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


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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001


                         COMMISSION FILE NUMBER 0-25159

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

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

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

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

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

           As of August 6, 2001, approximately 31,021,978 shares of the
Company's common stock were outstanding.

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<PAGE>

                                   LION, Inc.
                                  Form 10 - QSB
                       For the Quarter Ended June 30, 2001


                                                                           PAGE
                                                                          NUMBER
                                      INDEX

PART I   FINANCIAL INFORMATION

Item 1   Financial Statements

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

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

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

         Notes to Consolidated Financial Statements                          6

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

PART II  OTHER INFORMATION

Item 5   Other Information                                                  18

Item 6   Exhibits and Reports on Form 8 - K                                 18

         Signatures                                                         19





                                       2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS

                                   LION, Inc.

                                 BALANCE SHEETS

                                     ASSETS
<TABLE><CAPTION>
                                                                          June 30,
                                                                            2001          December 31,
                                                                         (Unaudited)          2000
                                                                        ------------      ------------
<S>                                                                     <C>               <C>
CURRENT ASSETS
    Cash and cash equivalents                                           $    302,017      $    117,254
    Accounts receivable, less allowance for doubtful accounts of
        $55,000 and $82,390 in  2001 and 2000, respectively                  420,148           457,705
    Prepaid expenses and other                                               137,641            92,615
                                                                        ------------      ------------

           Total current assets                                              859,806           667,574

PROPERTY AND EQUIPMENT - net                                                 811,717           861,847

OTHER ASSETS
    Goodwill - net                                                           603,428           706,873
    Other assets                                                              70,199            45,377
                                                                        ------------      ------------

                                                                        $  2,345,150      $  2,281,671
                                                                        ============      ============
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                                    $    154,385      $    236,836
    Accrued liabilities                                                      368,658           381,087
    Deferred revenue                                                         271,520           305,100
                                                                        ------------      ------------

           Total current liabilities                                         794,563           923,023

COMMITMENTS AND CONTINGENCIES                                                   --                --

STOCKHOLDERS' EQUITY
    Preferred stock - authorized, 5,000,000 shares of $.001 par
        value, liquidation value $900,000                                      1,500             1,500
    Common stock - authorized, 50,000,000 shares of $.001 par value           31,022            32,665
    Additional contributed capital                                        12,279,986        12,804,073
    Notes receivable from stockholders                                      (240,625)         (969,375)
    Accumulated deficit                                                  (10,521,296)      (10,510,215)
                                                                        ------------      ------------
                                                                           1,550,587         1,358,648
                                                                        ------------      ------------

                                                                        $  2,345,150      $  2,281,671
                                                                        ============      ============
</TABLE>
The accompanying notes are an integral part of these statements.

                                       3
<PAGE>

                                   LION, Inc.

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE><CAPTION>
                                            Three months ended June 30,        Six months ended June 30,
                                           ----------------------------      ----------------------------
                                               2001             2000             2001             2000
                                           -----------      -----------      -----------      -----------
<S>                                         <C>              <C>              <C>              <C>
Revenues                                    $ 1,563,196      $ 1,483,772      $ 3,054,331      $ 3,025,854

Expenses
    Direct costs                                260,887          163,312          521,065          371,499
    Selling and marketing                       450,340          532,991          920,664        1,057,141
    General and administrative                  619,317          856,936        1,229,773        1,518,385
     Compensation from stock options
         issued below fair market value            --            (79,680)            --            101,580
    Research and development                     45,737          113,357          103,863          335,360
    Depreciation and amortization               145,185          122,982          293,297          234,770
                                            -----------      -----------      -----------      -----------
                                              1,521,466        1,709,898        3,068,662        3,618,735
                                            -----------      -----------      -----------      -----------

           Operating income (loss)               41,730         (226,126)         (14,331)        (592,881)

Other income (expense)
    Interest expense                               (669)         (50,763)          (1,315)        (114,005)
    Interest income                               1,223            9,470            1,367           25,612
    Other income (expense) - net                 (1,823)             653            3,198              653
                                            -----------      -----------      -----------      -----------

           NET INCOME (LOSS)                $    40,461      $  (266,766)     $   (11,081)     $  (680,621)
                                            ===========      ===========      ===========      ===========

Net income (loss) per common share -
     basic and diluted                      $      .001      $     (.008)     $     (.001)     $     (.021)
                                            ===========      ===========      ===========      ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       4
<PAGE>

                                   LION, Inc.

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE><CAPTION>
                                                                                               Six months ended June 30,
                                                                                               ------------------------
                                                                                                 2001           2000
                                                                                               ---------      ---------
<S>                                                                                            <C>            <C>
Cash flows from operating activities
    Net loss                                                                                   $ (11,081)     $(680,621)
    Adjustments to reconcile net loss to net cash provided by (used in) operating activities
            Depreciation and amortization                                                        293,297        234,770
            Write off of software development costs                                                 --           56,200
            Interest earned on notes receivable                                                     --           22,551
            Warrants issued for financing costs                                                     --           86,625
            Warrants issued for services received                                                   --           76,909
            Common stock and stock options issued for services received                           11,970          9,325
            Common stock issued in lieu of cash compensation                                      13,500           --
            Compensation expense on stock options issued below fair market value                    --          101,580
            Changes in assets and liabilities
                Accounts receivable                                                               37,557        (50,023)
                Prepaid expenses and other                                                       (45,026)      (138,168)
                Accounts payable                                                                 (82,451)      (317,012)
                Accrued liabilities                                                              (12,429)        (6,630)
                Deferred revenue                                                                 (33,580)       108,360
                Other assets                                                                     (24,822)          --
                                                                                               ---------      ---------

                     Net cash provided by (used in) operating activities                         146,935       (496,134)

Cash flows from investing activities
    Capitalized software development costs                                                      (122,481)      (108,577)
    Purchase of property and equipment                                                           (17,241)       (10,865)
                                                                                               ---------      ---------

                     Net cash used in investing activities                                      (139,722)      (119,442)

Cash flows from financing activities
    Payments on related party payables                                                              --          (60,500)
    Payments on line of credit                                                                      --         (411,309)
    Proceeds from notes receivable                                                                  --           10,000
    Proceeds from issuance of common stock and exercise of stock options                         177,550         20,808
    Net proceeds from issuance of preferred stock                                                   --          807,000
    Proceeds from exercise of warrants                                                              --          472,232
                                                                                               ---------      ---------

                     Net cash provided by financing activities                                   177,550        838,231
                                                                                               ---------      ---------

Net increase in cash and cash equivalents                                                        184,763        222,655

Cash and cash equivalents at beginning of period                                                 117,254        368,649
                                                                                               ---------      ---------

Cash and cash equivalents at end of period                                                     $ 302,017      $ 591,304
                                                                                               =========      =========

Supplemental non-cash investing and financing activities:
    Exercise of stock options by notes receivable                                              $    --        $ 309,375
    Common stock returned for cancellation of notes receivable                                 $ 728,750      $ 156,250
    Issuance of warrants for services deferred                                                 $    --        $  53,031
    Issuance of warrants as finders fee for financing                                          $    --        $  62,410
    Common stock issued related to purchase of IMark assets                                    $    --        $ 374,117
</TABLE>

The accompanying notes are an integral part of these statements.

                                       5
<PAGE>

                                   LION, Inc.

                                  Form 10 - QSB

                          NOTES TO FINANCIAL STATEMENTS

NOTE 1.   FINANCIAL STATEMENTS

           The unaudited consolidated financial statements and related notes are
presented as permitted by Form 10 - QSB, and do not contain certain information
included in the Company's audited consolidated financial statements and notes
for the fiscal year ended December 31, 2000. The information furnished reflects,
in the opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the results of the interim
periods presented. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the entire fiscal year
ending December 31, 2001. The accompanying unaudited consolidated financial
statements and related notes should be read in conjunction with the audited
consolidated financial statements and the Form 10 - KSB of LION, Inc. and notes
thereto, for its fiscal year ended December 31, 2000.

NOTE 2.   NET INCOME (LOSS) PER COMMON SHARE

           Basic net income (loss) per common share is based on the income
available to common stockholders compared to the average number of shares
outstanding during each period. The weighted average number of common shares
outstanding were 30,458,654 and 32,614,600 for the six months ended June 30,
2001 and 2000, respectively, and 29,895,329 and 33,042,320 for the three months
ended June 30, 2001 and 2000, respectively. The computation for net income
(loss) per common share assuming dilution for the six and three months ended
June 30, 2001 and 2000 was anti-dilutive, and therefore, is not included.

NOTE 3.   CONTINGENCIES

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

NOTE 4.   RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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<PAGE>

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

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

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

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

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

OVERVIEW

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

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

           Membership fees come from LION's subscription-based products and
services. They are (i) LION Pro, consisting of LION Loan Search, LoanLink, News
Now and Ratesheets on Demand, (ii) Mortgage 101, consisting of hundreds of
mortgage information pages, interactive calculators, live interest rates
displayed from LION's Multi-Lender Rate Feed, prequalification and application
tools, and back-

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<PAGE>

end rate and lead management tools, and (iii) Free Mortgage Dot Com, a template
web site using Mortgage101 technology with the mortgage originators' logo and
colors delivered with no set up fees and free one-year domain name registration.

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

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

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


RESULTS OF OPERATIONS

           During the first quarter of 2001, we focused significant effort on
reaching profitability. As a result, we achieved our first profitable quarter
during the second quarter of 2001. The net income for the three months ended
June 30, 2001 was $40,461 compared to a net loss of $266,766 for the same
quarter in the prior year. Additionally, the net loss for the six months ended
June 30, 2001 narrowed significantly to $11,081 compared to a net loss of
$680,621 for the same period in the prior year. This improvement was
accomplished by continuing to focus on growing our revenue from core business,
and our ability to reduce expenses and improve efficiencies within the Company.
While we anticipate additional efficiencies to be attained throughout the year,
the success or failure to achieve sustained profitability will be driven by
revenue growth.

REVENUES

           Revenues increased to $3,054,331 from $3,025,854 for the six months
ended June 30, 2001 and 2000, respectively. This represents an increase of
$28,477 or 1%. Total revenues of $3,054,331 for the six months ended June 30,
2001 were comprised of mortgage broker fees of $2,236,321 or 73%, lender fees of
$639,829 or 21%, ad banner revenues of $171,428 or 6%, and other fees of $6,753.
Total revenues of $3,025,854 for the six months ended June 30, 2000 were
comprised of mortgage broker fees of $2,152,772 or 71%, lender fees of $655,183
or 22%, ad banner revenues of $200,398 or 7%, and other fees of $17,501.

           The overall increase of $28,477 in revenues was primarily due to an
increase in membership based services (collectively Lion Pro, Mortgage 101 and
Free Dot Com) which were offset by decreases in marketing fees (collectively
lead generating services and ad banners) and technology fees (primarily web site
development and hosting fees for lenders and mortgage brokers).

                                       8
<PAGE>

           Revenues increased to $1,563,196 from $1,483,772 for the three months
ended June 30, 2001 and 2000, respectively. This represents an increase of
$79,424 or 5%. Total revenues of $1,563,196 for the three months ended June 30,
2001 were comprised of mortgage broker fees of $1,164,881 or 75%, lender fees of
$310,029 or 20%, ad banner revenues of $84,898 or 5%, and other fees of $3,388.
Total revenues of $1,483,772 for the three months ended June 30, 2000 were
comprised of mortgage broker fees of $1,062,008 or 72%, lender fees of $309,479
or 21%, ad banner revenues of $107,939 or 7%, and other fees of $4,346.

           The overall increase of $79,424 in revenues was primarily due to an
increase in membership based services (collectively Lion Pro, Mortgage 101 and
Free Dot Com) and technology fees (primarily web site development and hosting
fees for lenders and mortgage brokers) with marketing fees (collectively lead
generating services and ad banners) remaining the same in both periods.

DIRECT COSTS

           Direct costs are comprised primarily of web site development,
technology infrastructure support, and salaries related to the daily updates to
rates, fees, and other loan program information in the mortgage lender database.
Direct costs increased to $521,065 from $371,499 for the six months ended June
30, 2001 and 2000, respectively. This represents an increase of $149,566 or 40%.
Direct costs as a percentage of revenues were 17% and 12% for the six months
ended June 30, 2001 and 2000, respectively. The increase is primarily due to the
increase in costs to maintain and improve the systems that deliver the Company's
core products and services.

           Direct costs increased to $260,887 from $163,312 for the three months
ended June 30, 2001 and 2000, respectively. This represents an increase of
$97,575 or 60%. Direct costs as a percentage of revenues were 17% and 11% for
the three months ended June 30, 2001 and 2000, respectively. The increase is
similar to those noted above for the six month period.

SELLING AND MARKETING

           Marketing and selling expenses are comprised of marketing and
advertising costs, sales salaries and related support costs. Marketing and
selling expenses decreased to $920,664 from $1,057,141 for the six months ended
June 30, 2001 and 2000, respectively. This represents a decrease of $136,477 or
13%. These expenses as a percentage of revenues were 30% and 35% for the six
months ended June 30, 2001 and 2000, respectively. The decrease in selling and
marketing expenses is primarily due to the closure of the Company's Spokane
sales office and the consolidation of mortgage originator sales and customer
service functions in the Denver sales office.

           Marketing and selling expenses decreased to $450,340 from $532,991
for the three months ended June 30, 2001 and 2000, respectively. This represents
a decrease of $82,651 or 16%. These expenses as a percentage of revenues were
29% and 36% for the three months ended June 30, 2001 and 2000, respectively. The
decrease in selling and marketing expenses is similar to those noted above for
the six month period.

GENERAL AND ADMINISTRATIVE

           General and administrative expenses are comprised of management and
administrative salaries and related costs, outside consulting services,
telecommunications expenses, occupancy costs, and other administrative related
expenses. General and administrative expenses decreased to $1,229,773 from

                                       9
<PAGE>

$1,518,385 for the six months ended June 30, 2001 and 2000, respectively. This
represents a decrease of $288,612 or 19%. General and administrative expenses as
a percentage of revenues improved to 40% from 50% for the six months ended June
30, 2001 and 2000, respectively. The decrease in general and administrative
expenses was due primarily to (i) the merger of LION, Inc. (parent) and
LionInc.com (subsidiary) on January 1, 2001, (ii) prior year financing costs
related to the private placement of preferred stock that did not recur in the
current year and (iii) improved bad debt experience in the current year. These
decreases were offset by an increase in occupancy costs.

           General and administrative expenses decreased to $619,317 from
$856,936 for the three months ended June 30, 2001 and 2000, respectively. This
represents a decrease of $237,619 or 28%. General and administrative expenses as
a percentage of revenues improved to 40% from 58% for the three months ended
June 30, 2001 and 2000, respectively. The net reduction in these expenses is
similar to those noted above for the six month period.

COMPENSATION FROM STOCK OPTIONS ISSUED BELOW FAIR MARKET VALUE

           During the first quarter of 2000, certain long-time employees
exercised stock options in consideration for nonrecourse promissory notes. Under
APB Opinion No. 25, the issuance of stock options under such notes is in essence
a new granting of options. By issuing nonrecourse notes, we extended the
original terms of the fixed award, creating a new measurement date. As such,
additional compensation cost is recognized to the extent that the intrinsic
value of the new award exceeds the original intrinsic value of the original
award. For the three months ended March 31, 2000, we recorded compensation
expense of $181,260 for the difference between the original intrinsic value and
the intrinsic value of the new award. For the three months ended June 30, 2000,
the remeasurement of variable stock option awards resulted in a reduction to
expense totaling $79,680. For the six month period ended June 30, 2000,
compensation expense from stock options issued under fair market value totaled
$101,580. No compensation expense related to stock options was recorded for the
three or six month periods ended June 30, 2001.

RESEARCH AND DEVELOPMENT

           Research and development expenses are comprised primarily of
engineering salaries and related costs. Research and development expenses
decreased to $103,863 from $335,360 for the six months ended June 30, 2001 and
2000, respectively. This represents a decrease of $231,497 or 69%. Research and
development expenses as a percentage of revenues decreased to 3% from 11% for
the six months ended June 30, 2001 and 2000, respectively. The decrease is
primarily due to (i) the reallocation of research and development personnel to
direct cost efforts in order to maintain and improve the systems that deliver
the Company's core products and services, (ii) a reduction in other research and
development resources to match up with the current availability of funding and
(iii) a one-time write-off of a $56,200 database project during the first
quarter of 2000. As funding becomes available, we expect to spend more time and
resources in research and development.

           Research and development expenses decreased to $45,737 from $113,357
for the three months ended June 30, 2001 and 2000, respectively. This represents
a decrease of $67,620 or 60%. Research and development expenses as a percentage
of revenues decreased to 3% from 8% for the three months ended June 30, 2001 and
2000, respectively. The decrease in research and development expenses is similar
to those noted above for the six month period.


                                       10
<PAGE>

DEPRECIATION AND AMORTIZATION

           Depreciation and amortization expense increased to $293,297 from
$234,770 for the six months ended June 30, 2001 and 2000, respectively. This
represents an increase of $58,527 or 25% and was due primarily to the (i)
capitalization of internally developed software needed to expand and improve our
telecommunications and computer systems infrastructure and (ii) the amortization
of goodwill. Goodwill totaling $940,918 related to the IMark acquisition of
assets recorded in May 1999, contributed $103,444 of amortization expense for
the six months ended June 30, 2001 compared to $64,474 in the same period in the
prior year.

           Depreciation and amortization expense increased to $145,185 from
$122,982 for the three months ended June 30, 2001 and 2000, respectively. This
represents an increase of $22,203 or 18% and was due to the same reasons as
noted above for the six month period. Amortization of goodwill contributed
$51,722 of amortization expense for the three months ended June 30, 2001
compared to $36,134 in the same period in the prior year.

INTEREST EXPENSE

           Interest expense decreased to $1,315 from $114,005 for the six months
ended June 30, 2001 and 2000, respectively. The decrease is primarily due to the
pay off of the Company's line of credit in September of 2000. Interest expense
for the six months ended June 30, 2000 is primarily comprised of amortization of
loan fees and interest related to the Company's line of credit.

           Interest expense decreased to $669 from $50,763 for the three months
ended June 30, 2001 and 2000, respectively. The decrease is due to the same
reasons as noted above for the six month period.

INTEREST INCOME

           Interest income decreased to $1,367 from $25,612 for the six months
ended June 30, 2001 and 2000, respectively. Interest earned during the first six
months of 2000 is primarily due to nonrecourse promissory notes. No notes earned
interest during first six months of 2001. Any interest earned in the three month
periods ended June 30, 2001 and 2000 was attributable to interest bearing cash
accounts.


LIQUIDITY AND CAPITAL RESOURCES

           During the six month period ended June 30, 2001, the Company funded
its activities through two sources. First, we received $175,000 from a limited
number of accredited individuals participating in a private placement through
the issuance of 1,166,667 units consisting of common stock and warrants. No
additional funds from this source are anticipated at this time. Second, both the
first and second quarters of 2001 had positive cash flow from operations. The
Company anticipates that the remainder of the year should also reflect positive
cash flow from operations. At June 30, 2001, we had approximately $302,000 in
cash and cash equivalents.

           During the six months ended June 30, 2001, operating activities
provided net cash of $146,935 compared to the net use of cash of $496,134 for
operations during the same period in the prior year. The net cash provided in
operating activities for the first six months of 2001 was primarily attributable
to efficiencies gained from (i) the merger of the parent and subsidiary
companies, (ii) the closure of the Spokane sales office (iii) the consolidation
of all originator sales functions in the Denver sales office and (iv) the
reorganization of the engineering department. These cost savings were offset by
payments on

                                       11
<PAGE>

accounts payable. The net use of cash in operating activities for the first six
months of 2000 was primarily attributable to (i) research and development in
internal software for automated underwriting and wholesale origination and
fulfillment services (LoanCAT technology), (ii) a focus on delivering our core
business, and (iii) occupancy and related costs for future growth.

           During the six months ended June 30, 2001, we used net cash of
$139,722 for our investing activities which was primarily for the capitalized
portion of our software development costs related to (i) migration to new data
base platforms, (ii) additional solutions to automated underwriting submissions,
and (iii) upgrades to internal reporting systems. In the same period in the
prior year, we used net cash in investing activities totaling $119,442 which was
primarily related to the capitalized portion of our LoanCAT project (developing
solutions for online wholesale origination and fulfillment services for
lenders).

           During the six months ended June 30, 2001, net cash proceeds from
financing activities were $177,550. Proceeds received from financing activities
were primarily the result of the private placement of the Company's common stock
totaling $175,000. During the six months ended June 30, 2000, net cash proceeds
from financing activities were $838,231. Proceeds were primarily from warrant
exercises and the private placement of preferred stock totaling $472,232 and
$807,000, respectively. This enabled us to pay down our line of credit by
$411,309 while at the same time reducing other current obligations throughout
the six month period.

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

RISK FACTORS

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

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

           We are working toward a goal of "sustained" profitability and have
recently taken several important steps toward that goal, including, merging our
subsidiary with LION, reorganizing our senior management team, and consolidating
our originator sales and service operations. We reached profitability for the
second quarter of 2001 but still have a small loss for the first six months of
the year. For first quarter 2001, the net loss was $51,542 compared with a net
loss of $413,855 for first quarter 2000. For the second quarter 2001, the net
income was $40,461 compared with a net loss of $266,766 for the second quarter
2000. For the first six months of 2001 the net loss was $11,081 compared to a
net loss of $680,621 for the same period in the prior year. For the fiscal year
ended December 31, 2000, we had a net loss of $1,297,849, or $0.04 per share,
compared to a net loss of $3,997,151, or $0.15 per share in the prior fiscal
year. Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in new and rapidly evolving
markets, including uncertainty of revenues, markets, profitability and the need
to raise capital to fund our ongoing operations. We cannot assure you that we
will be successful in addressing these risks or that we can be operated
profitably, which depends on many factors, including the success of our
marketing program, the control of expense levels and the success of our business
activities. Our future operating results will depend on a variety of factors,
including those discussed in the other risk factors set forth below.

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<PAGE>

FINANCIAL RESULTS FOR ANY PARTICULAR PERIOD WILL NOT PREDICT RESULTS FOR FUTURE
PERIODS.

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

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

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

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

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

           LION's most critical customer is currently the mortgage broker.
Mortgage broker fees comprised 69% of our total revenues during 2000 and 73% of
total revenues during the six month period

                                       13
<PAGE>

ended June 30, 2001. Customer agreements are short-term and renewable. There can
be no assurance that these subscribers will continue to participate in the LION
program, or that we will be able to attract new mortgage brokers at rates
sufficient to maintain a stable or growing revenue base. We cannot assure you
that the market for our products and services will continue to develop as
expected. If the mortgage broker market develops more slowly than expected or
becomes saturated with competitors, or if our products and services do not
continue to achieve market acceptance, our business operating results and
financial conditions may be materially adversely affected.

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

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

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

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

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<PAGE>

inefficiencies or failures to adapt to new technologies and the associated
adjustments to our architecture would have a material adverse effect on our
business.

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

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

OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

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

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

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<PAGE>

and alleviating other security problems may require interruptions, delays or
cessation of service to our subscribers, which could have a materially adverse
affect on our business, operating results and financial condition.

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

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

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

           The trading price of our common stock has been and may continue to be
subject to wide fluctuations. During 2000, the closing sale prices of our common
stock on the OTC Bulletin Board ranged from $1.375 to $.125 per share and the
sale price of our common stock closed at $.09 per share on August 6, 2001. Our
stock price may fluctuate in response to a number of events and factors, such as
quarterly variations in operating results, announcements of technological
innovations or new products by us or our competitors, changes in financial
estimates and recommendations by securities analysts, the operating and stock
price performance of other companies that investors may deem comparable, and
news reports relating to trends in our markets. In addition, the stock market in
general, and the market prices for Internet-related companies in particular,
have experienced extreme volatility that often has been unrelated to the
operating performance of these companies. These broad market and industry
fluctuations may adversely affect the price of our stock, regardless of our
operating performance.

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

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

           As of December 31, 2000 a substantial majority of the 32,665,311
outstanding shares of common stock and 1,500,000 shares of preferred stock held
by existing shareholders were issued and sold by the Company in private
transactions in reliance on exemptions from the registration provisions of the

                                       16
<PAGE>

Securities Act and are restricted securities within the meaning of Rule 144
under the Securities Act. Of the outstanding shares, including shares held by
affiliates, 31,415,622 were issued on or before December 31, 1999, and may be
currently eligible for resale in the open market, if any, subject to the volume
and other conditions of Rule 144. There are no contractual restrictions on the
resale of the outstanding common stock. The sale in the public market of these
shares of restricted common stock, or the perception that these sales may occur,
may depress prevailing market prices of the common stock.

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

           As of December 31, 2000, there were outstanding stock options to
purchase an aggregate of 3,878,250 shares of common stock at exercise prices
ranging from $.17 to $2.00 per share, and warrants to purchase 685,000 shares of
common stock at exercise prices ranging from $.60 to $1.75. Employee options are
subject to a restriction whereby option holders have agreed to not sell or
otherwise transfer or dispose of shares of the common stock issued upon exercise
of options in an amount that shall exceed 250,000 shares during any three-month
period. The exercise of these outstanding options and warrants will dilute the
percentage ownership of common stockholders, and any sales in the public market
of shares of common stock underlying such securities may adversely affect
prevailing market prices for the common stock. Furthermore, the terms upon which
we will be able to obtain additional equity capital may be adversely affected
since the holders of these outstanding securities can be expected to exercise
their respective rights therein at a time when we would, in all likelihood, be
able to obtain any needed capital on terms more favorable to the Company than
those provided in such securities.

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

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

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

                                       17
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 5.   OTHER INFORMATION

           We have relocated from our corporate offices located in Renton,
Washington. A lease termination agreement was signed effective August 1, 2001
whereby we were allowed to terminate the remainder of our lease with office
space totaling 20,093 square feet for the time period of August 1, 2001 through
July 31, 2004. There was no penalty and only minimal cost to the Company. In
addition, any amounts owed to the Company, such as security deposits, have been
paid in full to us, and we in turn have completed all financial obligations to
the Renton landlord as of July 31, 2001.

           Our new executive offices are located in Seattle, Washington, at
4700-42nd Ave. SW, Suite 430, Seattle, WA 98116. We currently lease
approximately 8,274 square feet. The operating lease began August 1, 2001 and
expires July 31, 2007. We have the right to use this space for computer
information services and related business uses.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)    Exhibits to Part II:

       Exhibit 10.7 -      Lease Termination Agreement dated June 21, 2001
                           (effective August 1, 2001) - Renton Property

       Exhibit 10.8 -      Premises Lease Agreement (Seattle Property) -
                           effective date August 1, 2001


(b)    Reports on Form 8-K

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






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<PAGE>


                                   SIGNATURES
                                   ----------

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


                                   LION, INC.
                                   ----------
                                  (Registrant)

Date: August 14, 2001                            By:    /s/ John A. McMillan
                                                        --------------------
                                                        John A. McMillan
                                                        Chief Executive Officer























                                       19
<PAGE>


                                  EXHIBIT INDEX


       10.7       Lease Termination Agreement dated June 21, 2001 (effective
                  August 1, 2001) - Renton Property.

       10.8       Premises Lease Agreement (Seattle Property) - effective date
                  August 1, 2001.
























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