SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB


(Mark One)

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

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005

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

                 For the transition period from _____ to _____

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

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

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


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

           Registrant's telephone, including area code (206) 577-1440

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


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

                                                                  Yes |X| No |_|

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

     As of November 8, 2005, approximately 38,239,642 shares of the Company's
common stock were outstanding.

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


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

                                       1
<PAGE>


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

                                                                            PAGE
                                      INDEX                               NUMBER

PART I    FINANCIAL INFORMATION

Item 1    Financial Statements

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

          Statements of Operations for the three and nine months
          ended September 30, 2005 and 2004 (unaudited)                        4

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

          Notes to Financial Statements (unaudited)                            6

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

Item 3    Controls and Procedures                                             27

PART II   OTHER INFORMATION

Item 6    Exhibits                                                            28

          Signatures                                                          29


                                       1
<PAGE>


                                        1



                   PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

                      LION, Inc. and Subsidiary
                           CONSOLIDATED BALANCE SHEETS

                               ASSETS

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

CURRENT ASSETS
   Cash and cash equivalents                          $ 4,281,139   $ 4,518,300
   Accounts receivable, less allowance for doubtful
     accounts of $92,000 and $58,000 in 2005 and        1,246,632     1,841,840
     2004, respectively
   Deferred taxes                                         150,000       150,000
   Prepaid expenses and other                             579,341       436,888
                                                      -----------   -----------

      Total current assets                              6,257,112     6,947,028

PROPERTY AND EQUIPMENT - net                              909,786       931,079

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

                                                      $10,081,436   $10,545,217
                                                      ===========   ===========


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable                                  $   316,308    $   294,235
   Accrued liabilities                                 1,128,757      1,334,659
   Current maturities of long-term obligations            38,611        255,621
   Deferred revenue                                      821,399      1,050,128
                                                     -----------    -----------

      Total current liabilities                        2,305,075      2,934,643

LONG-TERM OBLIGATIONS, less current maturities           972,209        995,305

COMMITMENTS AND CONTINGENCIES                                 --             --

STOCKHOLDERS' EQUITY
   Common stock - authorized, 50,000,000 shares of        38,231         37,431
     $.001 par value
   Additional contributed capital                     14,033,262     13,730,121
   Accumulated deficit                                (7,267,341)    (7,152,283)
                                                     -----------    -----------
                                                       6,804,152      6,615,269
                                                     -----------    -----------

                                                     $10,081,436    $10,545,217
                                                     ===========    ===========


The accompanying notes are an integral part of these statements.

                                       2
<PAGE>


                            LION, Inc. and Subsidiary

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                        Three months ended               Nine months ended
                                           September 30,                   September 30,
                                   ----------------------------    ----------------------------
                                       2005            2004            2005            2004
                                   ------------    ------------    ------------    ------------
<S>                                <C>             <C>             <C>             <C>
Revenues                           $  4,020,424    $  3,574,211    $ 12,060,136    $ 11,020,486

Expenses
   Direct costs                       1,573,364       1,276,822       4,883,714       4,069,452
   Selling and marketing                616,430         477,296       1,870,348       1,525,961
   General and administrative           905,321         993,968       3,158,150       3,058,395
   Research and development             576,241         611,194       1,844,557       1,908,001
   Depreciation and amortization        137,185         152,537         400,898         431,119
                                   ------------    ------------    ------------    ------------
                                      3,808,541       3,511,817      12,157,667      10,992,928
                                   ------------    ------------    ------------    ------------

      Operating income (loss)           211,883          62,394         (97,531)         27,558

Other income (expense)
   Interest expense                     (21,092)         (3,615)        (65,656)        (14,280)
   Interest income                       23,458           2,470          56,348           6,911
   Other income                           3,150              --           3,150         433,388
   Other expense                             --              --            (682)             --
                                   ------------    ------------    ------------    ------------

      Net income (loss)
      before tax                        217,399          61,249        (104,371)        453,577

Income tax expense (benefit)              4,286         (51,690)         10,687         (49,681)
                                   ------------    ------------    ------------    ------------

      NET INCOME (LOSS)            $    213,113    $    112,939    $   (115,058)   $    503,258
                                   ============    ============    ============    ============

Net income per common share,
   Basic                           $        .01    $         --    $         --    $        .02
                                   ============    ============    ============    ============
   Diluted                         $        .01    $         --    $         --    $        .01
                                   ============    ============    ============    ============
</TABLE>


The accompanying notes are an integral part of these statements.

                                       3
<PAGE>


                            LION, Inc. and Subsidiary

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                           Nine months ended
                                                             September 30,
                                                       ------------------------
                                                          2005          2004
                                                       ----------    ----------

Cash flows from operating activities
  Net (loss) income                                    $ (115,058)   $  503,258
  Adjustments to reconcile net (loss) income
    to net cash provided by operating activities
      Depreciation and amortization                       400,898       431,119
      Loss on disposition of assets                           682            --
      Write off of capitalized software
        development costs                                      --        13,954
      Stock options and restricted stock issued
        to employees                                      161,266       205,651
      Common stock issued for services                         --        60,000
      Changes in assets and liabilities
        Accounts receivable                               595,208       177,119
        Other receivables                                      --       620,708
        Prepaid expenses and other                       (142,453)     (283,057)
        Accounts payable                                   22,073       112,461
        Accrued liabilities                              (205,902)     (655,296)
        Deferred revenue                                 (228,729)     (184,466)
        Other assets                                       32,572            --
                                                       ----------    ----------

           Net cash provided by operating activities      520,557     1,001,451
                                                       ----------    ----------

Cash flows from investing activities
  Capitalized software development costs                  (39,483)     (247,885)
  Purchase of property and equipment                     (340,804)     (140,544)
                                                       ----------    ----------

           Net cash used in investing activities         (380,287)     (388,429)
                                                       ----------    ----------

Cash flows from financing activities
  Restricted cash for letter of credit                   (280,000)           --
  Payments on notes payable and long-term obligations    (240,106)      (62,726)
  Proceeds from issuance of common stock on exercise
    of stock options and warrants                         142,675       178,471
                                                       ----------    ----------

           Net cash (used in) provided by
             financing activities                        (377,431)      115,745

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

Net (decrease) increase in cash and cash equivalents     (237,161)      728,767

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

Cash and cash equivalents at end of period             $4,281,139    $3,612,081
                                                       ==========    ==========


The accompanying notes are an integral part of these statements.

                                       4
<PAGE>


                            LION, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


NOTE A.   ORGANIZATION AND DESCRIPTION OF BUSINESS

      LION, Inc. (the "Company" or "LION"), a Washington corporation, generates
mortgage leads through the Internet and is a technology and service provider of
advanced business solutions that streamline the loan origination and 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, seamless
business solutions to consumers, brokers, realtors, originators and lenders.
LION provides an integrated technology platform offering online loan
productivity, mortgage pipeline hedging and risk management, software
development and data communication tools.

      The unaudited financial statements and related notes are presented in
accordance with the instructions for interim financial statements in Rule 310(b)
of Regulation S-B, and do not contain certain information included in the
Company's audited financial statements and notes for the fiscal year ended
December 31, 2004. The information furnished reflects, in the opinion of
management, all adjustments, consisting of normal recurring accruals, necessary
for a fair presentation of the results of the interim periods presented. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the entire fiscal year ending December 31, 2005.
The accompanying unaudited financial statements and related notes should be read
in conjunction with the audited financial statements and included in its Form 10
- KSB of LION, Inc. and notes thereto for its fiscal year ended December 31,
2004.


NOTE B.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.    PRINCIPLES OF CONSOLIDATION

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

2.    CASH AND CASH EQUIVALENTS

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

3.    REVENUE RECOGNITION

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

                                       5
<PAGE>


                            LION, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


NOTE B.   SIGNIFICANT ACCOUNTING POLICIES - Continued

3.    REVENUE RECOGNITION - CONTINUED

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

4.    ACCOUNTS RECEIVABLE

      The Company's accounts receivable are due from companies in the mortgage
industry, including lenders and mortgage brokers. Credit is extended to most
customers, and collateral is generally 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.

                                       6
<PAGE>


                            LION, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


NOTE B.   SIGNIFICANT ACCOUNTING POLICIES - Continued

5.    PROPERTY AND EQUIPMENT

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

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

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

6.    CAPITALIZED SOFTWARE DEVELOPMENT COSTS FOR INTERNAL USE

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

7.    GOODWILL

      Statement of Financial Accounting Standards (SFAS) No. 142, GOODWILL AND
OTHER INTANGIBLE ASSETS, provides that goodwill should not be amortized, but
should rather be reviewed at least annually to assess recoverability. Impairment
is recognized in operating results if the fair value of goodwill is less than
the carrying value of the goodwill.

8.    USE OF ESTIMATES

      In preparing the consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

                                       7
<PAGE>


                            LION, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


NOTE B.   SIGNIFICANT ACCOUNTING POLICIES - Continued

9.    INCOME PER COMMON SHARE

      Basic income per share is based on the weighted average number of shares
outstanding during each period. Potentially dilutive common stock equivalents
are included in determining dilutive earnings per share. Common stock
equivalents include options to purchase common stock. The weighted average
number of common shares outstanding were 37,870,472 and 33,317,368 for the nine
months ended September 30, 2005 and 2004, respectively, and 38,218,726 and
34,096,314 for the three months ended September 30, 2005 and 2004, respectively.

      Stock options to purchase 1,500,058 and 3,081,688 shares of common stock
were included in the computation of diluted earnings per share for the three
months ended September 30, 2005 and 2004, respectively. Stock options to
purchase 1,700,511 shares of common stock were excluded in the computation of
diluted earnings per share for the nine months ended September 30, 2005 as their
effect was anti-dilutive, however, stock options to purchase 3,081,688 shares of
common stock at September 30, 2004 were included in the computation of diluted
earnings per share.

10.   ADVERTISING COSTS

      Advertising costs are expensed as incurred.

11.   RESEARCH AND DEVELOPMENT COSTS

      All expenditures for research and development costs are expensed in the
period incurred. Costs eligible for capitalization under SFAS No. 86, ACCOUNTING
FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED,
were not material to the consolidated financial statements.

12.   INCOME TAXES

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

13.   STOCK ISSUED FOR SERVICES

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

                                       8
<PAGE>


                            LION, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


NOTE B.   SIGNIFICANT ACCOUNTING POLICIES - Continued

14.   STOCK OPTIONS

      Effective January 1, 2003, the Company adopted the fair value recognition
provision of FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
prospectively, to all employee awards granted on or after January 1, 2003,
pursuant to FASB Statement No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure." Compensation expense is based on the fair value of
the options at the respective grant dates utilizing the Black-Scholes model for
estimating fair value. The following table illustrates the effect on net income
(loss) and net income (loss) per share if the Company had applied the fair value
recognition provisions of SFAS 123 to all employee awards.

                                    Three months ended      Nine months ended
                                       September 30,          September 30,
                                   --------------------   ---------------------
                                     2005        2004        2005        2004
                                   --------    --------   ---------    --------

Net income (loss), as reported     $213,113    $112,939   $(115,058)   $503,258

Add: Stock-based employee
compensation expense included
in reported net income (loss)        38,320      54,476     161,266     205,651

Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards*        (38,633)    (80,125)   (167,825)   (287,817)
                                   --------    --------   ---------    --------

Pro forma net income (loss)        $212,800    $  87,29   $(121,617)   $421,092
                                   ========    ========   =========    ========

Net income (loss) per share:
Basic and diluted - as reported    $    .01    $     --   $      --    $    .02
                                   ========    ========   =========    ========
Basic and diluted - pro forma      $    .01    $     --   $      --    $    .01
                                   ========    ========   =========    ========


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

15.   FAIR VALUE OF FINANCIAL INSTRUMENTS

      The fair value of financial instruments are accounted for in accordance
with SFAS No. 107, Disclosures about Fair Value of Financial Instruments, which
requires that the Company disclose the fair value of its financial instruments
for which it is practicable to estimate fair value. The carrying amounts of cash
and cash equivalents, prepaid expenses and other current assets, accounts
receivables, accounts payable and accrued liabilities meeting the definition of
a financial instrument approximate fair value because of the short term maturity
of these instruments. The fair value of long-term debt approximates fair value.

                                       9
<PAGE>


                            LION, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)


NOTE B.   SIGNIFICANT ACCOUNTING POLICIES - Continued

16.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

      In May 2005, the FASB issued SFAS No. 154, ACCOUNTING CHANGES AND ERROR
CORRECTIONS. SFAS No. 154 replaces Accounting Principles Board ("APB") Opinion
No. 20, ACCOUNTING CHANGES and SFAS No. 3, REPORTING ACCOUNTING CHANGES IN
INTERIM FINANCIAL STATEMENTS. SFAS No. 154 requires retrospective application to
prior periods' financial statements of a voluntary change in accounting
principle unless it is not practical. APB No. 20 previously required that most
voluntary changes in accounting principle be recognized by including the
cumulative effect of changing to the new accounting principle in net income in
the period of the change. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
The Company does not expect the adoption of SFAS No. 154 to have a material
impact on the Company's financial position or results of operations.

      In September 2005, the Securities and Exchange Commission announced that
the compliance date for non-accelerated filers and foreign private issuers
pursuant to Section 404 of the Sarbanes-Oxley Act has been extended. Under the
latest extension, a company that is not required to file its annual and
quarterly reports on an accelerated basis and a foreign private issuer filing
its annual report on Form 20-F or 40-F, must begin to comply with the internal
control over financial reporting requirements for its first fiscal year ending
on or after July 15, 2007. This is a two-year extension from the previously
established July 15, 2005 compliance date. The Commission similarly has extended
the compliance date for these companies relating to requirements regarding
evaluation of internal control over financial reporting and management
certification requirements. LION will, therefore, be required to comply with
Section 404 of the Sarbanes-Oxley Act as of December 31, 2007.


NOTE C.   RESTRICTED CASH FOR LETTER OF CREDIT

      At September 30, 2005, the Company has $280,000 of restricted cash which
is classified as a noncurrent asset. The restricted cash serves as collateral
for an irrevocable letter of credit that provides financial assurance that the
Company will fulfill its obligations with respect to a lease for its San Rafael,
California office space. The cash is held in custody by the issuing bank, is
restricted as to its withdrawal or use, and is currently invested in short-term
investments. In January 2007, the letter of credit may be reduced to $180,000.
In July 2008, the letter of credit may be cancelled and replaced by a security
deposit equal to the then current monthly rent.

                                       10
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

      We accomplished a number of important goals in the quarter and in the
first nine months of the year. We've completed important technological and
personnel integration milestones related to our acquisitions, launched new and
improved existing product offerings, added three new Precision MTS customers
increasing total customers on the platform to nine, signed four new lender
customers for TRMS bringing to fourteen the total number of new risk management
lender customers added during 2005, consolidated our California operations into
one location, and strengthened the sales and support infrastructure for Mortgage
101 and TRMS.

      We returned to profitability in the third quarter with net income of
approximately $213,000, which is an improvement over our net loss of $179,000 in
the previous quarter and net income of $113,000 in the same quarter in the prior
year. Year to date, we have narrowed our net loss to $115,000 compared to net
income of approximately $503,000 for the same period in 2004. The 2004 results
included a $433,000 gain in the second quarter related to an insurance
settlement.

      Revenue for third quarter 2005 was slightly over $4.0 million, up 12.5 %
from the same quarter in the prior year and up 1.0% from second quarter 2005.
Revenue for the first nine months of 2005 was $12.1 million, up 9.4% from the
same period in 2004. Our Mortgage 101, LION Pro and Retail Website product
revenues remained flat in the third quarter compared to each of the first two
quarters of the year. LockPoint Xtra(R) revenues were down slightly due to our
focus on building our Precision MTS customer base and electing not to sell or
market LockPoint Xtra(R) before the launch of our Precision MTS productivity
suite. Our Capital Markets business unit, which includes our Pipeline Tools
technology and hedge advisory services provided by TRMS, contributed revenue
totaling $1.9 million in third quarter 2005, up 2% over the previous quarter.
This increase was due primarily to improved loan volumes and the addition of new
customers.

      Integration of our acquisitions and technology has taken longer and been
more intrusive on operations than we had planned, but with most critical aspects
of our acquisition integration now completed, as well as a number of other
initiatives, we are now able to execute our growth plan and expect to begin to
reap the benefit of our product bundling efforts. As a result, our improved
profitability has come primarily from a reduction in operating expenses during
the third quarter. Operating expenses were $3.8 million in third quarter 2005,
9% lower than in the previous quarter. For the first nine months of 2005,
operating expenses increased to $12.2 million from $11.0 million for the same
period last year. TRMS, which was acquired in October 2004, represented 16% and
15% of operating expenses for the three and nine month periods ended September
30, 2005, respectively.

      We ended the quarter with $4.6 million in cash inclusive of cash, cash
equivalents and $280 thousand of restricted funds included in long-term other
assets, which was similar to the previous quarter. Our balance sheet remains
strong with approximately $4.0 million of working capital.

                                       11
<PAGE>


DETAILED RESULTS OF OPERATIONS

REVENUES

<TABLE>
<CAPTION>
                             For three months ended September 30,      For nine months ended September 30,
                            -------------------------------------     -------------------------------------
(Dollars in thousands)             2005                2004                  2005                2004
                            ----------------     ----------------     -----------------     ---------------
<S>                         <C>          <C>     <C>          <C>     <C>           <C>     <C>         <C>
LEADS
Mortgage 101                $  451        11%    $  475        13%    $ 1,361        11%    $ 1,546      14%

LOANS
LION Pro                       750        19%       815        23%      2,251        19%      2,346      21%
Retail Websites                658        16%       659        19%      1,974        16%      1,899      17%
LockPoint Xtra(R)              306         8%       334         9%        970         8%      1,519      14%
                            ------     -----     ------     -----     -------     -----     -------     ---
                             1,714        43%     1,808        51%      5,195        43%      5,764      52%

CAPITAL MARKETS
Pipeline Tools                 187         5%     1,291        36%        649         6%      3,710      34%
Risk Management Services     1,668        41%        --        --       4,855        40%         --      --
                            ------     -----     ------     -----     -------     -----     -------     ---
                             1,855        46%     1,291        36%      5,504        46%      3,710      34%

    Total revenues          $4,020       100%    $3,574       100%    $12,060       100%    $11,020     100%
                            ======     =====     ======     =====     =======     =====     =======     ===
</TABLE>

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

LEADS

      Our Leads business unit comprised 11% of total revenue for the three and
nine months ended September 30, 2005. Revenue for our Leads unit, which consists
of Mortgage 101, was flat in the third quarter compared to the first and second
quarters. Revenue for the nine months ended September 30, 2005, declined by 12%
over the comparable period for 2004. This decrease is indicative of lower loan
volumes due to lower refinancing activity. We continue to experience heavy
consumer traffic to our mortgage101.com Internet portal due to strong search
engine placement attributable to being number 1, 2 or 3 on Google, MSN or Yahoo
for keyword search "mortgage." We added new leadership early in the third
quarter to develop and execute new strategies in our Mortgage 101 business unit,
and at the beginning of the fourth quarter, we expanded our Mortgage 101 sales
infrastructure with the goal of significantly increasing Mortgage 101 related
revenue in 2006. Our plan is to broaden our lead distribution universe to
include more large brokers and lenders, develop new strategies to generate
higher advertising revenue, add more partnerships, connect our users with more
vendor services and become licensed in key states to enable us to penetrate more
deeply into the loan origination and fulfillment process to generate higher
transactional revenue.

      MORTGAGE 101 is an interactive service provided through LION's
www.mortgage101.com consumer portal which connects potential mortgage applicants
with a network of mortgage lenders who offer mortgage programs, rates and
services. Mortgage 101 also provides education to home buyers and owners through
informative articles, interactive calculators and real-time rate comparison
technology. This product is one of the leading sources of leads for real estate
financing by mortgage originators and is a preferred platform for them to market
to their customers. Through the Mortgage 101 brand, LION has grown its
co-branded real estate sites to over 63,000, which consist of realtors, real
estate offices, relocation sites, associations, and city portals. Traffic from
these branded and co-branded sites along with search engine activity has
averaged approximately 1.0 million unique visitors each month to our consumer
portal

                                       12
<PAGE>


during third quarter 2005. This compliments the consumer traffic received by our
customers through the Mortgage 101 domain associated with the websites provided
to them.

LOANS

      Our Loans business unit contributed 43% of total revenue for the three and
nine months ended September 30, 2005. It includes our LION Pro, Retail Websites,
and LockPoint Xtra(R) products. Revenue was flat during the third quarter in
LION Pro and Retail Websites compared to the first and second quarters of 2005.
LockPoint Xtra(R) recorded a slight quarter over quarter decline due to the loss
of a customer in September 2005, which was partially offset by the addition of
three new Precision MTS customers during the quarter bringing the total number
of customers using the Precision MTS product to nine. For the nine months ended
September 30, 2005 compared to the same period in the prior year, LockPoint
Xtra(R) has experienced a revenue decline of 36% due to a combination of the
loss of some legacy customers, a reduction in overall loan volume that reflects
both seasonality and declining refinancing activity, and a retargeting of our
sales efforts to focus on mid-sized mortgage originators through our Precision
MTS product platform. We expect to be able to merge the strengths and feature
sets of the products in the Loans business unit to offer more flexibility to a
broader spectrum of lender customers.

      We now have a substantially more robust and stable platform to accommodate
our expanding customer base and facilitate expansion of the product bundling
opportunities associated with our Precision MTS marketing initiative. By early
2006, we plan to add alternative mortgage products, such as subprime, second and
interest only mortgages, which will add new customers and enable us to capture
incremental transaction fee revenue. These revenue opportunities were either not
available to us previously or would have been difficult and costly to implement
with our previous legacy technology platform. Streamlining our technology
support needs and maintenance requirements will also result in expense savings
and greater productivity and efficiency.

      LION PRO, used by over 7,600 mortgage brokers nationwide, consists of LION
Loan Search, LoanLink (subprime loan exchange platform), News Now (high-value
market data) and Ratesheets on Demand (aggregated mortgage ratesheets). It is
packaged and often private labeled for both large companies and origination
teams along with individual or small mortgage brokers. Through this password
protected product, originators can access one of the nation's largest databases
of wholesale mortgage rate, fee, and program information to instantly price any
mortgage loan. This database is updated daily for 77 regions nationwide
comprised of 88 participating lenders.

      RETAIL WEBSITES are offered to mortgage companies and individual
originators to help educate consumers about mortgages, market their services to
borrowers, generate more business, efficiently connect with service providers
and better serve their borrowers. This product is intended to create and foster
relationships between consumers and mortgage originators while enabling mortgage
companies and originators to more efficiently manage their online production
channel and maximize the business value received from their online operations.
Both template and custom design solutions deliver a combination of standard and
custom content to approximately 2,800 websites and over 6,300 user accounts.

      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 loan originator's website,
loan center or call center environment. The LockPoint Xtra(R) service is
provided to lenders, investors and conduits that are LION licensees and delivers
the ability to maintain their product and pricing rules and expressions, and to
publish risk-based lockable loan prices to their customer base via LPX client
applications.

                                       13
<PAGE>


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

CAPITAL MARKETS

      The Capital Markets business unit comprised 46% of total revenue for the
three and nine months ended September 30, 2005. It includes Pipeline Tools
technology and hedge advisory services provided by TRMS. Revenue for the group
as a whole increased slightly in the third quarter compared to the second
quarter due to steady closed loan volumes and adding four new TRMS customers for
a total of fourteen new TRMS customers year to date. We expect the group to
continue to enhance its revenue, in part as a result of our continuing success
in attracting new customers. Our Capital Markets sales pipeline continues to
exhibit strength, and we have added to our sales force and support group to aid
our expansion plans.

      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.

                                       14
<PAGE>


OPERATING EXPENSES

<TABLE>
<CAPTION>
                                    For three months ended              For nine months ended
                                         September 30,                      September 30,
                                ------------------------------    ----------------------------------
(Dollars in thousands)               2005             2004             2005               2004
                                -------------    -------------    --------------     ---------------
                                         % of             % of              % of               % of
                                          Rev              Rev               Rev                Rev
                                ------    ---    ------    ---    -------    ----    -------    ----
<S>                             <C>       <C>    <C>       <C>    <C>         <C>    <C>         <C>
Direct costs                    $1,574    39%    $1,277    36%    $ 4,884     41%    $ 4,070     37%
Selling and marketing              617    15%       477    13%      1,870     16%      1,526     14%
General and administrative         905    23%       994    28%      3,158     26%      3,058     28%
Research and development           576    14%       611    17%      1,845     15%      1,908     17%
Depreciation and
     amortization                  137     4%       153     4%        401      3%        431      4%
                                ------    --     ------    --     -------    ---     -------    ---

    Total operating expenses    $3,809    95%    $3,512    98%    $12,158    101%    $10,993    100%
                                ======    ==     ======    ==     =======    ===     =======    ===
</TABLE>

      Quarterly operating expenses declined during third quarter 2005 compared
to the first two quarters of the year. During the first half of 2005, there were
higher expenses associated with our regulatory compliance activities mandated by
Sarbanes-Oxley, severance expenses related to headcount reductions due to
efficiencies made possible by progress we made in integrating our acquisitions,
audits, annual meetings, and other consolidation efforts. Operating expenses
increased to $3.8 million in third quarter 2005 compared to $3.5 million in the
same quarter in the prior year and increased to $12.2 million for the nine
months ended September 30, 2005 compared to $11.0 million in the same period in
the prior year. The increases are primarily due to TRMS operating costs which
did not begin until October 2004 which were offset by cost reductions due to our
integration and consolidation efforts noted above. Operating expenses for fourth
quarter 2005 are expected to approximate those for the third quarter just ended
as a result of these integration and consolidation efforts.

DIRECT COSTS

      Direct costs are comprised primarily of website fulfillment, technology
infrastructure support, product and contract support, product deployment, and
TRMS trading desk and support services. Direct costs declined to $1.57 million
for the third quarter 2005 compared to $1.62 million for the previous quarter.
This was due primarily to our consolidation efforts which allowed us to reduce
our technology infrastructure support services and database management
resources. For the first nine months of 2005, direct costs were $4.88 million,
up from $4.07 million for the comparable period in the prior year. Most of the
increase is due to the TRMS operation which was not acquired until October 2004.
This increase was partially offset by lower headcount required for LION in 2005
compared to 2004 due to product and IT integration efforts throughout 2004 and
the first half of 2005.

SELLING AND MARKETING

      Selling and marketing expenses are comprised primarily of advertising and
marketing costs, sales salaries and related support costs. Selling and marketing
expenses were $617,000 in third quarter 2005 which was comparable to the
previous quarter. For the first nine months of 2005, selling and marketing
expenses were $1.9 million compared to $1.5 million for the same period last
year. This increase was due to the addition of the TRMS operations, ads in
periodicals and increased advertising for Mortgage 101 leads.

                                       15
<PAGE>


GENERAL AND ADMINISTRATIVE

      General and administrative expenses are comprised primarily of management
and administrative salaries and related costs, legal and audit fees, outside
consulting services, certain telecommunications expenses, occupancy costs, and
other administrative related expenses. General and administrative expenses for
third quarter 2005 were $905,000 compared to $1.2 million for second quarter
2005. The decrease is due primarily to non-recurring expenses during the second
quarter related to both severance payments and Sarbanes-Oxley section 404
compliance efforts completed by the end of second quarter. In addition, there is
reduced headcount in the third quarter compared to the second quarter due to our
consolidation efforts throughout the first half of 2005. For the first nine
months of 2005, general and administrative expenses were $3.2 million compared
to $3.1 million for the same period a year ago. Due to consolidation efforts
during the first nine months of 2005, general and administrative expenses in the
fourth quarter are expected to be similar to the third quarter.

RESEARCH AND DEVELOPMENT

      Research and development expenses are comprised primarily of engineering
salaries and related costs. Research and development expenses decreased to
$576,000 for third quarter 2005 from $606,000 for the previous quarter. For the
first nine months of 2005, research and development expenses were $1.84 million
compared to $1.91 million in the same period in the prior year. The reductions
reflect our consolidation efforts related to product development and relocating
research and development efforts into one location.

DEPRECIATION AND AMORTIZATION

      The decrease in depreciation and amortization expense in the three and
nine month periods ended September 30, 2005 compared to the same periods in the
prior year is due to certain internally developed software for internal use
being fully depreciated by the end of 2004, offset by additional depreciation
related to the purchase of equipment, computers and software.

INTEREST EXPENSE AND INTEREST INCOME

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

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

OTHER INCOME

      Other income reported in 2004 includes $433,000 net of legal expenses
related to a settlement with our insurance carrier for the reimbursement of
defense and indemnity costs related to litigation completed in June 2002.

                                       16
<PAGE>


FINANCIAL POSITION

      At September 30, 2005, we had approximately $4,281,000 in cash and cash
equivalents after reclassifying $280,000 to noncurrent assets as restricted cash
for a letter of credit on leased office space for our California operations. The
change in cash and cash equivalents is as follows:

                                                            Nine months ended
                                                              September 30,
                                                          ---------------------
(Dollars in thousands)                                      2005         2004
                                                          --------     --------

Net (loss) income                                         $   (115)    $    503
Non-cash items                                                 563          711
Changes in working capital                                      73         (213)
                                                          --------     --------
  Net cash provided by operating activities                    521        1,001

  Net cash used in investing activities                       (381)        (388)

Restricted cash for letter of credit                          (280)          --
Other net uses of cash for financing activities                (97)         116
                                                          --------     --------
  Net cash (used in) provided by financing activities         (377)         116

Net (decrease) increase in cash and cash equivalents          (237)         729
Cash and cash equivalents at beginning of period             4,518        2,883
                                                          --------     --------
Cash and cash equivalents at end of period                $  4,281     $  3,612
                                                          ========     ========

      Cash provided from operating activities during the nine month period ended
September 30, 2005 was approximately $521,000. Our working capital was $3.95
million at September 30, 2005, compared to $4.01 million at December 31, 2004.
Our current assets reflect the recognition of a $150,000 deferred tax asset
discussed below.

      During the nine month period ended September 30, 2005, we funded our
activities from cash provided by operations, from payments on accounts
receivable and from the exercise of stock options. Cash and cash equivalents are
expected to fund near-term operations.

NON-CASH ITEMS

      Non-cash items are primarily depreciation and amortization and stock
option expense for both the nine month periods ended September 30, 2005 and
2004.

WORKING CAPITAL AND OPERATING ACTIVITIES

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

      During the nine months ended September 30, 2004, our investment in working
capital increased primarily due to the settlement with our insurance carrier
totaling $433,000, revenue growth, primarily from

                                       17
<PAGE>


the Retail Websites and Pipeline Tools product lines, and payments on accounts
receivable. The accounts receivable payments were primarily from large accounts
receivable balances acquired in the Ignition asset purchase, which were offset
by a pay down of accrued liabilities related to legal, accounting and other fees
associated with the acquisition of the Ignition assets and an increase in
prepaid expenses on various maintenance agreements on the equipment and software
in the Company's datacenters.

INVESTING ACTIVITIES

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

      During the nine months ended September 30, 2004, investing activities used
cash of approximately $388,000, which primarily consisted of the capitalized
portion of software development costs related to the enhancement of underlying
infrastructure delivering various product lines and upgrades to computer
hardware and software.

FINANCING ACTIVITIES

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

      During the nine months ended September 30, 2004, net proceeds from
financing activities were approximately $116,000. Warrants and stock options
were exercised during the period totaling approximately $178,000. This was
offset by payments totaling approximately $63,000 on notes payable and
capitalized lease obligations related to the acquisition of application and
database software, computers, servers, furniture and telecommunications systems
upgrades.

OVERALL LIQUIDITY AND CAPITAL RESOURCES

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

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. 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

                                       18
<PAGE>


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 B, Summary of Significant Accounting Policies, to our 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 unutilized tax credits and 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.

      During the fourth quarter of 2004, the Company 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 asset is dependent on generating
sufficient taxable income prior to expiration of net operating loss
carryforwards. At December 31, 2004, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $2,460,000
available to offset future income which expire in 2018 through 2022. 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 in the near term if
estimates of future taxable income during the carryforward period are reduced.
The Company has established a valuation allowance of $1.07 million and $1.44
million as of December 31, 2004 and 2003, respectively, due to the uncertainty
of future realization of the net deferred tax assets. Utilization of these
carryforwards could further be limited due to a change of control in the
Company's ownership as defined by the Internal Revenue Code Section 382.

                                       19
<PAGE>


      IMPAIRMENT OF GOODWILL

      We periodically assess goodwill for impairment 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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

      In May 2005, the FASB issued SFAS No. 154, ACCOUNTING CHANGES AND ERROR
CORRECTIONS. SFAS No. 154 replaces Accounting Principles Board ("APB") Opinion
No. 20, ACCOUNTING CHANGES and SFAS No. 3, REPORTING ACCOUNTING CHANGES IN
INTERIM FINANCIAL STATEMENTS. SFAS No. 154 requires retrospective application to
prior periods' financial statements of a voluntary change in accounting
principle unless it is not practical. APB No. 20 previously required that most
voluntary changes in accounting principle be recognized by including the
cumulative effect of changing to the new accounting principle in net income in
the period of the change. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.
The Company does not expect the adoption of SFAS No. 154 to have a material
impact on the Company's financial position or results of operations.

      In September 2005, the Securities and Exchange Commission announced that
the compliance date for non-accelerated filers and foreign private issuers
pursuant to Section 404 of the Sarbanes-Oxley Act has been extended. Under the
latest extension, a company that is not required to file its annual and
quarterly reports on an accelerated basis and a foreign private issuer filing
its annual report on Form 20-F or 40-F, must begin to comply with the internal
control over financial reporting requirements for its first fiscal year ending
on or after July 15, 2007. This is a two-year extension from the previously
established July 15, 2005 compliance date. The Commission similarly has extended
the compliance date for these companies relating to requirements regarding
evaluation of internal control over financial reporting and management
certification requirements. LION will, therefore, be required to comply with
Section 404 of the Sarbanes-Oxley Act as of December 31, 2007.


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

                                       20
<PAGE>


our expectations will necessarily come to pass. Actual results could differ
materially because of issues and uncertainties such as those listed below, in
this section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere in this report. These
factors, among others, may adversely impact and impair our business and should
be considered in evaluating our financial outlook.

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

      We are working toward a goal of revenue growth and sustained
profitability. Annual revenues increased to $15.2 million in 2004 from $8.1
million in 2003 and from $6.4 million for 2002. However, during 2003 and 2004,
revenues quarter to quarter have at times remained flat and have done so during
the first three quarters of 2005. Had it not been for the strategic acquisition
of the Ignition assets in December 2003 and the acquisition of Tuttle Risk
Management Services in October 2004, revenue growth targets year over year would
not have been achieved in 2004 and the likelihood of achieving targets for 2005
much more difficult. We had ten consecutive quarters of profitability beginning
with the third quarter of 2002 through the fourth quarter of 2004, but incurred
a net loss for each of the first two quarters of 2005 before returning to
profitability in the third quarter. We expect revenue in the fourth quarter to
be consistent with the first three quarters of 2005 and the fourth quarter to be
modestly profitable.

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

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

      We are substantially dependent on the continued services of our key
personnel, including our officers, engineers and other significant employees.
These individuals have acquired specialized knowledge and skills with respect to
LION. We are continuing to create the redundancies that will reduce the reliance
on these individuals, but have not completed this task and will not for at least
the remainder of 2005 and into 2006. Furthermore, we have not entered into
employment agreements with these significant employees except for our upper
management team. If any of these individuals were to leave LION unexpectedly, we
could face substantial difficulty in hiring qualified successors and could
experience a loss in productivity while any such successor obtains the necessary
training and experience. We provide stock options or restricted stock grants,
which serve to retain and motivate key employees as they become vested in their
equity. While management personnel are typically granted additional stock
options or restricted stock grants, which will usually vest over a period of
four years subsequent to their hire date to provide additional incentive to
remain at LION, the initial grant is typically the largest and an employee may
be more likely to leave our employ upon completion of the vesting period for the
initial grant. Stockholders approved at our 2005 annual meeting a stock
incentive plan which will allow a flexible stock compensation program which we
believe will be important 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.

                                       21
<PAGE>


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

      Our success depends on our ability to expand, retain and enhance our
advanced business solution customers. Our expanded product line as a result of
the acquisition of Ignition assets and TRMS carries with it the risk that our
revenues may be dependent on a limited number of significant customers, rather
than a broad-based broker and customer network. As part of the acquisition, LION
became the assignee of certain customer contracts, most of which have initial
contract periods or renewals expiring in 2005 and 2006 and typically have
renewable successive one-year terms and in a few cases successive two-year
terms. Revenues from these acquired contracts comprised approximately 54% of our
total revenues for the first nine months of 2005. Several LockPoint Xtra(R) and
Pipeline Tools customers did not renew their contracts with us during 2004 and
during the first nine months of 2005. Included among those customer terminations
was an LPX customer that did not renew its contract at the end of third quarter
and a Pipeline Tools customer that also did not renew its contract during the
fourth quarter with the combined revenue loss in the fourth quarter totaling
approximately $170,000. However, we have signed 3 new Precision MTS customers
during the third quarter bringing to 9 the number of customers using the LPX /
Precision MTS platform, and 4 new lender customers for our TRMS risk management
services bringing to 14 the number of new customer wins in 2005 for our capital
markets group.

      There can be no assurance that the existing large customers will renew
their contracts, or that we will be able to attract new customers at rates
sufficient to maintain a stable or growing revenue base. We have also
experienced an anticipated but significant decline in loan volumes in the LPX,
Pipeline Tools, and Risk Management Services product lines compared to 2004
although volumes improved in the second and third quarters of 2005 compared to
first quarter. If we are unsuccessful in enrolling new customers to equalize the
attrition rate of existing customers, or to offset a decline in transactional
volume, our overall share of the advanced business solution market could be
reduced, and consequently our business operating results and financial condition
may be materially adversely affected.

OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

      We do not have multiple site capacity for our LION Pro, Mortgage 101 or
Retail Web Site services, however, we do have this in place for our LockPoint
Xtra(R) and Pipeline Tools services. We are in the process of developing
multiple site capacity for all of our services, but this will not be completed
until some time late in 2005 and possibly into 2006. We have in place
comprehensive data tape backup procedures for our operational and administrative
databases. Our replication software provides a high level of hardware backup for
the database by duplicating our database across several powerful servers.
However, despite protective measures, our operations could be vulnerable to
damage from floods, fire, earthquakes, power loss, telecommunications failures,
break-ins, terrorism, and similar events. The prospect of such unscheduled
interruptions is possible in the foreseeable future, and we are unable to
predict their occurrence, duration or cessation.

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

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

      Our success will depend on the continued growth and maintenance of the
Internet infrastructure. This includes maintenance of a reliable network
backbone with the necessary speed, data capacity and security for providing
reliable Internet services. Internet infrastructure may be unable to support the
demands placed on it if the number of Internet users continues to increase, or
if existing or future Internet users access the Internet more often or increase
their bandwidth requirements. In addition, viruses, worms and similar programs
may harm the performance of the Internet. The Internet has experienced a variety
of outages and other delays as a result of damage to portions of its
infrastructure, and it could face outages and delays in the future. These
outages and delays could reduce the level of Internet usage as well as our
ability to provide our solutions.

GOVERNMENT REGULATION

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

      Our other operations are subject to general business regulations and laws,
as well as regulations and laws specifically governing the Internet and
e-commerce. Existing and future laws and regulations may impede the growth of
the Internet or other online services. These regulations and laws may cover
taxation, user privacy, data protection, pricing, content, copyrights,
distribution, electronic contracts and other communications, consumer
protection, the provision of online payment services, broadband Internet access,
and the characteristics and quality of products and services not currently
subject to direct regulation by any government agency, other than regulations
applicable to businesses generally. There can be no assurance that the enactment
of laws affecting telecommunications will not decrease the growth of the
Internet, which in turn could decrease the demand for our products and services,
increase the cost of doing business, or otherwise have an adverse effect on our
business, operating results or financial condition. Moreover, the applicability
to the Internet of existing laws governing issues such as property ownership,
libel and personal privacy is developing. We cannot predict the impact, if any,
that future regulation or regulatory changes might have on our business. It is
not clear how existing laws governing issues such as property ownership, sales
and other taxes, libel, and personal privacy apply to the Internet and
e-commerce. Unfavorable resolution of these issues may harm our business. This
could, in turn, diminish the demand for our products and services and increase
our cost of doing business.

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

      Our success depends on providing products and services that our users and
customers use for a high quality Internet experience. Our competitors are
constantly developing innovations in web search, web functionality, online
advertising and providing information to people. As a result, we must continue
to invest significant resources in research and development in order to enhance
our technology and our existing products and services and introduce new
high-quality products and services that our users and customers can easily and
effectively use. If we are unable to ensure that our users and customers have a

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high quality experience with our products and services, then these users and
customers may become dissatisfied and move to other competitors' products. In
addition, if we are unable to predict user and customer preferences or industry
changes, or if we are unable to modify our products and services on a timely
basis, we may lose users and customers. Our operating results would also suffer
if our innovations are not responsive to the needs of our users and customers,
are not appropriately timed with market opportunity or are not effectively
brought to market. As technology continues to develop, our competitors may be
able to offer results that are, or that are perceived to be, substantially
similar or better than those generated by our products and services. This may
force us to expend significant resources in order to remain competitive.

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

      Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we will be
required beginning with our Annual Report on Form 10-KSB for the fiscal year
ending December 31, 2007, to furnish a report by our management on our internal
control over financial reporting. Such a report will contain, among other
matters, an assessment of the effectiveness of our internal control over
financial reporting as of the end of our fiscal year. This assessment must
include disclosure of any material weaknesses in our internal control over
financial reporting identified by management. Our Annual Report must also
contain a report that our independent auditors have issued attesting to
management's assessment of our internal controls.

      The Committee of Sponsoring Organizations of the Treadway Commission
(COSO) provides a framework for companies to assess and improve their internal
control systems. The Public Company Accounting Oversight Board's Auditing
Standard No. 2 ("Standard No. 2") provides the professional standards and
related performance guidance for auditors to attest to, and report on,
management's assessment of the effectiveness of internal control over financial
reporting under Section 404. Management's assessment of internal controls over
financial reporting requires management to make subjective judgments and,
particularly because Standard No. 2 is newly effective, some of the judgments
will be in areas that may be open to interpretation and therefore the report may
be uniquely difficult to prepare, and our auditors may not agree with
management's assessments. We are still performing the system and process
documentation and evaluation needed to comply with Section 404, which is both
costly and challenging.

      During this process, if our management identifies one or more material
weaknesses in our internal control over financial reporting, we will be unable
to assert such internal control is effective. If we are unable to assert that
our internal control over financial reporting is effective as of December 31,
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.

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<PAGE>


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

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

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

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<PAGE>


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

      o  Retaining employees from the businesses we acquire.

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

      The anticipated benefit of many of these acquisitions may not materialize.
Future acquisitions or dispositions could result in potentially dilutive
issuances of our equity securities, the incurrence of debt, contingent
liabilities or amortization expenses, or write-offs of goodwill, any of which
could harm our financial condition. Future acquisitions may require us to obtain
additional equity or debt financing, which may not be available on favorable
terms or at all.

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

      We have a history of using employee stock options and other stock-based
compensation to hire, motivate and retain our employees. In December 2004, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123R, "Share-Based Payment," which requires companies, starting
January 1, 2006, to measure compensation costs for all stock-based compensation
(including stock options and restricted stock) at fair value and to recognize
these costs as expenses in the statements of income. We previously adopted the
fair value based method of accounting pursuant to SFAS No. 123, ACCOUNTING FOR
STOCK BASED COMPENSATION, prospectively. Management is in the process of
evaluating the requirements of SFAS No. 123R. The final determination of the
impact of this statement has not been completed. The recognition of these
expenses in our statements of income could have a negative affect on our
earnings per share, which could negatively impact our future stock price. In
addition, if we reduce or alter our use of stock-based compensation to minimize
the recognition of these expenses, our ability to recruit, motivate and retain
employees may be impaired, which could put us at a competitive disadvantage in
the employee marketplace.

THE TRADING PRICE FOR OUR COMMON STOCK MAY BE VOLATILE.

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

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

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

      o  Disruption to our operations or our data centers.

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

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

      o  Commencement of, or our involvement in, litigation.

                                       26
<PAGE>


      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

      Under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e) as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are effective.

      In general, we are assessing the effectiveness of our internal controls
over financial reporting on an account by account basis as a part of our
on-going accounting and financial reporting review process in order to comply
with Section 404 of the Sarbanes-Oxley Act of 2002, which requires our
management to assess the effectiveness of our existing internal controls for the
fiscal year ended December 31, 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 were no changes in our internal control over financial reporting
during the quarter ended September 30, 2005 that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting.

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<PAGE>


                           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

                                       28
<PAGE>


                                   SIGNATURES

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


                                   LION, INC.
                                  (Registrant)

      Date: November 14, 2005                       By:  /s/ Randall D. Miles
            -----------------                            --------------------
                                                         Randall D. Miles
                                                         Chief Executive Officer



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