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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-QSB

|           |                                                                                          
|---------- | -----------------------------------------------------------------------------------------
|(Mark One)
|x          | Quarterly report pursuant to Section 13 or 15(d) of
  the Securities Exchange Act of 1934
|           | For the Quarterly Period Ended June 30,
  2007                                           
|           |                                                                                          
|o          | Transition report under Section 13 or 15(d) of the
  Securities Exchange Act of 1934     
|           | For the transition period from _____ to _____                                            

Commission file number 0-25159

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

|                                           |  |                                       
|------------------------------------------ |  | --------------------------------------
|Washington                                 |  | 91-2094375                            
|(State
  or other jurisdiction of          |  | (I.R.S.
  Employer Identification No.)
|incorporation
  or organization)           |  |                                       
|                                           |  |                                       
|                                           |  |                                       
|2801 Hollycroft St., Gig Harbor, WA        |  | 98335                                 
|(Address
  of principal executive offices) |  | (Zip
  code)                          

Issuers telephone number (206) 577-1440

4700-42nd Ave. SW, Suite 430,
Seattle WA 98116(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  o

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).

Yes o   No
x

As
of August 6, 2007, there were 38,611,960 shares of the Companys common stock
outstanding.

| |                                                              |                
| | ------------------------------------------------------------ | ---------------
| | Transitional
  Small Business disclosure Format (check one): | Yes  o   No
  x

1

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LION, Inc.
Form 10  QSB
For the Quarter Ended June 30, 2007

|        |                                                                                                                         |        | 
|------- | ----------------------------------------------------------------------------------------------------------------------- | ------ | 
|        |                                                                                                                         | PAGE  
|        | INDEX                                                                                                                   | NUMBER
|        |                                                                                                                         |        | 
|PART I  | FINANCIAL INFORMATION                                                                                                   |        | 
|        |                                                                                                                         |        | 
|Item 1  | Financial Statements                                                                                                    |        | 
|        |                                                                                                                         |        | 
|        | Condensed Consolidated Balance Sheets at June 30, 2007 (unaudited)
  and December 31, 2006                              | 3      | 
|        |                                                                                                                         |        | 
|        | Condensed Consolidated Statements of Operations for the three and six
  months ended June 30, 2007 and 2006 (unaudited) | 4      | 
|        |                                                                                                                         |        | 
|        | Condensed Consolidated Statements of Cash Flows for the six months
  ended June 30, 2007 and 2006 (unaudited)           | 5      | 
|        |                                                                                                                         |        | 
|        | Notes to Condensed Consolidated Financial Statements (unaudited)                                                        | 6      | 
|        |                                                                                                                         |        | 
|Item 2  | Managements Discussion and Analysis of Financial Condition and
  Results of Operations                                 | 12     | 
|        |                                                                                                                         |        | 
|Item 3  | Controls and Procedures                                                                                                 | 28     | 
|        |                                                                                                                         |        | 
|PART II | OTHER INFORMATION                                                                                                       |        | 
|        |                                                                                                                         |        | 
|Item 4  | Submission of Matters to a Vote of Security Holders                                                                     | 29     | 
|        |                                                                                                                         |        | 
|Item 6  | Exhibits                                                                                                                | 30     | 
|        |                                                                                                                         |        | 
|        | Signatures                                                                                                              | 31     | 
|        |                                                                                                                         |        | 

2

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PART I 
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

|                                                                                                                                          |  |                               |         |                     |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- | ------------------- | - | ------ | -
|                                                                                                                                          |  | June 30,
  2007
  (Unaudited) |         | December 31,
  2006 |  
|                                                                                                                                          |  |                               |         |                     |  
|Current assets                                                                                                                            |  |                               |         |                     |   |        |  
|Cash and cash equivalents                                                                                                                 |  | $                             | 1,423   |                     | $ | 2,587  |  
|Short-term investments  available for sale
  securities                                                                                  |  |                               | 900     |                     |   | 900    |  
|Accounts receivable, less allowance for
  doubtful accounts of $100 and $67 in 2007 and 2006, respectively                                |  |                               | 866     |                     |   | 1,101  |  
|Prepaid expenses and other                                                                                                                |  |                               | 423     |                     |   | 530    |  
|                                                                                                                                          |  |                               |         |                     |   |        |  
|                                                                                                                                          |  |                               |         |                     |   |        |  
|Total current assets                                                                                                                      |  |                               | 3,612   |                     |   | 5,118  |  
|                                                                                                                                          | 
|Property and equipment, net                                                                                                               |  |                               | 1,030   |                     |   | 555    |  
|Goodwill                                                                                                                                  |  |                               | 2,590   |                     |   | 2,590  |  
|Other assets                                                                                                                              |  |                               | 224     |                     |   | 224    |  
|                                                                                                                                          |  |                               |         |                     |   |        |  
|                                                                                                                                          | 
|                                                                                                                                          |  | $                             | 7,456   |                     | $ | 8,487  |  
|                                                                                                                                          |  |                               |         |                     |   |        |  
|                                                                                                                                          |  |                               |         |                     |   |        |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                      | 
|                                                                                                                                          |  |                               |         |                     |   |        |  
|Current liabilities                                                                                                                       |  |                               |         |                     |   |        |  
|Accounts payable                                                                                                                          |  | $                             | 311     |                     | $ | 162    |  
|Accrued salaries and benefits                                                                                                             |  |                               | 618     |                     |   | 708    |  
|Accrued liabilities                                                                                                                       |  |                               | 623     |                     |   | 267    |  
|Current maturities of long-term
obligations                                                                                               |  |                               | 977     |                     |   | 977    |  
|Deferred revenue                                                                                                                          |  |                               | 800     |                     |   | 631    |  
|                                                                                                                                          |  |                               |         |                     |   |        |  
|                                                                                                                                          |  |                               |         |                     |   |        |  
|Total current liabilities                                                                                                                 |  |                               | 3,329   |                     |   | 2,745  |  
|                                                                                                                                          | 
|Long-term obligations, less current
  maturities                                                                                          |  |                               | 6       |                     |   | 8      |  
|                                                                                                                                          |  |                               |         |                     |   |        |  
|Total liabilities                                                                                                                         |  |                               | 3,335   |                     |   | 2,753  |  
|                                                                                                                                          |  |                               |         |                     |   |        |  
|                                                                                                                                          | 
|Commitments and contingencies                                                                                                             |  |                               |        |                     |   |       |  
|                                                                                                                                         
|Stockholders equity                                                                                                                      |  |                               |         |                     |   |        |  
|Preferred stock, par value $.001 per share;
  authorized 5,000,000 shares; none issued or outstanding                                     |  |                               |        |                     |   |       |  
|Common stock, par value $.001 per share;
  authorized 50,000,000 shares; 38,611,960 and 38,614,272 issued and
  outstanding, respectively |  |                               | 39      |                     |   | 39     |  
|Additional contributed capital                                                                                                            |  |                               | 14,308  |                     |   | 14,269 |  
|Accumulated deficit                                                                                                                       |  |                               | (10,226 | )                   |   | (8,574 | )
|                                                                                                                                          |  |                               |         |                     |   |        |  
|                                                                                                                                          |  |                               | 4,121   |                     |   | 5,734  |  
|                                                                                                                                          |  |                               |         |                     |   |        |  
|                                                                                                                                          | 
|                                                                                                                                          |  | $                             | 7,456   |                     | $ | 8,487  |  
|                                                                                                                                          |  |                               |         |                     |   |        |  

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

3

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LION, Inc. and SubsidiaryCondensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|----------------------------------------------------- |  | --------------------------- | ------ | ------------------------- | - | ------ | - | ---- | ------ | - | - | ------ | -
|                                                      |  | Three months ended June 30, |        | Six months ended June 30, |  
|                                                      |  |                             |        |                           |  
|                                                      |  | 2007                        |        | 2006                      |   | 2007   |   | 2006 |       
|                                                      |  |                             |        |                           |   |        |   |      |       
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Revenues                                              |  | $                           | 2,790  |                           | $ | 3,537  |   | $    | 5,954  |   | $ | 7,070  |  
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Expenses                                              |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Direct costs                                          |  |                             | 1,590  |                           |   | 1,529  |   |      | 3,129  |   |   | 3,054  |  
|Selling and marketing                                 |  |                             | 512    |                           |   | 561    |   |      | 1,013  |   |   | 1,126  |  
|General and administrative                            |  |                             | 1,136  |                           |   | 1,283  |   |      | 2,284  |   |   | 2,210  |  
|Research and development                              |  |                             | 438    |                           |   | 602    |   |      | 997    |   |   | 1,194  |  
|Depreciation and amortization                         |  |                             | 105    |                           |   | 119    |   |      | 203    |   |   | 241    |  
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|                                                      |  |                             | 3,781  |                           |   | 4,094  |   |      | 7,626  |   |   | 7,825  |  
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Operating loss                                        |  |                             | (991   | )                         |   | (557   | ) |      | (1,672 | ) |   | (755   | )
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Other income (expense)                                |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Interest expense                                      |  |                             | (20    | )                         |   | (19    | ) |      | (39    | ) |   | (39    | )
|Interest income and other                             |  |                             | 27     |                           |   | 44     |   |      | 66     |   |   | 79     |  
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Loss before income tax                                |  |                             | (984   | )                         |   | (532   | ) |      | (1,645 | ) |   | (715   | )
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Income tax expense                                    |  |                             | (3     | )                         |   | (3     | ) |      | (7     | ) |   | (6     | )
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Net loss                                              |  | $                           | (987   | )                         | $ | (535   | ) | $    | (1,652 | ) | $ | (721   | )
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Net loss per common share, Basic and diluted          |  | $                           | (.03   | )                         | $ | (.01   | ) | $    | (.04   | ) | $ | (.02   | )
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  
|Weighted average number of shares, Basic
 and diluted |  |                             | 38,617 |                           |   | 38,467 |   |      | 38,617 |   |   | 38,466 |  
|                                                      |  |                             |        |                           |   |        |   |      |        |   |   |        |  

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

4

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

|                                                                                          |  |                            |        |      |   |       |  
|----------------------------------------------------------------------------------------- |  | -------------------------- | ------ | ---- | - | ----- | -
|                                                                                          |  | Six months ended
 June 30, |       
|                                                                                          |  |                            |       
|                                                                                          |  | 2007                       |        | 2006 |  
|                                                                                          |  |                            |        |      |  
|Cash flows from operating activities                                                      |  |                            |        |      |   |       |  
|Net loss                                                                                  |  | $                          | (1,652 | )    | $ | (721  | )
|Adjustments to reconcile net loss to net
 cash provided by (used in) operating activities |  |                            |        |      |   |       |  
|Depreciation and amortization                                                             |  |                            | 203    |      |   | 241   |  
|Change in allowance for doubtful accounts                                                 |  |                            | 33     |      |   | (5    | )
|Stock options and restricted stock expense                                                |  |                            | 37     |      |   | 65    |  
|Changes in assets and liabilities                                                         |  |                            |        |      |   |       |  
|Accounts receivable                                                                       |  |                            | 202    |      |   | 24    |  
|Prepaid expenses and other                                                                |  |                            | 107    |      |   | (16   | )
|Accounts payable                                                                          |  |                            | 149    |      |   | 49    |  
|Accrued salaries and benefits                                                             |  |                            | (90    | )    |   | 52    |  
|Accrued liabilities                                                                       |  |                            | 356    |      |   | 298   |  
|Deferred revenue                                                                          |  |                            | 169    |      |   | 242   |  
|                                                                                          |  |                            |        |      |   |       |  
|Net cash provided by (used in) operating
activities                                       |  |                            | (486   | )    |   | 229   |  
|                                                                                          |  |                            |        |      |   |       |  
|Cash flows from investing activities                                                      |  |                            |        |      |   |       |  
|Purchase of available-for-sale securities                                                 |  |                            |       |      |   | (100  | )
|Capitalized software development costs                                                    |  |                            | (344   | )    |   |      |  
|Purchases of property and equipment                                                       |  |                            | (334   | )    |   | (70   | )
|                                                                                          |  |                            |        |      |   |       |  
|Net cash used in investing activities                                                     |  |                            | (678   | )    |   | (170  | )
|                                                                                          |  |                            |        |      |   |       |  
|Cash flows from financing activities                                                      |  |                            |        |      |   |       |  
|Payments on long-term obligations                                                         |  |                            | (3     | )    |   | (20   | )
|Proceeds from issuance of common stock on
 exercise of stock options                      |  |                            | 3      |      |   | 1     |  
|                                                                                          |  |                            |        |      |   |       |  
|Net cash provided by (used in) financing
activities                                       |  |                            |       |      |   | (19   | )
|                                                                                          |  |                            |        |      |   |       |  
|Net decrease in cash and cash equivalents                                                 |  |                            | (1,164 | )    |   | 40    |  
|Cash and cash equivalents at beginning of
 period                                         |  |                            | 2,587  |      |   | 3,371 |  
|                                                                                          |  |                            |        |      |   |       |  
|Cash and cash equivalents at end of period                                                |  | $                          | 1,423  |      | $ | 3,411 |  
|                                                                                          |  |                            |        |      |   |       |  

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

5

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LION, Inc. and SubsidiaryNotes to condensed consolidated financial statements 
June 30, 2007

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

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

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

Interim Financial Statements - The unaudited
condensed consolidated financial statements and related notes are presented in
accordance with the instructions for interim financial statements in 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, 2006. The
information furnished reflects, in the opinion of management, all adjustments,
consisting of normal recurring adjustments, 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, 2007 or for any other
future interim period. The accompanying unaudited condensed consolidated
financial statements and related notes should be read in conjunction with the
audited consolidated financial statements and notes thereto included in LIONs
Form 10  KSB for its fiscal year ended December 31, 2006.

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

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®,
Pipeline Tools, and Risk Management Services product lines are generated primarily
from transaction fees on closed and locked loan volumes as well as fees for
related website development and implementation.

6

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LION, Inc. and Subsidiary
Notes to condensed consolidated financial statements 
June 30, 2007

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

The Company
accounts for its software products with external licensing in accordance with
Statement of Position 97-2, Software Revenue Recognition, and Staff Accounting
Bulletin 104, Revenue Recognition in Financial Statements. Revenue from
licensing fees relating to the use of the LockPoint Xtra® product is
recognized when all elements of the contract have been delivered to the
customer. Revenue from monthly recurring charges from use of the Pipeline Tools
and Risk Management Services products is recognized in the period in which the
service is provided.

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

Subscription
and service fees are recognized as revenue over the respective subscription
periods or when services are provided. Revenue from services is generally
determined based on time and materials. Deferred revenue is recorded on prepaid
subscriptions and on advance billings or cash received for contracts that have
undelivered elements.

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

In accordance
with SFAS 142, the Company tests goodwill for impairment at the reporting unit
level on an annual basis each June 30th. The Company has two
reporting units consisting of LION and TRMS. SFAS 142 requires a two-step
goodwill impairment test whereby the first step, used to identify potential
impairment, compares the fair value of a reporting unit with its carrying
amount including goodwill. If the fair value of a reporting unit exceeds its
carrying amount, goodwill is considered not impaired, thus the second step of
the goodwill impairment test used to quantify impairment is unnecessary.
Company management has estimated that the fair values of the Companys
reporting units to which goodwill has been allocated exceed their carrying
amounts and accordingly no provision for impairment is deemed necessary.

Net Loss Per Common Share - Basic loss per
common share is based on the weighted average number of shares outstanding
during each period. Potentially dilutive common stock equivalents are included
in determining dilutive earnings per share. The diluted share calculation for
the three and six months ended June 30, 2007 and 2006 excludes options to
purchase 3,018,917 and 3,930,867 shares, respectively, due to their
anti-dilutive effect.

7

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LION, Inc. and Subsidiary
Notes to condensed consolidated financial statements 
June 30, 2007

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

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

Recently Issued Accounting Pronouncements 
Effective January 1, 2007, the Company adopted the provisions of Financial
Accounting Standards Board (FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (FIN
48). FIN 48 prescribes a recognition threshold and measurement process for
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition of tax benefits, classification on the balance sheet, interest
and penalties, accounting in interim periods, disclosure and transition. Based
on Company managements evaluation, it has been concluded that there are no
significant uncertain tax positions requiring recognition in the Companys
financial statements. The evaluation was performed for the tax years ended
December 31, 1999 and thereafter, the tax years which remain subject to
examination by federal and state tax jurisdictions since the Company has net
operating loss carryforwards for the tax year ended December 31, 1999. The
Company may from time to time be assessed interest or penalties by major tax
jurisdictions, although such assessments historically have been minimal and
immaterial to the Companys financial results. In the event the Company has
received an assessment for interest and/or penalties, it has been classified in
the financial statements as general and administrative expense.

In February
2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities(SFAS 159). SFAS 159 permits entities
to choose to measure many financial instruments and certain other items at fair
value. The objective of the guidance is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS 159 is effective as
of the beginning of the first fiscal year after November 15, 2007. Early
adoption is permitted as of the beginning of the fiscal year on or before
November 15, 2007, provided the provisions of SFAS 157 are also applied.
Although management is still evaluating the potential effects of SFAS No. 157,
the adoption is not expected to have a material impact on the Companys
financial position, results of operations, or cash flows.

Reclassifications  Certain prior year amounts
on the condensed consolidated statements of cash flows have been reclassified
to conform to current year presentations, however, there was no change to net
cash provided by (used in) operating activities, investing activities or
financing activities.

8

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LION, Inc. and Subsidiary
Notes to condensed consolidated financial statements 
June 30, 2007

Note 2 
Stock-based compensation

Total
stock-based compensation expense recognized in the condensed consolidated
statements of operations for the three months ended June 30, 2007 and 2006 was
$4,000 and $38,000, respectively, and for the six months ended June 30, 2007
and 2006 was $37,000 and $65,000, respectively.

Note 3 
Segment reporting

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

|                                  |  |      |        |      |   |              |   |   |        |  
|--------------------------------- |  | ---- | ------ | ---- | - | ------------ | - | - | ------ | -
|                                  |  | LION |        | TRMS |   | Consolidated |  
|                                  |  |      |        |      |   |              |  
|Three months ended June 30, 2007: |  |      |        |      |   |              |   |   |        |  
|Revenues from external customers  |  | $    | 1,664  |      | $ | 1,126        |   | $ | 2,790  |  
|Revenues from TRMS                |  |      | 744    |      |   |             |   |   |       |  
|Operating loss                    |  |      | (614   | )    |   | (377         | ) |   | (991   | )
|                                  |  |      |        |      |   |              |   |   |        |  
|Three months ended June 30, 2006: |  |      |        |      |   |              |   |   |        |  
|Revenues from external customers  |  | $    | 2,078  |      | $ | 1,459        |   | $ | 3,537  |  
|Revenues from TRMS                |  |      | 933    |      |   |             |   |   |       |  
|Operating loss                    |  |      | (532   | )    |   | (25          | ) |   | (557   | )
|                                  |  |      |        |      |   |              |   |   |        |  
|Six months ended June 30, 2007:   |  |      |        |      |   |              |   |   |        |  
|Revenues from external customers  |  | $    | 3,505  |      | $ | 2,449        |   | $ | 5,954  |  
|Revenues from TRMS                |  |      | 1,564  |      |   |             |   |   |       |  
|Operating loss                    |  |      | (1,235 | )    |   | (437         | ) |   | (1,672 | )
|                                  |  |      |        |      |   |              |   |   |        |  
|Six months ended June 30, 2006:   |  |      |        |      |   |              |   |   |        |  
|Revenues from external customers  |  | $    | 4,159  |      | $ | 2,911        |   | $ | 7,070  |  
|Revenues from TRMS                |  |      | 1,896  |      |   |             |   |   |       |  
|Operating loss                    |  |      | (689   | )    |   | (66          | ) |   | (755   | )

9

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LION, Inc. and Subsidiary
Notes to condensed consolidated financial statements 
June 30, 2007

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

|                                |  |                             |      |                           |   |      |   |      |        |   |   |      |  
|------------------------------- |  | --------------------------- | ---- | ------------------------- | - | ---- | - | ---- | ------ | - | - | ---- | -
|                                |  | Three months ended June 30, |      | Six months ended June 30, |  
|                                |  |                             |      |                           |  
|                                |  | 2007                        |      | 2006                      |   | 2007 |   | 2006 |       
|                                |  |                             |      |                           |   |      |   |      |       
|                                |  |                             |      |                           |   |      |   |      |        |   |   |      |  
|Operating
 loss                 |  | $                           | (991 | )                         | $ | (557 | ) | $    | (1,672 | ) | $ | (755 | )
|Non-operating
 income (expense) |  |                             | 7    |                           |   | 25   |   |      | 27     |   |   | 40   |  
|                                |  |                             |      |                           |   |      |   |      |        |   |   |      |  
|                               
|Loss before income tax          |  | $                           | (984 | )                         | $ | (532 | ) | $    | (1,645 | ) | $ | (715 | )
|                                |  |                             |      |                           |   |      |   |      |        |   |   |      |  

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

|                 |  |                             |       |                           |   |       |  |      |       |  |   |       | 
|---------------- |  | --------------------------- | ----- | ------------------------- | - | ----- |  | ---- | ----- |  | - | ----- | 
|                 |  | Three months ended June 30, |       | Six months ended June 30, |  
|                 |  |                             |       |                           |  
|                 |  | 2007                        |       | 2006                      |   | 2007  |  | 2006 |      
|                 |  |                             |       |                           |   |       |  |      |      
|                 |  |                             |       |                           |   |       |  |      |       |  |   |       | 
|Leads            |  | $                           | 388   |                           | $ | 529   |  | $    | 746   |  | $ | 1,030 | 
|Loans            |  |                             | 1,161 |                           |   | 1,446 |  |      | 2,529 |  |   | 2,947 | 
|Capital
 Markets |  |                             | 1,241 |                           |   | 1,562 |  |      | 2,679 |  |   | 3,093 | 
|                 |  |                             |       |                           |   |       |  |      |       |  |   |       | 
|                
|Total revenues   |  | $                           | 2,790 |                           | $ | 3,537 |  | $    | 5,954 |  | $ | 7,070 | 
|                 |  |                             |       |                           |   |       |  |      |       |  |   |       | 

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

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

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

10

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LION, Inc. and Subsidiary
Notes to condensed consolidated financial statements 
June 30, 2007

Note 4 
Liquidity

The Company
incurred a net loss of approximately $1.7 million for the six months ended June
30, 2007 and used cash from operations of approximately $486,000. Cash used by
investing activities during the six months ended June 30, 2007 approximated
$678,000. The Company had approximately $2.3 million in cash, cash equivalents
and short-term investments and working capital of $283,000 at June 30, 2007.
Notes payable to former TRMS shareholders in the amount of $972,000 are due for
payment in October 2007.

The Company
has a history of recurring losses and the losses may continue. The Company
believes that its cash, cash equivalents and short-term investments will be
sufficient to fund its operations through December 31, 2007. The Company
expects to meet its future cash requirements through a combination of cash
generated from operations and existing cash balances and short term
investments. The Company cannot assure, however, that its business will
generate sufficient cash flow from operations. Additional funds may be required
to fund the operations of the Company and these funds may not be available on
favorable terms or at all. If adequate funds are not available, the Company may
need to curtail operations significantly.

The
accompanying unaudited condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The unaudited condensed consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts and the amount and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.

11

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS

OVERVIEW

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

Our
financial performance continues to be impacted by challenging conditions in the
mortgage lending markets. Higher interest rates, falling refinance activity,
rising home loan delinquency and foreclosure rates, and industry pressure on
sub prime lending, continued to exert pressures on the lenders and brokers we
serve. Revenue for second quarter 2007 totaled $2.8 million, a decrease of 21%
from $3.5 million for the same quarter in the prior year. Revenue for the six
months ended June 30, 2007 totaled 6.0 million, a decrease of 16% from $7.0
million for the same period in the previous year.

In
this business environment, we are continuing to promote growth by completing
the product group initiatives discussed below in Product Groups and 2007
Plans, as well as consolidating our operations to reduce our underlying cost
structure. We believe that completing our current product development cycle is
needed to ensure the Companys long term value, and that this objective can be
sustained while implementing our current expense reduction plan designed to
reach positive operating cash flow later this year.

Effective
April 2007, the Board of Directors accepted the resignation of our Chairman and
Chief Executive Officer and appointed our President as Interim CEO. During the
quarter, we announced cost cutting plans in effect and scheduled to be phased
in over the remainder of the year. When fully implemented, we anticipate a
reduction of 25% of our workforce, consolidation of our Seattle and Denver
operations into our Gig Harbor operations and aggressive cost cutting in
discretionary spending, occupancy costs and marketing. Reductions have been or
will be made across all reporting units of the Company. The cost cuts will be
reflected in the third quarter expense results but more so in the fourth
quarter. Achieving cost cutting and operational realignment is just one component
of our strategy to reach profitability and positive cash flow. We launched our
new Lioninc.com broker portal late in the second quarter and will be launching
our new retail website suite of products during third quarter and our new
Mortgage 101 portal in early fourth quarter. We have taken a conservative
approach regarding sales projections in view of the slower sales cycles that we
have experienced over the past three quarters, anticipating more aggressive
sales occurring when market conditions improve. The depth and extent of our
cost cutting efforts are predicated on these assumptions. As the year
progresses, if necessary we will make additional adjustments to achieve
profitability.

Operating
expenses for second quarter 2007 decreased 8% to $3.8 million compared to $4.1
million for second quarter 2006 and for the six months ended June 30, 2007
decreased 3% to $7.6 million compared to $7.8 million for the same period in
the prior year. We reported a net loss for second quarter 2007 of $987,000 or
$.03 per share compared to a net loss of $535,000 or $.01 per share for the
same quarter in the prior year. The net loss for the six months ended June 30,
2007 was $1.65 million or $.04 per share compared to a net loss of $721,000 or
$.02 per share for the same period in the prior year. Besides the 25% head
count reduction and the consolidation of our operations mentioned above, there
were proxy contest costs totaling approximately $155,000, trade errors from
TRMS totaling approximately $179,000, additional bad debt expense totaling
approximately $165,000, and severance costs totaling approximately $150,000
during the first half of 2007 that we do not expect to recur during the last
half of the year.

12

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During
the quarter, LION\ board of directors formed a Strategic Review Committee to
evaluate various strategic alternatives to further enhance shareholder value.
Subsequently, LION retained an investment banker to assist in the evaluation of
a full range of strategic alternatives available to the Company. Strategic
alternatives may include, without limitation, continued execution of the
Companys operating plan, the sale of some or all of the Companys assets,
partnering or other collaboration agreements, or a merger or other strategic
transaction. There can be no assurance that the exploration of strategic
alternatives will result in any agreements or transactions, or that, if
completed, any agreements or transactions will be successful or on attractive
terms. The Company does not intend to disclose developments with respect to
this process unless and until the evaluation of strategic alternatives has been
completed or it has entered into a material definitive agreement.

At
June 30, 2007, we had approximately $2.3 million in cash, cash equivalents, and
short-term investments. During the six months ended June 30, 2007, net cash of
$486,000 was used in our operating activities primarily to fund operating
losses, while investing activities used net cash of $678,000 primarily for
product initiatives and related datacenter upgrades. Product initiative
expenditures are expected to diminish appreciably during the last half of 2007.
During the fourth quarter of 2007, we are scheduled to make payments on notes
totaling $972,000. Our existing cash, cash equivalents and short-term
investments are expected to be sufficient to fund our operational and cash
needs through December 31, 2007. See Financial Position.

RESULTS OF OPERATIONS

Product Groups and 2007 Plans

Leads

Revenue
from our Leads product group, comprised of Mortgage 101, increased 8% to
$388,000 for the second quarter from $359,000 for the first quarter primarily
due to increased ad banner advertising during the quarter. Mortgage 101 revenue
decreased 27% to $388,000 in second quarter 2007 compared to $529,000 for
second quarter 2006 and decreased 27% to $746,000 for the six months ended June
30, 2007 compared to $1.0 million for the same period in the prior year. The
decrease was due primarily to lower pay per lead revenue as well as our rate
and directory listings. The decrease is indicative of lower loan volumes,
increased competition and industry lead quality concerns. We continue to
attract steady consumer traffic to our Mortgage101.com Internet portal due to strong
search engine placement on Google, MSN, and Yahoo for keyword searches such as
mortgage. An internal review of our performance resulted in our concluding
that a bolder strategy is necessary if we are to optimize our level of consumer
traffic, though not to the exclusion of lead generation, as an important
component of our Mortgage 101 consumer portal.

To
better leverage the large number of consumers attracted to Mortgage 101, we
have initiated a strategic shift in our business model to include more
traditional Internet advertising and other consumer finance verticals. We
expect this shift will provide us an opportunity to attract more consumers,
generate incremental mortgage leads as well as leads for our strategic partners
from which we will financially benefit. A significant redesign of our existing
Mortgage 101 portal is scheduled for release at the beginning of fourth quarter
2007. In addition, we have entered into an agreement to leverage third party
expertise to enhance our existing search engine optimization efforts in
securing high organic search engine placement.

13

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Loans

Revenue
from our Loans product group decreased 20% to $1.2 million in second quarter
2007 compared to $1.4 million for second quarter 2006 and decreased 14% to $2.5
million for the six months ended June 30, 2007 compared to $2.9 million for the
same period in the prior year. We continue to see contraction in our mortgage
broker customer base for LION Pro and Retail Websites which we believe to be a
result of higher interest rates, lower loan origination volumes, and increased
competition. Our revenues from LockPoint Xtra®/Precision MTS continues to
improve for the same comparative periods, however, we are seeing signs of the
sales cycle getting longer.

We
are in the process of making strategic changes to our Loans product group. A
recent redesign of our LION Pro Corporate offering, now known as Precision
Access, has extended full access to lockable loan pricing and loan program
search within our customers own private database. Precision Access is fully
integrateable with and upgradeable to Precision MTS. At the end of second
quarter 2007, our LION Pro search engine product for mortgage brokers was
enhanced with an improved loan search feature utilizing a new multi-lender
database containing more types of loan programs and more guideline requirements
which will help the broker find exactly the type of loan program and pricing to
fit their borrowers needs, and forward the loan information to a participating
lender to obtain commitment.

The
template version of our Retail Website product will also be replaced during
third quarter 2007 with a more price competitive product offering greater
functionality, which will integrate many of the features and tools available
through Precision MTS.

In
addition, our business-to-business Internet portal, Lioninc.com, will be
redesigned to accommodate the changes for LION Pro and Retail Websites and also
allow us to take advantage of a more traditional advertising model. The
Lioninc.com redesign will include an e-commerce application to facilitate
purchase and delivery of our more commoditized LION Pro and template Retail
Website products which will allow our customers to order, pay for and use these
products immediately after point of sale, requiring less of our resources and
development time to maintain.

Capital Markets

Revenue
from our Capital Markets product group, comprised of our Pipeline Tools product
and TRMS risk management services, decreased 21% to $1.2 million in second
quarter 2007 compared to $1.6 million for second quarter 2006 and decreased 13%
to $2.7 million for the six months ended June 30, 2007 compared to $3.1 million
for the same period in the prior year. Our risk management businesses rest on a
solid foundation, but declines in industry mortgage volume continue to impact
the fees we collect in connection with the variable pricing component of our
pricing structure.

While
we dont expect the disarray in sub prime lending to have a significant direct
impact on many of our lender clients, the prospect of credit tightening,
collapsing spreads, constricted warehouse lines and other issues is affecting
the market, and it would not be a surprise to see some lenders becoming more
conservative as the effect of rising delinquency and foreclosure rates and
collapse of many subprime lenders plays itself out. This could mean more
lenders relying on best execution for delivery of their loan production for a
time rather than an interest rate risk management strategy that TRMS offers,
which could adversely affect our revenues.

14

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Operating Expenses
(dollars in thousands)

|                               |  |                                 |       |                               |  |      |      |           |       |  |  |         |   |   |       |           |  |     |   |   |       |  |  |     |  
|------------------------------ |  | ------------------------------- | ----- | ----------------------------- |  | ---- | ---- | --------- | ----- |  |  | ------- | - | - | ----- | --------- |  | --- | - | - | ----- |  |  | --- | -
|                               |  | For three months ended June 30, |       | For six months ended June 30, | 
|                               |  |                                 |       |                               | 
|                               |  | 2007                            |       | 2006                          |  | 2007 | 2006 |          
|                               |  |                                 |       |                               |  |      |      |           |      
|                               |  |                                 |       | % of
 Rev                     |  |      |      | % of
 Rev |       |  |  | % ofRev |   |   |       | % of
 Rev | 
|                               |  |                                 |       |                               |  |      |      |           |       |  |  |         |   |   |       |           | 
|Direct costs                   |  | $                               | 1,590 |                               |  | 57   | %    | $         | 1,529 |  |  | 43      | % | $ | 3,129 |           |  | 53  | % | $ | 3,054 |  |  | 43  | %
|Selling and marketing          |  |                                 | 512   |                               |  | 18   | %    |           | 561   |  |  | 16      | % |   | 1,013 |           |  | 17  | % |   | 1,126 |  |  | 16  | %
|General and administrative     |  |                                 | 1,136 |                               |  | 41   | %    |           | 1,283 |  |  | 37      | % |   | 2,284 |           |  | 38  | % |   | 2,210 |  |  | 32  | %
|Research and development       |  |                                 | 438   |                               |  | 16   | %    |           | 602   |  |  | 17      | % |   | 997   |           |  | 17  | % |   | 1,194 |  |  | 17  | %
|Depreciation and
 amortization |  |                                 | 105   |                               |  | 4    | %    |           | 119   |  |  | 3       | % |   | 203   |           |  | 3   | % |   | 241   |  |  | 3   | %
|                               |  |                                 |       |                               |  |      |      |           |       |  |  |         |   |   |       |           |  |     |   |   |       |  |  |     |  
|                              
|Total operating expenses       |  | $                               | 3,781 |                               |  | 136  | %    | $         | 4,094 |  |  | 116     | % | $ | 7,626 |           |  | 128 | % | $ | 7,825 |  |  | 111 | %
|                               |  |                                 |       |                               |  |      |      |           |       |  |  |         |   |   |       |           |  |     |   |   |       |  |  |     |  

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 for second quarter 2007 increased 4% to
$1.6 million compared to $1.5 million for second quarter 2006 and for the six
months ended June 30, 2007 increased 2% to $3.13 million compared to $3.05
million for the same period in the prior year. The increase for the three and
six month comparative periods is due to TRMS trading errors during the second
quarter 2007, additional resources required for the onboarding of new Precision
MTS customers and for Mortgage 101 search engine optimization and related
services. This increase was offset by a reduction in certain maintenance
support services related to our production datacenters and a decrease in trade
desk staffing needs for TRMS.

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
for second quarter 2007 decreased 9% to $512,000 compared to $561,000 for
second quarter 2006 and for the six month period ended June 30, 2007 decreased
10% to $1.0 million compared to $1.1 million for the same period in the prior year.
The decrease for the three and six month periods was due primarily to a
reduction in advertising for Mortgage 101 leads as a result of reliance on
organic generation of traffic in the Mortgage 101 portal and reduced sales
commissions due to lower sales volume for LION. The decrease was offset by
additional selling costs for TRMS.

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
second quarter 2007 decreased 12% to $1.1 million compared to $1.3 million for
the same quarter in the prior year. The reduction was the result of lower
salaries and stock option expense due to the resignation of our chairman and
CEO effective 2007 and the result of expenses included in second quarter 2006
that did not recur during second quarter 2007 for strategic undertakings and
the accrual for the settlement of an unasserted possible claim. This decrease
was offset by proxy contest costs and annual meeting expenses during June 2007
and an increase in our bad debt experience for the quarter.

General
and administrative expenses for the six months ended June 30, 2007 increased 3%
to $2.3 million compared to $2.2 million for the same period in the prior year.
The increase was the result of severance charges for our Chairman and CEO
during first quarter 2007, increased bad debt experience for

15

---



the first half
of 2007 and proxy contest costs and annual meeting expenses in June 2007. This
increase was offset by lower salaries and stock option expense due to the
resignation of our Chairman and CEO effective April 2007 and expenses included
in second quarter 2006 that did not recur during second quarter 2007 for
strategic undertakings and the accrual for the settlement of an unasserted
possible claim.

Research and Development

Research
and development expenses are comprised primarily of engineering salaries and
related costs. Research and development expenses for second quarter 2007
decreased 27% to $438,000 compared to $602,000 for second quarter 2006 and for
the six month period ended June 30, 2007 decreased 16% to $1.0 million compared
to $1.2 million for the same period in the prior year. The decrease for the
three and six months periods is primarily a result of certain payroll costs
capitalized on our LION Pro, Mortgage 101 and Retail Website product and
website initiatives for 2007. This reduction was offset by various vendor
resources that are assisting on these same initiatives that are not
capitalizable. We expect these resource needs for our product initiatives to be
greatly reduced during the last half of 2007.

Depreciation and Amortization

The
decrease in depreciation and amortization expense for the three and six month
periods ended June 30, 2007 compared to the same periods in the prior year is
the result of certain equipment, computers and software being fully depreciated
during the first half of 2006.

Interest Expense and Interest Income

For
the three and six months ended June 30, 2007 and 2006, interest expense is
primarily comprised of interest on 8% promissory notes totaling $972,000
related to the TRMS acquisition.

For
the three and six months ended June 30, 2007 and 2006, interest income is
comprised of interest earned on cash, cash equivalents and marketable
securities. Interest earned decreased in the three and six months ended June
30, 2007 compared to the same periods in the prior year due to a decrease in
the amounts that could be invested.

16

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Operating Segments

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

|                     |  |                              |       |                            |   |       |   |      |        |   |   |       |  
|-------------------- |  | ---------------------------- | ----- | -------------------------- | - | ----- | - | ---- | ------ | - | - | ----- | -
|                     |  | Three
 months ended June 30, |       | Six months
 ended June 30, |  
|                     |  |                              |       |                            |  
|                     |  | 2007                         |       | 2006                       |   | 2007  |   | 2006 |       
|                     |  |                              |       |                            |   |       |   |      |       
|Revenue              |  |                              |       |                            |   |       |   |      |        |   |   |       |  
|LION                 |  | $                            | 1,664 |                            | $ | 2,078 |   | $    | 3,505  |   | $ | 4,159 |  
|TRMS                 |  |                              | 1,126 |                            |   | 1,459 |   |      | 2,449  |   |   | 2,911 |  
|                     |  |                              |       |                            |   |       |   |      |        |   |   |       |  
|Total revenue        |  | $                            | 2,790 |                            | $ | 3,537 |   | $    | 5,954  |   | $ | 7,070 |  
|                     |  |                              |       |                            |   |       |   |      |        |   |   |       |  
|                     |  |                              |       |                            |   |       |   |      |        |   |   |       |  
|Operating
 loss      |  |                              |       |                            |   |       |   |      |        |   |   |       |  
|LION                 |  | $                            | (614  | )                          | $ | (532  | ) | $    | (1,235 | ) | $ | (689  | )
|TRMS                 |  |                              | (377  | )                          |   | (25   | ) |      | (437   | ) |   | (66   | )
|                     |  |                              |       |                            |   |       |   |      |        |   |   |       |  
|Total operating loss |  | $                            | (991  | )                          | $ | (557  | ) | $    | (1,672 | ) | $ | (755  | )
|                     |  |                              |       |                            |   |       |   |      |        |   |   |       |  

LION
revenue for second quarter 2007 declined 20% to $1.7 million compared to $2.1
million for the same quarter in the prior year. Revenue for the six month period
ended June 30, 2007 declined 16% to $3.5 million compared to $4.2 million for
the same period in the prior year. Our financial performance continues to be
impacted by challenging conditions in the mortgage lending markets. Higher
interest rates, falling refinance activity, rising home loan delinquency and
foreclosure rates, and industry pressure on sub prime lending, combined to
exert pressures on the lenders and brokers we serve. With the exception of
Precision MTS and Pipeline Tools, LIONs other products which include LION Pro,
Retail Websites and Mortgage 101 declined as a result of continued contraction
in loan origination volumes for our broker and lender customers and increased
competition. Our product initiatives as mentioned earlier should have a
positive impact on sales in the latter half of 2007.

LION
operating expenses for second quarter 2007 declined 15% compared to second
quarter 2006 due primarily to capitalization of research and development costs
related to our product initiatives, reduction in lead advertising for Mortgage
101 as a result of reliance on organic generation of traffic, reduced sales
commissions due to lower sales volume, and lower salaries and stock option
expense. Second quarter 2006 expenses included costs for strategic undertakings
and the accrual for the settlement of an unasserted possible claim that did not
recur in the current quarter. This decrease was offset by proxy contest costs
and annual meeting expenses during June 2007 and an increase in our bad debt
experience for the quarter.

LION
operating expenses for the six month period ended June 30, 2007 declined 7%
compared to the same period in the prior year due the same reasons as noted
above for the quarterly periods, however first quarter 2007 included severance
charges.

TRMS
revenue for second quarter 2007 declined 23% to $1.1 million compared to $1.5
million for the same quarter in the prior year. Revenue for the six month
period ended June 30, 2007 declined 16% to $2.4 million compared to $2.9
million for the same period in the prior year. While our risk management
business rests on a solid foundation, a sharp decline in industry mortgage
volume has adversely affected the fees we collect in connection with the
variable pricing component of our pricing structure. We have hired a

17

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senior sales
executive to bolster our capital markets sales group and have begun to see our
prospect pipeline expand. We expect to add to our customer base during 2007. In
addition, if loan production increases either seasonally or due to shifts in
market conditions in general, TRMS is positioned to benefit from such an
increase.

TRMS
operating expenses increased slightly for second quarter 2007 compared to the
same quarter in the prior year primarily due to increased trade errors, bad
debt experience and sales costs which were offset by lower software licensing
fees paid to LION for use of the Pipeline Tools technology. The operating loss
for the quarter is primarily due to decreasing revenues, trade errors and bad
debts.

TRMS
operating expenses decreased for the six month period ended June 30, 2007
compared to the same period in the prior year primarily due lower software
licensing fees paid to LION for use of the Pipeline Tools technology which were
offset by increased trade errors, bad debt experience and sales costs. The
operating loss for the six months ended June 30, 2007 is primarily due to
decreasing revenues, trade errors and bad debts.

FINANCIAL POSITION

At
June 30, 2007, we had approximately $2.3 million in cash, cash equivalents, and
short-term investments. Historically, we have funded our activities primarily
from cash provided by operations, however our operating activities used cash
during the first half of 2007. Non-cash items are comprised primarily of
depreciation and amortization and stock-based compensation expense. The change
in cash and cash equivalents is as follows (in thousands):

|                                                      |  |                             |        |      |   |       |  
|----------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ----- | -
|                                                      |  | Six months
 ended
 June 30, |       
|                                                      |  |                             |       
|                                                      |  | 2007                        |        | 2006 |  
|                                                      |  |                             |        |      |  
|                                                      |  |                             |        |      |   |       |  
|Net loss                                              |  | $                           | (1,652 | )    | $ | (721  | )
|Non-cash
 items                                       |  |                             | 273    |      |   | 301   |  
|Changes in
 working capital                           |  |                             | 893    |      |   | 649   |  
|                                                      |  |                             |        |      |   |       |  
|Net cash provided by (used in) operating
 activities  |  |                             | (486   | )    |   | 229   |  
|                                                      |  |                             |        |      |   |       |  
|                                                      |  |                             |        |      |   |       |  
|Net cash used in investing activities                 |  |                             | (678   | )    |   | (170  | )
|                                                      |  |                             |        |      |   |       |  
|                                                      |  |                             |        |      |   |       |  
|Net cash used in financing activities                 |  |                             |       |      |   | (19   | )
|                                                      |  |                             |        |      |   |       |  
|                                                      |  |                             |        |      |   |       |  
|Net increase
 (decrease) in cash and cash equivalents |  |                             | (1,164 | )    |   | 40    |  
|Cash and
 cash equivalents at beginning of period     |  |                             | 2,587  |      |   | 3,371 |  
|                                                      |  |                             |        |      |   |       |  
|Cash and
 cash equivalents at end of period           |  | $                           | 1,423  |      | $ | 3,411 |  
|                                                      |  |                             |        |      |   |       |  

Operating Activities

During
the six months ended June 30, 2007, cash from operating activities decreased
$486,000 due to operating losses from reduced revenues, and resources used for
LIONs product initiatives for LION Pro, Mortgage 101 and Retail Websites. This
decrease was offset primarily by an increase in deferred revenue related to a
large TRMS customer as part of an existing contract, increases in accounts payable
and accrued liabilities and decreases in accounts receivable and prepaids and
other due to our normal business operating cycle.

During
the six months ended June 30, 2006, cash from operating activities increased
due to an increase in deferred revenue primarily related to a large TRMS
customer as part of an existing contract and

18

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increases in
accounts payable, accrued salaries and benefits, and accrued liabilities due to
our normal business operating cycle. This increase was offset by an increase in
certain prepaid maintenance and service agreements.

Investing Activities

During
the six months ended June 30, 2007, investing activities used cash of $678,000
which primarily consisted of (i) hardware and software upgrades to our datacenters
in advance of implementation of our product initiatives for LION Pro, Retail
Websites and Mortgage 101 and (ii) capitalized software development costs from
vendors and LIONs research and development resources related to these product
initiatives. These initiatives are scheduled to be completed during the second
and third quarters of 2007 with certain phases of the initiatives extending
into fourth quarter 2007.

During
the six months ended June 30, 2006, investing activities used cash of $170,000
which primarily consisted of the purchase of short-term available-for-sale
securities totaling $100,000 with the remainder of the increase due to upgrades
to computer hardware and software.

Financing Activities

During
the six months ended June 30, 2007, there were no significant financing
activities.

During
the six months ended June 30, 2006, financing activities were primarily due to
payments on capitalized lease obligations related to the acquisition of
application and database software, computers, servers, furniture and
telecommunications systems upgrades.

Overall Liquidity and Capital Resources

The
Company incurred a net loss of approximately $1.7 million for the six months
ended June 30, 2007, and used cash from operations of approximately $486,000.
Cash used by investing activities during the six months ended June 30, 2007
approximated $678,000. The Company had approximately $2.3 million in cash, cash
equivalents and short-term investments and working capital of $283,000 at June
30, 2007. Notes payable to former TRMS shareholders in the amount of $972,000
are due for payment in October 2007.

The
Company has a history of recurring losses and the losses may continue. The
Company believes that its cash, cash equivalents and short-term investments
will be sufficient to fund its operations through December 31, 2007. The
Company expects to meet its future cash requirements through a combination of
cash generated from operations and existing cash balances and short term
investments. The Company cannot assure, however, that its business will
generate sufficient cash flow from operations. Additional funds may be required
to fund the operations of the Company and these funds may not be available on
favorable terms or at all. If adequate funds are not available the Company may
need to curtail operations significantly.

The
accompanying unaudited condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The unaudited condensed consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts and the amount and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.

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We
are aggressively consolidating our operations and will continue to do so
throughout the remainder of 2007 to reduce our underlying cost structure. This
consolidation will be designed to not adversely impact our product initiatives
which we view as an important part of our growth plans for 2007 and beyond.

Although
we are currently not a party to any agreement with respect to investments in,
or acquisitions of, other businesses, products, services or technologies, we
regularly review and evaluate strategic opportunities, including those
identified internally by us as well as unsolicited third party proposals that
we may receive from time to time, which may involve the sale of some or all of
our assets, partnering or other collaboration agreements, or a merger or other
strategic transaction. During the quarter, LIONs board of directors formed a
Strategic Review Committee to evaluate various strategic alternatives to
further enhance shareholder value. Subsequently, LION retained an investment
banker to assist in the evaluation of a full range of strategic alternatives
available to the Company. It is possible that nothing may result from our
exploration or that we may acquire, be acquired or enter into some other
strategic relationship, and that in consummating or further exploring such
avenues, we may incur additional costs. Furthermore, we may enter into letters
of intent and other non-definitive agreements that do not culminate in a
completed transaction, engage in contract negotiations, or incur due diligence
expenses which affect our quarterly earnings prior to or without entering into
a material definitive agreement required to be disclosed publicly. There can be
no assurance that the exploration of strategic alternatives will result in any
agreements or transactions, or that, if completed, any agreements or transactions
will be successful or on attractive terms. The negotiation or consummation of
any of these transactions could be material to our financial condition and
results of operations. We may need to raise additional capital through future
financing to the extent necessary to fund such activities or simply to fund
future operations if cash from operating activities is insufficient. Additional
financing may not be available at all or on terms favorable to us.

Critical Accounting Policies and Estimates

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

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

Revenue Recognition

We
recognize revenue from product sales or services provided when the following
four revenue recognition criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred or services have been provided, the
selling price is fixed or determinable, and collectibility is reasonably
assured. For multiple-element arrangements, the Company applies Emerging Issues
Task Force (EITF) Issue 00-21,

20

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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.

Income 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 net operating
loss 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 not more likely than not, we
will record a valuation allowance against deferred tax assets.

Realization
of the net deferred tax asset is dependent on generating sufficient taxable
income prior to expiration of net operating loss carryforwards. At December 31,
2006, the Company had net operating loss carryforwards for federal and state
income tax purposes of approximately $4.1 million and $700,000, respectively,
available to offset future income which expire in 2018 through 2026. The
Company has established a valuation allowance of approximately $1.6 million as
of December 31, 2006, the full amount of deferred tax assets. Utilization of
these carryforwards could be limited due to a change of control in the
Companys ownership as defined by the Internal Revenue Code Section 382.

Impairment of Goodwill

We
periodically assess goodwill for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable, in accordance with the provisions of 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

Effective
January 1, 2007, the Company adopted the provisions of Financial Accounting
Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No. 109 (FIN 48). FIN 48
prescribes a recognition threshold and measurement process for financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition of tax
benefits, classification on the balance sheet, interest and penalties,
accounting in interim periods, disclosure and transition. Based on Company
managements evaluation, it has been concluded that there are no significant
uncertain tax positions requiring recognition in the Companys financial
statements. The evaluation was performed for the tax

21

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years ended
December 31, 1999 and thereafter, the tax years which remain subject to
examination by federal and state tax jurisdictions since the Company has net
operating loss carryforwards for the tax year ended December 31, 1999. The
Company may from time to time be assessed interest or penalties by major tax
jurisdictions, although such assessments historically have been minimal and
immaterial to the Companys financial results. In the event the Company has
received an assessment for interest and/or penalties, it has been classified in
the financial statements as general and administrative expense.

In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 permits entities
to choose to measure many financial instruments and certain other items at fair
value. The objective of the guidance is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS 159 is effective as
of the beginning of the first fiscal year after November 15, 2007. Early
adoption is permitted as of the beginning of the fiscal year on or before
November 15, 2007, provided the provisions of SFAS 157 are also applied.
Although management is still evaluating the potential effects of SFAS No. 157,
the adoption is not expected to have a material impact on the Companys
financial position, results of operations, or cash flows.

FACTORS THAT MAY AFFECT FORWARD-LOOKING
STATEMENTS

This
Quarterly Report on Form 10-QSB contains statements that are forward-looking.
These statements are based on current expectations and assumptions that are
subject to risks and uncertainties. All statements that express expectations
and projections with respect to future matters may be affected by changes in our
strategic direction, as well as developments beyond our control. We cannot
assure you that our expectations will necessarily come to pass. Actual results
could differ materially because of issues and uncertainties such as those
listed below, in this section entitled Managements Discussion and Analysis of
Financial Condition and Results of Operations, and elsewhere in this report.
These factors, among others, may adversely impact and impair our business and
should be considered in evaluating our financial outlook.

We have a limited
history of profits and our future profitability remains uncertain. In addition,
financial results for any particular period will not predict results for future
periods.

We
are working toward a goal of revenue growth and sustained profitability. Annual
revenues decreased to $13.7 million in 2006 from $15.8 million in 2005. We had
ten consecutive quarters of profitability beginning with the third quarter of
2002 through the fourth quarter of 2004, but incurred a net loss for each of
the first two quarters of 2005 before returning to profitability in the third
and fourth quarters of 2005. We recorded a net loss of $1.3 million for 2006
compared to a net loss of $102,000 in the prior year. For the first six months
of 2007, revenue was $6.0 million and our net loss was $1.7 million.

Our
prospects must be considered in view of the risks, expenses and difficulties
frequently encountered by companies in continually 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
model and 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

22

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the reliance
on these individuals. Furthermore, we have not entered into employment
agreements with these significant employees except for our executive officers.
If any of these individuals were to leave LION unexpectedly, we could face
substantial difficulty in hiring qualified successors and could experience a
loss in productivity while any such successor obtains the necessary training
and experience. Our 2005 Stock Incentive Plan provides us flexiblity to attract
and retain the best available employees. We expect that we will need to
attract, train, retain and motivate additional technical, managerial, marketing
and customer support personnel. Competition for these personnel may be intense,
particularly for individuals with suitable experience. We face the risk that if
we are unable to attract and integrate new personnel, or retain and motivate
existing personnel, our business will be adversely affected.

We are substantially
dependent on a limited number of significant customers.

Our
success depends on our ability to expand, retain and enhance our advanced
business solution customers. Our expanded product line through the acquisition
of Ignition assets and TRMS carries with it the risk that our revenues may be
dependent on a limited number of significant customers, rather than a
broad-based broker and customer network. Our larger customer contracts, which
involve our LPX/Precision, Pipeline Tools and TRMS hedging services, typically
have renewable successive one- and two-year terms. Revenue from these contracts
comprised approximately 57% of our total revenue for the first six months of
2007.

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

Our operations may
be vulnerable to disruption problems.

We
have multiple site capacity for the delivery of our products and services. 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.

23

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

We are experiencing
a downturn in revenue due to challenging conditions in the mortgage industry,
and these industry trends may continue.

We
experienced declining revenues and cash flows in 2006 and again in the first
six months of 2007, which we attribute to challenging conditions in mortgage
lending markets which, in turn, exert pressure on the lenders and brokers we
serve. The mortgage lending environment is facing higher interest rates,
falling refinance activity, rising home loan delinquency and foreclosure rates,
industry pressure on sub prime lending and consolidations. Annual mortgage loan
origination fell from a peak of $3.8 trillion in 2003 to an estimated $2.7
trillion in 2006, a decline of almost 30%. On a national level, the housing
sector experienced a recession in 2006 with an 8% drop in existing-home sales
and a 17% drop in new home sales. These factors may continue to affect the
mortgage industry and adversely affect our revenues, and we cannot predict with
accuracy how our quarterly and annual financial results will be impacted.

24

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

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.

On
December 15, 2006, the U.S. Securities and Exchange Commission (SEC) extended
the date by which non-accelerated filers such as LION must begin filing a
report by management assessing the effectiveness of the Companys internal
controls in their annual reports as required by Section 404(a). The compliance
date for non-accelerated filers moved from fiscal years ending on or after July
15, 2007 to fiscal years ending on or after December 15, 2007. The SEC also
extended the date by which non-accelerated filers must begin to comply with the
Section 404(b) requirements to include an auditors attestation report on
internal controls in their annual reports, until the first annual report for a
fiscal year ending on or after December 15, 2008.

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 the
Section 404, which requires our management to assess the effectiveness of our existing
internal controls at 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 on-going 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.

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 (Auditing 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

25

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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 at December 31, 2008), 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 would be unable to conclude that our internal control over
financial reporting is effective as of December 31, 2007.

Our intellectual
property rights are valuable, and any inability to protect them could reduce
the value of our products, services and brand.

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

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

26

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Alliances, mergers
and acquisitions could result in operating difficulties, dilution and other
harmful consequences.

Our
industry has experienced significant consolidation. LIONs board of directors
through its Strategic Review Committee has authorized the Company to evaluate
various strategic alternatives to further enhance shareholder value. LION has
retained an investment banker to assist in the evaluation of a full range of
strategic alternatives available to the Company. We may engage in discussions
seeking ways to enhance our prospects through partnerships, alliances and
mergers and acquisitions. From 2003 to 2004, for example, we consummated two
acquisitions. It is possible that nothing may result from our exploration or
that we may acquire, be acquired or enter into some other strategic
relationship, and that in consummating or further exploring such avenues, we
may incur additional costs. Furthermore, we may enter into letters of intent
and other non-definitive agreements that do not culminate in a completed
transaction, engage in contract negotiations, or incur due diligence expenses
which affect our quarterly earnings prior to or without entering into a
material definitive agreement required to be disclosed publicly. The
negotiation or consummation of any of these transactions could be material to
our financial condition and results of operations. In addition, the process of
integrating an acquired company, business or technology may create unforeseen
operating difficulties and expenditures and is risky. The areas where we may
face risks include:

| |   |                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.
| |   |                                                                                                                                                                                                    
| |  | Diversion of
 management time and focus from operating our business to alliance, merger or
 acquisition integration challenges.                                                                    
| |   |                                                                                                                                                                                                    
| |  | Cultural
 challenges associated with integrating employees from the acquired company
 into the acquiring organization.                                                                             
| |   |                                                                                                                                                                                                    
| |  | Retaining
 employees from the businesses acquired.                                                                                                                                                 
| |   |                                                                                                                                                                                                    
| |  | 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 strategic relationships may not
materialize. Future alliances, mergers or 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.

The trading price
for our common stock is and may continue to be volatile.

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

| |   |                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Quarterly
 variations in our results of operations or those of our competitors.                                                                                                                
| |   |                                                                                                                                                                                                
| |  | Announcements
 by us or our competitors of strategic relationships, alliances, mergers or
 acquisitions, new products, significant contracts, commercial relationships
 or capital commitments.

27

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| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | Disruption
 to our operations or our data centers.                                                  
| |   |                                                                                                     
| |  | The
 emergence of new sales channels in which we are unable to compete
 effectively.                
| |   |                                                                                                     
| |  | Our ability
 to develop and market new and enhanced products on a timely basis.                     
| |   |                                                                                                     
| |  | Commencement
 of, or our involvement in, litigation.                                                
| |   |                                                                                                     
| |  | Any major
 change in our board or management.                                                       
| |   |                                                                                                     
| |  | Changes in
 governmental regulations or in the status of our regulatory approvals.                  
| |   |                                                                                                     
| |  | Recommendations
 by securities analysts or changes in earnings estimates.                           
| |   |                                                                                                     
| |  | Announcements
 by our competitors of their earnings that are not in line with analyst
 expectations.
| |   |                                                                                                     
| |  | The volume
 of shares of common stock available for public sale.                                    

In addition,
the OTC Bulletin Board, stock market in general, and the market for technology
companies in particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance
of those companies. These broad market and industry factors may seriously harm
the market price of our common stock, regardless of our actual operating
performance.

ITEM 3. CONTROLS AND PROCEDURES

(a) Disclosure
controls and procedures.

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

(b) Changes in
internal control over financial reporting.

We
are assessing the effectiveness of our internal controls over financial
reporting on an account by account basis as a part of our on-going accounting
and financial reporting review process in order to comply with Section 404 of
the Sarbanes-Oxley Act of 2002, which requires our management to assess the
effectiveness of our existing internal controls as of 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.

28

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

PART II -
OTHER INFORMATION

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

The
Annual Meeting of our shareowners was held on June 20, 2007 in Bellevue,
Washington. Our common stock was the only class of securities entitled to vote
at the Annual Meeting. Only shareowners of record at the close of business on
May 7, 2007 (Record Date) were entitled to receive notice and to vote at the
Annual Meeting. As of the Record Date, there were 38,624,272 shares of common
stock outstanding, each share entitled to one vote on each matter to be voted
upon. There were 28,894,620 shares represented at the Annual Meeting in person
or by proxy, representing 75 percent of the total number of shares outstanding.

PROPOSAL # 1 -
Election of directors. The following directors were elected to serve on the
LION Board of Directors for a one-year term. No other directors term of office
continued after the meeting. The vote was as follows:

|                      |  |  |            |  |  |           | 
|--------------------- |  |  | ---------- |  |  | --------- | 
|Name                  |  |  | For        |  |  | Withheld  | 
|                      |  |  |            |  |  |           | 
|                     
|John A.
 McMillan     |  |  | 18,400,208 |  |  | 1,977,989 | 
|J.C. Tuck
 Marshall |  |  | 19,146,735 |  |  | 1,231,462 | 
|James D.
 Russo       |  |  | 19,961,347 |  |  | 686,850   | 
|David
 Stedman        |  |  | 19,275,059 |  |  | 1,103,138 | 
|Griffith J.
 Straw    |  |  | 19,144,559 |  |  | 1,233,638 | 
|Sam Ringer            |  |  | 19,037,372 |  |  | 9,857,248 | 

PROPOSAL # 2 -
Ratification of the selection of Grant Thornton LLP as the Companys auditors
for the fiscal year ending December 31, 2007. The proposal passed since the
number of shares voted in favor of the proposal exceeded the number of shares
voted against. The vote was as follows:

|                                   |  |  |            |  |  |         |  |  |         | 
|---------------------------------- |  |  | ---------- |  |  | ------- |  |  | ------- | 
|Proposal                           |  |  | For        |  |  | Against |  |  | Abstain | 
|                                   |  |  |            |  |  |         |  |  |         | 
|                                  
|Ratification of Grant Thornton LLP |  |  | 28,634,290 |  |  | 128,026 |  |  | 132,304 | 

29

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ITEM 6. EXHIBITS

|              |                                                                                                                                 
|------------- | --------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber | 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

30

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SIGNATURES

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

| |                       |     |                                 
| | --------------------- | --- | --------------------------------
| | LION, Inc.           
| |                      
| | (Registrant)         
|
| | Date: August 14, 2007 | By: | /s/ David
 Stedman              
| |                       |     |                                 
| |                       |     | David
 Stedman                  
| |                       |     | Interim
 Chief Executive Officer

31

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