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

                                   FORM 10-QSB

(Mark One)

|X|  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
                                   Act of 1934
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006

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

                         COMMISSION FILE NUMBER     0-25159
                                                    -------
                                   LION, INC.
        (Exact name of small business issuer as specified in its charter)

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


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

                    Issuer's telephone number (206) 577-1440

                                       N/A

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




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

                                                                  Yes |X| No |_|


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

         As of August 10, 2006, approximately 38,473,822 shares of the Company's
common stock were outstanding.

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


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

                                       1
<PAGE>


                                   LION, Inc.
                                  Form 10 - QSB
                       For the Quarter Ended June 30, 2006
<TABLE>
<CAPTION>
                                                                                          PAGE
                                         INDEX                                           NUMBER
<S>        <C>                                                                             <C>
PART I     FINANCIAL INFORMATION

Item 1     Financial Statements

           Condensed Consolidated Balance Sheets at June 30, 2006 (unaudited) and
           December 31, 2005                                                               3

           Condensed Consolidated Statements of Operations for the three and six
           months ended June 30, 2006 and 2005 (unaudited)                                 4

           Condensed Consolidated Statements of Cash Flows for the six months ended
           June 30, 2006 and 2005 (unaudited)                                              5

           Notes to Condensed Consolidated Financial Statements (unaudited)                6

Item 2     Management's Discussion and Analysis of Financial Condition and Results
           of Operations                                                                  17

Item 3     Controls and Procedures                                                        34

PART II    OTHER INFORMATION

Item 6     Exhibits                                                                       34

           Signatures                                                                     35
</TABLE>






                                       2
<PAGE>



                                             PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

                            LION, Inc. and Subsidiary
                      Condensed Consolidated Balance Sheets
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                                   June 30,
                                                                                     2006              December 31,
                                                                                  (Unaudited)              2005
                                                                                ----------------     ------------------
<S>                                                                             <C>                  <C>
Current assets
    Cash and cash equivalents                                                   $      3,411         $       3,371
    Short-term investments - available for sale securities                               900                   800
    Accounts receivable, less allowance for doubtful accounts of
       $95 and $100 in 2006 and 2005, respectively                                     1,141                 1,161
    Prepaid expenses and other                                                           564                   598
                                                                                ----------------     ------------------

         Total current assets                                                          6,016                 5,930

Property and equipment, net                                                              674                   844
Goodwill                                                                               2,590                 2,590
Other assets                                                                             374                   325
                                                                                ----------------     ------------------

                                                                                $      9,654         $       9,689
                                                                                ================     ==================

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
    Accounts payable                                                            $        259         $         212
    Accrued salaries and benefits                                                        761                   709
    Accrued liabilities                                                                  551                   272
    Deferred revenue                                                                     891                   649
                                                                                ----------------     ------------------

         Total current liabilities                                                     2,462                 1,842
Long-term obligations, less current maturities                                           972                   972
                                                                                ----------------     ------------------
             Total liabilities                                                         3,434                 2,814
                                                                                ----------------     ------------------
Commitments and contingencies                                                             -                     -

Stockholders' equity
    Preferred stock, par value $.001 per share; authorized 5,000,000 shares;
       none issued or outstanding                                                         -                     -
    Common stock - authorized, 50,000,000 shares of $.001 par
         value, 38,473,822 issued and outstanding                                         38                    38
    Additional contributed capital                                                    14,157                14,091
    Accumulated deficit                                                               (7,975)               (7,254)
                                                                                ----------------     ------------------
                                                                                       6,220                 6,875
                                                                                ----------------     ------------------

                                                                                $      9,654         $       9,689
                                                                                ================     ==================
</TABLE>




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

                                       3
<PAGE>




                            LION, Inc. and Subsidiary
                 Condensed Consolidated Statements of Operations
                    (In thousands, except net loss per share)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                  Three months ended June 30,      Six months ended June 30,
                                                 ------------------------------  -------------------------------
                                                     2006            2005            2006             2005
                                                 --------------  --------------  --------------  ---------------
<S>                                                <C>             <C>             <C>             <C>
Revenues                                           $   3,537       $   3,999       $   7,070       $   8,040

Expenses
    Direct costs                                       1,529           1,621           3,054           3,311
    Selling and marketing                                561             610           1,126           1,254
    General and administrative                         1,283           1,201           2,210           2,253
    Research and development                             602             606           1,194           1,268
    Depreciation and amortization                        119             134             241             264
                                                 --------------  --------------  --------------  ---------------
                                                       4,094           4,172           7,825           8,350
                                                 --------------  --------------  --------------  ---------------

         Operating loss                                 (557)           (173)           (755)           (310)

Other income (expense)
    Interest expense                                     (19)            (22)            (39)            (45)
    Interest income                                       44              19              77              33
    Other income                                           -               -               2               -
                                                 --------------  --------------  --------------  ---------------

         Loss before income tax                         (532)           (176)           (715)           (322)

Income tax expense                                        (3)             (3)             (6)             (6)
                                                 --------------  --------------  --------------  ---------------

         Net loss                                  $    (535)      $    (179)      $    (721)      $    (328)
                                                 ==============  ==============  ==============  ===============

Net loss per common share,
    Basic and diluted                              $    (.01)      $       -       $    (.02)      $    (.01)
                                                 ==============  ==============  ==============  ===============

Weighted average number of shares,
    Basic and diluted                                 38,467          37,877          38,466          37,693
                                                 ==============  ==============  ==============  ===============
</TABLE>






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

                                       4
<PAGE>


                            LION, Inc. and Subsidiary
                 Condensed Consolidated Statements of Cash Flows
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                     Six months ended June 30,
                                                                                ---------------- -- -----------------
                                                                                     2006                 2005
                                                                                ----------------    -----------------
<S>                                                                             <C>                 <C>
Cash flows from operating activities
    Net loss                                                                    $      (721)        $      (328)
    Adjustments to reconcile net loss to net cash provided by
        operating activities
          Depreciation and amortization                                                 241                 264
          Stock option and restricted stock expense                                      65                 123
          Changes in assets and liabilities
              Accounts receivable                                                        19                 402
              Prepaid expenses and other                                                (16)               (195)
              Accounts payable                                                           49                 231
              Accrued salaries and benefits                                              52                (191)
              Accrued liabilities                                                       298                  55
              Deferred revenue                                                          242                 (38)
              Other assets                                                                -                  33
                                                                                ----------------    -----------------
                  Net cash provided by operating activities                             229                 356
                                                                                ----------------    -----------------

Cash flows from investing activities
    Purchase of available-for-sale securities                                          (100)                  -
    Capitalized software development costs                                                -                 (12)
    Purchases of property and equipment                                                 (70)               (150)
                                                                                ----------------    -----------------
                  Net cash used in investing activities                                (170)               (162)
                                                                                ----------------    -----------------

Cash flows from financing activities
    Restricted cash for letter of credit                                                  -                (280)
    Payments on long-term obligations                                                   (20)               (224)
    Proceeds from issuance of common stock and exercise of
        stock options                                                                     1                 143
                                                                                ----------------    -----------------
                  Net cash used in financing activities                                 (19)               (361)
                                                                                ----------------    -----------------

Net increase (decrease) in cash and cash equivalents                                     40                (167)
Cash and cash equivalents at beginning of period                                      3,371               4,518
                                                                                ----------------    -----------------
Cash and cash equivalents at end of period                                      $     3,411         $     4,351
                                                                                ================    =================
</TABLE>














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

                                       5
<PAGE>



                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                  June 30, 2006

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

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

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

INTERIM FINANCIAL  STATEMENTS - The unaudited  financial  statements and related
notes are presented in accordance with the  instructions  for interim  financial
statements  in  Rule  310(b)  of  Regulation  S-B,  and do not  contain  certain
information included in the Company's audited financial statements and notes for
the fiscal year ended December 31, 2005. The information  furnished reflects, in
the opinion of  management,  all  adjustments,  consisting  of normal  recurring
accruals,  necessary  for a fair  presentation  of the  results  of the  interim
periods  presented.  The results of operations  for the interim  periods are not
necessarily  indicative of the results to be expected for the entire fiscal year
ending December 31, 2006. The accompanying  unaudited  financial  statements and
related  notes  should  be  read  in  conjunction  with  the  audited  financial
statements  included  in LION's  Form 10 - KSB and notes  thereto for its fiscal
year ended December 31, 2005.

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

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

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

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

                                       6
<PAGE>

                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                  June 30, 2006

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

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

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

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

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


                                       7
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                  June 30, 2006

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

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

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

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

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

NET LOSS  PER  COMMON  SHARE - Basic  loss  per  share is based on the  weighted
average number of shares  outstanding during each period.  Potentially  dilutive
common stock  equivalents  are  included in  determining  dilutive  earnings per
share. The diluted share calculation for the three and six months ended June 30,
2006 and 2005  excludes  options to purchase  3,930,867  and  4,387,609  shares,
respectively, due to their anti-dilutive effect.





                                       8
<PAGE>



                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                  June 30, 2006

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

ADVERTISING COSTS - Advertising costs are expensed as incurred.

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

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

STOCK-BASED  COMPENSATION - Effective  January 1, 2006, the Company  adopted the
provisions of 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.

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

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




                                       9
<PAGE>

                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                  June 30, 2006

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

CONCENTRATION  OF  CREDIT  RISK - Cash is held in  interest  bearing  or  demand
deposit bank accounts.  Short-term  investments are comprised of marketable debt
securities. The Company and its subsidiary maintain cash balances and short-term
investments at several financial institutions.  Accounts at each institution are
insured by the Federal Deposit Insurance  Corporation up to $100,000.  Uninsured
balances aggregated approximately $4.4 million at June 30, 2006. The Company has
not  experienced  any losses in such  accounts and believes it is not exposed to
any  significant  credit  risk on  cash  and  cash  equivalents  and  short-term
investments,  as these deposits and  investments are held by high credit quality
financial institutions.

RECENTLY  ISSUED  ACCOUNTING  PRONOUNCEMENTS  - In June  2006,  the FASB  issued
Interpretation  No.  48,  "ACCOUNTING  FOR  UNCERTAINTY  IN  INCOME  TAXES  - AN
INTERPRETATION  OF FASB  STATEMENT  NO.  109" ("FIN  48").  This  interpretation
clarifies  the  accounting  for  uncertainty  in income taxes  recognized  in an
enterprise's  financial  statements in accordance with SFAS No. 109, "ACCOUNTING
FOR INCOME TAXES." This  Interpretation  prescribes a recognition  threshold and
measurement attribute for the financial statement recognition and measurement of
a  tax  position  taken  or  expected  to  be  taken  in  a  tax  return.   This
Interpretation also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and transition. FIN 48
is effective for fiscal years  beginning  after  December 15, 2006.  The Company
does  not  expect  the  adoption  of FIN 48 to  have a  material  impact  on the
Company's financial position or results of operations.

Note 2 - Stock-based compensation

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

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

In 2005, the Company established the 2005 Stock Incentive Plan (the "2005 Plan")
under  which a total of 5 million  shares  have been  reserved  for  issuance as
incentive stock options,  non-qualified stock options,  restricted stock awards,
restricted stock units and stock appreciation  rights. Not more than 2.5 million
shares may be used for restricted  stock awards and restricted  stock units.  In
2005, the Company began granting  employees  restricted stock awards in addition
to stock options.  The stock award program offers  employees the  opportunity to
earn shares of stock over time rather than options that give employees the right
to  purchase  stock at a set price.  Restricted  stock  awards  are grants  that
entitle the holder to shares of

                                       10
<PAGE>

                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                  June 30, 2006

Note 2 - Stock-based compensation - continued

common stock as the award vests.  The  restricted  stock unit awards  require no
payment from the employee and compensation  cost is recorded based on the market
price on the grant date and is recorded  equally over the vesting period of four
years.

Stock  options to purchase the  Company's  common stock are granted at prices at
the fair market value on the date of grant.  Compensation  expense is recognized
only for those options expected to vest, with forfeitures  estimated at the date
of grant based on the Company's  historical  experience and future expectations.
Prior to the  adoption of SFAS No.  123(R),  the effect of  forfeitures  was not
included as an assumption affecting compensation expense and was not material.

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

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

Using the  Black-Scholes  option  pricing  model to  estimate  the fair value of
options,  the following  weighted  average  assumptions  were used for grants in
first  quarter  2006:  expected  volatility  of  approximately  113%;  risk-free
interest  rate of  4.6%;  expected  lives of 6.25  years;  and,  a zero  percent
dividend  yield.  There were no stock option grants in second  quarter 2006. The
following  weighted  average  assumptions were used for grants in second quarter
2005: expected volatility of approximately 125%; risk-free interest rate ranging
from 3.7%;  expected lives of 4 years; and, a zero percent dividend yield. There
were no stock option grants in first quarter 2005.


                                       11
<PAGE>



                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                  June 30, 2006

Note 2 - Stock-based compensation - continued

A summary of the Company's  1998 Plan activity  during the six months ended June
30, 2006 is as follows:
<TABLE>
<CAPTION>
                                                                   Weighted          Weighted
                                                                   average            average             Aggregate
                                                 Number of         exercise          remaining            intrinsic
                                                   shares           price         contractual life         value
                                                -------------    -------------    ------------------    -------------
<S>                                                 <C>            <C>                <C>               <C>
    Outstanding at beginning of year                3,789,867      $   0.22
    Granted                                           200,000          0.36
    Forfeited                                         (49,000)         0.15
    Exercised                                         (10,000)         0.13
                                                -------------    -------------
    Outstanding at end of period                    3,930,867      $   0.23           5.6 years         $ 638,000
                                                =============    =============    ==================    =============
   Options vested or expected to vest at
     end of period                                  3,517,610      $   0.23           5.3 years         $ 573,000
                                                =============    =============    ==================    =============
   Options exercisable at end
      of period                                     3,000,017      $   0.23           4.8 years         $ 493,000
                                                =============    =============    ==================    =============
   Weighted average fair value of
     options granted during the period                             $   0.36
                                                                 =============
</TABLE>

The aggregate intrinsic value is based on the Company's average high bid and ask
stock price of $0.38 as of the last  business  day of the six months  ended June
30, 2006,  which would have been received by the optionees had all  in-the-money
options been  exercised on that date.  As of June 30, 2006,  total  unrecognized
stock-based   compensation   expense  related  to  unvested  stock  options  was
approximately  $127,000,  which is  expected  to be  recognized  over a weighted
average period of  approximately  2.6 years.  The aggregate fair value of vested
options outstanding as of June 30, 2006 was $697,000.

Following is a summary of the Company's  1998 Plan stock options  outstanding at
June 30, 2006:
<TABLE>
<CAPTION>
                           Outstanding options                                       Options exercisable
--------------------------------------------------------------------------    ----------------------------------
                                        Weighted           Weighted                                Weighted
                                         average       average remaining                            average
 Exercise price          Number          price         contractual life          Number         exercise price
------------------    -------------    -----------    --------------------    -------------    -----------------

<S>                      <C>              <C>              <C>                  <C>                 <C>
$ .04 - $ .25            3,034,450        $  0.18          5.9 years            2,342,350           $   0.18
$ .26 - $ .50              671,417        $  0.33          4.9 years              457,667           $   0.31
$ .51 - $ .61              225,000        $  0.59          3.3 years              200,000           $   0.60
                      -------------                                           -------------
                         3,930,867        $  0.23          5.6 years            3,000,017           $   0.23
                      =============                                           =============
</TABLE>







                                       12
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                  June 30, 2006

Note 2 - Stock-based compensation - continued

A summary of the Company's  2005 Plan activity  during the six months ended June
30, 2006 is as follows:
<TABLE>
<CAPTION>
                                                                                                      Weighted
                                                                                                      average
                                                                                 Number of        grant-date fair
                                                                                  shares               value

<S>                                                                               <C>                 <C>
   Restricted shares outstanding at beginning of year, nonvested                  40,313              $    .32
    Granted                                                                           -                     -
    Vested                                                                        (3,500)                  .32
    Forfeited                                                                         -                     -
                                                                              ----------------    -----------------

   Restricted shares outstanding at end of period, nonvested                      36,813              $    .32
                                                                              ================    =================
</TABLE>

The following  shares of common stock have been reserved for issuance  under the
Company's stock-based compensation plans as of June 30, 2006:
<TABLE>
<CAPTION>
                                                                 1998 Plan         2005 Plan            Total
                                                              ---------------    --------------    ---------------
<S>                                                             <C>                <C>               <C>
   Outstanding share based compensation awards                  3,930,867                 -          3,969,867
   Underlying shares available for grant                        2,638,311          4,957,000         7,595,311
                                                              ---------------    --------------    ---------------

   Total                                                        6,569,178          4,957,000        11,526,178
                                                              ===============    ==============    ===============
</TABLE>

Total stock-based  compensation expense recognized in the condensed consolidated
statement of operations is as follows:
<TABLE>
<CAPTION>
                                                     Three months ended June 30,          Six months ended June 30,
                                                  ----------------------------------  ----------------------------------
                                                       2006              2005              2006              2005
                                                  ----------------  ----------------  ----------------  ----------------
<S>                                                 <C>               <C>               <C>               <C>
    Stock option expense                            $      33         $      58         $      63         $     123
    Restricted stock expense                                1                 -                 2                 -
                                                  ----------------  ----------------  ----------------  ----------------

    Total stock-based compensation expense          $      34         $      58         $      65         $     123
                                                  ================  ================  ================  ================
</TABLE>




                                       13
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                  June 30, 2006

Note 2 - Stock-based compensation - continued

Prior to January 1, 2006, the Company  accounted for all employee awards granted
on or after January 1, 2003 using the fair value  recognition  provision of SFAS
No. 123. The following table illustrates the effect on net loss and net loss per
share if the Company had applied the fair value  recognition  provisions of SFAS
No. 123 to all employee awards (in thousands, except net loss per share):
<TABLE>
<CAPTION>
                                                                                  Three months         Six months
                                                                                     ended                ended
                                                                                    June 30,            June 30,
                                                                                      2005                2005
                                                                                -----------------    ----------------
<S>                                                                                 <C>                  <C>
   Net loss, as reported                                                            $   (179)            $   (328)
   Add: Stock-based employee compensation expense included in
       reported net loss                                                                  58                  123
   Deduct: Total stock-based employee compensation expense
       determined under fair value method for all awards, net of related
       tax effects                                                                       (61)                (129)
                                                                                -----------------    ----------------
   Pro forma net loss                                                               $   (182)            $   (334)
                                                                                =================    ================

   Net loss per share:
       Basic and diluted - as reported                                              $     -              $    .01
                                                                                =================    ================
       Basic and diluted - pro forma                                                $     -              $    .01
                                                                                =================    ================
</TABLE>

Note 3 - Commitments and contingent liabilities

The Company is subject to various  proceedings  and claims arising in the normal
course of business the outcome of which are subject to significant  uncertainty.
In accordance with SFAS No. 5,  "Accounting for  Contingencies,"  the Company is
required to record an estimated loss from a loss  contingency  when  information
available prior to the issuance of the financial statements indicates that it is
probable that an asset has been impaired or a liability has been incurred at the
date of the  financial  statements  and the amount of the loss can be reasonably
estimated. The Company has recorded a provision inclusive of legal fees totaling
$177,000 related to the unasserted  possible claim relating to the Company's use
of third-party intellectual property. Accounting for contingencies such as this,
as well as  obligations  for  legal and other  matters,  requires  us to use our
judgment. While we believe our accrual on this matter is adequate, if the actual
loss from a loss contingency is significantly different from the estimated loss,
our results of operations may be over- or understated.





                                       14
<PAGE>


                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                  June 30, 2006

Note 4 - Segment reporting

The  Company  has two  operating  segments,  TRMS and the  integrated  software,
services  and lead  generation  businesses  in which  the  Company  is  engaged.
Management 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 segments are the same as those described in Note 1. The following sets forth
information for reportable segments and consolidated totals (in thousands):
<TABLE>
<CAPTION>
                                                                      LION            TRMS           Consolidated
   -----------------------------------------------------------    -------------   -------------    -----------------
<S>                                                                 <C>             <C>                <C>
        Three months ended June 30, 2006:
              Revenues from external customers                      $  2,078        $  1,459           $  3,537
              Revenues from internal customers                           933              -                  -
              Operating loss                                            (532)            (25)              (557)

        Three months ended June 30, 2005:
              Revenues from external customers                      $  2,364        $  1,635           $  3,999
              Revenues from internal customers                           906              -                  -
              Operating income (loss)                                   (336)            163               (173)

        Six months ended June 30, 2006:
              Revenues from external customers                      $  4,159        $  2,911              7,070
              Revenues from internal customers                         1,896              -                  -
              Operating loss                                            (689)            (66)              (755)

        Six months ended June 30, 2005:
              Revenues from external customers                      $  4,853        $  3,187           $  8,040
              Revenues from internal customers                         1,784              -                  -
              Operating income (loss)                                   (545)            235               (310)

</TABLE>
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):
<TABLE>
<CAPTION>
                                                 Three months ended June 30,           Six months ended June 30,
                                               ---------------------------------   ----------------------------------
                                                    2006              2005              2006              2005
                                               ----------------  ---------------   ---------------   ----------------

<S>                                              <C>               <C>               <C>               <C>
        Operating loss                           $    (557)        $    (173)        $    (755)        $    (310)
        Non-operating income (expense)                  25                (3)               40               (12)
                                               ----------------  ---------------   ---------------   ----------------

           Loss before income tax                $    (532)        $    (176)        $    (715)        $    (322)
                                               ================  ===============   ===============   ================
</TABLE>




                                       15
<PAGE>

                            LION, Inc. and Subsidiary
              Notes to condensed consolidated financial statements
                                  June 30, 2006

The  Company's  product  groupings are  comprised of Leads,  Loans,  and Capital
Markets and associated revenues are reflected as follows (in thousands):
<TABLE>
<CAPTION>
                                          Three months ended June 30,      Six months ended June 30,
                                         ------------------------------  ------------------------------
                                             2006            2005            2006            2005
                                         --------------  --------------  --------------  --------------
<S>                                        <C>             <C>             <C>             <C>
    LEADS
        Mortgage 101                       $     529       $     455       $   1,030       $     911
                                         --------------  --------------  --------------  --------------

    LOANS
        LION Pro                                 661             750           1,358           1,501
        Retail Websites                          615             658           1,254           1,316
        LockPoint Xtra                           170             313             335             664
                                         --------------  --------------  --------------  --------------
                                               1,446           1,721           2,947           3,481
                                         --------------  --------------  --------------  --------------
    CAPITAL MARKETS
        Pipeline Tools                           103             188             182             461
        Risk Management Service (TRMS)         1,459           1,635           2,911           3,187
                                         --------------  --------------  --------------  --------------
                                               1,562           1,823           3,093           3,648
                                         --------------  --------------  --------------  --------------

           Total revenues                  $   3,537       $   3,999       $   7,070       $   8,040
                                         ==============  ==============  ==============  ==============
</TABLE>


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

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





                                       16
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS

OVERVIEW

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

         Highlights in the quarter included continuing strength in our Precision
MTS product  line as  evidenced  by its first  quarter  over  quarter  growth in
revenue since our 2003 decision to allow revenue to run off in the LPX/Precision
pricing  engine and rate lock product while we redirected  our product and sales
focus to a different market. Since initiating  introduction of the Precision MTS
product late last year, we have experienced  steady sales success and have built
a  pipeline  of  customers  for whom we are  implementing  the  tools  they have
acquired. In early August 2006, we introduced a much anticipated  enhancement to
the  Precision  MTS product  suite which  included a subprime  mortgage  pricing
engine.  As a larger  percentage  of  mortgage  borrowers  exhibit  subprime  or
non-standard  characteristics,  the  features  and tools that  allow  lenders to
better screen for those  attributes  and price for them has grown in demand.  We
anticipate  sustainable  quarter  over quarter  revenue  growth for this product
suite going forward.

         Mortgage 101 remains the  centerpiece  of our Leads  product  group and
reported  higher revenue in second quarter 2006 compared to the first quarter by
more than 5% while  generating  13% higher year to date revenue when compared to
the first six months of last year.  Mortgage 101 is our consumer Internet portal
that  connects  potential  mortgage  applicants  with an  extensive  network  of
mortgage brokers, lenders and other providers to meet a variety of consumer real
estate and mortgage  needs.  With a high volume of largely  organically  derived
unique visitors each month,  Mortgage 101 is one of the industry leading sources
of leads for real  estate  financing  and  consistently  ranks  number 1 or 2 on
Google,  MSN and Yahoo for  keyword  search  "mortgage."  Having  completed  the
platform architecture redesign of Mortgage 101 during the first quarter of 2006,
we are in the process of building  out  partners  for a directory of services to
connect  consumers  with a variety of vendors to meet their needs in  insurance,
moving  services  and other real estate  related  transactions.  We are also now
assessing the cost and scope of a site redesign to better  showcase the services
available to those who use Mortgage 101.

         Our Capital Markets  businesses  continue to face challenges to revenue
growth in an environment of declining overall mortgage origination  attributable
to rising  interest rates and the  accompanying  slowdown in home sales.  With a
slight increase in revenue in second quarter 2006 compared to the first quarter,
just over 2%,  the  Capital  Markets  group is  currently  performing  below our
objectives and generated  revenue for the first six months of 2006 that was over
$500,000 lower than the first six months of last year. While on average we added
more customers year over year,  those customers are generating  fewer loans. Our
sales  activity  slowed  somewhat  early in second  quarter,  but  experienced a
resurgence late in the quarter,  and we expect a net add to our customer base in
third quarter 2006. Our  infrastructure  can support a larger  customer base and
more loan volume without expanding our resources.  Augmenting our sales strategy
by  including  more  large  potential  clients  capable of  weathering  a market
downturn,  in addition  to greater  emphasis on  broadening  our service  bureau
customer  base will be key  drivers in  achieving  the higher  levels of revenue
growth we believe to be attainable, even in an unstable market. Additionally, we
are intending to expand our sales  infrastructure to more aggressively  bring on
new Capital Markets clients.

         While our core operating  performance  improved  slightly  quarter over
quarter, we recorded higher strategic and nonrecurring expense in second quarter
2006, which had a significant impact on our overall


                                       17
<PAGE>

results.  First,  we  incurred  approximately  $219,000 in expense in the second
quarter related to matters associated with strategic undertakings. We are always
seeking  ways to enhance  our  prospects  through  partnerships,  alliances  and
mergers   and   acquisitions.   Our   industry   has   experienced   significant
consolidation,  and 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.  In the last couple of years,
for example,  we have 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.

         We also recorded an expense, inclusive of legal fees, totaling $170,000
in second  quarter  2006 and  $177,000  year to date  related  to an  unasserted
potential   intellectual  property  infringement  claim.  Upon  discovering  the
potential  infringement,  we conducted an internal review and engaged counsel to
independently  evaluate  the  matter.  As a  result  of  our  investigation,  we
determined that the Company was exposed to a potential contingent liability, and
we initiated  settlement  negotiations  to limit our  liability  and construct a
suitable  licensing  arrangement with the vendor going forward.  While we expect
the matter to be settled as  described,  we must  caution that the matter is not
yet  formally  concluded  and is  therefore  subject to change.  We believe  our
accrual on this  matter is  adequate,  however,  if the actual  loss from a loss
contingency is  significantly  different from the estimated loss, our results of
operations may be over- or understated.

         We generated  revenue of $3.5 million in second  quarter 2006,  roughly
equal to that of first  quarter  2006,  and down 11.5% from $4.0 million for the
same  quarter in the prior  year.  Revenue  for six months  ended June 30,  2006
totaled $7.1 million, down 12% from $8.0 million for the same period last year.

         Operating  expenses  increased to $4.1  million in second  quarter 2006
compared to $3.7 million in the first quarter and decreased from $4.2 million in
the same quarter in the prior year.  Operating expenses for the six months ended
June 30, 2006,  decreased to $7.8 million  compared to $8.3 million for the same
period  last year.  Had it not been for the  additional  charges  for  strategic
undertakings  and  contingent  liability  accrual  mentioned  above,   operating
expenses  for the three and six  months  ended  June 30,  2006  would  have been
significantly lower than the comparative prior year periods.

         We reported a net loss for the  quarter of  $535,000  compared to a net
loss of $186,000 for the previous  quarter and a net loss of $179,000 for second
quarter  2005.  Our net loss for the six  months  ended  June 30,  2006  totaled
$721,000  compared  to a net loss of $328,000  for the same period in 2005.  Not
including  the  $389,000 in second  quarter  costs  comprised  of the  strategic
undertakings  and accrual of the  contingent  liability,  our net operating loss
would have improved  compared to first quarter 2006 and second  quarter 2005, in
addition to the comparative prior year six month period.

         For a  more  detailed  discussion  of  revenue  by  product,  operating
expenses and operating results, see "Results of Operations" below.




                                       18
<PAGE>



RESULTS OF OPERATIONS

REVENUES (dollars in thousands)
<TABLE>
<CAPTION>
                                     For three months ended June 30,            For six months ended June 30,
                                 ----------------------------------------- -----------------------------------------
                                        2006                 2005                 2006                 2005
                                 -------------------- -------------------- -------------------- --------------------
<S>                               <C>           <C>    <C>           <C>   <C>           <C>     <C>           <C>
LEADS
------
Mortgage 101                      $  529        15%    $  455        11%   $1,030        15%     $  911        11%


LOANS
------
LION Pro                             661        19%       750        19%    1,358        19%      1,501        19%
Retail Websites                      615        17%       658        16%    1,254        17%      1,316        16%
LockPoint Xtra                       170         5%       313         8%      335         5%        664         8%
                                 ---------   -------- ----------  -------- ---------- --------- ---------   --------

                                   1,446        41%     1,721        43%    2,947        41%      3,481        43%

CAPITAL MARKETS
---------------
Pipeline Tools                       103         3%       188         5%      182         3%        461         6%
Risk Management Services           1,459        41%     1,635        41%    2,911        41%      3,187        40%
                                 ---------   -------- ----------  -------- ---------- --------- ---------   --------
                                   1,562        44%     1,823        46%    3,093        44%      3,648        46%

    Total revenues                $3,537       100%    $3,999       100%   $7,070       100%     $8,040       100%
                                 =========   ======== ==========  ======== ========== ========= =========  =========
</TABLE>

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

LEADS

         Our Leads  product  group is  comprised  of Mortgage  101.  Revenue for
Mortgage  101  increased  16% in second  quarter 2006 and 13% for the six months
ended  June 30,  2006  compared  to the same  periods  in the prior  year.  This
increase is due to the  architectural  redesign of the  underlying  Mortgage 101
pay-per-lead  technology to improve lead routing,  management  and  distribution
systems;  increased ad banner space; completion of a bidding system for rate and
directory  listings  which are  sub-products  of Mortgage  101;  and an expanded
dedicated sales force for Mortgage 101. We continue to experience heavy consumer
traffic  to our  mortgage101.com  Internet  portal due to strong  search  engine
placement  attributable  to being  number  1 or 2 on  Google,  MSN or Yahoo  for
keyword search "mortgage" along with several other keywords.  We anticipate each
revenue category within Mortgage 101, pay per lead, rate and directory listings,
and ad banners, to grow throughout the remainder of 2006.

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

LOANS

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

                                       19
<PAGE>

         The decrease in revenue for the Loans product group  narrowed to 4% for
second quarter 2006 compared to first quarter 2006.  This is due to quarter over
quarter  growth in our  Precision  MTS product suite for the first time since we
repositioned  our pricing engine business  within our LockPoint  Xtra(R) product
line. We anticipate higher  sustainable growth in Precision quarter over quarter
to continue for the next several quarters. The growth in Precision was offset by
a decrease in LION Pro and Retail  Website  revenues due to the  contraction  of
mortgage broker  customers as a result of the rising interest rate  environment.
Revenue for the Loans  product  group was down 16% for second  quarter  2006 and
down 15% for the six months ended June 30, 2006  compared to the same periods in
the prior year.  The decreases are  primarily  due to the  repositioning  of our
pricing engine business within our LockPoint  Xtra(R) product line combined with
declining  refinancing  activity in the mortgage industry and the contraction of
our mortgage broker customer based for LION Pro and Retail Websites noted above.
Over  the next six  months,  we will be  redeploying  research  and  development
resources to upgrade and expand our Retail Website and LION Pro offerings.

         LION PRO, used by nearly 6,800 mortgage brokers nationwide, consists of
LION  Loan  Search,  LoanLink  (subprime  loan  exchange  platform),   News  Now
(high-value  market  data)  and  Ratesheets  on  Demand   (aggregated   mortgage
ratesheets).  It is packaged and often private  labeled for both large companies
and origination teams along with individual or small mortgage  brokers.  Through
this  password  protected  product,  originators  can access one of the nation's
largest  databases of wholesale  mortgage rate, fee, and program  information to
instantly price any mortgage loan. This database is updated daily for 77 regions
nationwide  and includes 76  participating  lenders.  Revenues from the LION Pro
product line are generated from mortgage brokers and originators  subscribing to
the  service,  origination  teams  private-labeling  this  service for their own
companies, and from participating lenders.

         RETAIL  WEBSITES  are  offered to  mortgage  companies  and  individual
originators to help educate consumers about mortgages,  market their services to
borrowers,  build brand identity,  generate more business,  efficiently  connect
with  service  providers  and better  serve  their  borrowers.  This  product is
intended  to create and foster  relationships  between  consumers  and  mortgage
originators   while  enabling   mortgage   companies  and  originators  to  more
efficiently  manage  their online  production  channel and maximize the business
value  received  from their online  operations.  Both template and custom design
solutions  deliver a  combination  of standard and custom  content to over 2,900
websites.  Revenues are generated  from website set up and monthly  hosting fees
along with fees for related functionality tools.

         LOCKPOINT  XTRA(R) ("LPX") is a Point-of-Sale  and back office suite of
products  that  provide  rate  distribution,   float   registration,   real-time
risk-based pricing and rate locking  capabilities in a customer's website,  loan
center or call center environment.  The LockPoint Xtra(R) service is provided to
lenders, investors and conduits that are LION licensees and delivers the ability
to maintain  their  product and pricing  rules and  expressions,  and to publish
risk-based   lockable  loan  prices  to  their  customer  base  via  LPX  client
applications. Revenues are generated from implementation fees, recurring monthly
billings  based on locked loan amount  volumes with monthly  minimums  which may
vary from customer to customer, and custom development services.

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

                                       20
<PAGE>

CAPITAL MARKETS

         Our Capital  Markets  product group is comprised of our Pipeline  Tools
technology  and risk  management  services  provided  by our  subsidiary,  TRMS.
Revenue for second  quarter 2006 increased 2% compared to first quarter 2006 due
to slightly higher loan origination  volumes for its customer base.  Revenue for
the Capital  Markets product group was down 14% for second quarter 2006 and down
15% for the six months  ended June 30, 2006  compared to the same periods in the
prior year. The decrease was a result of lower mortgage origination levels among
our capital markets  customers due to both seasonal  factors and higher mortgage
interest  rates,  and the  correspondingly  lower  closed  loan  volume of those
customers  on which our  variable  revenue in both our TRMS trading unit and our
Pipeline  Tools service bureau  business are based.  We are refocusing our sales
strategy on larger  potential  clients capable of weathering a market down turn,
in addition to applying  greater  emphasis on our service bureau business as key
drivers in attaining higher levels of revenue growth we believe to be attainable
even in an unstable market.

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

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

OPERATING EXPENSES (dollars in thousands)
<TABLE>
<CAPTION>
                                   For three months ended June 30,            For six months ended June 30,
                               ----------------------------------------- -----------------------------------------
                                      2006                 2005                 2006                 2005
                               -------------------- -------------------- -------------------- --------------------
                                            % of                 % of                  % of                 % of
                                             Rev                  Rev                   Rev                  Rev
                                           --------             --------              -------              -------
<S>                             <C>          <C>     <C>          <C>     <C>          <C>     <C>          <C>
  Direct costs                  $ 1,529      43%     $ 1,621      41%     $ 3,054       43%    $ 3,311       41%
  Selling and marketing             561      16%         610      15%       1,126        6%      1,254       16%
  General and administrative      1,283      37%       1,201      30%       2,210       32%      2,253       28%
  Research and development          602      17%         606      15%       1,194       17%      1,268       16%
  Depreciation and
       amortization                 119       3%         134       3%         241        3%        264        3%
                               ----------- -------- ----------- -------- -----------  ------- -----------  -------

      Total operating expenses  $ 4,094     116%     $ 4,172     104%     $ 7,825      111%    $ 8,350      104%
                               =========== ======== =========== ======== ===========  ======= ===========  =======
</TABLE>

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 2006
were comparable to the previous quarter. Direct costs declined 6% and 8% for the
three and six month  periods ended June 30, 2006 compared to the same periods in
the  prior  year.  This is as a result of our  efforts  over the last 2 years to
reposition our pricing engine business within our


                                       21
<PAGE>

LockPoint  Xtra(R)  product line and migrate to our Precision MTS product suite.
This change has allowed us to reduce the level of resources necessary to support
and maintain the LockPoint  Xtra(R) product line. In addition,  during that time
we have been  consolidating  our IT  infrastructure  resources  and  datacenters
resulting in reduced IT infrastructure costs.

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  2006 were  comparable  to the previous
quarter and declined 8% and 10% for the three and six month  periods  ended June
30, 2006 compared to the same periods in the prior year.  The decreases were due
primarily to a restructuring of our broker and lender sales forces and marketing
resources.

GENERAL AND ADMINISTRATIVE

         General  and  administrative   expenses  are  comprised   primarily  of
management and administrative  salaries and related costs, legal and audit fees,
outside consulting  services,  certain  telecommunications  expenses,  occupancy
costs,  and other  administrative  related  expenses.  For second  quarter 2006,
general and administrative  expenses increased 38% to $1.3 million from $927,000
for the previous  quarter.  This  increase is  primarily  the result of fees for
strategic  undertakings  and related costs  totaling  $219,000 and accrual for a
contingent  liability related to an unasserted potential claim totaling $170,000
which were offset by audit fees in the first  quarter which did not recur in the
second quarter.  General and administrative expenses increased 7% and 2% for the
three and six month  periods ended June 30, 2006 compared to the same periods in
the prior year. The increases were due to the strategic undertakings and accrual
of the  contingent  liability  noted above  which were  offset by  non-recurring
expenses  during  first and second  quarters of 2005  related to  Sarbanes-Oxley
section 404 compliance efforts and severance payments during second quarter 2005
that did not recur in 2006.

RESEARCH AND DEVELOPMENT

         Research  and   development   expenses  are   comprised   primarily  of
engineering  salaries and related costs.  Research and development  expenses for
second quarter 2006 were comparable to the previous  quarter and declined 1% and
6% for the three and six month  periods ended June 30, 2006 compared to the same
periods in the prior year.  The  reduction  in research  and  development  costs
reflects  our  consolidation  efforts  related  to product  development  and the
relocation of research and development efforts into one location.

DEPRECIATION AND AMORTIZATION

         The decrease in depreciation and amortization expense for the three and
six month  periods ended June 30, 2006 compared to the same periods in the prior
year is the result of  equipment,  computers  and  software  that  became  fully
depreciated at the end of 2005.

INTEREST EXPENSE AND INTEREST INCOME

         For the three and six months ended June 30, 2006,  interest  expense is
comprised of interest on 8% promissory  notes totaling  $972,000  related to the
TRMS acquisition and various debt related to capitalized  leases.  For the three
and six months ended June 30, 2005, interest expense is comprised of interest on
10 percent  promissory  notes which were paid off in  mid-February  2005, the 8%
promissory  notes  totaling  $972,000 and various  debt  related to  capitalized
leases.


                                       22
<PAGE>

         Interest  income  increased to $44,000 for second quarter 2006 compared
to $19,000 for the same period in the prior year.  Interest income  increased to
$77,000 for the six months ended June 30, 2006  compared to $33,000 for the same
period in the prior year.  The increases are due to additional  funds that could
be invested along with a rising interest rate  environment.  Investments  during
the  first  half of 2006 had  maturities  of one to three  months  so as to take
advantage of rising short term interest rates.

OPERATING SEGMENTS

         We have  two  operating  segments,  TRMS and the  integrated  software,
services and lead generation businesses in which the Company is engaged. 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):
<TABLE>
<CAPTION>
                                                Three months ended June 30,      Six months ended June 30,
                                               ------------------------------  ------------------------------
                                                   2006            2005            2006            2005
                                               --------------  --------------  --------------  --------------
<S>                                              <C>             <C>             <C>             <C>
    Revenue
        LION                                     $   2,078       $   2,364       $   4,159       $   4,854
        TRMS                                         1,459           1,635           2,911           3,186
                                               --------------  --------------  --------------  --------------
           Total revenue                         $   3,537       $   3,999       $   7,070       $   8,040
                                               ==============  ==============  ==============  ==============

    Net operating income (loss)
        LION                                     $    (532)      $    (336)      $    (689)      $    (545)
        TRMS                                           (25)            163             (66)            235
                                               --------------  --------------  --------------  --------------
           Total net operating income (loss)     $    (557)      $    (173)      $    (755)      $    (310)
                                               ==============  ==============  ==============  ==============
</TABLE>
         LION revenue for second  quarter  2006  remained  relatively  unchanged
compared  to  the  previous   quarter.   Revenue  gains  in  our  Mortgage  101,
LPX/Precision, and Pipeline Tools products offset revenue losses in the LION Pro
and Retail Website products. The reductions in LION Pro and Retail Websites were
primarily due to a contraction in our mortgage  broker  customer based caused by
the rising interest rate  environment.  LION revenue for second quarter 2006 was
$2.1 million,  down 12% from second  quarter 2005 revenue of $2.5 million.  LION
revenue for the six months ended June 30, 2006 was $4.2  million,  down 14% from
$4.9 million for the same period in the prior year.  The decreases for the three
and six month  periods were due  primarily to the planned  repositioning  of our
LockPoint  Xtra(R)  product  line,  lower  mortgage  origination  levels  by our
Pipeline  Tools  customer  base along with the loss of certain  customers due to
acquisition or withdrawal from the practice of originating  loans against future
commitments  that require an interest  rate risk  management  strategy,  and the
consolidation  of our mortgage  broker  customer base within the industry due to
the rising interest rate  environment  impacting our LION Pro and Retail Website
products.  Going forward,  we anticipate revenue growth quarter over quarter for
our Mortgage 101,  LPX/Precision,  and Pipeline Tools products. Our LION Pro and
Retail  Website  products will continue to be challenged  due to the impact of a
rising interest rate environment for our mortgage broker customer base.

         TRMS revenue for second  quarter  2006  remained  relatively  unchanged
compared to the previous quarter.  TRMS revenue for second quarter 2006 was $1.5
million, down 11% from second quarter 2005 revenue of $1.6 million. TRMS revenue
for the six  months  ended  June 30,  2006 was $2.9  million,  down 9% from $3.2
million for the same period in the prior year.  The  decreases  were a result of
lower  mortgage  origination  levels  among our TRMS  customers  due to seasonal
factors,  higher mortgage interest rates, and the  correspondingly  lower closed
loan volume of those customers on which our variable revenue in our TRMS trading
unit is based.  While TRMS will continue to be challenged in this time of rising
interest rates,


                                       23
<PAGE>

we will be restructuring and expanding our sales and marketing initiatives so as
to promote revenue growth in the future.

         LION's net operating  loss increased in second quarter 2006 to $535,000
compared to the first  quarter net  operating  loss of $157,000  primarily  as a
result of $389,000 of additional expenses related to the strategic  undertakings
and accrual of the contingent liability mentioned previously in this report. The
net  operating  loss for second  quarter 2005  included  non-recurring  expenses
related to Sarbanes-Oxley  section 404 compliance  efforts,  severance payments,
and other expenses totaling $263,000 that did not recur in 2006.

         TRMS had net  operating  losses in the three and six months  ended June
30, 2006  compared to net  operating  income in the  comparative  periods in the
prior  year.  The  decreases  were  primarily  attributable  to  lower  revenues
discussed  above.  TRMS also decreased its operating  expenses for the three and
six  months  ended  June  30,  2006  by   approximately   $17,000  and  $88,000,
respectively,  primarily due to a restructuring  of the sales function.  Various
selling and marketing  expenses for TRMS will grow in the coming  quarters as we
continue to restructure and expand our sales and marketing initiatives.

FINANCIAL POSITION

         At June 30,  2006,  we had  approximately  $4.6  million in cash,  cash
equivalents,  short-term investments, and restricted cash. During the six months
end June 30,  2006 and  2005,  we  funded  our  activities  primarily  from cash
provided by operations.  Cash, cash  equivalents and short-term  investments are
expected  to  fund  near-term  operations.   Non-cash  items  are  comprised  of
depreciation and  amortization and stock option expense.  The change in cash and
cash equivalents is as follows (in thousands):
<TABLE>
<CAPTION>
                                                                   Six months ended
                                                                       June 30,
                                                             ------------------------------
                                                                  2006            2005
                                                             --------------  --------------
<S>                                                            <C>             <C>
Net loss                                                       $   (721)       $   (328)
Non-cash items                                                      306             387
Changes in working capital                                          644             297
                                                             --------------  --------------
    Net cash provided by operating activities                       229             356
                                                             --------------  --------------

    Net cash used in investing activities                          (170)           (162)
                                                             --------------  --------------

Restricted cash for letter of credit                                 -             (280)
Other net uses of cash for financing activities                     (19)            (81)
                                                             --------------  --------------
    Net cash used in financing activities                           (19)           (361)
                                                             --------------  --------------

Net increase (decrease) in cash and cash equivalents                 40            (167)
Cash and cash equivalents at beginning of period                  3,371           4,518
                                                             --------------  --------------
Cash and cash equivalents at end of period                     $  3,411        $  4,351
                                                             ==============  ==============
</TABLE>




                                       24
<PAGE>



 OPERATING ACTIVITIES

         During  the six  months  ended  June  30,  2006,  cash  from  operating
activities  increased  slightly due to an increase in deferred revenue primarily
related to a large TRMS  customer as part of an existing  contract and increases
in accounts payable,  accrued salaries and benefits, and accrued liabilities due
to our normal business  operating cycle. This increase was offset by an increase
in certain prepaid maintenance and service agreements.

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

INVESTING ACTIVITIES

         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.

         During the six months ended June 30, 2005,  investing  activities  used
cash of $162,000 which primarily  consisted of upgrades to computer hardware and
software.

FINANCING ACTIVITIES

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

         During  the six  months  ended  June  30,  2005,  financing  activities
included  $280,000 of cash that was restricted for a letter of credit related to
an  office  lease  for  our  California  operations,  payoff  of our 10  percent
promissory  notes  totaling  approximately  $193,000  related to the Tuttle Risk
Management Services  acquisition,  and payments on capitalized lease obligations
related to the  acquisition of  application  and database  software,  computers,
servers, furniture and telecommunications systems upgrades over the previous two
years.  This was  offset by the  exercise  of stock  options  during  the period
totaling approximately $143,000.

OVERALL LIQUIDITY AND CAPITAL RESOURCES

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

         The Company has recorded a provision  inclusive of legal fees  totaling
$177,000 related to the unasserted  possible claim relating to the Company's use
of third-party intellectual property. Accounting for contingencies such as this,
as well as  obligations  for  legal and other  matters,  requires  us to use our
judgment. While we believe our accrual on this matter is adequate, if the actual
loss from a loss contingency is significantly different from the estimated loss,
our results of operations may be over- or understated.


                                       25
<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

         REVENUE RECOGNITION

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

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

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

         DEFERRED TAXES

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

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

                                       26
<PAGE>

the Company had net operating loss carryforwards for federal income tax purposes
of approximately  $3.1 million available to offset future income which expire in
2018 through 2023. Although  realization is not assured,  management believes it
is more  likely  than not that a  portion  of the  deferred  tax  asset  will be
realized. The amount of the deferred tax asset considered  realizable,  however,
could be reduced if estimates of future taxable  income during the  carryforward
period are  reduced.  The  Company has  established  a  valuation  allowance  of
approximately  $1.1  million  as of  December  31,  2005  and  2004  due  to the
uncertainty of future realization of the net deferred tax assets. Utilization of
these carryforwards could be limited due to a change of control in the Company's
ownership as defined by the Internal Revenue Code Section 382.

         IMPAIRMENT OF GOODWILL

         We assess  goodwill for impairment each June 30th or whenever events or
changes in  circumstances  indicate that the carrying amount of an asset may not
be recoverable,  in accordance with the provisions of SFAS No. 142, GOODWILL AND
OTHER  INTANGIBLE  ASSETS.  This statement  requires that long-lived  assets and
certain  identifiable  intangibles be reviewed for impairment whenever events or
changes in  circumstances  indicate that the carrying amount of an asset may not
be  recoverable.  Recoverability  of assets to be held and used is measured by a
comparison of the carrying  amount of an asset to future net  undiscounted  cash
flows expected to be generated by the asset or other valuation methods.  If such
assets are  considered  to be  impaired,  the  impairment  to be  recognized  is
measured by the amount by which the  carrying  amount of the assets  exceeds the
fair value of the assets.

         STOCK-BASED COMPENSATION

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

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

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

                                       27
<PAGE>

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In June 2006, the FASB issued  Interpretation  No. 48,  "ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES - AN INTERPRETATION OF FASB STATEMENT NO. 109" ("FIN
48").  This  interpretation  clarifies the accounting for  uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with SFAS
No.  109,  "ACCOUNTING  FOR INCOME  TAXES."  This  Interpretation  prescribes  a
recognition  threshold and  measurement  attribute  for the financial  statement
recognition and measurement of a tax position taken or expected to be taken in a
tax  return.  This  Interpretation  also  provides  guidance  on  derecognition,
classification,   interest  and  penalties,   accounting  in  interim   periods,
disclosure, and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006.  The Company does not expect the adoption of FIN 48 to have a
material impact on the Company's financial position or results of operations.

FACTORS THAT MAY AFFECT FORWARD-LOOKING STATEMENTS

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

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

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

         Our prospects  must be  considered  in view of the risks,  expenses and
difficulties  frequently  encountered by companies in rapidly evolving  markets,
including uncertainty of revenues, markets, and profitability.  We cannot assure
you  that we will be  successful  in  addressing  these  risks or that we can be
operated profitably, which depends on many factors, including the success of our
marketing  program,


                                       28
<PAGE>

control of expense levels and the success of our business activities. Our future
operating results will depend on a variety of factors, including those discussed
in the other factors set forth below.

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

         We are  substantially  dependent on the  continued  services of our key
personnel,  including our officers,  engineers and other significant  employees.
These individuals have acquired specialized knowledge and skills with respect to
LION. We are continuing to create the redundancies that will reduce the reliance
on  these  individuals.   Furthermore,  we  have  not  entered  into  employment
agreements with these significant  employees except for our executive  officers.
If any of these  individuals  were to leave  LION  unexpectedly,  we could  face
substantial  difficulty in hiring  qualified  successors and could  experience a
loss in productivity while any such successor obtains the necessary training and
experience.  We provide stock options or restricted stock grants, which serve to
retain and motivate key employees as they become vested in their equity.  At our
2005 annual meeting, stockholders approved a stock incentive plan which allows a
flexible  stock  compensation  program which we believe will be important in our
ability to attract and retain the best  available  employees.  We expect that we
will  need  to  attract,   train,  retain  and  motivate  additional  technical,
managerial,  marketing and customer  support  personnel.  Competition  for these
personnel may be intense, particularly for individuals with suitable experience.
We face the risk that if we are unable to attract and integrate  new  personnel,
or retain and  motivate  existing  personnel,  our  business  will be  adversely
affected.

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

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

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

OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

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

         Despite the  implementation  of security  measures which are constantly
updated, our systems may be vulnerable to unauthorized access,  computer viruses
and other disruptive problems. We could experience interruptions in service as a
result of the accidental or intentional  actions of Internet users,  current and
former  employees or others.  Unauthorized  access might lead to  interruptions,
delays or cessation in service to  subscribers or deter  potential  subscribers.
Although we intend to continually  update  industry-standard  security measures,
these measures have been circumvented in the past, and there can be no assurance
that


                                       29
<PAGE>

measures  we adopt  will not be  circumvented  in the  future.  We do not  carry
sufficient business interruption  insurance to compensate us for losses that may
occur as a result  of any of these  events.  Eliminating  computer  viruses  and
alleviating  other  security  problems  may  require  interruptions,  delays  or
cessation of service to our subscribers,  which could have a materially  adverse
affect on our business, operating results and financial condition.

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

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

GOVERNMENT REGULATION

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

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

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

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


                                       30
<PAGE>

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.

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

         The Committee of Sponsoring  Organizations  of the Treadway  Commission
(COSO)  provides a framework for companies to assess and improve their  internal
control  systems.  The Public  Company  Accounting  Oversight  Board's  Auditing
Standard No. 2 ("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  system  and  process
documentation  and  evaluation  needed to comply with Section 404, which is both
costly and challenging.

         During this process, if our management  identifies one or more material
weaknesses in our internal control over financial  reporting,  we will be unable
to assert such internal  control is  effective.  If we are unable to assert that
our internal  control over  financial  reporting is effective as of December 31,
2007 (or if our  auditors are unable to attest that our  management's  report is
fairly stated or they are unable to express an opinion on the  effectiveness  of
our internal  controls),  we could lose investor  confidence in the accuracy and
completeness of our financial reports, which would have an adverse effect on our
stock price.

         We cannot be certain as to the timing of completion of our  evaluation,
testing and any required remediation due in large part to the fact that there is
very little  precedent  available  by which to measure  compliance  with the new
Auditing  Standard  No. 2. If we are not able to complete our  assessment  under
Section 404 in a timely manner,  we and our auditors would be unable to conclude
that our internal  control over financial  reporting is effective as of December
31, 2007.

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

         We rely  on a  combination  of  copyright  and  trademark  laws,  trade
secrets,  software  security  measures,  license  agreements  and  nondisclosure
agreements to protect our proprietary  technology and


                                       31
<PAGE>

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

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

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

         Our  industry  has  experienced  significant   consolidation,   and  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.  We may engage in  discussions  seeking  ways to
enhance  our  prospects   through   partnerships,   alliances  and  mergers  and
acquisitions.  In the last couple of years, for example, we have 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:

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


                                       32
<PAGE>

         o   Diversion of management  time and focus from operating our business
             to alliance, merger or acquisition integration challenges.

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

         o   Retaining employees from the businesses acquired.

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

         The anticipated  benefit of many of these 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:


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

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

         o   Disruption to our operations or our data centers.

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

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

         o   Commencement of, or our involvement in, litigation.

         o   Any major change in our board or management.

         o   Changes  in  governmental  regulations  or in  the  status  of  our
             regulatory approvals.

         o   Recommendations  by  securities  analysts  or changes  in  earnings
             estimates.

         o   Announcements  by our competitors of their earnings that are not in
             line with analyst expectations.

         o   The volume of shares of common stock available for public sale.

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


                                       33
<PAGE>

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 for the fiscal year
ended December 31, 2007. This effort includes documenting, evaluating the design
of and  testing  the  effectiveness  of our  internal  controls  over  financial
reporting.  We intend to continue to refine and improve our internal controls on
an ongoing  basis.  During this  process,  we may  identify  items for review or
deficiencies  in our system of internal  controls over financial  reporting that
may require strengthening or remediation.

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

                           PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS

(a) Exhibits listing:

EXHIBIT
NUMBER         DESCRIPTION

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

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

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





                                       34
<PAGE>


                                   SIGNATURES
                                   ----------

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

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

         Date: AUGUST 14, 2006                  By:   /s/ RANDALL D. MILES
               ---------------                        --------------------
                                                      Randall D. Miles
                                                      Chief Executive Officer









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