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

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



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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001


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


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


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


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


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


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

     As of November 5, 2001, approximately 30,796,978 shares of the Company's
common stock were outstanding.
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<PAGE>
                                   LION, Inc.
                                  Form 10 - QSB
                    For the Quarter Ended September 30, 2001



                                                                           PAGE
                                                                          NUMBER
                                      INDEX



PART I   FINANCIAL INFORMATION

Item 1   Financial Statements

         Balance Sheets at September 30, 2001 (unaudited)
         and December 31, 2000                                               3

         Statements of Operations for the three and nine month
         periods ended September 30, 2001 and 2000 (unaudited)               4

         Statements of Cash Flows for the nine months ended
         September 30, 2001 and 2000 (unaudited)                             5

         Notes to Financial Statements                                       6

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




PART II  OTHER INFORMATION

Item 5   Other Information                                                  18

Item 6   Exhibits and Reports on Form 8-K                                   18

         Signatures                                                         19







                                        2
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                   LION, Inc.
                                 BALANCE SHEETS


<TABLE><CAPTION>
                                                   September 30,     December 31,
                                                       2001              2000
                                     ASSETS        ------------      ------------
                                                   (Unaudited)
<S>                                                <C>               <C>
CURRENT ASSETS
   Cash and cash equivalents                       $    364,134      $    117,254
   Accounts receivable, less allowance for
     doubtful accounts of $73,000 and $82,390
     in 2001 and 2000, respectively                     447,310           457,705
   Prepaid expenses and other                            96,290            92,615
                                                   ------------      ------------
        Total current assets                            907,734           667,574

PROPERTY AND EQUIPMENT - net                            838,798           861,847

OTHER ASSETS
   Goodwill - net                                       551,705           706,873
   Other assets                                          35,036            45,377
                                                   ------------      ------------
                                                   $  2,333,273      $  2,281,671
                                                   ============      ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable                                $    164,815      $    236,836
   Accrued liabilities                                  345,990           381,087
   Deferred revenue                                     257,515           305,100
                                                   ------------      ------------
        Total current liabilities                       768,320           923,023

COMMITMENTS AND CONTINGENCIES                              --                --

STOCKHOLDERS' EQUITY
   Preferred stock - authorized, 5,000,000
     shares of $.001 par value, liquidation
     value $900,000                                       1,500             1,500
   Common stock - authorized, 50,000,000
     shares of $.001 par value                           30,797            32,665
   Additional contributed capital                    12,064,402        12,804,073
   Notes receivable from stockholders                   (21,250)         (969,375)
   Accumulated deficit                              (10,510,496)      (10,510,215)
                                                   ------------      ------------
                                                      1,564,953         1,358,648
                                                   ------------      ------------
                                                   $  2,333,273      $  2,281,671
                                                   ============      ============

The accompanying notes are an integral part of these statements.
</TABLE>

                                        3
<PAGE>
                                   LION, Inc.
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)


<TABLE><CAPTION>
                                         Three months ended September 30,     Nine months ended September 30,
                                          ------------------------------      ------------------------------
                                              2001              2000              2001              2000
                                          ------------      ------------      ------------      ------------
<S>                                       <C>               <C>               <C>               <C>
Revenues                                  $  1,492,828      $  1,574,605      $  4,547,159      $  4,600,459

Expenses
    Direct costs                               281,689           156,049           802,754           527,548
    Selling and marketing                      384,671           695,955         1,305,335         1,753,096
    General and administrative                 612,154           816,986         1,841,927         2,335,371
    Compensation from stock options
       issued below fair market value             --                --                --             101,580
    Research and development                    50,411           114,964           154,274           450,324
    Depreciation and amortization              144,461           136,260           437,758           371,030
                                          ------------      ------------      ------------      ------------
                                             1,473,386         1,920,214         4,542,048         5,538,949
                                          ------------      ------------      ------------      ------------

         Operating income (loss)                19,442          (345,609)            5,111          (938,490)

Other income (expense)
    Interest expense                              (694)          (32,477)           (2,009)         (146,482)
    Interest income                                978            19,770             2,345            45,383
    Other income (expense) - net                (8,926)           (1,488)           (5,728)             (836)
                                          ------------      ------------      ------------      ------------

         NET INCOME (LOSS)                $     10,800      $   (359,804)     $       (281)     $ (1,040,425)
                                          ============      ============      ============      ============

Net income (loss) per common share -
    basic and diluted                     $       --        $       (.01)     $       --        $       (.03)
                                          ============      ============      ============      ============
</TABLE>















The accompanying notes are an integral part of these statements.

                                        4
<PAGE>
                                   LION, Inc.
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE><CAPTION>
                                                                                Nine months ended September 30,
                                                                                ------------------------------
                                                                                    2001              2000
                                                                                ------------      ------------
<S>                                                                             <C>               <C>
Cash flows from operating activities
   Net loss                                                                     $       (281)     $ (1,040,425)
   Adjustments to reconcile net loss to net cash provided by (used in)
     operating activities
       Depreciation and amortization                                                 437,758           371,030
       Write off of capitalized software development costs                              --              56,200
       Interest earned on notes receivable                                              --              36,114
       Warrants issued for financing costs                                              --             115,500
       Warrants issued for services received                                            --             129,940
       Common stock and stock options issued for services received                    15,536            16,520
       Common stock issued in lieu of cash compensation                               13,500              --
       Compensation expense on stock options issued below fair market value             --             101,580
       Changes in assets and liabilities
           Accounts receivable                                                        10,395            24,667
           Prepaid expenses and other                                                 (3,675)         (188,154)
           Accounts payable                                                          (72,021)         (166,110)
           Accrued liabilities                                                       (35,097)          (48,945)
           Deferred revenue                                                          (47,585)           30,639
           Other assets                                                               10,342              --
                                                                                ------------      ------------
               Net cash provided by (used in) operating activities                   328,872          (561,444)

Cash flows from investing activities
   Capitalized software development costs                                           (180,997)         (189,221)
   Purchase of property and equipment                                                (78,545)          (26,051)
                                                                                ------------      ------------
               Net cash used in investing activities                                (259,542)         (215,272)

Cash flows from financing activities
   Payments on related party payables                                                   --             (60,500)
   Payments on line of credit                                                           --            (587,550)
   Proceeds from notes receivable                                                       --              65,622
   Proceeds from issuance of common stock and exercise of stock options              177,550            20,808
   Net proceeds from issuance of preferred stock                                        --             807,000
   Proceeds from exercise of warrants                                                   --             472,232
                                                                                ------------      ------------
               Net cash provided by financing activities                             177,550           717,612
                                                                                ------------      ------------
Net increase in cash and cash equivalents                                            246,880           (59,104)

Cash and cash equivalents at beginning of period                                     117,254           368,649
                                                                                ------------      ------------
Cash and cash equivalents at end of period                                      $    364,134      $    309,545
                                                                                ============      ============
Supplemental non-cash investing and financing activities:
   Exercise of stock options by notes receivable                                $     21,250      $    309,375
   Common stock returned for cancellation of notes receivable                   $    969,375      $    448,438
   Issuance of warrants as finders fee for financing                            $       --        $     62,410
   Common stock issued related to purchase of IMark assets                      $       --        $    374,117
</TABLE>
The accompanying notes are an integral part of these statements.

                                        5
<PAGE>
                                   LION, Inc.
                                  Form 10 - QSB
                          NOTES TO FINANCIAL STATEMENTS




NOTE 1.  FINANCIAL STATEMENTS

         The unaudited financial statements and related notes are presented as
permitted by Form 10 - QSB, and do not contain certain information included in
the Company's audited financial statements and notes for the fiscal year ended
December 31, 2000. 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, 2001.
The accompanying unaudited consolidated financial statements and related notes
should be read in conjunction with the audited consolidated financial statements
and the Form 10 - KSB of LION, Inc. and notes thereto, for its fiscal year ended
December 31, 2000.

NOTE 2.  NET INCOME (LOSS) PER COMMON SHARE

         Basic net income (loss) per common share is based on the income
available to common stockholders compared to the average number of shares
outstanding during each period. The weighted average number of common shares
outstanding were 30,796,978 and 33,333,191 for the three months ended September
30, 2001 and 2000, respectively, and 30,592,491 and 32,856,314 for the nine
months ended September 30, 2001 and 2000, respectively. The computation for net
income (loss) per common share assuming dilution for the three and nine months
ended September 30, 2001 and 2000 was anti-dilutive, and therefore, is not
included.

NOTE 3.  CONTINGENCIES

         LION is subject to various legal proceedings and claims that arise in
the ordinary course of business. Management currently believes that resolving
these matters will not have a material adverse impact on the Company's financial
position or its results of operations.

         We are currently in the process of negotiating a claim made against the
Company. We are not currently able to estimate the probable amount of such
claim.

NOTE 4.  RECENT ACCOUNTING PRONOUNCEMENTS

         On July 20, 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These
statements make significant changes to the accounting for business combinations,
goodwill, and intangible assets.




                                        6
<PAGE>
         SFAS No. 141 establishes new standards for accounting and reporting
requirements for business combinations and will require that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001. Use of the pooling-of-interests method will be prohibited.

         SFAS No. 142 establishes new standards for goodwill acquired in a
business combination and eliminates amortization of goodwill and instead sets
forth methods to periodically evaluate goodwill for impairment. Intangible
assets with a determinable useful life will continue to be amortized over that
period.

         The Company expects to adopt SFAS No. 142 during the first quarter of
fiscal 2002. Management is in the process of evaluating the requirements of this
statement. The final determination of the impact of this statement has not been
completed.

         In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 143, "Accounting for Asset
Retirement Obligations ." This statement addresses the financial accounting and
reporting for the retirement of tangible long-lived assets and the associated
asset retirement costs. The Company believes the adoption of SFAS 143 will have
no significant impact on its financial statements.

         In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. The Company believes the adoption of SFAS 144 will have no significant
impact on its financial statements.


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

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

         In addition to historical information, the following discussion and
analysis of management contains forward-looking statements. All statements that
look forward in time or include anything other than statements of historical
fact are forward-looking statements. These forward-looking statements involve
risks, uncertainties and assumptions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of many
factors, including but not limited to: substantial dependence on mortgage
brokers and the mortgage broker industry; mortgage market trends; interest rate
changes; housing and consumer trends effecting home purchases; the effectiveness
of our joint-marketing and sales agreements; our need for additional financing;
our ability to attract and retain high quality employees; changes in the overall
economy and in Internet technology; the number and size of our Internet
competitors, and other risks faced by us described below in the section entitled
"Risk Factors" and elsewhere in this report, and in other documents we file with
the Securities and Exchange Commission. You should not place undue reliance on
these forward-looking statements, which are based on information available to
the Company as of the date of this report and which reflect management's
opinions only. LION undertakes no obligation to revise or publicly release the
results of any revision to these forward-looking statements.

                                        7
<PAGE>
OVERVIEW

         LION has developed one of the largest online marketplaces of consumers,
realtors, mortgage originators, lenders, and vendors by providing product and
service solutions that simplify the origination process. These buyers
(consumers, realtors, and mortgage originators) and sellers (lenders and
vendors) interact to price and select mortgage products and gain approval for
the mortgage transaction.

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

         Membership fees come from LION's subscription-based products and
services. They are (i) LION Pro, consisting of LION Loan Search, LoanLink, News
Now and Ratesheets on Demand, (ii) Mortgage 101, consisting of hundreds of
mortgage information pages, interactive calculators, live interest rates
displayed from LION's Multi-Lender Rate Feed, prequalification and application
tools, and back-end rate and lead management tools, and (iii) Free Mortgage Dot
Com, a template web site using Mortgage101 technology with the mortgage
originators' logo and colors delivered with no set up fees and free one-year
domain name registration.

         Marketing fees are generated through LION's marketplace web sites,
LionInc.com and Mortgage101.com. Consumers visiting the Mortgage101.com web site
check live interest rates, use pre-qualification tools, and submit "1003"
applications to the LION Private Business Network of advertisers.
These advertisers pay marketing fees for ad banners, web site promotion, and
lead generation. Originators visit the LionInc.com web site to check daily
wholesale rates, submit loans, and access mortgage specific news and content.
Wholesale lenders and industry vendors pay marketing fees for ad banners, web
site promotion, and lead generation.

         Technology fees are related to (i) mortgage originator and (ii)
wholesale and/or retail lender web site development and hosting. This includes
custom web site design for mortgage originators and LION's Application Service
Provider (ASP) initiative referred to as LoanCAT. As an ASP in the mortgage
business-to-business (B2B) space, LION customizes and hosts a web site, as well
as provides the software applications needed to automate their point of sale
process.

         Transaction fees are generated by providing mortgage brokers the
ability to submit electronic home loan applications for automated underwriting
and quickly delivering an underwriting decision to the customer. To date, this
revenue segment has not been a significant part of LION's revenue base but could
be in the future.

RESULTS OF OPERATIONS

         Net income for the third quarter ended September 30, 2001 was $10,800
as compared to a net loss of $359,804 for the third quarter ended September 30,
2000. The Company reached break-even for the nine-month period ended September
30, 2001 as compared to a net loss of $1,040,425 for the same period in the
prior year.

         The third quarter of 2001 marked the second consecutive quarter of
profitability for LION. This achievement was due to maintaining consistent
revenues from core business, reducing expenses and improving efficiencies within
the Company. While we anticipate improved efficiencies throughout the

                                        8
<PAGE>
remainder of 2001 and into 2002, the success or failure to achieve sustained
profitability will be driven by revenue growth.

REVENUES

         Revenues decreased to $4,547,159 from $4,600,459 for the nine months
ended September 30, 2001 and 2000, respectively. This represents a decrease of
$53,300 or 1%. Total revenues of $4,547,159 for the nine months ended September
30, 2001 were comprised of mortgage broker fees of $3,381,041 or 74%, lender
fees of $914,951 or 20%, ad banner revenues of $241,356 or 5%, and other fees of
$9,811. Total revenues of $4,600,459 for the nine months ended September 30,
2000 were comprised of mortgage broker fees of $3,183,317 or 69%, lender fees of
$1,063,496 or 23%, ad banner revenues of $332,635 or 7%, and other fees of
$21,011.

         The overall decrease of $53,300 in revenues during the nine months
ended September 30, 2001 compared to the same period in the prior year was
primarily due to decreases in marketing fees (collectively lead generating
services and ad banners) and technology fees (primarily web site development and
hosting fees for lenders and mortgage brokers) which were offset by an increase
in membership based services (collectively Lion Pro, Mortgage 101 and Free Dot
Com).

         Revenues decreased to $1,492,828 from $1,574,605 for the three months
ended September 30, 2001 and 2000, respectively. This represents a decrease of
$81,777 or 5%. Total revenues of $1,492,828 for the three months ended September
30, 2001 were comprised of mortgage broker fees of $1,144,719 or 77%, lender
fees of $275,122 or 18%, ad banner revenues of $69,929 or 5%, and other fees of
$3,058. Total revenues of $1,574,605 for the three months ended September 30,
2000 were comprised of mortgage broker fees of $1,030,545 or 65%, lender fees of
$408,313 or 26%, ad banner revenues of $132,238 or 8%, and broadcast fax fees of
$3,509.

         The overall decrease of $81,777 in revenues during the three months
ended September 30, 2001 compared to the same period in the prior year was
primarily due to the same reasons as those noted above for the nine month
period.

DIRECT COSTS

         Direct costs are comprised primarily of web site development,
technology infrastructure support, and salaries related to the daily updates to
rates, fees, and other loan program information in the mortgage lender database.
Direct costs increased to $802,754 from $527,548 for the nine months ended
September 30, 2001 and 2000, respectively. This represents an increase of
$275,206 or 52%. Direct costs as a percentage of revenues were 18% and 11% for
the nine months ended September 30, 2001 and 2000, respectively. The increase is
primarily due to the increase in costs to maintain and improve the systems that
deliver the Company's core products and services.

         Direct costs increased to $281,689 from $156,049 for the three months
ended September 30, 2001 and 2000, respectively. This represents an increase of
$125,640 or 81%. Direct costs as a percentage of revenues were 19% and 10% for
the three months ended September 30, 2001 and 2000, respectively. The increase
is similar to those reasons noted above for the nine month period.

         Beginning the fourth quarter of 2001 and throughout 2002, we anticipate
focusing more effort on new product development. Therefore, certain resources
currently dedicated to direct costs will be redeployed to research and
development efforts.

                                        9
<PAGE>
SELLING AND MARKETING

         Marketing and selling expenses are comprised of marketing and
advertising costs, sales salaries and related support costs. Marketing and
selling expenses decreased to $1,305,335 from $1,753,096 for the nine months
ended September 30, 2001 and 2000, respectively. This represents a decrease of
$447,761 or 26%. These expenses as a percentage of revenues were 29% and 38% for
the nine months ended September 30, 2001 and 2000, respectively. The decrease in
selling and marketing expenses is primarily due to (i) the closure of the
Company's Spokane sales office, (ii) the consolidation of mortgage originator
sales, lender sales and customer service functions in the Denver sales office,
and (iii) a reduction in advertising and tradeshow expenses.

         Marketing and selling expenses decreased to $384,671 from $695,955 for
the three months ended September 30, 2001 and 2000, respectively. This
represents a decrease of $311,284 or 45%. These expenses as a percentage of
revenues were 26% and 44% for the three months ended September 30, 2001 and
2000, respectively. The decrease in selling and marketing expenses is similar to
those reasons noted above for the nine month period.

GENERAL AND ADMINISTRATIVE

         General and administrative expenses are comprised of management and
administrative salaries and related costs, outside consulting services,
telecommunications expenses, occupancy costs, and other administrative related
expenses. General and administrative expenses decreased to $1,841,927 from
$2,335,371 for the nine months ended September 30, 2001 and 2000, respectively.
This represents a decrease of $493,444 or 21%. General and administrative
expenses as a percentage of revenues improved to 41% from 51% for the nine
months ended September 30, 2001 and 2000, respectively. The decrease in general
and administrative expenses was due primarily to (i) the merger of LION, Inc.
(parent) and LionInc.com (subsidiary) on January 1, 2001, (ii) prior year
financing costs related to the private placement of preferred stock that did not
recur in the current year and (iii) improved bad debt experience in the current
year. These decreases were offset by an increase in occupancy costs.

         General and administrative expenses decreased to $612,154 from $816,986
for the three months ended September 30, 2001 and 2000, respectively. This
represents a decrease of $204,832 or 25%. General and administrative expenses as
a percentage of revenues improved to 41% from 52% for the three months ended
September 30, 2001 and 2000, respectively. The decrease in general and
administrative expenses was due primarily to the merger of LION, Inc. (parent)
and LionInc.com (subsidiary) on January 1, 2001 and a reduction in overall
occupancy costs.

COMPENSATION FROM STOCK OPTIONS ISSUED BELOW FAIR MARKET VALUE

         During the first quarter of 2000, certain long-time employees exercised
stock options in consideration for nonrecourse promissory notes. Under APB
Opinion No. 25, the issuance of stock options under such notes is in essence a
new granting of options. By issuing nonrecourse notes, we extended the original
terms of the fixed award, creating a new measurement date. As such, additional
compensation cost is recognized to the extent that the intrinsic value of the
new award exceeds the original intrinsic value of the original award. For the
three months ended March 31, 2000, we recorded compensation expense of $181,260
for the difference between the original intrinsic value and the intrinsic value
of the new award. For the three months ended June 30, 2000, the remeasurement of
variable stock option awards resulted in a reduction to expense totaling
$79,680. For the six month period ended June 30, 2000, compensation expense from
stock options issued under fair market value totaled $101,580. No

                                       10
<PAGE>
compensation expense related to stock options was recorded for the three month
period ended September 30, 2000 or three and nine month periods ended September
30, 2001.

RESEARCH AND DEVELOPMENT

         Research and development expenses are comprised primarily of
engineering salaries and related costs. Research and development expenses
decreased to $154,274 from $450,324 for the nine months ended September 30, 2001
and 2000, respectively. This represents a decrease of $296,050 or 66%. Research
and development expenses as a percentage of revenues decreased to 3% from 10%
for the nine months ended September 30, 2001 and 2000, respectively. The
decrease is primarily due to (i) the reallocation of research and development
personnel to direct cost efforts in order to maintain and improve the systems
that deliver the Company's core products and services, (ii) a reduction in other
research and development resources to match up with the current availability of
funding and (iii) a one-time write-off of a $56,200 database project during the
first quarter of 2000. As funding becomes available, we expect to spend more
time and resources in research and development.

         Research and development expenses decreased to $50,411 from $114,964
for the three months ended September 30, 2001 and 2000, respectively. This
represents a decrease of $64,553 or 56%. Research and development expenses as a
percentage of revenues decreased to 3% from 7% for the three months ended
September 30, 2001 and 2000, respectively. The decrease in research and
development expenses is similar to those reasons noted above for the nine month
period.

         Beginning the fourth quarter of 2001 and throughout 2002, we anticipate
focusing more effort on new product development. Therefore, certain resources
currently dedicated to direct costs will be redeployed to research and
development efforts.

DEPRECIATION AND AMORTIZATION

         Depreciation and amortization expense increased to $437,758 from
$371,030 for the nine months ended September 30, 2001 and 2000, respectively.
This represents an increase of $66,728 or 18% and was due primarily to the (i)
capitalization of internally developed software needed to expand and improve our
telecommunications and computer systems infrastructure and (ii) the amortization
of goodwill. Goodwill totaling $940,918 related to the IMark acquisition of
assets recorded in May 1999, contributed $155,167 of amortization expense for
the nine months ended September 30, 2001 compared to $116,197 in the same period
in the prior year.

         Depreciation and amortization expense increased to $144,461 from
$136,260 for the three months ended September 30, 2001 and 2000, respectively.
This represents an increase of $8,201 or 6% and was due to the capitalization of
internally developed software needed to expand and improve our
telecommunications and computer systems infrastructure. Amortization of goodwill
contributed $51,722 of amortization expense to each of the three month periods
ended September 30, 2001 and 2000, respectively.

INTEREST EXPENSE

         Interest expense decreased to $2,009 from $146,482 for the nine months
ended September 30, 2001 and 2000, respectively. In addition, interest expense
decreased to $694 from $32,477 for the three months ended September 30, 2001 and
2000, respectively. The decreases are primarily due to the pay off of the
Company's line of credit in September of 2000. Interest expense for the nine and

                                       11
<PAGE>
three month periods ended September 30, 2000 is primarily comprised of
amortization of loan fees and interest related to the Company's line of credit.

INTEREST INCOME

         Interest income decreased to $2,345 from $45,383 for the nine months
ended September 30, 2001 and 2000, respectively. In addition, interest income
decreased to $978 from $19,770 for the three months ended September 30, 2001 and
2000, respectively. Interest earned during the nine and month periods ended
September 30, 2000 is primarily due to nonrecourse promissory notes.

LIQUIDITY AND CAPITAL RESOURCES

         During the nine month period ended September 30, 2001, the Company
funded its activities through two sources. First, we received $175,000 from a
limited number of accredited individuals participating in a private placement
through the issuance of 1,166,667 units consisting of common stock and warrants.
No additional funds from this source are anticipated at this time. Second, the
first three quarters of 2001 achieved positive cash flow from operations. The
Company anticipates that the remainder of the year should also reflect positive
cash flow from operations. At September 30, 2001, we had approximately $364,000
in cash and cash equivalents.

         During the nine months ended September 30, 2001, operating activities
provided net cash of $328,872 compared to the net use of cash of $561,444 for
operations during the same period in the prior year. The net cash provided by
operating activities for the first nine months of 2001 was primarily
attributable to efficiencies gained from (i) the merger of the parent and
subsidiary companies, (ii) the closure of the Spokane sales office (iii) the
consolidation of all originator sales and customer service functions in the
Denver sales office, and (iv) the reorganization of the engineering department.
These cost savings were offset by payments on accounts payable and other accrued
liabilities. The net use of cash in operating activities for the first nine
months of 2000 was primarily attributable to (i) research and development in
internal software for automated underwriting and wholesale origination and
fulfillment services (LoanCAT technology), (ii) a focus on delivering our core
business, and (iii) occupancy and related costs for future growth.

         During the nine months ended September 30, 2001, we used net cash of
$259,542 for our investing activities which was primarily for the capitalized
portion of our software development costs related to (i) migration to new data
base platforms, (ii) additional solutions to automated underwriting submissions,
and (iii) upgrades to internal reporting systems. In the same period in the
prior year, we used net cash in investing activities totaling $215,272 which was
primarily related to the capitalized portion of our LoanCAT project (developing
solutions for online wholesale origination and fulfillment services for
lenders).

         During the nine months ended September 30, 2001, net cash proceeds from
financing activities were $177,550. Proceeds received from financing activities
were primarily the result of the private placement of the Company's common stock
totaling $175,000. During the nine months ended September 30, 2000, net cash
proceeds from financing activities were $717,612. Proceeds were primarily from
warrant exercises and the private placement of preferred stock totaling $472,232
and $807,000, respectively. This enabled us to pay down our line of credit by
$587,550 while at the same time reducing other current obligations throughout
the nine month period.

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         Management believes there are adequate resources for the continuance of
operations through October 1, 2002. However, there can be no assurance that we
will be able to obtain sufficient additional financing or be successful in our
future operation.

RISK FACTORS

            Set forth below and elsewhere in this Quarterly Report and in the
other documents we file with the SEC are risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements contained in this Quarterly Report.

WE HAVE NO HISTORY OF PROFITS AND OUR FUTURE PROFITABILITY REMAINS UNCERTAIN.

         We are working toward a goal of "sustained" profitability and have
recently taken several important steps toward that goal, including, merging our
subsidiary with LION, reorganizing our senior management team, and consolidating
our originator sales and service operations. We reached profitability for the
second and third quarters of and are at breakeven for the nine months ended
September 30, 2001. For first quarter 2001, the net loss was $51,542 compared
with a net loss of $413,855 for first quarter 2000. For the second quarter 2001,
the net income was $40,461 compared with a net loss of $266,766 for the second
quarter 2000. For the third quarter 2001, the net income was $10,800 compared
with a net loss of $359,804 for the third quarter 2000. For the first nine
months of 2001 the net loss was $281 compared to a net loss of $1,040,425 for
the same period in the prior year. For the fiscal year ended December 31, 2000,
we had a net loss of $1,297,849, or $0.04 per share, compared to a net loss of
$3,997,151, or $0.15 per share in the prior fiscal year. Our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in new and rapidly evolving markets, including
uncertainty of revenues, markets, profitability and the need to raise capital to
fund our ongoing operations. We cannot assure you that we will be successful in
addressing these risks or that we can be operated profitably, which depends on
many factors, including the success of our marketing program, the control of
expense levels and the success of our business activities. Our future operating
results will depend on a variety of factors, including those discussed in the
other risk factors set forth below.

FINANCIAL RESULTS FOR ANY PARTICULAR PERIOD WILL NOT PREDICT RESULTS FOR FUTURE
PERIODS.
         Because of the uncertain nature of the rapidly changing market we
serve, period-to-period comparisons of operating results may not be meaningful.
You should not rely on the results for any period as an indication of future
performance. In particular, although we have historically experienced strong
revenue growth, we do not believe that this level of revenue growth will be
sustained in 2001 and in future periods, particularly on a long-term basis. For
example, over 50% of our growth in revenues for 2000 compared to 1999 was
attributable to the acquisition of the IMark assets and its mortgage industry
Internet sites on May 17, 1999. In addition, we expect that our operating
expenses will continue to increase as we expand our sales and marketing
operations, fund greater levels of product development, and acquire
complementary businesses and technologies. Furthermore, we are subject to
employer payroll taxes when our employees exercise their non-qualified stock
options. The employer payroll taxes are assessed on each employee's gain, which
is the difference between the price of our common stock on the date of exercise
and the exercise price. During a particular period, these payroll taxes could be
material. Depending on the number of shares of our common stock for which
options are exercised and the fair market value of shares of our common stock
during such period, these employer payroll taxes would be recorded as a charge
to operations in the period such options are exercised based on actual gains
realized by employees. In addition to the net proceeds we would receive upon the
exercise of stock options, we would receive tax deductions for gains realized.

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

         Although management believes our resources are adequate for the
continuance of operations through October 1, 2002, our existing working capital
is not sufficient to allow us to fully execute our business plan, including the
further development and implementation of our online business, or to fund our
expansion and marketing plans. The full development and implementation of our
business will require additional resources. If we are unable to obtain adequate
capital financing through equity or other financings, we may not be able to
successfully implement our short-term or long-term plans for product development
and expansion, or to meet our working capital requirements. We anticipate that a
significant portion of our near-term capital resources will be provided through
operations. However, even if we succeed in our business plans, we may experience
rapid growth requiring additional funds to expand our operations and
organization.

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

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

         LION's most critical customer is currently the mortgage broker.
Mortgage broker fees comprised 69% of our total revenues during 2000 and 74% of
total revenues during the nine month period ended September 30, 2001. Customer
agreements are short-term and renewable. There can be no assurance that these
subscribers will continue to participate in the LION program, or that we will be
able to attract new mortgage brokers at rates sufficient to maintain a stable or
growing revenue base. We cannot assure you that the market for our products and
services will continue to develop as expected. If the mortgage broker market
develops more slowly than expected or becomes saturated with competitors, or if
our products and services do not continue to achieve market acceptance, our
business operating results and financial conditions may be materially adversely
affected.

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

                                       14
<PAGE>
WE WILL DEPEND ON THE CONTINUED UTILITY OF THE INTERNET AND MAY HAVE DIFFICULTY
ACCOMMODATING TECHNOLOGY ADVANCES.

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

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

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

         We are substantially dependent on the continued services of our key
personnel, including our president, chief financial officer, our engineers and
other significant employees. These individuals have acquired specialized
knowledge and skills with respect to LION and its operations. With respect to
our proprietary software, while backup has been provided by the other full-time
company engineers, currently there are portions of the database management and
development that rely solely on Sam Ringer, who is the author of the LION
software and a co-founder. We are in the process of creating the engineering
redundancy that will reduce the reliance on this individual, but have not
completed this task. Furthermore, we have not entered into employment agreements
with these officers and significant employees. If any of these individuals were
to leave LION unexpectedly, we could face substantial difficulty in hiring
qualified successors and could experience a loss in productivity while any such
successor obtains the necessary training and experience. We provide stock
options, which currently serve to retain and motivate key employees as they
become vested in their initial stock option grants. While management personnel
are typically granted additional stock options, which will usually vest over a
period of four years, subsequent to their hire date to provide additional
incentive to remain at LION, the

                                       15
<PAGE>
initial option grant is typically the largest and an employee may be more likely
to leave our employ upon completion of the vesting period for the initial option
grant. We expect that we will need to attract, train, retain and motivate
additional technical, managerial, marketing and customer support personnel.
Competition for these personnel may be intense, particularly for individuals
with suitable experience. If we are unable to attract and integrate new
personnel, or retain and motivate existing personnel, our business will be
adversely affected.

OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

         We have in place comprehensive data tape backup procedures for our
operational and administrative databases. Our replication software provides a
high level of hardware backup for the database by duplicating our database
across several powerful PCs. However, despite protective measures, our
operations could be vulnerable to damage from floods, fire, earthquakes, power
loss, telecommunications failures, break-ins, terrorism and similar events. In
addition, the majority of our network infrastructure is located in Seattle,
Washington, an area susceptible to earthquakes. In recent months, the western
United States (California in particular) has experienced repeated episodes of
diminished electrical power supply. As a result of these episodes, certain of
our operations or facilities may be subject to "rolling blackouts" or other
unscheduled interruptions of electrical power. The prospect of such unscheduled
interruptions may continue for the foreseeable future and we are unable to
predict either their occurrence, duration or cessation. We do not have multiple
site capacity for all of our services in the event of any such occurrence.

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

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

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

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<PAGE>
OUR STOCK TRADES ON THE OTC BULLETIN BOARD. OUR STOCK PRICE HAS BEEN VOLATILE
HISTORICALLY, WHICH MAY MAKE IT MORE DIFFICULT FOR YOU TO RESELL SHARES WHEN YOU
WANT AT PRICES YOU FIND ATTRACTIVE.
         The trading price of our common stock has been and may continue to be
subject to wide fluctuations. During 2000, the closing sale prices of our common
stock on the OTC Bulletin Board ranged from $1.375 to $.125 per share and the
sale price of our common stock closed at $.08 per share on November 5, 2001. Our
stock price may fluctuate in response to a number of events and factors, such as
quarterly variations in operating results, announcements of technological
innovations or new products by us or our competitors, changes in financial
estimates and recommendations by securities analysts, the operating and stock
price performance of other companies that investors may deem comparable, and
news reports relating to trends in our markets. In addition, the stock market in
general, and the market prices for Internet-related companies in particular,
have experienced extreme volatility that often has been unrelated to the
operating performance of these companies. These broad market and industry
fluctuations may adversely affect the price of our stock, regardless of our
operating performance.

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

VOLUME OF SHARES ELIGIBLE FOR SALE COULD IMPAIR OUR STOCK PRICE AND HINDER
FUTURE FINANCING EFFORTS.
         As of November 5, 2001, a substantial majority of the approximately
30,796,978 outstanding shares of common stock and 1,500,000 shares of preferred
stock held by existing shareholders were issued and sold by the Company in
private transactions in reliance on exemptions from the registration provisions
of the Securities Act and are restricted securities within the meaning of Rule
144 under the Securities Act. Substantially all of the outstanding shares,
including shares held by affiliates, were issued on or before December 31, 1999,
and may be currently eligible for resale in the open market, if any, subject to
the volume and other conditions of Rule 144. There are no contractual
restrictions on the resale of the outstanding common stock. The sale in the
public market of these shares of restricted common stock, or the perception that
these sales may occur, may depress prevailing market prices of the common stock.

OUTSTANDING OPTIONS AND WARRANTS, WHEN EXERCISED, WILL FURTHER DILUTE COMMON
SHAREHOLDERS.
         As of December 31, 2000, there were outstanding stock options to
purchase an aggregate of 3,878,250 shares of common stock at exercise prices
ranging from $.17 to $2.00 per share, and warrants to purchase 685,000 shares of
common stock at exercise prices ranging from $.60 to $1.75. Employee options are
subject to a restriction whereby option holders have agreed to not sell or
otherwise transfer or dispose of shares of the common stock issued upon exercise
of options in an amount that shall exceed 250,000 shares during any three-month
period. The exercise of these outstanding options and warrants will dilute the
percentage ownership of common stockholders, and any sales in the public market

                                       17
<PAGE>
of shares of common stock underlying such securities may adversely affect
prevailing market prices for the common stock. Furthermore, the terms upon which
we will be able to obtain additional equity capital may be adversely affected
since the holders of these outstanding securities can be expected to exercise
their respective rights therein at a time when we would, in all likelihood, be
able to obtain any needed capital on terms more favorable to the Company than
those provided in such securities.

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

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

         As long as we do not meet the relevant financial requirements and our
common stock is trading at less than $5.00 per share on the OTC Bulletin Board,
our securities are subject to the penny stock rules. These rules impose
additional sales practice requirements on broker-dealers who sell our securities
to persons other than established customers and accredited investors (generally,
investors with a net worth in excess of $1,000,000 or an individual annual
income exceeding $200,000, or, together with the investor's spouse, a joint
income of $300,000). For transactions covered by the penny stock rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any non-exempt transaction
involving a penny stock, the rules require, among other things, that the
broker-dealer deliver an SEC mandated risk disclosure document relating to the
penny stock market and the risks associated therewith prior to the transaction.
The broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative as well as current quotations
for the securities. If the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, the broker-dealer must send monthly statements
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the penny stock
rules may restrict the ability of broker-dealers to sell our securities and may
affect the ability of our shareholders to sell their securities in the secondary
market.

                           PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)  Exhibits to Part II:

              None

         (b)  Reports on Form 8-K

              There were no reports on Form 8-K filed during the quarter ended
              September 30, 2001.

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                                   SIGNATURES
                                   ----------


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


                                          LION, INC.
                                          (Registrant)

Date: November 9, 2001                    By: /s/ John A. McMillan
                                              --------------------
                                              John A. McMillan
                                              Chief Executive Officer


























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