            (82)           (162)           (282)

Restricted cash for letter of credit                            (280)             --            (280)             --
Other net uses of cash for financing activities                 (161)             80             (81)            130
                                                            --------        --------        --------        --------
    Net cash (used in) provided by financing activities         (441)             80            (361)            130

Net (decrease) increase in cash and cash equivalents            (299)            132            (167)            795
Cash and cash equivalents at beginning of period               4,518           4,219           4,518           2,883
                                                            --------        --------        --------        --------
Cash and cash equivalents at end of period                  $  4,219        $  4,351        $  4,351        $  3,678
                                                            ========        ========        ========        ========
</TABLE>

NON-CASH ITEMS

      Non-cash items are primarily depreciation and amortization and stock
option expense for both first and second quarters of 2005 and 2004.

WORKING CAPITAL AND OPERATING ACTIVITIES

      During the six months ended June 30, 2005, our investment in working
capital 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 the fourth
quarter 2004 to various personnel due to integration efforts throughout 2004 and
payments on 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.

      During the six months ended June 30, 2004, our investment in working
capital increased due to revenue growth, primarily from the Retail Websites,
LockPoint Xtra(R) and Pipeline Tools product lines and payments on accounts
receivable, primarily from large accounts receivable balances acquired in the
Ignition asset purchase, which were offset by a pay down of accrued liabilities
related to legal, accounting and other fees associated with the acquisition of
Ignition assets and an increase in various maintenance agreements on the
Company's datacenters.

                                       17
<PAGE>


INVESTING ACTIVITIES

      During the six months ended June 30, 2005, investing activities used cash
of approximately $162,000 which primarily consisted of upgrades to computer
hardware and software.

      During the six months ended June 30, 2004, investing activities used cash
of approximately $282,000 which primarily consisted of the capitalized portion
of software development costs related to the enhancement of underlying
infrastructure delivering various product lines and upgrades to computer
hardware and software.

FINANCING ACTIVITIES

      During the six months ended June 30, 2005, financing activities included
$280,000 of cash that was restricted for a letter of credit related to an office
lease for our California operations, payoff of our 10 percent promissory notes
totaling approximately $193,000 related to the Tuttle Risk Management Services
acquisition, and payments on capitalized lease obligations related to the
acquisition of application and database software, computers, servers, furniture
and telecommunications systems upgrades over the previous two years. This was
offset by the exercise of stock options during the period totaling approximately
$143,000.

      During the six months ended June 30, 2004, net proceeds from financing
activities were approximately $130,000. Warrants and stock options were
exercised during the period totaling approximately $171,000. This was offset by
payments totaling approximately $41,000 on notes payable and capitalized lease
obligations related to the acquisition of application and database software,
computers, servers, furniture and telecommunications systems upgrades over the
previous two years.

OVERALL LIQUIDITY AND CAPITAL RESOURCES

      It is management's assessment that current working capital and that which
will be created through operations should be adequate for our growth plans and
capital expenditure needs throughout 2005 and into 2006.


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.

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 $15.2 million in 2004 from $8.1
million in 2003 and from $6.4 million for 2002. However, during 2003 and 2004,
revenues quarter to quarter have at times remained flat and decreased slightly
in the first and second quarters of 2005. Had it not been for the strategic
acquisition of the Ignition assets in

                                       18
<PAGE>


December 2003 and the acquisition of Tuttle Risk Management Services in October
2004, revenue growth targets year over year would not have been achieved in 2004
and the likelihood of achieving targets for 2005 much more difficult. We had ten
consecutive quarters of profitability beginning with the third quarter of 2002
through the fourth quarter of 2004, but we have incurred a net loss for each of
the first two quarters of 2005. As discussed above, we expect a return to
increased revenue and profitability for the last half of 2005.

      However, our prospects must be considered in light 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, but have not completed this task and will not for at least
the remainder of 2005. Furthermore, we have not entered into employment
agreements with these significant employees except for our upper management
team. 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. While
management personnel are typically granted additional stock options or
restricted stock grants, 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 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 grant.
Stockholders approved at our 2005 annual meeting a stock incentive plan which
will allow a flexible stock compensation program which we believe will be
important to 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 as a result of
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. As part of the acquisition, LION
became the assignee of certain customer contracts, most of which have initial
contract periods or renewals expiring 2005 and 2006 and typically have renewable
successive one-year terms and in a few cases successive two-year terms. Revenues
from these acquired contracts comprised approximately 54% of our total revenues
for the first six months of 2005. While we did have several LockPoint Xtra(R)
and Pipeline Tools customers discontinue their contracts with us during 2004 and
again during the first half of 2005, we have also had successful new sales for
our new Precision productivity marketing suite, Pipeline Tools and Risk
Management Services. There can be no assurance that the existing large 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. We have been
advised that one customer representing approximately $331,000 in annual revenues
(about 7% of our

                                       19
<PAGE>


Loans business unit product revenue) will not renew its contract at the end of
3rd quarter 2005. We have also experienced an anticipated but significant
decline in loan volumes in the LPX, Pipeline Tools, and Risk Management Services
product lines compared to 2004 although volumes improved in the second quarter
of 2005 compared to first quarter. If we are unsuccessful in enrolling new
customers to equalize the attrition rate, if any, of existing customers, or to
offset a decline in transactional volume, our overall share of the advanced
business solution market could be reduced, and consequently our business
operating results and financial condition may be materially adversely affected.

OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

      We do not have multiple site capacity for our LION Pro, Mortgage 101 or
Retail Web Site services, however, we do have this in place for our LockPoint
Xtra(R) and Pipeline Tools services. We are in the process of developing
multiple site capacity for all of our services, but this will not be completed
until some time late in 2005. We have in place comprehensive data tape backup
procedures for our operational and administrative databases. Our replication
software provides a high level of hardware backup for the database by
duplicating our database across several powerful servers. However, despite
protective measures, our operations could be vulnerable to damage from floods,
fire, earthquakes, power loss, telecommunications failures, break-ins,
terrorism, and similar events. The prospect of such unscheduled interruptions is
possible in the foreseeable future, and we are unable to predict their
occurrence, duration or cessation.

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

OUR BUSINESS DEPENDS ON INCREASING USE OF THE INTERNET BY USERS SEARCHING FOR
INFORMATION, ADVERTISERS MARKETING PRODUCTS AND SERVICES AND WEB SITES SEEKING
TO EARN REVENUE TO SUPPORT THEIR WEB CONTENT. IF THE INTERNET INFRASTRUCTURE
DOES NOT GROW AND IS NOT MAINTAINED TO SUPPORT THESE ACTIVITIES, OUR BUSINESS
WILL BE HARMED.

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

                                       20
<PAGE>


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. 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 can be no assurance that the enactment
of laws affecting telecommunications will not decrease the growth of the
Internet, which in turn could decrease the demand for our products and services,
increase the cost of doing business, or otherwise have an adverse effect on our
business, operating results or financial condition. Moreover, the applicability
to the Internet of existing laws governing issues such as property ownership,
libel and personal privacy is developing. We cannot predict the impact, if any,
that future regulation or regulatory changes might have on our business. It is
not clear how existing laws governing issues such as property ownership, sales
and other taxes, libel, and personal privacy apply to the Internet and
e-commerce. Unfavorable resolution of these issues may harm our business. This
could, in turn, diminish the demand for our products and services and 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, online
advertising and 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 beginning with our Annual Report on Form 10-KSB for the fiscal year
ending December 31, 2006, to furnish a report by our

                                       21
<PAGE>


management on our internal control over financial reporting. 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 ("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
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,
2006 (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), 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 and our auditors would be unable to conclude
that our internal control over financial reporting is effective as of December
31, 2006.

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 a pending federal trademark on Mortgage ATM and federally
registered trademarks on LockPoint Xtra(R), Lockpoint(R), Loan Officer Plus(R)
and Ratesheet Plus(R). We currently have 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

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<PAGE>


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.

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

      We do not have a great deal of experience acquiring companies. We have
evaluated, and expect to continue to evaluate, a wide array of potential
strategic transactions. From time to time, we may engage in discussions
regarding potential acquisitions. 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
         acquisition integration challenges.

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

      o  Retaining employees from the businesses we acquire.

      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 acquisitions may not materialize.
Future 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.

CHANGES IN ACCOUNTING RULES FOR STOCK-BASED COMPENSATION MAY ADVERSELY AFFECT
OUR OPERATING RESULTS, OUR STOCK PRICE AND OUR COMPETITIVENESS IN THE EMPLOYEE
MARKETPLACE.

We have a history of using employee stock options and other stock-based
compensation to hire, motivate and retain our employees. In December 2004, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123R, "Share-Based Payment," which requires companies, starting

                                       23
<PAGE>


January 1, 2006, to measure compensation costs for all stock-based compensation
(including stock options and restricted stock) at fair value and to recognize
these costs as expenses in the statements of income. We previously adopted the
fair value based method of accounting pursuant to SFAS No. 123, ACCOUNTING FOR
STOCK BASED COMPENSATION, prospectively. Management is in the process of
evaluating the requirements of SFAS No. 123R. The final determination of the
impact of this statement has not been completed. The recognition of these
expenses in our statements of income could have a negative affect on our
earnings per share, which could negatively impact our future stock price. In
addition, if we reduce or alter our use of stock-based compensation to minimize
the recognition of these expenses, our ability to recruit, motivate and retain
employees may be impaired, which could put us at a competitive disadvantage in
the employee marketplace.

THE TRADING PRICE FOR OUR COMMON STOCK MAY 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 acquisitions, new products,
         significant contracts, commercial relationships or capital commitments.

      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.

                                       24
<PAGE>


ITEM 3. 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 defined in Exchange Act Rules 13a-15(e) and
15d-15(e) as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are effective.

      In general, 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, 2006. 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 were no changes in our internal control over financial reporting
during the quarter ended June 30, 2005 that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.


                           PART II - OTHER INFORMATION


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

      The Annual Meeting of our shareowners was held on June 23, 2005 in
Bellevue, Washington. Our common stock was the only class of securities entitled
to vote at the Annual Meeting. Only shareowners of record at the close of
business on May 10, 2005 ("Record Date") were entitled to receive notice and to
vote at the Annual Meeting. As of the Record Date, there were 37,739,662 shares
of common stock outstanding, each share entitled to one vote on each matter to
be voted upon. There were 32,496,594 shares represented at the Annual Meeting in
person or by proxy, representing 86 percent of the total number of shares
outstanding.

PROPOSAL # 1 - The approval of a classified board of directors into three
classes of directors with staggered three-year terms of office through an
amendment to the Articles of Incorporation. This proposal, which required a
majority of the outstanding shares of common stock for approval, failed to pass.
The vote was as follows:

    PROPOSAL           FOR          AGAINST    ABSTAIN     NON-VOTE   % APPROVAL
    --------           ---          -------    -------     --------   ----------

Classified Board    10,704,422    11,661,973    89,042    10,041,157    28.36%

                                       25
<PAGE>


PROPOSAL # 2 - Election of directors. The following directors were elected to
serve on the LION Board of Directors for a one-year term. No other director's
term of office continued after the meeting. The vote was as follows:

          NAME                       FOR            WITHHELD      % APPROVAL
          ----                       ---            --------      ----------

   John A. McMillan              28,163,413         4,333,181       86.67%
   J.C. "Tuck" Marshall          26,536,999         5,959,595       81.66%
   Sam Ringer                    28,373,144         4,123,450       87.31%
   James D. Russo                25,587,112         6,909,482       78.74%
   David Stedman                 28,005,814         4,490,780       86.18%
   Randall D. Miles              26,498,903         5,997,691       81.54%
   Griffith J. Straw             25,484,506         7,012,088       78.42%

PROPOSAL # 3 - The approval of an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares to 75 million from 50
million and to proportionately increase the number of authorized shares of
preferred stock from 5 million to 7.5 million shares. This proposal, which
required a majority of the outstanding shares of common stock for approval,
failed to pass. The vote was as follows:

    PROPOSAL              FOR        AGAINST    ABSTAIN    NON-VOTE   % APPROVAL
    --------              ---        -------    -------    --------   ----------

Increase authorized    10,743,460   11,617,968   94,009   10,041,157    28.47%
shares of common and
preferred stock

PROPOSAL # 4 - The adoption of the Company's proposed 2005 Stock Incentive Plan.
The number of shares to be authorized for this plan is 5 million shares. This
proposal passed since the number of shares voted in favor of the proposal
exceeded the number of shares voted against. The vote was as follows:

        PROPOSAL                          FOR            AGAINST      % APPROVAL
        --------                          ---            -------      ----------

2005 Stock Incentive Plan             15,070,339        7,265,249       67.47%

PROPOSAL # 5 - Ratification of the selection of Grant Thornton LLP as the
Company's auditors for the fiscal year ending December 31, 2005. The proposal
passed since the number of shares voted in favor of the proposal exceeded the
number of shares voted against. The vote was as follows:

        PROPOSAL                          FOR            AGAINST      % APPROVAL
        --------                          ---            -------      ----------

Ratification of Grant Thornton LLP     31,085,306       1,146,191       96.44%

                                       26
<PAGE>


ITEM 6.  EXHIBITS

(a)   Exhibits

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


                                   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: August 15, 2005                      By:  /s/ Randall D. Miles
            ---------------                           --------------------
                                                      Randall D. Miles
                                                      Chief Executive Officer


                                       27
<PAGE>


EXHIBIT INDEX

EXHIBIT NO.    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