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

                                   FORM 10-QSB


(Mark One)

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

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006

|_|  Transition report under Section 13 or 15(d) of the Securities  Exchange Act
     of 1934 For the transition period from _____ to _____

                         COMMISSION FILE NUMBER 0-25159

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

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


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

                    Issuer's telephone number (206) 577-1440

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


        Check  whether the issuer (1) filed all reports  required to be filed by
Section 13 or 15 (d) of the  Exchange Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements  for the past 90 days.

                                                                  Yes |X| No |_|


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


        As of May 10, 2006,  approximately  38,463,822  shares of the  Company's
common stock were outstanding.

        Transitional  Small Business  disclosure  Format (check one):

                                                                  Yes |_| No |X|

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


                                       1
<PAGE>


                                   LION, Inc.
                                  Form 10 - QSB
                      For the Quarter Ended March 31, 2006


                                                                           PAGE
                                                                          NUMBER
                                      INDEX

PART I   FINANCIAL INFORMATION

Item 1   Financial Statements

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

         Condensed Consolidated Statements of Operations for the
         three months ended March 31, 2006 and 2005 (unaudited)              4

         Condensed Consolidated Statements of Cash Flows for the
         three months ended March 31, 2006 and 2005 (unaudited)              5

         Notes to Condensed Consolidated Financial Statements (unaudited)    6

Item 2   Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                          16

Item 3   Controls and Procedures                                            31

PART II  OTHER INFORMATION

Item 6   Exhibits                                                           32

         Signatures                                                         33


                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

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

                                                        March 31,
                                                          2006      December 31,
                                                       (Unaudited)      2005
                                                       ----------   -----------
Current assets
  Cash and cash equivalents                            $    3,338    $    3,371
  Short-term investments - available for
    sale securities                                           800           800
  Accounts receivable, less allowance for
    doubtful accounts of $115 and $100
    in 2006 and 2005, respectively                          1,554         1,161
  Deferred income taxes                                       150           150
  Prepaid expenses and other                                  627           448
                                                       ----------    ----------

      Total current assets                                  6,469         5,930

Property and equipment, net                                   754           844
Goodwill                                                    2,590         2,590
Other assets                                                  225           325
                                                       ----------    ----------

                                                       $   10,038    $    9,689
                                                       ==========    ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Accounts payable                                     $      265    $      212
  Accrued salaries and benefits                               776           709
  Accrued liabilities                                         355           249
  Current maturities of long-term obligations                  13            23
  Deferred revenue                                            940           649
                                                       ----------    ----------

      Total current liabilities                             2,349         1,842
Long-term obligations, less current maturities                972           972
                                                       ----------    ----------
      Total liabilities                                     3,321         2,814
                                                       ----------    ----------

Commitments and contingencies                                  --            --

Stockholders' equity
  Preferred stock, par value $.001 per share;
    authorized 5,000,000 shares; none issued
    or outstanding                                             --            --
  Common stock - authorized, 50,000,000 shares
    of $.001 par value, 38,463,822 issued
    and outstanding                                            38            38
  Additional contributed capital                           14,119        14,091
  Accumulated deficit                                      (7,440)       (7,254)
                                                       ----------    ----------
                                                            6,717         6,875
                                                       ----------    ----------

                                                       $   10,038    $    9,689
                                                       ==========    ==========


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

                                       3
<PAGE>


                            LION, Inc. and Subsidiary
                 Condensed Consolidated Statements of Operations
                   (In thousands, except net income per share)
                                   (Unaudited)

                                                          Three months ended
                                                               March 31,
                                                       ------------------------
                                                          2006          2005
                                                       ----------    ----------

Revenues                                               $    3,533    $    4,041
                                                       ----------    ----------

Expenses
  Direct costs                                              1,525         1,690
  Selling and marketing                                       565           644
  General and administrative                                  927         1,052
  Research and development                                    592           662
  Depreciation and amortization                               122           130
                                                       ----------    ----------
                                                            3,731         4,178
                                                       ----------    ----------

         Operating loss                                      (198)         (137)

Other income (expense)
  Interest expense                                            (20)          (23)
  Interest income                                              33            14
  Other income                                                  2            --
                                                       ----------    ----------

         Net loss before tax                                 (183)         (146)

  Income tax expense                                           (3)           (3)
                                                       ----------    ----------

         Net loss                                      $     (186)   $     (149)
                                                       ==========    ==========

Net loss per common share, basic and diluted           $       --    $       --
                                                       ==========    ==========

Weighted average number of shares - basic and diluted      38,463        37,508
                                                       ==========    ==========


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

                                       4
<PAGE>


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

                                                          Three months ended
                                                               March 31,
                                                          2006          2005
                                                       ----------    ----------

Cash flows from operating activities
  Net loss                                             $     (186)   $     (149)
  Adjustments to reconcile net loss to net cash
    provided by operating activities
      Depreciation and amortization                           122           130
      Stock option and restricted stock expense                27            65
      Changes in assets and liabilities
        Accounts receivable                                  (393)          (41)
        Prepaid expenses and other                           (179)           80
        Accounts payable                                       53            67
        Accrued salaries and benefits                          68          (111)
        Accrued liabilities                                   106           (75)
        Deferred revenue                                      291           223
        Other assets                                          100            33
                                                       ----------    ----------
            Net cash provided by operating activities           9           222
                                                       ----------    ----------

Cash flows from investing activities
  Capitalized software development costs                       --           (12)
  Purchases of property and equipment                         (32)          (69)
                                                       ----------    ----------
            Net cash used in investing activities             (32)          (81)
                                                       ----------    ----------

Cash flows from financing activities
  Restricted cash for letter of credit                         --          (280)
  Payments on long-term obligations                           (10)         (208)
  Proceeds from issuance of common stock and
    exercise of stock options                                  --            47
                                                       ----------    ----------
            Net cash used in financing activities             (10)         (441)
                                                       ----------    ----------

Net decrease in cash and cash equivalents                     (33)         (300)
Cash and cash equivalents at beginning of period            3,371         4,519
                                                       ----------    ----------
Cash and cash equivalents at end of period             $    3,338    $    4,219
                                                       ==========    ==========


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

                                       5
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                 March 31, 2006

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

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

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

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,
2005. 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,  2006.  The
accompanying  unaudited financial statements and related notes should be read in
conjunction with the audited financial  statements and included in its Form 10 -
KSB of LION, Inc. and notes thereto for its fiscal year ended December 31, 2005.

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

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

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

SHORT-TERM  INVESTMENTS - The Company's short-term investments consist primarily
of Auction Rate  Securities.  These securities are variable rate securities with
underlying  interest rates that reset  periodically (7-28 days) based on a Dutch
auction.  At the reset date, the holders can choose to hold their  securities at
the rate  determined by auction or opt out of the investment.  These  securities
are  classified  as  available-for-sale.   Available-for-sale   securities  with
remaining maturities of less than one year and those identified by management at
time of purchase for funding  operations in less than one year are classified as
short-term.

                                       6
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                 March 31, 2006

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

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

The Company  accounts  for its  software  products  with  external  licensing in
accordance with Statement of Position 97-2,  SOFTWARE REVENUE  RECOGNITION,  and
Staff  Accounting  Bulletin 104,  REVENUE  RECOGNITION IN FINANCIAL  STATEMENTS.
Revenue from licensing fees relating to the use of the LockPoint Xtra(R) product
is  recognized  when all  elements of the  contract  have been  delivered to the
customer.  Revenue from monthly recurring charges from use of the Pipeline Tools
and Risk Management  Services  products is recognized in the period in which the
service is provided.

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

Subscription  and service fees are  recognized  as revenue  over the  respective
subscription  periods or at the time the  services  are  provided.  Revenue from
services is generally  determined based on time and materials.  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.

ACCOUNTS  RECEIVABLE - The Company's accounts  receivable are due from customers
participating in the mortgage industry,  including lenders and mortgage brokers.
Credit is extended to most customers,  and generally collateral is not required.
Payments for  accounts  receivable  are due upon receipt of the invoice,  but in
some cases they may be due within 15 to 60 days  depending  on the  products  or
services provided.

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

                                       7
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                 March 31, 2006


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

PROPERTY  AND  EQUIPMENT  -  Property  and  equipment  are  stated  at cost less
accumulated depreciation and amortization.  Maintenance and repairs are expensed
as  incurred.   Depreciation  and  amortization  are  provided  for  in  amounts
sufficient to relate the cost of  depreciable  assets to  operations  over their
estimated service lives of 3 to 5 years for computer hardware and software and 5
years  for  equipment  on a  straight-line  basis.  Leasehold  improvements  are
amortized  over the lives of the  respective  leases or the service lives of the
improvements, whichever is shorter.

CAPITALIZED  SOFTWARE  DEVELOPMENT  COSTS - The Company  accounts for internally
developed  software costs in accordance with SOP 98-1,  ACCOUNTING FOR THE COSTS
OF COMPUTER  SOFTWARE  DEVELOPED OR OBTAINED FOR INTERNAL  USE.  These costs are
included in computer software in property and equipment and are amortized over a
period of three years.

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

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

NET LOSS  PER  COMMON  SHARE - Basic  loss  per  share is based on the  weighted
average number of shares  outstanding during each period.  Potentially  dilutive
common stock  equivalents  are  included in  determining  dilutive  earnings per
share.  The diluted share  calculation for the three months ended March 31, 2006
and  2005  excludes  options  to  purchase   3,969,867  and  5,747,609   shares,
respectively, due to their anti-dilutive effect.

ADVERTISING COSTS - Advertising costs are expensed as incurred.

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

                                       8
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                 March 31, 2006


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

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

STOCK-BASED  COMPENSATION - Effective  January 1, 2006, the Company  adopted the
provisions of FASB Statement No. 123R ("SFAS 123R"),  and applied the provisions
of  Staff  Accounting  Bulletin  No.  107,   SHARE-BASED   PAYMENT,   using  the
modified-prospective transition method. Compensation expense recognized includes
the estimated  expense for stock options granted on and subsequent to January 1,
2006,  based on the grant  date fair  value  estimated  in  accordance  with the
provisions of SFAS 123R,  and the estimated  expense for the portion  vesting in
the period for options granted prior to, but not vested as of December 31, 2005,
based on the grant date fair value  estimated  in  accordance  with the original
provisions of SFAS 123.  Further,  as required under SFAS 123R,  forfeitures are
estimated  for  share-based  awards that are not  expected to vest.  Results for
prior   periods   have  not  been   restated,   as   provided   for   under  the
modified-prospective method.

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

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

                                       9
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                 March 31, 2006


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

CONCENTRATION  OF  CREDIT  RISK - Cash is held in  interest  bearing  or  demand
deposit bank accounts.  Short-term  investments are comprised of marketable debt
securities. The Company and its subsidiary maintain cash balances and short-term
investments at several financial institutions.  Accounts at each institution are
insured by the Federal Deposit Insurance  Corporation up to $100,000.  Uninsured
balances  aggregated  approximately  $4.2 million at March 31, 2006. The Company
has not  experienced  any losses in such accounts and believes it is not exposed
to any  significant  credit  risk on cash and cash  equivalents  and  short-term
investments,  as these deposits and  investments are held by high credit quality
financial institutions.


Note 2 - Stock-based compensation

The Company  maintains two stock equity incentive plans under which it may grant
non-qualified  stock  options,  incentive  stock options or restricted  stock to
employees, non-employee directors and consultants.

In 1998,  the Company  established  the 1998 Stock Option Plan (the "1998 Plan")
under which 15 million  shares have been  reserved for  issuance.  The 1998 Plan
allows the  Company to grant  options to  employees  for up to 50,000  shares of
common stock per employee.  Employee  directors  are eligible to receive  option
grants and direct stock issuances.  Non-employee directors receive as an initial
grant options to purchase 50,000 shares of common stock, exercisable at not less
than the fair market  value of the  Company's  common stock on the day of grant.
Thereafter,  non-employee directors receive automatic option grants each year to
purchase  50,000  shares of common  stock  upon their  reelection  at the annual
meeting  of  shareholders.  Non-employee  chairs of the  audit and  compensation
committees receive an automatic option grant each year to purchase an additional
25,000  shares  of common  stock.  Options  granted  to  non-employee  directors
generally vest  quarterly over one year and generally  expire in four years from
the date of grant.  Options  granted to employees vest quarterly over four years
beginning  at the date of grant and  generally  expire 10 years from the date of
grant.  All  outstanding  stock options are  non-qualified  stock  options.  The
Company issues new shares of common stock upon exercise of stock options.

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

Stock  options to purchase the  Company's  common stock are granted at prices at
the fair market value on the date of grant.  Compensation  expense is recognized
only for those options expected to vest, with forfeitures  estimated at the date
of grant based on the Company's  historical  experience and future expectations.
Prior to the adoption of SFAS 123R, the effect of  forfeitures  was not included
as an assumption affecting compensation expense and was not material.

                                       10
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                 March 31, 2006

Note 2 - Stock-based compensation - continued

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

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

The fair value of option grants are  estimated  using the  Black-Scholes  option
pricing model with the following weighted average assumptions used for grants in
first  quarter  2006:  expected  volatility  of  approximately  113%;  risk-free
interest  rate of  4.6%;  expected  lives of 6.25  years;  and,  a zero  percent
dividend yield. There were no option grants in first quarter 2005.

A summary of the  Company's  1998 Plan  activity  during the three  months ended
March 31, 2006 is as follows:

                                                            Weighted
                                                Weighted    average
                                                Average    remaining   Aggregate
                                    Number of   exercise  contractual  intrinsic
                                      shares     price       life        value
                                    ---------   --------  -----------  ---------

  Outstanding at beginning of year  3,789,867   $   0.22
  Granted                             200,000       0.36
  Forfeited                           (20,000)      0.20
  Exercised                                --         --
                                    ---------   --------

   Outstanding at end of period     3,969,867   $   0.23   7.0 years   $ 515,000
                                    =========   ========   =========   =========

  Options exercisable at end
     of period                      2,883,392   $   0.23   5.1 years   $ 373,000
                                    =========   ========   =========   =========

  Weighted average fair value
    of options granted during
    the period                                  $   0.36
                                                ========

                                       11
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                 March 31, 2006

Note 2 - Stock-based compensation - continued

The aggregate intrinsic value is based on the Company's average high bid and ask
stock price of $0.36 as of the last business day of the three months ended March
31, 2006,  which would have been  received by the optionees had all options been
exercised on that date.  As of March 31, 2006,  total  unrecognized  stock-based
compensation  expense  related  to  unvested  stock  options  was  approximately
$165,000,  which is expected to be recognized over a weighted  average period of
approximately 2.5 years. The aggregate fair value of vested options  outstanding
as of March 31, 2006 was $665,000.

Following is a summary of the Company's  1998 Plan stock options  outstanding at
March 31, 2006:

                      Outstanding Options                    Options Exercisable
   -------------------------------------------------------   -------------------
                                                                        Weighted
                               Weighted      Weighted                    average
                               average   average remaining              exercise
   Exercise price    Number      price    contractual life     Number     price
   --------------   ---------  --------  -----------------   ---------  --------

   $ .04 - $ .25    3,069,450   $ 0.18      6.1 years        2,304,850   $ 0.18
   $ .26 - $ .50      675,417   $ 0.33      8.6 years          381,667   $ 0.32
   $ .51 - $ .61      225,000   $ 0.59      4.6 years          196,875   $ 0.60
                    ---------                                ---------
                    3,969,867   $ 0.23      7.0 years        2,883,392   $ 0.23
                    =========                                =========

A summary of the  Company's  2005 Plan  activity  during the three  months ended
March 31, 2006 is as follows:

<TABLE>
<CAPTION>
                                                                                  Weighted
                                                                                  average
                                                                    Number of    grant-date
                                                                     shares      fair value
<S>                                                                  <C>          <C>
   Restricted shares outstanding at beginning of year, unvested      40,313       $    .32
   Granted                                                               --             --
   Vested                                                            (1,750)           .32
   Forfeited                                                             --             --
                                                                     ------       --------

   Restricted shares outstanding at end of period, unvested          38,563       $    .32
                                                                     ======       ========
</TABLE>


The following  shares of common stock have been reserved for issuance  under the
Company's stock-based compensation plans as of March 31, 2006:

<TABLE>
<CAPTION>
                                                      1998 Plan     2005 Plan      Total
                                                     ----------    ----------    ----------
<S>                                                   <C>           <C>           <C>
    Outstanding share based compensation awards       3,969,867            --     3,969,867

    Underlying shares available for grant             2,609,311     4,957,000     7,566,311
                                                     ----------    ----------    ----------

    Total                                             6,579,178     4,957,000    11,536,178
                                                     ==========    ==========    ==========
</TABLE>

                                       12
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                 March 31, 2006

Note 2 - Stock-based compensation - continued

Total stock-based  compensation expense recognized in the condensed consolidated
statement  of  operations  for  the  three  months  ended  March  31,  2006  was
approximately $27,000 and consisted of stock option and restricted stock expense
of $26,000 and $1,000,  respectively.  Stock-based  compensation expense for the
three  months ended March 31, 2005 was  comprised  of only stock option  expense
totaling $65,000.

Prior to January 1, 2006, the Company  accounted for all employee awards granted
on or after January 1, 2003 using the fair value  recognition  provision of FASB
Statement No. 123,  "Accounting  for  Stock-Based  Compensation."  The following
table  illustrates  the effect on net loss and net loss per share if the Company
had applied the fair value  recognition  provisions  of SFAS 123 to all employee
awards (in thousands, except net loss per share):

                                                                    Three months
                                                                        ended
                                                                      March 31,
                                                                        2005
                                                                    ------------

    Net loss, as reported                                             $ (149)
    Add: Stock-based employee compensation expense included in
      reported net loss                                                   65
    Deduct:  Total stock-based employee compensation expense
      determined under fair value method for all awards, net of
      related tax effects                                                (68)
                                                                      ------
    Pro forma net loss                                                $ (152)
                                                                      ======

    Net loss per share:
        Basic and diluted - as reported                               $   --
                                                                      ======
        Basic and diluted - pro forma                                 $   --
                                                                      ======


Note 3 - Commitments and contingent liabilities

Company  management has become aware that LION may have  potential  liability in
connection  with an  unintentional  infringement  of the  intellectual  property
rights of a company vendor.  No claim against the Company is pending or has been
threatened by the vendor.  Company  management is  investigating  the matter and
evaluating  potential  liability,  if any.  Company  management  is not  able to
predict  the outcome of this  investigation  or  reasonably  estimate a range of
possible  loss at this time.  The Company has ceased the  activity and has taken
steps to ensure that procedures are in place to avoid such future conduct.

                                       13
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                 March 31, 2006

Note 4 - Segment reporting

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


                                              LION        TRMS     Consolidated
   -------------------------------------    --------    --------  --------------

    Three months ended March 31, 2006:
      Revenues from external customers       $ 2,081     $ 1,452      $ 3,533
      Revenues from internal customers           963          --           --
      Operating loss                            (157)        (41)        (198)

    Three months ended March 31, 2005:
      Revenues from external customers       $ 2,490     $ 1,551      $ 4,041
      Revenues from internal customers           878          --           --
      Operating loss                            (209)         72         (137)


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

                                                          Three months ended
                                                                March 31,
                                                          ------------------
                                                             2006       2005
                                                          -------    -------

    Operating loss                                        $  (198)   $  (137)
    Non-operating income (expense)                             15         (9)
                                                          -------    -------

    Net loss before tax                                   $  (183)   $  (146)
                                                          =======    =======

                                       14
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                 March 31, 2006

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

                                                       For three months ended
                                                              March 31,
                                                       ----------------------
                                                         2006         2005
                                                       --------     --------
    LEADS
      Mortgage 101                                     $    501     $    456
                                                       --------     --------

    LOANS
      LION Pro                                              697          751

      Retail Websites                                       639          657

      LockPoint Xtra                                        165          352
                                                       --------     --------
                                                          1,501        1,760
                                                       --------     --------
    CAPITAL MARKETS
      Pipeline Tools                                         79          274

      Risk Management Service (TRMS)                      1,452        1,551
                                                       --------     --------
                                                          1,531        1,825
                                                       --------     --------

         Total revenues                                $  3,533     $  4,041
                                                       ========     ========


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

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

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

                                       15
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

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

        The developing potential for Mortgage 101 and sales momentum for
Precision MTS (part of our LPX product group) were two trends that emerged in
late 2005 that strengthened in the first quarter of 2006. Revenue from Mortgage
101 was up 10% from first quarter last year and almost 20% from fourth quarter
2005. Sales of our proprietary Precision MTS product suite continued to be
strong in the first quarter. We signed five new customers in the first quarter
and added another four customers in April. Our pipeline is building, and we
expect to continue to exceed our monthly sales projections. We are optimistic
about our growth prospects for 2006 and beyond.

        Mortgage 101, the centerpiece of our Leads product group, is our
consumer Internet portal that connects potential mortgage applicants with an
extensive network of mortgage brokers, lenders and other providers to meet a
variety of consumer real estate and mortgage needs. With over 1 million largely
organically derived unique visitors each month, Mortgage 101 is one of the
industry leading sources of leads for real estate financing and consistently
ranks number 1 or 2 on Google, MSN and Yahoo for keyword search "mortgage."
Early in second quarter 2006, we completed a back office product release that
includes an architectural redesign of our lead management and distribution
system, internal systems enhancements to support sales, operations and
accounting processes, additional ad banner space, search engine optimization
features and new web analytics software to better understand, evaluate and
optimize the traffic attracted to our sites. The next major initiative for
Mortgage 101 includes the redesign of our consumer-facing Mortgage 101 site to
improve efficiencies and consumer functionality. We anticipate that this
initiative could be complete as early as the end of 2006.

        We are continuing to expand the functionality of our Precision MTS
product suite, including the introduction of a new subprime search engine
sometime during third quarter 2006. This is one of our most frequent requests
from existing and prospective customers. The ability to utilize an expanded set
of web based management tools, to access a more comprehensive and lockable set
of loan price and program data and to search subprime loan price and program
information are significant enhancements to our product suite that will attract
more customers and enhance our opportunity in the coming year to generate
incremental revenue.

        We introduced a number of important improvements in our Retail Website
service offering during first quarter 2006 that included adding five new product
packages, expanding our template library making it one of the largest selections
available in the market, and introducing a new user Content Management
interface. The implementation of user Content Management was a competitive
advance in our customer productivity tools.

        Our Capital Markets product group contributed lower than expected
revenue in first quarter 2006. Transactional related billings declined compared
to fourth quarter 2005 as a result of lower mortgage origination levels among
our clients due to seasonal factors, higher mortgage interest rates, and the
correspondingly lower closed loan volume from those clients on which our
variable revenue in both our TRMS trading unit and our Pipeline Tools service
bureau businesses are based. Despite having more

                                       16
<PAGE>


clients than this time a year ago, we are reporting lower revenue than
comparable periods due to the effect of higher mortgage interest rates on
mortgage loan production. We have many TRMS and Pipeline Tools customers whose
billings have declined to the level of their contracted monthly minimum and
whose origination volumes fall below the level at which we begin to collect
incremental variable transaction based fees. While we continue to add to our
customer base and expect to add new clients in second quarter 2006 and
thereafter, depressed mortgage volume may continue to make this a challenging
market environment.

        Revenue for first quarter 2006 was $3.5 million, down 13% from first
quarter 2005 revenue of $4.0 million. The decrease was due primarily to the
planned repositioning of our LockPoint Xtra(R) product line, lower mortgage
origination levels by our Capital Markets customer base, and consolidation of
mortgage brokers within the mortgage industry related to our LION Pro and Retail
Web Sites products which was offset by an increase in revenue for Mortgage 101
as a result of leveraging more efficiently the strong web traffic that comes to
this consumer portal.

        Operating expenses for first quarter 2006 were $3.7 million, down 11%
from first quarter 2005 operating expenses of $4.2 million. The decrease was due
primarily from the streamlining and consolidation of operations for product
development and fulfillment along with the related technology infrastructure.

        The net loss for first quarter 2006 was $186,000 compared to a net loss
of $149,000 for the same quarter in the prior year. The loss for the first
quarter was primarily due to lower revenue in our Capital Markets business unit.


RESULTS OF OPERATIONS

REVENUES (dollars in thousands)

                             For three months ended March 31,
                             -------------------------------
                                  2006             2005            Change
                             --------------    -------------    --------------

    LEADS
    Mortgage 101             $   501     14%   $   456    11%   $    45     10%
                             -------    ---    -------   ---    -------    ---

    LOANS
    LION Pro                     697     20%       751    19%       (54)    (7)%
    Retail Websites              639     18%       657    16%       (18)    (3)%
    LockPoint Xtra(R)            165      5%       352     9%      (187)   (53)%
                             -------    ---    -------   ---    -------    ---
                               1,501     43%     1,760    44%      (259)   (15)%
                             -------    ---    -------   ---    -------    ---

    CAPITAL MARKETS
    Pipeline Tools                79      2%       274     7%      (195)   (71)%
    Risk Management Services   1,452     41%     1,551    38%       (99)    (6)%
                                        ---    -------   ---    -------    ---
                               1,531     43%     1,825    45%      (294)   (16)%
                             -------    ---    -------   ---    -------    ---

        Total revenues       $ 3,533    100%   $ 4,041   100%   $  (508)   (13)%
                             =======    ===    =======   ===    =======    ===


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

LEADS

        Our Leads product group which consists of Mortgage 101 comprised 14% and
11% of total LION revenue for the three months ended March 31, 2006 and 2005,
respectively. During first quarter 2006, our pay per lead program comprised 65%
of Mortgage 101 revenues, rate and directory listings comprised 27%,

                                       17
<PAGE>


and ad banners comprised 8%. During first quarter 2005, the pay per lead program
comprised 69% of Mortgage 101 revenues, rate and directory listings comprised
26%, and ad banners comprised 5%. Mortgage 101 revenue in the first quarter was
$501,000, up 10% compared to $456,000 for first quarter 2005. The growth in
Mortgage 101 revenue is due to leveraging more efficiently the strong web
traffic that comes to this consumer portal. Each revenue category within
Mortgage 101 is anticipated to grow throughout 2006.

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

LOANS

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

        The Loans product group accounted for approximately 43% and 44% of total
LION revenue for the three months ended March 31, 2006 and 2005, respectively.
Revenue for first quarter 2006 totaled $1.5 million, down 15% compared to $1.8
million in the same period in the prior year. The decrease is primarily due to
the repositioning of our pricing engine business within our LockPoint Xtra(R)
product line combined with declining refinancing activity. Our Precision MTS
product suite is anticipated to have a positive impact in second quarter 2006
and result in growth in LPX revenue quarter to quarter during 2006. The decrease
in LION Pro and Retail Websites is due to the consolidation of mortgage brokers
within the mortgage industry in an increasing interest rate environment.

        LION PRO, used by nearly 7,300 mortgage brokers nationwide, consists of
LION Loan Search, LoanLink (subprime loan exchange platform), News Now
(high-value market data) and Ratesheets on Demand (aggregated mortgage
ratesheets). It is packaged and often private labeled for both large companies
and origination teams along with individual or small mortgage brokers. Through
this password protected product, originators can access one of the nation's
largest databases of wholesale mortgage rate, fee, and program information to
instantly price any mortgage loan. This database is updated daily for 77 regions
nationwide and includes 76 participating lenders. Revenues from the LION Pro
product line are generated from mortgage brokers and originators subscribing to
the service, origination teams private-labeling this service for their own
companies, and from participating lenders.

        RETAIL WEBSITES are offered to mortgage companies and individual
originators to help educate consumers about mortgages, market their services to
borrowers, build brand identity, generate more business, efficiently connect
with service providers and better serve their borrowers. This product is
intended to create and foster relationships between consumers and mortgage
originators while enabling mortgage companies and originators to more
efficiently manage their online production channel and maximize the business
value received from their online operations. Both template and custom design
solutions deliver a combination of standard and custom content to approximately
2,840 websites. Revenues are generated from website set up and monthly hosting
fees along with fees for related functionality tools.

        LOCKPOINT XTRA(R) ("LPX") is a Point-of-Sale and back office suite of
products that provide rate distribution, float registration, real-time
risk-based pricing and rate locking capabilities in a customer's

                                       18
<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 locked loan amount volumes with
monthly minimums which may vary from customer to customer, and custom
development services.

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

CAPITAL MARKETS

        Our Capital Markets product group, comprised of our Pipeline Tools
technology and risk management services provided by our subsidiary, TRMS,
combined for approximately 43% and 45% of total revenue for the three months
ended March 31, 2006 and 2005, respectively. Revenue for first quarter 2006 was
$1.5 million, a decrease of 16% compared to $1.8 million for the same quarter in
the prior year. The decrease was a result of lower mortgage origination levels
among our capital markets customers due to both seasonal factors and higher
mortgage interest rates, and the correspondingly lower closed loan volume of
those customers on which our variable revenue in both our TRMS trading unit and
our Pipeline Tools service bureau business are based.

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

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

                                       19
<PAGE>


OPERATING EXPENSES (dollars in thousands)

                               For three months ended March 31,
                               --------------------------------
                                     2006            2005            Change
                               ---------------  ---------------  ---------------
                                        % of             % of             % of
                               Amount  Revenue  Amount  Revenue  Amount  Revenue
                               ------  -------  ------  -------  ------  -------

   Direct costs                $ 1,525    43%   $ 1,690    42%   $  (165)  (10)%
   Selling and marketing           565    16%       644    16%       (79)  (12)%
   General and administrative      927    26%     1,052    26%      (125)  (12)%
   Research and development        592    17%       662    16%       (70)  (11)%
   Depreciation and
     amortization                  122     4%       130     3%        (8)   (7)%
                               -------  ----    -------  ----    -------   ---

     Total operating expenses  $ 3,731   106%   $ 4,178   103%   $  (447)  (11)%
                               =======  ====    =======  ====    =======   ===


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. For first quarter 2006, direct costs
were $1.5 million, down 10% from $1.7 million for the same quarter in the prior
year. Over the last 2 years, we have been repositioning our pricing engine
business within our LockPoint Xtra(R) product line and migrating to our
Precision MTS product suite. This change has allowed us to reduce the level of
resources necessary to support and maintain the LockPoint Xtra(R) product line.
In addition, during that time we have also been consolidating our IT
infrastructure resources and datacenters. The efficiencies gained from this have
allowed us to reduce our IT infrastructure costs.

SELLING AND MARKETING

        Selling and marketing expenses are comprised primarily of advertising
and marketing costs, sales salaries and related support costs. For first quarter
2006, selling and marketing expenses decreased 12% to $565,000 compared to
$644,000 for the same quarter in the prior year. The decrease is due primarily
to a restructuring of our broker and lender sales forces which was offset by an
increase in our 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. For first quarter 2006,
general and administrative expenses decreased 12% to $927,000 from $1.1 million
for the same quarter in the prior year. This decrease is primarily due to lower
stock-based compensation expense, a reduction in management personnel compared
to first quarter 2005 and efficiencies in our Internet infrastructure costs.
These decreases were offset by adding to and strengthening our accounting and
human resource personnel.

RESEARCH AND DEVELOPMENT

        Research and development expenses are comprised primarily of engineering
salaries and related costs. For first quarter 2006, research and development
expenses decreased 11% to $592,000 compared to $662,000 in the same quarter in
the prior year. The reduction in research and development costs reflects our
consolidation efforts related to product development and the relocation of
research and development efforts into one location.

                                       20
<PAGE>


DEPRECIATION AND AMORTIZATION

        The decrease in depreciation and amortization expense in first quarter
2006 compared to the same quarter in the prior year is due to equipment,
computers and software which became fully depreciated at the end of 2005.

INTEREST EXPENSE AND INTEREST INCOME

         For first quarter 2006, interest expense of $20,000 is comprised of
interest on 8% promissory notes totaling $972,000 related to the TRMS
acquisition and various debt related to capitalized leases. For first quarter
2005, interest expense of $23,000 is comprised of interest on 10 percent
promissory notes which were paid off in mid-February 2005, the 8% promissory
notes totaling $972,000 and various debt related to capitalized leases.

        For first quarter 2006, interest income increased to $33,000 compared to
$14,000 for the first quarter in the prior year. The increase is due to
additional funds that could be invested along with a rising interest rate
environment. Investments during the first quarter of 2006 had maturities of not
greater than three months so as to take advantage of an environment of rising
short term interest rates.

OPERATING SEGMENTS

        We have two operating segments, TRMS and the integrated software,
services and lead generation businesses in which the Company is engaged.
Management elected to report on each segment based upon, among other things,
TRMS being a registered Commodity Trading Advisor and generating revenues
through hands on delivery of Risk Management Services, while LION's other
combined operations generate revenues primarily for sales of software related
products and services. Intercompany revenues represent fees for Pipeline Tools
technology and services purchased by TRMS from its parent, LION, which are
generally accounted for at current market prices and are eliminated in
consolidation. Condensed operating segment information is as follows (in
thousands):

                                                         For three months ended
                                                                March 31,
                                                         -----------------------
                                                            2006         2005
                                                         ---------    ---------

Revenue
  LION                                                   $   2,081    $   2,490
  TRMS                                                       1,452        1,551
                                                         ---------    ---------
    Total revenue                                        $   3,533    $   4,041
                                                         =========    =========

Net operating loss
  LION                                                   $    (157)   $    (209)
  TRMS                                                         (41)          72
                                                         ---------    ---------
    Total net operating loss                             $    (198)   $    (137)
                                                         =========    =========


        LION revenue for first quarter 2006 was $2.1 million, down 16% from
first quarter 2005 revenue of $2.5 million. The decrease was due primarily to
the planned repositioning of our LockPoint Xtra(R) product line, lower mortgage
origination levels by our Pipeline Tools customer base along with the loss of
certain customers due to acquisition or withdrawal from the practice of
originating loans against future commitments that require an interest rate risk
management strategy, and the consolidation of mortgage brokers within the
industry related to our LION Pro and Retail Web Sites products. Mortgage 101
revenue in the first quarter was $501,000, up 10% compared to $456,000 for first
quarter 2005. The growth in Mortgage 101 revenue is due to leveraging more
efficiently the strong web traffic that comes to this consumer portal. Each
revenue category within Mortgage 101 is anticipated to grow throughout 2006. Our

                                       21
<PAGE>


Precision MTS product suite is expected to have a positive impact in the second
quarter and is anticipated to add to the growth of LPX revenue quarter to
quarter during 2006.

        TRMS revenue for first quarter 2006 was $1.5 million, down 6% from first
quarter 2005 revenue of $1.6 million. The decrease was a result of lower
mortgage origination levels among our TRMS customers due to seasonal factors,
higher mortgage interest rates, and the correspondingly lower closed loan volume
of those customers on which our variable revenue in our TRMS trading unit is
based.

        LION reduced its net operating loss by approximately $52,000 in the
first quarter compared to the same quarter in the prior year. This was due to
the reduction of operating expenses by approximately $375,000 primarily
resulting from the streamlining and consolidation of operations for product
development and fulfillment along with the related technology infrastructure.

        TRMS had an operating loss of $41,000 for the quarter compared to
operating income of $72,000 in the same quarter in the prior year. The decrease
was attributable to lower revenues discussed above. Total customers at the end
of first quarter 2006 were 55, up from 50 at the end of the same quarter in the
prior year. TRMS also decreased its operating expenses by approximately $71,000
primarily due to a restructuring of the sales function.


FINANCIAL POSITION

        At March 31, 2006, we had approximately $4.4 million in cash, cash
equivalents, short-term investments, and restricted cash. During the first
quarter of 2006 and 2005, we funded our activities primarily from cash provided
by operations. Cash, cash equivalents and short-term investments are expected to
fund near-term operations. Non-cash items are comprised of depreciation and
amortization and stock option expense. The change in cash and cash equivalents
is as follows (in thousands):

                                                            Three months ended
                                                                  March 31,
                                                           --------------------
                                                             2006        2005
                                                           --------    --------

Net loss                                                   $   (186)   $   (149)
Non-cash items                                                  149         195
Changes in working capital                                       46         176
                                                           --------    --------
  Net cash provided by operating activities                       9         222
                                                           --------    --------

  Net cash used in investing activities                         (32)        (81)
                                                           --------    --------

Restricted cash for letter of credit                             --        (280)
Other net uses of cash for financing activities                 (10)       (161)
                                                           --------    --------
  Net cash used in financing activities                         (10)       (441)
                                                           --------    --------

Net decrease in cash and cash equivalents                       (33)       (300)
Cash and cash equivalents at beginning of period              3,371       4,519
                                                           --------    --------
Cash and cash equivalents at end of period                 $  3,338    $  4,219
                                                           ========    ========

                                       22
<PAGE>


OPERATING ACTIVITIES

        During the three months ended March 31, 2006, cash from operating
activities increased slightly due to an increase in deferred revenue primarily
related to a large TRMS customer as part of an existing contract and increases
in accounts payable, accrued salaries and benefits, and accrued liabilities due
to our normal business operating cycle. This increase was offset by an increase
in trade receivables and certain prepaid maintenance and service agreements.

        During the three months ended March 31, 2005, cash from operating
activities increased due to increases in deferred revenue primarily related to a
large TRMS customer as part of an existing contract, a decrease in certain
prepaid assets 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.

INVESTING ACTIVITIES

        During the three months ended March 31, 2006, investing activities used
cash of $32,000 which primarily consisted of the acquisition of computer
equipment and software.

        During the three months ended March 31, 2005, investing activities used
cash of $81,000 which primarily consisted of the capitalized portion of software
development costs related to the enhancement of underlying infrastructure
delivering various product lines to customers and upgrades to computer hardware
and software.

FINANCING ACTIVITIES

        During the three months ended March 31, 2006, financing activities
primarily related to payments on capitalized lease obligations related to the
acquisition of application and database software, computers, servers, furniture
and telecommunications systems upgrades. The remaining capital lease obligation
will be paid off during the second quarter of 2006.

        During the three months ended March 31, 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. This was offset by
the exercise of stock options during the period totaling $47,000.

OVERALL LIQUIDITY AND CAPITAL RESOURCES

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

        Company management has become aware that LION may have potential
liability in connection with an unintentional infringement of the intellectual
property rights of a company vendor. No claim against the Company is pending or
has been threatened by the vendor. Company management is investigating the
matter and evaluating potential liability, if any. Company management is not
able to predict the outcome of this investigation or reasonably estimate a range
of possible loss at this time. The Company has ceased the activity and has taken
steps to ensure that procedures are in place to avoid such future conduct. A
resolution of this matter might involve a financial settlement, which could
adversely affect our capital resources.

                                       23
<PAGE>


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

        REVENUE RECOGNITION

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

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

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

        DEFERRED TAXES

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

        The Company has recognized a tax benefit of $150,000. This tax benefit
was the result of the recognition of a net deferred tax asset. Realization of
the net deferred tax asset is dependent on generating sufficient taxable income
prior to expiration of net operating loss carryforwards. At December 31, 2005,
the Company had net operating loss carryforwards for federal income tax purposes
of approximately $3.1

                                       24
<PAGE>


million available to offset future income which expire in 2018 through 2023.
Although realization is not assured, management believes it is more likely than
not that a portion of the deferred tax asset will be realized. The amount of the
deferred tax asset considered realizable, however, could be reduced if estimates
of future taxable income during the carryforward period are reduced. The Company
has established a valuation allowance of approximately $1.1 million as of
December 31, 2005 and 2004 due to the uncertainty of future realization of the
net deferred tax assets. Utilization of these carryforwards could be limited due
to a change of control in the Company's ownership as defined by the Internal
Revenue Code Section 382.

        IMPAIRMENT OF GOODWILL

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

        STOCK-BASED COMPENSATION

        Effective January 1, 2006, the Company adopted the provisions of FASB
Statement No. 123R ("SFAS 123R"), and applied the provisions of Staff Accounting
Bulletin No. 107, SHARE-BASED PAYMENT, using the modified-prospective transition
method. Compensation expense recognized included the estimated expense for stock
options granted on and subsequent to January 1, 2006, based on the grant date
fair value estimated in accordance with the provisions of SFAS 123R, and the
estimated expense for the portion vesting in the period for options granted
prior to, but not vested as of December 31, 2005, based on the grant date fair
value estimated in accordance with the original provisions of SFAS 123. Further,
as required under SFAS 123R, forfeitures are estimated for share-based awards
that are not expected to vest. Results for prior periods have not been restated,
as provided for under the modified-prospective method.

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

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

                                       25
<PAGE>


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


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 $15.8 million in 2005 from $15.2
million in 2004 and from $8.1 million for 2003. However, during those years
revenues quarter to quarter have at times remained flat. Had it not been for the
strategic acquisition of the Ignition assets in December 2003 and the
acquisition of TRMS in October 2004, revenue growth targets year over year would
not have been achieved in 2005 and the likelihood of achieving targets for 2006
much more difficult. Revenue is down in first quarter 2006 compared to fourth
quarter due to a rising interest rate environment and decreasing loan
origination volumes. We had ten consecutive quarters of profitability beginning
with the third quarter of 2002 through the fourth quarter of 2004, but incurred
a net loss for each of the first two quarters of 2005 before returning to
profitability in the third and fourth quarters. We have recorded a net loss for
first quarter 2006 but anticipate a profit for the full year 2006.

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

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

        We are substantially dependent on the continued services of our key
personnel, including our officers, engineers and other significant employees.
These individuals have acquired specialized knowledge and skills with respect to
LION. We are continuing to create the redundancies that will reduce the reliance
on these individuals, but have not completed this task and will not for at least
the remainder 2006. Furthermore, we have not entered into employment agreements
with these significant employees except for our executive officers. If any of
these individuals were to leave LION unexpectedly, we could face substantial
difficulty in hiring qualified successors and could experience a loss in
productivity while any such successor obtains the necessary training and
experience. We provide stock options or restricted stock grants, which serve to
retain and motivate key employees as they become vested in their equity. At

                                       26
<PAGE>


our 2005 annual meeting, stockholders approved a stock incentive plan which will
allow a flexible stock compensation program which we believe will be important
in our ability to attract and retain the best available employees. We expect
that we will need to attract, train, retain and motivate additional technical,
managerial, marketing and customer support personnel. Competition for these
personnel may be intense, particularly for individuals with suitable experience.
We face the risk that if we are unable to attract and integrate new personnel,
or retain and motivate existing personnel, our business will be adversely
affected.

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

        Our success depends on our ability to expand, retain and enhance our
advanced business solution customers. Our expanded product line through the
acquisition of Ignition assets and TRMS carries with it the risk that our
revenues may be dependent on a limited number of significant customers, rather
than a broad-based broker and customer network. Our larger customer contracts,
which involve our LPX, Pipeline Tools and TRMS hedging services, typically have
renewable successive one- and two-year terms. Revenue from these contracts
comprised approximately 48% of our total revenue for first quarter 2006.

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

OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

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

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

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

        Our success will depend on the continued growth and maintenance of the
Internet infrastructure. This includes maintenance of a reliable network
backbone with the necessary speed, data capacity and security for providing
reliable Internet services. Internet infrastructure may be unable to support the

                                       27
<PAGE>


demands placed on it if the number of Internet users continues to increase, or
if existing or future Internet users access the Internet more often or increase
their bandwidth requirements. In addition, viruses, worms and similar programs
may harm the performance of the Internet. The Internet has experienced a variety
of outages and other delays as a result of damage to portions of its
infrastructure, and it could face outages and delays in the future. These
outages and delays could reduce the level of Internet usage as well as our
ability to provide our solutions.

GOVERNMENT REGULATION

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

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

IF WE DO NOT CONTINUE TO INNOVATE AND PROVIDE PRODUCTS AND SERVICES THAT ARE
USEFUL TO OUR USERS AND CUSTOMERS, WE MAY NOT REMAIN COMPETITIVE, AND OUR
REVENUES AND OPERATING RESULTS COULD SUFFER.

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

                                       28
<PAGE>


WE ARE REQUIRED TO EVALUATE OUR INTERNAL CONTROL OVER FINANCIAL REPORTING UNDER
SECTION 404 OF THE SARBANES OXLEY ACT OF 2002, AND ANY ADVERSE RESULTS FROM SUCH
EVALUATION COULD RESULT IN A LOSS OF INVESTOR CONFIDENCE IN OUR FINANCIAL
REPORTS AND HAVE AN ADVERSE EFFECT ON OUR STOCK PRICE.

        Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we will be
required to furnish a report by our management on our internal control over
financial reporting, beginning with our Annual Report on Form 10-KSB for the
fiscal year ending December 31, 2007. 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,
2007 (or if our auditors are unable to attest that our management's report is
fairly stated or they are unable to express an opinion on the effectiveness of
our internal controls), 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, 2007.

OUR INTELLECTUAL PROPERTY RIGHTS ARE VALUABLE, AND ANY INABILITY TO PROTECT THEM
COULD REDUCE THE VALUE OF OUR PRODUCTS, SERVICES AND BRAND.

        We rely on a combination of copyright and trademark laws, trade secrets,
software security measures, license agreements and nondisclosure agreements to
protect our proprietary technology and software products. We have a variety of
registered Internet domain names. Regulations governing domain names may not
protect our trademarks and similar proprietary rights. We may be unable to
prevent third parties from acquiring domain names that are similar to, infringe
upon, or diminish the value of our trademarks and other proprietary rights. We
currently have federally registered trademarks on LockPoint Xtra(R),
Lockpoint(R), and Ratesheet Plus(R) and one pending patent; "User Interface for
On-line Real Estate Service."

        Policing unauthorized use of our proprietary rights is inherently
difficult, and we may not be able to determine the existence or extent of any
such unauthorized use. The protection of our intellectual property may require
the expenditure of significant financial and managerial resources. Moreover, we
cannot be certain that the steps we take to protect our intellectual property
will adequately protect our rights or that

                                       29
<PAGE>


others will not develop substantially equivalent or superseding proprietary
technology, or that equivalent products will not be marketed in competition with
our products, thereby substantially reducing the value of our proprietary
rights. Furthermore, there can be no assurance that any confidentiality
agreements between us and our employees or any license agreements with our
customers will provide meaningful protection of our proprietary information in
the event of any unauthorized use or disclosure of such proprietary information.

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

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

        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. Furthermore, we may enter into
letters of intent and other non-definitive agreements that do not culminate in a
completed transaction, engage in contract negotiations, or incur due diligence
expenses which affect our quarterly earnings prior to or without entering into a
material definitive agreement required to be disclosed publicly. The negotiation
or consummation of any of these transactions could be material to our financial
condition and results of operations. In addition, the process of integrating an
acquired company, business or technology may create unforeseen operating
difficulties and expenditures and is risky. The areas where we may face risks
include:

        o   The need to implement or remediate controls, procedures and policies
            appropriate for a public company at companies that prior to the
            acquisition lacked these controls, procedures and policies.

        o   Diversion of management time and focus from operating our business
            to 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.

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THE TRADING PRICE FOR OUR COMMON STOCK IS AND MAY CONTINUE TO BE VOLATILE.

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

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

        o   Announcements by us or our competitors of 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.


ITEM 3.     CONTROLS AND PROCEDURES

(a) Disclosure controls and procedures.

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

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(b) Changes in internal control over financial reporting.

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

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


                           PART II - OTHER INFORMATION


ITEM 6.  EXHIBITS

(a) Exhibits listing:

EXHIBIT
NUMBER         DESCRIPTION

31.1           Certification of Chief Executive Officer pursuant to Section 302
               of the Sarbanes-Oxley Act of 2002

31.2           Certification of Chief Financial Officer pursuant to Section 302
               of the Sarbanes-Oxley Act of 2002

32.1           Certification by Chief Executive Officer and Chief Financial
               Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


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                                   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: May 15, 2006                         By:   /s/ Randall D. Miles
              ------------                               --------------------
                                                         Randall D. Miles
                                                         Chief Executive Officer

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