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

                                  FORM 10 - QSB



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

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004

                         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)

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

                                       NA
              (Former name, former address and former fiscal year,
                         if changed since last report)


       As of November 9, 2004, approximately 37,349,028 shares of the Company's
common stock were outstanding.

                                       1
<PAGE>


                                   LION, Inc.
                                  Form 10 - QSB
                    For the Quarter Ended September 30, 2004


                                                                     PAGE NUMBER
                                      INDEX

PART I     FINANCIAL INFORMATION

Item 1     Financial Statements

           Balance Sheets at September 30, 2004 (unaudited) and
           December 31, 2003                                                3

           Statements of Operations for the three and nine month
           periods ended September 30, 2004 and 2003 (unaudited)            4

           Statements of Cash Flows for the nine months ended
           September 30, 2004 and 2003 (unaudited)                          5

           Notes to Financial Statements                                    6

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

Item 3     Controls and Procedures                                         21

PART II    OTHER INFORMATION

Item 2     Changes in Securities and Small Business Issuer Purchases
           of Equity Securities
                                                                           22

Item 6     Exhibits                                                        23

           Signatures                                                      23



                                       2
<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

                                   LION, Inc.
                                 BALANCE SHEETS

                                     ASSETS

                                                   September 30,
                                                        2004       December 31,

                                                    (Unaudited)        2003
                                                   ------------    ------------

CURRENT ASSETS
  Cash and cash equivalents                        $  3,612,081    $  2,883,314
  Accounts receivable, less allowance for
    doubtful accounts of $68,000 and
    $132,000 in 2004 and 2003, respectively           1,964,145       2,141,264
  Other receivables                                          --         620,708
  Prepaid expenses and other                            645,032         361,975
                                                   ------------    ------------

       Total current assets                           6,221,258       6,007,261

PROPERTY AND EQUIPMENT - net                            968,509       1,025,153

OTHER ASSETS
  Goodwill - net                                        273,955         273,955
  Other assets                                           82,908          82,908
                                                   ------------    ------------

                                                   $  7,546,630    $  7,389,277
                                                   ============    ============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                 $    302,188    $    189,727
  Accrued liabilities                                   992,635       1,647,931
  Current maturities of long-term obligations            66,937          82,452
  Deferred revenue                                    1,121,758       1,306,224
                                                   ------------    ------------

       Total current liabilities                      2,483,518       3,226,334

LONG-TERM OBLIGATIONS, less current maturities           38,611          85,822

COMMITMENTS AND CONTINGENCIES                                --              --

STOCKHOLDERS' EQUITY
  Preferred stock - authorized, 5,000,000
    shares of $.001 par value, liquidation
    value $900,000 at December 31, 2003                      --           1,500
  Common stock - authorized, 50,000,000 shares
    of $.001 par value                                   34,244          31,819
  Additional contributed capital                     12,255,445      11,812,248
  Accumulated deficit                                (7,265,188)     (7,768,446)
                                                   ------------    ------------
                                                      5,024,501       4,077,121
                                                   ------------    ------------

                                                   $  7,546,630    $  7,389,277
                                                   ============    ============


The accompanying notes are an integral part of these statements.

                                       3
<PAGE>


                                   LION, Inc.

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                              Three months ended September 30,        Nine months ended September 30,
                                            -------------------------------------  --------------------------------------
                                                  2004                2003               2004                2003
                                            -----------------   -----------------  ------------------  ------------------
                                                                   (Restated)                             (Restated)
<S>                                         <C>                 <C>                <C>                 <C>
Revenues                                    $    3,574,211      $    1,843,754     $   11,020,486      $    5,435,424

Expenses
    Direct costs                                 1,276,822             400,697          4,069,452           1,054,634
    Selling and marketing                          477,296             564,463          1,525,961           1,724,543
    General and administrative                     993,968             602,752          3,058,395           1,707,804
    Research and development                       611,194              57,435          1,908,001             235,964
    Depreciation and amortization                  152,537             124,937            431,119             350,673
                                            -----------------   -----------------  ------------------  ------------------
                                                 3,511,817           1,750,284         10,992,928           5,073,618
                                            -----------------   -----------------  ------------------  ------------------

         Operating income                           62,394              93,470             27,558             361,806

Other income (expense)
    Interest expense                                (3,615)             (4,987)           (14,280)            (13,965)
    Interest income                                  2,470                 924              6,911               2,023
    Other income                                        --                  --            433,388                  --
                                            -----------------   -----------------  ------------------  ------------------

         Net income before tax                      61,249              89,407            453,577             349,864

Income tax benefit - net                           (51,690)                 --           (49,681)                 --
                                            -----------------   -----------------  ------------------  ------------------

         NET INCOME                         $      112,939      $       89,407     $      503,258      $      349,864
                                            =================   =================  ==================  ==================

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


The accompanying notes are an integral part of these statements.

                                       4
<PAGE>


                                   LION, Inc.

                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                        Nine months ended September 30,
                                                                      ----------------------------------
                                                                            2004               2003
                                                                      ---------------    ---------------
                                                                                            (Restated)
<S>                                                                   <C>                <C>
Cash flows from operating activities
   Net income                                                         $    503,258       $    349,864
   Adjustments to reconcile net income to net cash provided by
      operating activities
         Depreciation and amortization                                     431,119            350,673
         Write off of capitalized software development costs                13,954                 --
         Compensation expense for stock options issued to
            employees and contractors                                      205,651             15,831
         Common stock issued in lieu of cash compensation                       --             19,636
         Common stock issued for services received                          60,000                 --
         Changes in assets and liabilities
            Accounts receivable                                            177,119            (45,647)
            Other receivables                                              620,708                 --
            Prepaid expenses and other                                    (283,057)           (45,445)
            Accounts payable                                               112,461             11,869
            Accrued liabilities                                           (655,296)           104,142
            Deferred revenue                                              (184,466)            91,856
                                                                      ---------------    ---------------

                Net cash provided by operating activities                1,001,451            852,779

Cash flows from investing activities
   Capitalized software development costs                                 (247,885)          (229,615)
   Purchase of property and equipment                                     (140,544)           (77,142)
                                                                      ---------------    ---------------

                Net cash used in investing activities                     (388,429)          (306,757)

Cash flows from financing activities
   Payments on notes payable and long-term obligations                     (62,726)           (39,387)
   Proceeds from issuance of common stock on exercise
       of stock options and warrants                                       178,471                 --
                                                                      ---------------    ---------------

                Net cash provided by (used in) financing activities        115,745            (39,387)
                                                                      ---------------    ---------------

Net increase in cash and cash equivalents                                  728,767            506,635

Cash and cash equivalents at beginning of period                         2,883,314            403,917
                                                                      ---------------    ---------------

Cash and cash equivalents at end of period                            $  3,612,081       $     910,552
                                                                      ===============    ===============


Supplemental non-cash investing and financing activities:
   Stock issued net of shares repurchased                             $     14,000       $          --
    Assets acquired under capital leases                              $         --       $     139,255
</TABLE>


The accompanying notes are an integral part of these statements.

                                       5
<PAGE>


                                   LION, Inc.

                          NOTES TO FINANCIAL STATEMENTS


NOTE A.  ORGANIZATION AND DESCRIPTION OF BUSINESS

         LION, Inc. ("LION"), a Washington corporation, is a provider of
advanced business solutions that streamline the mortgage loan fulfillment
process in the mortgage industry. LION offers consistent, seamless business
solutions to consumers, brokers, realtors, originators and lenders. LION
provides an integrated technology platform offering online loan productivity,
mortgage pipeline hedging and risk management, software development and data
communications tools.

NOTE B.  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, 2003. 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, 2004.
The accompanying unaudited financial statements and related notes should be read
in conjunction with the audited financial statements and the Form 10 - KSB/A of
LION, Inc. and notes thereto, for its fiscal year ended December 31, 2003.

NOTE C.  SIGNIFICANT ACCOUNTING POLICIES

1.       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.

2.       REVENUE RECOGNITION

         LION generates revenue through the sale of technology, products and
services developed to assist in the management of the mortgage loan pipeline.
Subscription revenues are generated from mortgage brokers and agents who are
provided electronic access to a database of mortgage offerings by a multitude 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) and
Pipeline Tools product lines are generated primarily from transaction fees on
closed and locked loan volumes and fees for related website development and
implementation.

         Subscription and service fees are recognized as revenue over the
respective subscription periods or at the time the services are provided. The
Company accounts for its internally developed software products for external
licensing in accordance with Statement of Position 97-2, SOFTWARE REVENUE
RECOGNITION, and relevant Staff Accounting Bulletins. 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 Pipeline Tools product is recognized
in the period in which the service is provided.

                                       6
<PAGE>


                                   LION, Inc.

                          NOTES TO FINANCIAL STATEMENTS


NOTE C.  SIGNIFICANT ACCOUNTING POLICIES - Continued

2.       REVENUE RECOGNITION - CONTINUED

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

3.       ACCOUNTS RECEIVABLE

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

4.       PROPERTY AND EQUIPMENT

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

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

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

5.       CAPITALIZED SOFTWARE DEVELOPMENT COSTS

         The Company capitalizes software development costs intended for
internal use. These costs are included in computer software in property and
equipment and are amortized over a period of three years.

                                       7
<PAGE>


                                   LION, Inc.

                          NOTES TO FINANCIAL STATEMENTS


NOTE C.  SIGNIFICANT ACCOUNTING POLICIES - Continued

6.       USE OF ESTIMATES

         The Company's financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America, and
require management to make estimates and assumptions that affect the reported
amounts of assets, liabilities and equity, the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

7.       INCOME PER COMMON SHARE

         Basic income per share is based on the weighted average number of
shares outstanding during each period. Potentially dilutive common stock
equivalents are included in determining dilutive earnings per share. Common
stock equivalents include preferred shares and options to purchase common stock.
The weighted average number of common shares outstanding were 33,317,368 and
31,620,324 for the nine months ended September 30, 2004 and 2003, respectively,
and 34,096,314 and 31,717,978 for the three months ended September 30, 2004 and
2003, respectively.

         Preferred shares outstanding were included in the computation of
diluted earnings per share for the nine and three month periods ended September
30, 2003. On March 25, 2004, 1.5 million preferred shares were converted to
1,541,550 shares of common stock and were included in the basic weighted average
number of shares at September 30, 2004. Stock options to purchase 3,081,688 and
603,176 shares of common stock were included in the computation of diluted
earnings per share for the three months ended September 30, 2004 and 2003,
respectively. Stock options to purchase 3,081,688 and 429,958 shares of common
stock were included in the computation of diluted earnings per share for the
nine months ended September 30, 2004 and 2003, respectively.

8.       ADVERTISING COSTS

         Advertising costs are expensed as incurred.

9.       RESEARCH AND DEVELOPMENT COSTS

         All expenditures for research and development costs are expensed in the
period incurred.

10.      INCOME TAXES

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

                                       8
<PAGE>


                                   LION, Inc.

                          NOTES TO FINANCIAL STATEMENTS


NOTE C.  SIGNIFICANT ACCOUNTING POLICIES - Continued

11.      STOCK ISSUED FOR SERVICES

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

12.      STOCK OPTIONS

         Effective January 1, 2003, the Company adopted the fair value
recognition provision of FASB Statement No. 123, "Accounting for Stock-Based
Compensation," prospectively, to all employee awards granted on or after January
1, 2003, pursuant to FASB Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." Compensation expense is based on the
fair value of the options at the respective grant dates utilizing the
Black-Scholes model for estimating fair value. The Company recognizes
compensation expense over the vesting period for these options granted. Under
the intrinsic value method applied previously, no compensation expense has been
recognized on options granted through December 31, 2002, as the exercise price
of the options granted equaled the market price on the date of grant for all
prior grants.

         The following table illustrates the effect on net income and on net
income per common share as if the fair value based method had been applied to
all outstanding and unvested awards in each period:

<TABLE>
<CAPTION>
                                                     Three months ended                   Nine months ended
                                                        September 30,                       September 30,
                                             ---------------------------------    ----------------------------------
                                                   2004              2003              2004              2003
                                             ---------------   ---------------    ---------------    ---------------
                                                                 (Restated)                           (Restated)
<S>                                          <C>                <C>               <C>               <C>
Net income, as reported                      $    112,939       $    89,407       $    503,258      $     349,864

Add: Stock-based employee compensation
expense included in reported net income            54,476            10,172            205,651             14,809

Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards*                (80,125)          (79,609)          (287,817)          (292,929)
                                             ---------------   ---------------    ---------------    ---------------

Pro forma net income                         $     87,290      $     19,970       $    421,092       $     71,744
                                             ===============   ===============    ===============    ===============

Net income per share:
Basic - as reported                          $         --      $         --       $        .02       $        .01
                                             ===============   ===============    ===============    ===============
Diluted - as reported                        $         --      $         --       $        .01       $        .01
                                             ===============   ===============    ===============    ===============
Basic and diluted - pro forma                $         --      $         --       $        .01       $         --
                                             ===============   ===============    ===============    ===============
</TABLE>


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

                                       9
<PAGE>


                                   LION, Inc.

                          NOTES TO FINANCIAL STATEMENTS


NOTE C.  SIGNIFICANT ACCOUNTING POLICIES - Continued

13.      Fair Value of Financial Instruments

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


NOTE D.  SUBSEQUENT EVENT - ACQUISITION OF TUTTLE RISK MANAGEMENT SERVICES

         On October 13, 2004, LION, Inc. acquired Tuttle Risk Management
Services Inc. ("TRMS") a provider of mortgage pipeline risk management services
for mortgage companies and financial institutions. TRMS is also a registered
Commodity Trading Advisor. The acquisition was completed by merging TRMS with
and into LION's wholly-owned subsidiary, LION Acq. LLC, a Washington limited
liability company. As a result of these transactions, TRMS became a wholly-owned
subsidiary of LION operating as a limited liability company under the name
Tuttle Risk Management Services LLC. The acquisition was consummated pursuant to
the terms of the Agreement of Merger dated October 12, 2004. The acquisition is
intended to qualify as a "reorganization" under Section 368(a) of the Internal
Revenue Code of 1986, as amended. For further information, see the Company's
Form 8-K as filed with the Securities and Exchange Commission on October 18,
2004.

                                       10
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS

         A major objective of LION throughout the first nine months of 2004 has
been to integrate its historical product lines with the LockPoint Xtra(R) and
Pipeline Tools product lines acquired from Ignition Mortgage Technology
Solutions ("Ignition") in December 2003. Concurrently, LION has been developing
new web-based technology for the retail and wholesale channels for one of our
customers. This customer project was substantially complete by the end of the
third quarter 2004. These efforts along with our on-going research and
development initiatives led to the announcement in October 2004 of our launching
of a new mortgage technology productivity suite which offers a complete
marketing, pricing and delivery solution for retail, wholesale and correspondent
mortgage origination channels. This product suite consists of corporate
websites, productivity software, LockPoint(R) Server, and Pipeline Tools
technology which provide a consumer-facing interview and application process
known as LoanFinder, streamlined point-of-sale to back-office mortgage
solutions, and centralized solutions to manage loan origination products and
pricing. LION has signed 5 beta customers for this new product suite with
completion dates anticipated to occur throughout fourth quarter 2004 and first
quarter 2005. Once key milestones are achieved on these 5 beta customers, the
new product suite will be made available to all prospective customers.

         On October 13, 2004, LION acquired Tuttle Risk Management Services Inc.
("TRMS"), a privately held provider of mortgage pipeline risk management
services for mortgage companies and financial institutions. The acquisition, the
second in ten months for LION, continues the Company's strategy to extend its
reach in providing end-to-end productivity and efficiency solutions to the
mortgage industry. Since 2000, TRMS has licensed LION's Pipeline Tools as its
risk management technology. The acquisition facilitates the vertical integration
of our risk management technology business with TRMS' risk management advisory
services which are provided to over 50 customers. TRMS will operate as a wholly
owned subsidiary of LION and will retain its name. Of approximately $3,710,000
of LION's Pipeline Tools revenue recorded for the nine months ended September
30, 2004, approximately $2,541,000 or 68% is provided by the pre-acquisition
relationship between LION and TRMS. In 2005, LION anticipates that the
additional revenue TRMS will contribute to LION will approximate $2.5 to $3.5
million on an annualized basis and be accretive to earnings. For further
information, see the Company's Form 8-K as filed with the Securities and
Exchange Commission on October 18, 2004.

CONDENSED SUMMARIZED RESULTS

                              Three months ended          Nine months ended
                                 September 30,              September 30,
                          -------------------------   --------------------------
                             2004          2003          2004           2003
                          -----------   -----------   ------------   -----------
                                         (Restated)                   (Restated)

Revenues                  $ 3,574,211   $ 1,843,754   $ 11,020,486   $ 5,435,424
Operating income          $    62,394   $    93,470   $     27,558   $   361,806
Net income                $   112,939   $    89,407   $    503,258   $   349,864

 Net income per share
     Basic                $        --   $        --   $        .02   $       .01
     Diluted              $        --   $        --   $        .01   $       .01

         The December 2003 acquisition of certain assets of Ignition continues
to influence the quarterly operating results of the Company. Revenues are up 94%
for third quarter 2004 over third quarter 2003 and 103% for the first nine
months of 2004 compared to the same period in the prior year. Revenues for the
third quarter 2004 have remained relatively flat compared to the previous
quarter.

                                       11
<PAGE>


         Our revenue mix includes LION's traditional business lines of Mortgage
101, our consumer lead generation business, LION Pro, which includes LION's
search engine and extensive database of loan programs, and Retail Web Sites, our
marketing and website design and hosting business. LION's revenues from these
product lines improved to $1.9 million for the quarter, or 55% of total
revenues, compared to $1.8 million for the same quarter in the prior year, an
increase of 6%, and for the first nine months of 2004 improved to $5.8 million
or 53% of total revenues compared to $5.4 million in the prior year, an increase
of 7%.

         Our revenue mix also includes LockPoint Xtra(R), our electronic
mortgage rate locking and file transfer technology, and Pipeline Tools, our
interest rate risk management tool, both of which have been part of LION's
operations since December 2003. Revenue from these two products represents $1.6
million or 45% of total revenues for the third quarter and $5.2 million or 47%
of total revenues for the first nine months of 2004.

         Operating expenses have declined in each of the last two quarters,
decreasing approximately $240,000 in the second quarter compared to the first
quarter and another $109,000 in the third quarter just ended compared to the
second quarter. While we expect operating expenses to continue to decline in the
fourth quarter, not including the impact from the acquisition of TRMS, we still
anticipate operating expenses to remain high compared to the present revenue
base as we continue to integrate LION and Ignition infrastructure and product
lines.

         Operating and net income have both improved in the third quarter
compared to the second quarter of 2004. Most of the improvement has been due to
the reduction in operating expenses. Stock option expense continues to have more
of an impact on operating results in 2004 compared to 2003. Stock option expense
increased to $54,476 from $10,172 for the three months ended September 30, 2004
and 2003, respectively, and increased to $205,651 from $15,831 for the 9 months
ended September 30, 2004 and 2003, respectively. In addition, we received a
one-time income tax benefit in the third quarter of 2004 which resulted in a net
income tax benefit of $51,690 and $49,681, respectively, for the three and nine
month periods ended September 30, 2004. Net income for the nine months ended
September 30, 2004 includes other income of $433,000 net of legal expenses
related to a settlement with our insurance carrier for the reimbursement of
defense and indemnity costs related to litigation completed in June 2002.

         We have continued to improve our working capital position throughout
2004 increasing from $2.8 million at the end of 2003 to $3 million at the end of
first quarter, to $3.5 million at the end of second quarter, and to $3.7 million
at the end of third quarter. Our current cash balance at the end of the third
quarter has remained stable at $3.6 million. As a result of the acquisition of
TRMS and positive cash flows anticipated from fourth quarter operations, we
expect that our cash position should grow to between $4 million and $4.5 million
by year end.

BACKGROUND ON PRODUCTS AND SERVICES

         As mentioned above, LION continues to integrate the product lines of
LION and Ignition so that it can better serve broader segments of the mortgage
industry. In addition, we will also be vertically integrating our Pipeline Tools
product line with the TRMS mortgage pipeline risk management services beginning
the fourth quarter of 2004 and during the first part of 2005. As various phases
of the product integrations are completed, we will begin talking about our
products and services differently. This overall change in our formal
presentation of products and services may not occur until the end of 2004 and
will be an on-going process throughout 2005. Currently, stand alone products,
not including those related to the TRMS acquisition, include LION Pro, Mortgage
101, Retail Web Sites, LockPoint Xtra(R), and Pipeline Tools. Any statistics or
metrics noted below are as of September 30, 2004.

                                       12
<PAGE>


         LION PRO, used by 8,200 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 in 77 regions in the country.
There are 121 participating lenders and 148,000 regionalized loan programs in
the loan search database. 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.

         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 originators 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 one of the preferred platforms for them
to market to their customers. Through the Mortgage 101 brand, there are over
46,500 co-branded real estate sites which consist of realtors, real estate
offices, relocation sites, associations, and city portals. Traffic from these
branded and co-branded sites along with search engine activity averages
approximately 350,000 unique visitors each month to this consumer portal.
Revenues are generated from mortgage brokers or originators who participate in
the pay-per-lead program or advertise through the Mortgage 101 site.

         RETAIL WEB SITES are offered to mortgage companies and individual
originators to help educate consumers about mortgages, market their services to
borrowers, generate more business, efficiently connect with service providers,
and better serve their borrowers. This product is intended to create and foster
relationships between consumers and mortgage originators while enabling mortgage
companies and originators to more efficiently manage their online production
channel and maximize the business value received from their online operations.
Both template and custom design solutions deliver a combination of standard and
custom content to approximately 2,800 web sites and approximately 4,900 user
accounts. Revenues are generated from web site 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 gives them 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 loan amount volumes with monthly minimums which may vary from
customer to customer, and custom development services.

         PIPELINE TOOLS ("PT") is a complete risk management and pipeline
tracking system. PT provides customers 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, price desks, and shipping managers. Revenues are generated from
implementation fees, recurring monthly billings based on loan amount volumes
with monthly minimums which may vary from customer to customer, and custom
development services.

                                       13
<PAGE>


DETAILED RESULTS OF OPERATIONS

REVENUES

                                   Three months ended       Nine months ended
                                      September 30,           September 30,
                                 ----------------------  -----------------------
                                    2004        2003        2004         2003
                                 ----------  ----------  -----------  ----------
                                             (Restated)               (Restated)

REVENUES BY PRODUCT CATEGORY:
Lion Pro                         $  815,081  $  702,573  $ 2,345,815  $2,198,274
Mortgage 101                        474,616     599,115    1,545,816   1,692,858
Retail Web Sites                    658,699     542,066    1,898,838   1,544,292
                                 ----------  ----------  -----------  ----------
  Traditional LION products       1,948,396   1,843,754    5,790,469   5,435,424

LockPoint Xtra                      334,614          --    1,519,715          --

Pipeline Tools                    1,291,201          --    3,710,302          --
                                 ----------  ----------  -----------  ----------
  Traditional Ignition products   1,625,815          --    5,230,017          --

      Total revenues             $3,574,211  $1,843,754  $11,020,486  $5,435,424
                                 ==========  ==========  ===========  ==========


         LION PRO revenues are comprised of LION Pro Corporate, LION Pro
Individual, and lenders who participate in the underlying database. Revenues
continued to improve quarter over quarter and for the three and nine month
periods ended September 30, 2004 compared to the same periods in the prior year
primarily due to the success of the LION Pro Corporate product line. There are
now 111 LION Pro Corporate accounts comprising nearly 3,300 users.

         MORTGAGE 101 revenues, which are comprised of LION's subscription and
pay-per-lead based lead programs along with broker ad banner programs, continued
to decrease quarter over quarter and for the three and nine month periods ended
September 30, 2004 compared to the same periods in the prior year primarily due
to declining loan volumes. LION's shift to a pay-per-lead model in 2003 provided
the foundation to generate sustainable revenue in periods of rising rates.
During the third quarter of 2004, 60% of Mortgage 101 revenue was due to the
transactional or pay-per-lead concept whereas only 4% was transactional based in
the same quarter in the prior year. For the nine month period ended September
30, 2004, 57% of the revenue was transactional based and only 4% in the same
period in the prior year. The Company will continue to be challenged to
duplicate or exceed the Mortgage 101 revenues quarter over quarter in 2004 as
industry loan origination volumes are expected to continue to decline throughout
the remainder of the year. The ongoing refinement of LION's pay-per-lead model
will play an important role in meeting this challenge.

         RETAIL WEB SITE revenues increased approximately $117,000 or 22% in the
third quarter of 2004 compared to the same quarter in the prior year and
approximately $355,000 or 23% for the nine month period ended September 30,
2004. As discussed above, this product line 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.
The Company will continue to add functionality and efficiency to this product
line so that it will continue to compete successfully with similar web site
products in the industry.

         LOCKPOINT XTRA(R) revenues are generated from implementation fees with
new customers, recurring monthly billings based on loan amount volumes with
monthly minimums which may vary from customer to

                                       14
<PAGE>


customer, and custom development services. Revenues are primarily transaction
based and are dependent on a limited number of significant customers. Revenues
decreased from approximately $764,000 in first quarter 2004 to approximately
$421,000 for the second quarter and have stabilized at $335,000 in the third
quarter. The decrease in the second quarter was primarily due to a negotiated
customer contract termination which recorded $160,000 of revenue in the first
quarter that did not recur in the second quarter, a customer contract that did
not renew at the beginning of the second quarter totaling $60,000 per quarter,
and reduced loan volumes flowing through the LPX product line. The decrease in
the third quarter was primarily due to decreased custom development work with an
existing customer that should strengthen sometime during the fourth quarter of
2004 or the first quarter of 2005.

         Loan volumes in the LPX product line decreased from approximately $1.9
billion in the first quarter to approximately $690 million in the second quarter
and again to approximately $181 million in the third quarter. The decrease in
loan volumes in the third quarter is primarily due to Freddie Mac running their
loan volumes through their own internally developed systems at the beginning of
the third quarter. Freddie Mac's plans to begin processing their loans through
their own systems sometime during 2004 were disclosed to LION when the Ignition
assets were acquired in December 2003.

         The LPX product line lost sales momentum during 2003 prior to the
Company acquiring it from Ignition due to an inability to execute contracts with
prospective customers in the absence of an identified buyer for Ignition. LION
reinitiated a sales effort for LPX following its acquisition. However, the sales
cycle is anywhere from six to nine months with the implementation period prior
to launch approximating several months. One new sale was made at the end of
first quarter, and revenues have begun to be recognized during the third
quarter. Within the existing sales pipeline, there are several prospects that
could become new sales by the end of 2004 or the beginning of 2005. To
compensate for this long sales cycle, a large portion of the Company's research
and development efforts includes the incorporation of LPX technology into
existing and future product lines. An example of this is discussed above in the
first paragraph of this Item 2.

         PIPELINE TOOLS revenues are generated from implementation fees from new
customers, recurring monthly billings based on loan amount volumes with monthly
minimums which may vary from customer to customer, and custom development
services. Revenues increased to approximately $1,229,000 in second quarter 2004
from approximately $1,190,000 for the first quarter and increased again to
$1,291,000 in the third quarter. Loan volumes in the Pipeline Tools product line
increased to approximately $30.8 billion in the second quarter from
approximately $23.9 billion in the first quarter but decreased to $23 billion in
the third quarter primarily due to Freddie Mac processing their loan volumes
through their own internally developed systems at the beginning of the third
quarter. As stated above for LPX, this anticipated move by Freddie Mac had been
disclosed to LION at the time the Ignition assets were acquired in December
2003. Any revenue loss related to Freddie Mac has been more than offset by
increased revenues through TRMS during the third quarter. Loan volumes are
expected to decrease during the remainder of 2004, but revenue from this product
line is expected to remain stable or increase through the addition of more
customers.

                                       15
<PAGE>


OPERATING EXPENSES

                                   Three months ended       Nine months ended
                                      September 30,           September 30,
                                 ----------------------  -----------------------
                                    2004        2003         2004        2003
                                 ----------  ----------  -----------  ----------

Direct costs                     $1,276,822  $  400,697  $ 4,069,452  $1,054,634

Selling and marketing               477,296     564,463    1,525,961   1,724,543

General and administrative          993,968     602,752    3,058,395   1,707,804

Research and development            611,194      57,435    1,908,001     235,964

Depreciation and amortization       152,537     124,937      431,119     350,673
                                 ----------  ----------  -----------  ----------

Total operating expenses         $3,511,817  $1,750,284  $10,992,928  $5,073,618
                                 ==========  ==========  ===========  ==========


DIRECT COSTS

         Direct costs are comprised primarily of web site fulfillment,
technology infrastructure support, product and contract support, and product
deployment. Direct costs increased 219% and 286% for the three and nine months
ended September 30, 2004, respectively, compared to the same periods in 2003. A
majority of the increase is attributable to the added infrastructure related to
the Ignition asset purchase in December 2003. LION now has two major data
centers, one a primary and the other a redundant backup. In addition, the
LockPoint Xtra(R) and Pipeline Tools products require specialized allocated
resources to deliver and maintain the underlying service to customers. Compared
to LION's other products, the LockPoint Xtra(R) and Pipeline Tools products
require more time and resources to deploy before a service is fully delivered to
the customer. Integration of the LION and Ignition infrastructures will continue
through the remainder of 2004 and perhaps the early part of 2005. These
integration efforts have caused direct costs to decrease by approximately
$51,000 in the third quarter compared to the second quarter. Once completed, the
Company anticipates further reductions in direct 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 decreased 15% and 12% for the three and nine months ended
September 30, 2004, respectively, compared to the same periods in 2003. The
decrease is primarily due to the elimination of sales, support and marketing
efforts related to the two alliances that the Company was involved with during
the first part of 2003 that were discontinued later in that year and the
reallocation of certain sales support resources to technical support roles in
the web site fulfillment area. This reduction was offset by an increase in
selling and marketing expenses due to the efforts of LION's commissioned broker
sales force, the addition of seasoned sales personnel related to the Ignition
asset acquisition, increased advertising, and additional tradeshow
participation. Selling and marketing expenses decreased approximately $75,000 in
the third quarter compared to the second quarter due to a realignment and
restructuring of the broker and lender sales force and participation in less
costly tradeshows.

GENERAL AND ADMINISTRATIVE

         General and administrative expenses are comprised primarily of
management and administrative salaries and related costs, legal and audit fees,
outside consulting services, certain telecommunications expenses, occupancy
costs, and other administrative related expenses. General and administrative
expenses increased 65% and 79% for the three and nine months ended September 30,
2004, respectively, compared to the same periods in 2003. A majority of this
increase in expense was directly related to the impact of the Ignition asset
purchase with the addition of a new CEO and Co-President of Operations in
December 2003,

                                       16
<PAGE>


one-time incentive bonuses to various management personnel due to the successful
completion of the Ignition asset purchase, various infrastructure integration
efforts, additional investor relations efforts, and additional stock option,
legal and audit fees. These expenses also increased approximately $95,000 in the
third quarter compared to the second quarter due to added resources in the human
resource area, increased efforts in investor relations, and fees related to a
SAS 70 audit of the LPX and Pipeline Tools product lines. Administrative expense
is expected to decrease in the fourth quarter compared to the third quarter.

RESEARCH AND DEVELOPMENT

         Research and development expenses are comprised primarily of
engineering salaries and related costs. Research and development expenses
increased 964% and 709% for the three and nine months ended September 30, 2004,
respectively, compared to the same periods in 2003. As a percent of revenues,
these expenses increased to approximately 17% for the 2004 periods compared to
approximately 3% to 4% for the periods in 2003. The increase was primarily
attributable to research and development efforts in the LockPoint Xtra(R),
Pipeline Tools, Retail Web Site and Mortgage 101 product lines. The LockPoint
Xtra(R) and Pipeline Tools product lines have defined and established research
and development functions in the Company's Gig Harbor, Washington and Sausalito,
California locations. The Company anticipated a higher commitment to research
and development in 2004 compared to 2003 in order to support its product
initiatives as well as the integration of various components of these product
lines. Extensive concept, design and implementation efforts will be necessary as
the product lines of LION and Ignition are integrated in order to provide a
seamless mortgage business solution to consumers, realtors, mortgage originators
and lenders on a single integrated technology platform. Research and development
expenses actually decreased approximately $85,000 in the third quarter compared
to the second quarter, mostly due to a decrease in the need for Pipeline Tools
resources. While the Company recognizes that the overall research and
development expenses are high compared to revenues, it views these efforts at
this point in time as critical in order to have a positive impact in supporting
the development and delivery of the Company's technology, products and services
in the mortgage industry in 2005 and beyond.

DEPRECIATION AND AMORTIZATION

         The increase in depreciation and amortization expense for the three and
nine month periods ended September 30, 2004 compared to the same periods in the
prior year is due to additional depreciation related to the purchase of
equipment, computers and software along with the addition of internally
developed software for internal use.

OTHER INCOME

         As noted above, net income for the nine months ended September 30, 2004
includes other income of $433,000 net of legal expenses related to a settlement
with our insurance carrier for the reimbursement of defense and indemnity costs
related to litigation completed in June 2002.


LIQUIDITY AND CAPITAL RESOURCES

         The Company has financed its liquidity needs over the last several
years through revenue generated from operations and equipment lease financing.
During the first nine months of 2004, the Company also received proceeds from
the exercise of warrants and stock options and the settlement with our insurance
carrier for the reimbursement of 2002 litigation costs.

                                       17
<PAGE>


         At September 30, 2004, we had approximately $3,612,000 in cash and cash
equivalents and approximately $3,738,000 of working capital. The Company's
liquidity position has never been stronger. The change in cash and cash
equivalents is as follows:

                                              Nine months ended September 30,
                                             ---------------------------------
                                                   2004             2003
                                             ---------------   ---------------
      NET CASH PROVIDED BY (USED IN)
      Operating activities                   $  1,001,451      $    852,779

      Investing activities                       (388,429)         (306,757)

      Financing activities                        115,745           (39,387)
                                             ---------------   ---------------

      Net increase                           $    728,767      $    506,635
                                             ===============   ===============


OPERATING ACTIVITIES

         During the nine months ended September 30, 2004, operating activities
provided net cash of $1,001,451. The net cash provided by operating activities
was primarily attributable to the settlement with an insurance carrier totaling
$433,000, revenue growth, primarily from the Retail Web Sites, LockPoint Xtra(R)
and Pipeline Tools product lines and payments on accounts receivable. The
accounts receivable payments were primarily from large accounts receivable
balances acquired in the Ignition asset purchase, which were offset by a pay
down of accrued liabilities related to legal, accounting and other fees
associated with the acquisition of Ignition assets and an increase in prepaid
expenses on various maintenance agreements on the Company's datacenters.

         During the first nine months of 2003, operating activities provided net
cash of $852,779. The net cash provided by operating activities for 2003 was
primarily attributable to revenue growth, primarily from our mortgage broker
customers, improved bad debt experience, and a reduction in legal fees. The
increase was offset by additional database support costs related to increased
wholesale and correspondent loan programs, telecommunications infrastructure
costs to support new services and increased volumes through the Company's
consumer and business web portals, resources to support the development of
broker websites and growth in the commissioned broker sales force and related
customer support costs.

INVESTING ACTIVITIES

         During the nine months ended September 30, 2004, investing activities
used cash of $388,429 and primarily consisted of the capitalized portion of
software development costs related to the enhancement of underlying
infrastructure delivering various product lines and upgrades to computer
hardware and software.

         During the first nine months of 2003, we used net cash of $306,757 for
our investing activities which was primarily for the capitalized portion of
software development costs related to the enhancement of core online services
for brokers and the conversion of consumer traffic into higher-value lead
generation and upgrades to computer hardware and software.

FINANCING ACTIVITIES

         During the nine months ended September 30, 2004, net proceeds from
financing activities were $115,745. Warrants and stock options were exercised
during the period totaling approximately $178,000. This was offset by payments
totaling approximately $63,000 on notes payable and capitalized lease
obligations related to the acquisition of application and database software,
computers, servers, furniture and telecommunications systems upgrades over the
previous two years. If the Company's stock price continues

                                       18
<PAGE>


to perform at recent levels, it is possible that additional proceeds could
continue to be generated during the remainder of 2004 and into 2005 through the
exercise of in-the-money stock options.

         During the first nine months of 2003, the net use of cash for financing
activities was $39,387. Cash used was primarily related to notes payable and
capitalized lease obligations on the acquisition of application and database
software, computers, servers, furniture and telecommunications systems upgrades.

COMMITMENTS AND CAPITAL EXPENDITURES

         The Company has no material commitments for capital expenditures for
the remainder of 2004. The acquisition of Ignition assets included two major
datacenters in Sunnyvale, California and Seattle, Washington, but equipment and
software used to operate the datacenters is up to date. During 2004, a
replacement program of this equipment will be developed and during 2005 and 2006
will be implemented.

OVERALL LIQUIDITY AND CAPITAL RESOURCES

         It is management's assessment that its liquidity and capital resource
needs for its growth plans for 2004 and extending into 2005 will be adequately
met through its working capital and cash flows from 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 the Company's strategic direction, as well as
developments beyond the Company's 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 and
elsewhere in this report, and in the other documents we file with the SEC. 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 $8.1 million from $6.4 million for
2003 and 2002, respectively. However, revenue remained relatively unchanged at
$3.6 million for the second and third quarters of 2004 which was a decrease from
$3.9 million for the first quarter. While we sustained a loss in 2002 totaling
approximately $109,000, we have had nine consecutive quarters of profitability
beginning with the third quarter of 2002 through the third quarter of 2004.
However, we did sustain a modest operating loss of approximately $44,000 in the
second quarter of 2004. Due to the acquisition of certain assets of Ignition in
December 2003, the Company has incurred additional costs during the first nine
months of 2004 which could extend to the end of the year while it integrates and
streamlines its technology and physical infrastructure for facilities,
telecommunications, and datacenters. Until this integration is complete,
profitability will be constrained.

         Although we currently anticipate that 2004 will be a profitable year,
our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in new and rapidly evolving
markets, including uncertainty of revenues, markets, profitability and the
possible need to raise capital to fund our ongoing operations. We cannot assure
you that we will be successful in addressing these risks or that we can be
operated profitably, which depends on many factors, including the success of

                                       19
<PAGE>


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

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

         We are substantially dependent on the continued services of our key
personnel, including our officers, engineers and other significant employees.
These individuals have acquired specialized knowledge and skills with respect to
LION. We are continuing to create the redundancies that will reduce the reliance
on these individuals, but have not completed this task and will not for at least
the remainder of 2004 if not longer. Furthermore, we have not entered into
employment agreements with these significant employees except for our CEO,
Co-President of Sales and Marketing, Co-President of Operations, and CFO. If any
of these individuals were to leave LION unexpectedly, we could face substantial
difficulty in hiring qualified successors and could experience a loss in
productivity while any such successor obtains the necessary training and
experience. We provide stock options, which currently serve to retain and
motivate key employees as they become vested in their initial stock option
grants. While management personnel are typically granted additional stock
options, which will usually vest over a period of four years subsequent to their
hire date to provide additional incentive to remain at LION, the initial option
grant is typically the largest and an employee may be more likely to leave our
employ upon completion of the vesting period for the initial option grant. We
expect that we will need to attract, train, retain and motivate additional
technical, managerial, marketing and customer support personnel. Competition for
these personnel may be intense, particularly for individuals with suitable
experience. 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 as a result of
the acquisition of Ignition assets carries with it the risk that our revenues
may be dependent on a limited number of significant customers, rather than a
broad-based broker and customer network. As part of the acquisition, LION became
the assignee of certain customer contracts, most of which have initial contract
periods or renewals expiring throughout 2004 and 2005 and typically have
renewable successive one-year terms and in a few cases successive two-year
terms. Revenues from these contracts have so far comprised 47% of our total
revenues for the first nine months of 2004. While we did have two LockPoint
Xtra(R) customers and two Pipeline Tools customers discontinue their contracts
with us during the first nine months of 2004, we also had two new sales during
this same period, for one LockPoint Xtra(R) and one Pipeline Tools. In addition,
the Company has a pipeline of potential customers interested in both products
that could close during the remainder of the year. While we have no reason to
believe the other large contracts will not be renewed, there can be no assurance
that these former Ignition customers will renew their contracts with LION, or
that we will be able to attract new customers at rates sufficient to maintain a
stable or growing revenue base. We have also experienced an anticipated but
significant decline in loan volumes in the LPX and Pipeline Tools product lines
primarily due to Freddie Mac processing their loan volumes through their own
internally developed systems at the beginning of the third quarter. If we are
unsuccessful in enrolling new customers to equalize the attrition rate, if any,
of existing Ignition customers, 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.

                                       20
<PAGE>


OUR OPERATIONS MAY BE VULNERABLE TO DISRUPTION PROBLEMS.

         We do not have multiple site capacity for our LION Pro, Mortgage 101 or
Retail Web Site services, however, we do have this in place for our LockPoint
Xtra(R) and Pipeline Tools services. We are in the process of developing
multiple site capacity for all of our services, but this will not be completed
until some time late in 2004 or perhaps into 2005. We have in place
comprehensive data tape backup procedures for our operational and administrative
databases. Our replication software provides a high level of hardware backup for
the database by duplicating our database across several powerful servers.
However, despite protective measures, our operations could be vulnerable to
damage from floods, fire, earthquakes, power loss, telecommunications failures,
break-ins, terrorism, and similar events. The prospect of such unscheduled
interruptions is possible in the foreseeable future, and we are unable to
predict their occurrence, duration or cessation.

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


ITEM 3.  CONTROLS AND PROCEDURES

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

         There were no changes in our internal control over financial reporting
during the quarter ended September 30, 2004 that have materially affected, or
are reasonably likely to materially affect, our internal controls over financial
reporting.

                                       21
<PAGE>


                           PART II - OTHER INFORMATION


ITEM 2.  CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF
         EQUITY SECURITIES

ISSUER PURCHASES OF EQUITY SECURITIES

         The following table provides information about purchases by the Company
during the quarter ended September 30, 2004 of equity securities that are
registered by the Company pursuant to Section 12 of the Exchange Act.

                          (a)            (b)            (c)            (d)

                                                                  Maximum Number
                                                   Total Number  (or Approximate
                                                    of Shares     Dollar Value)
                                                   Purchased as   of Shares that
                                                     Part of         May Yet
                                                     Publicly      Be Purchased
                     Total Number   Average Price   Announced       Under the
                       of Shares       Paid per      Plans or        Plans or
         Period      Purchased (1)      Share        Programs        Programs
                     -------------  -------------  ------------   --------------

07/01/04 - 07/31/04         --             --           --              --

08/01/04 - 08/31/04         --             --           --              --

09/01/04 - 09/30/04     35,000        $   .40           --              --

(1) Represents shares of common stock tendered to us by an employee as payment
for the exercise price of options issued under our 1998 Stock Option Plan.


                                       22
<PAGE>


ITEM 6.  EXHIBITS

(a)      Exhibits

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



                                   SIGNATURES

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


                                   LION, INC.
                                  (Registrant)

         Date: November 15, 2004                 By:   /s/ Randall D. Miles
                                                       -----------------------
                                                       Randall D. Miles
                                                       Chief Executive Officer


                                       23
<PAGE>


EXHIBIT INDEX

EXHIBIT NO.       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


                                       24