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**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-QSB**





x QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934





FOR
      THE
      QUARTERLY PERIOD ENDED MARCH 31, 2006





o TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934





COMMISSION
      FILE NUMBER 001-32255





**ANSWERS
      CORPORATION**


(EXACT
      NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)








DELAWARE
            98-0202855(STATE
                OR OTHER JURISDICTION OF
            (I.R.S.
                EMPLOYER IDENTIFICATION NO.)INCORPORATION
                OR ORGANIZATION)





Jerusalem
      Technology Park


The
      Tower


Jerusalem
      91481 Israel


(ADDRESS
      INCLUDING ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)





+972-2-649-5000


(REGISTRANT'S
      TELEPHONE NUMBER, INCLUDING AREA CODE)





Indicate
      by an (X) whether the registrant: (1) has filed all reports required to be
      filed
      by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
      preceding 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 o NO
x





Indicate
      by an (X) whether the registrant is an accelerated filer (as defined in Rule
      12b-2 of the Exchange Act). Yes o NO x





As
      of May
      10, 2006, the registrant had outstanding 7,728,174 shares of Common Stock,
      $0.001 par value per share.







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            Contents**


PART
      I. FINANCIAL INFORMATION


Item
                1. Financial StatementsConsolidated
                Balance Sheets as of March 31, 2006 (unaudited)
                and December 31, 2005.
            1Consolidated
                Statements of Operations (unaudited) for the
                three months ended March 31, 2006 and 2005 and cumulative from December
                22, 1998 (inception) through March 31, 2006
            2Consolidated
                Statements of Cash Flows (unaudited) for the three
                months ended March 31, 2006 and 2005 and cumulative from December
                22, 1998
                (inception) through March 31, 2006
            3Notes
                to unaudited Consolidated Financial
                Statements
            4Item
                2. Management's Discussion and Analysis of Financial
                Condition or Plan of Operation
            15Item
                3. Controls and Procedures
            23PART
                II. OTHER INFORMATIONItem
                1. Legal Proceedings
            24Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            24Item
                3. Defaults Upon Senior Securities
            24Item
                4. Submission of Matters to a Vote of Security
                Holders
            24Item
                5. Other Information
            24Item
                6. Exhibits
            25Signatures
            26




**Cautionary
      Note regarding Forward-Looking Statements**




In addition to historical information, this Quarterly Report on Form 10-QSB
      contains forward-looking statements within the meaning of Section 27A of
      the Securities Act and Section 21E of the Exchange Act. Forward-looking
      statements are those that predict or describe future events. You can generally
      identify forward-looking statements as statements containing the words
“believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” or
      other similar expressions, although not all forward-looking statements contain
      these identifying words. All statements in this report regarding our future
      strategy and operations, projected financial position, estimated future
      revenues, projected costs, future prospects are forward-looking statements.
      You
      should not place undue reliance on our forward-looking statements because the
      matters they describe are subject to known and unknown risks, many of which
      are
      beyond our control. Our forward-looking statements are based on the information
      currently available to us and speak only as of the date on which this report
      was
      filed with the SEC. We expressly disclaim any obligation to issue any updates
      or
      revisions to our forward-looking statements, even if subsequent events cause
      our
      expectations to change regarding the matters discussed in those statements.
      Over
      time, our actual results, performance or achievements will likely differ from
      the anticipated results, performance or achievements that are expressed or
      implied by our forward-looking statements, and such difference might be
      significant and materially adverse to our stockholders. Factors that may cause
      such differences include, but are not limited to, those discussed under "Risk
      Factors" in Item 6 and elsewhere in our annual report on Form 10-KSB for the
      year ended December 31, 2005, as filed with the Securities and Exchange
      Commission, including among others the uncertainties associated with our ability
      to increase the number of users visiting our Website, our ability to increase
      the number of partners who will generate increased traffic to our Website,
      our
      ability to improve the monetization of our products, ** a
      decision by Google to stop directing user traffic to Answers.com through its
      definition link, a decision by search engines to change the algorithms
      responsible for directing search queries to the web pages that are most likely
      to contain the information being sought by Internet users or restrict the flow
      of users visiting our Website, our ability to renew current contracts with
      content providers on commercially acceptable terms or that our costs with
      respect to these contracts will not increase prohibitively following any
      renewal, the risks of litigation relating to our intellectual property, the
      risks associated with dependence upon key personnel and the need ** for
      additional financing. Please consider our forward-looking statements in light
      of
      those risks as you read this report.




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Answers
      Corporation (formerly GuruNet Corporation) and
      Subsidiaries




**Interim
      Consolidated Balance Sheets** **(in
      thousands except share data)**


**March
                31**
            
            **December
                31****2006**
            
            **2005**$
            
            $**(Unaudited)**
            
            **(Audited)****Assets****Current
                assets:**Cash
                and cash equivalents
            
            
            **2,759**
            
            
            2,840Investment
                securities
            
            
            **10,312**
            
            
            11,163Accounts
                receivable
            
            
            **617**
            
            
            451Other
                prepaid expenses and other current assets
            
            
            **372**
            
            
            349**Total
                current assets**
            
            
            **14,060**
            
            
            14,803**Long-term
                deposits (restricted)**
            
            
            **212**
            
            
            211**Deposits
                in respect of employee severance obligations**
            
            
            **629**
            
            
            610**Property
                and equipment, net**
            
            
            **652**
            
            
            597**Other
                assets:**Intangible
                assets, net
            
            
            **5,186**
            
            
            5,384Prepaid
                expenses, long-term
            
            
            **270**
            
            
            254Deferred
                tax asset, long-term
            
            
            **18**
            
            
            13**Total
                other assets**
            
            
            **5,474**
            
            
            5,651**Total
                assets**
            
            
            **21,027**
            
            
            21,872**Liabilities
                and stockholders' equity****Current
                liabilities:**Accounts
                payable
            
            
            **145**
            
            
            305Accrued
                expenses
            
            
            **675**
            
            
            673Accrued
                compensation
            
            
            **468**
            
            
            322Deferred
                revenues, short-term
            
            
            **47**
            
            
            67**Total
                current liabilities**
            
            
            **1,335**
            
            
            1,367**Long-term
                liabilities:**Liability
                in respect of employee severance obligations
            
            
            **683**
            
            
            622Deferred
                tax liability, long-term
            
            
            **112**
            
            
            98Deferred
                revenues, long-term
            
            
            **436**
            
            
            442**Total
                long-term liabilities**
            
            
            **1,231**
            
            
            1,162**Commitments
                and contingencies****Stockholders'
                equity:**Preferred
                stock: $0.01 par value; 1,000,000 shares authorized and
                undesignated
            
            
            **—**
            
            
            **—**Common
                stock; $0.001 par value; 30,000,000 shares authorized;7,728,174 and
                7,664,969
              shares
                issued and outstanding as of March 31, 2006 and December 31, 2005,
                respectively
            
            
            **8**
            
            
            8Additional
                paid-in capital
            
            
            **68,574**
            
            
            69,492Deferred
                compensation
            
            
            **—**
            
            
            (3,518
            )Accumulated
                other comprehensive loss
            
            
            **(31**
            **)**
            
            (29
            )Accumulated
                deficit
            
            
            **(50,090**
            **)**
            
            (46,610
            )**Total
                stockholders' equity**
            
            
            **18,461**
            
            
            19,343**Total
                liabilities and stockholders' equity**
            
            
            **21,027**
            
            
            21,872




See
      accompanying notes to the interim consolidated financial statements




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Answers
      Corporation (formerly GuruNet Corporation) and Subsidiaries




**Interim
      Consolidated Statements of Operations****(in
      thousands except share and per share data)**




**Three
                months ended March 31****2006**
            
            **2005**$
            
            $**(Unaudited)**
            
            **(Unaudited)****Revenues:**Answers.com
                advertising revenue
            
            
            **1,090**
            
            
            **107**Co-Brands
                and licensing services
            
            
            **53**
            
            
            **19**Subscriptions
            
            
            **11**
            
            
            **50****1,154**
            
            
            **176****Costs
                and expenses:**Cost
                of revenue
            
            
            **684**
            
            
            **243**Research
                and development
            
            
            **2,637**
            
            
            **296**Sales
                and marketing
            
            
            **642**
            
            
            **361**General
                and administrative
            
            
            **800**
            
            
            **852****Total
                operating expenses**
            
            
            **4,763**
            
            
            **1,752****Operating
                loss**
            
            
            **(3,609**
            **)**
            
            **(1,576**
            **)**Interest
                income, net
            
            
            **141**
            
            
            **86**Other
                expense, net
            
            
            **(3**
            **)**
            
            **—****Loss
                before income taxes**
            
            
            **(3,471**
            **)**
            
            **(1,490**
            **)**Income
                taxes
            
            
            **(9**
            **)**
            
            **(15**
            **)****Net
                loss**
            
            
            **(3,480**
            **)**
            
            **(1,505**
            **)****Basic
                and diluted net loss per common share**
            
            
            **(0.47**
            **)**
            
            **(0.25**
            **)****Weighted
                average shares used in computing basic and diluted**
              **net
                loss per common share**
            
            
            **7,432,817**
            
            
            **6,043,796**


See
      accompanying notes to the interim consolidated financial statements




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Answers
      Corporation (formerly GuruNet Corporation) and Subsidiaries




**Interim
      Consolidated Statements of Cash Flows****(in
      thousands)**


**Three
                months ended March 31****2006**
            
            **2005**$
            
            $**(Unaudited)**
            
            **(Unaudited)****Cash
                flows from operating activities:****Net
                loss**
            
            
            **(3,480**
            **)**
            
            **(1,505**
            **)****Adjustments
                to reconcile net loss to net cash used in operating
                activities:**Depreciation
                and amortization
            
            
            **284**
            
            
            **41**Deposits
                in respect of employee severance obligations
            
            
            **(19**
            **)**
            
            **—**Increase
                in liability in respect of employee severance obligations
            
            
            **61**
            
            
            **10**Deferred
                income taxes
            
            
            **9**
            
            
            **11**Stock-based
                compensation to non-employees for services rendered
            
            
            **—**
            
            
            **376**Stock-based
                compensation to employees and directors
            
            
            **408**
            
            
            **10**Stock-based
                compensation in connection with the Brainboost transaction (see Note
                4)
            
            
            **2,093**
            
            
            **—**Exchange
                rate losses
            
            
            **3**
            
            
            **—****Changes
                in operating assets and liabilities:**Increase
                in accounts receivable and other current assets
            
            
            **(189**
            **)**
            
            **(54**
            **)**Increase
                (decrease) in long-term prepaid expenses
            
            
            **(16**
            **)**
            
            **12**Increase
                (decrease) in accounts payable
            
            
            **(160**
            **)**
            
            **187**Increase
                (decrease) in accrued expenses and other current
                liabilities
            
            
            **149**
            
            
            **(2**
            **)**Decrease
                in short-term deferred revenues
            
            
            **(20**
            **)**
            
            **(36**
            **)**Decrease
                in long-term deferred revenues
            
            
            **(6**
            **)**
            
            **(14**
            **)****Net
                cash used in operating activities**
            
            
            **(883**
            **)**
            
            **(964**
            **)****Cash
                flows from investing activities:**Capital
                expenditures
            
            
            **(108**
            **)**
            
            **(50**
            **)**Capitalization
                of software development costs
            
            
            **(18**
            **)**
            
            **—**Purchase
                of intangible assets
            
            
            **(16**
            **)**
            
            **—**Increase
                in long-term deposits
            
            
            **(1**
            **)**
            
            **(25**
            **)**Purchases
                of investment securities
            
            
            **(6,519**
            **)**
            
            **(13,250**
            **)**Proceeds
                from sales of investment securities
            
            
            **7,368**
            
            
            **2,250****Net
                cash provided by (used in) investing activities**
            
            
            **706**
            
            
            **(11,075**
            **)****Cash
                flows from financing activities:**Exercise
                of warrants, net of issuance costs in the amount of $338
            
            
            **-**
            
            
            **12,721**Exercise
                of common stock options
            
            
            **98**
            
            
            **804****Net
                cash provided by financing activities**
            
            
            **98**
            
            
            **13,525**Effect
                of exchange rate changes on cash and cash equivalents
            
            
            **(2**
            **)**
            
            **—****Net
                increase (decrease) in cash and cash equivalents**
            
            
            **(81**
            **)**
            
            **1,486**Cash
                and cash equivalents at beginning of period
            
            
            **2,840**
            
            
            **1,565****Cash
                and cash equivalents at end of period**
            
            
            **2,759**
            
            
            **3,051**





**Supplemental
                disclosures of cash flow information****:**Income
                taxes paid
            
            
            **2**
            
            
            3**Non-cash
                investing activities:**Unrealized
                net loss from securities
            
            
            **2**
            
            
            —




See
      accompanying notes to the interim consolidated financial statements




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**Note
      1****- Business**




Answers
      Corporation (“the Parent”), formerly GuruNet Corporation, was founded as a Texas
      corporation on December 22, 1998, and reorganized as a Delaware corporation
      in
      April 1999. On December 27, 1998 the Parent formed a subsidiary based in Israel
      (“the Israel Subsidiary”), primarily for the purpose of providing research and
      development services to the Parent. On December 1, 2005, the Parent acquired
      all
      of the limited liability interests of Brainboost Technology, LLC for $4 million
      in cash and 439,000 shares of restricted stock (“Brainboost” - see Note 4).
      Answers Corporation and its wholly owned subsidiaries are collectively referred
      to as “the Company”. The Company operates an answer-based search service to
      users through its Web site, Answers.com, downloadable applications and
      co-brands.




The
      Company began trading on NASDAQ under the symbol ANSW on August 2, 2005. Prior
      to such date, the Company’s shares were traded on the American Stock Exchange
      under the symbol GRU. On October 17, 2005, the Company changed its corporate
      name from GuruNet Corporation to Answers Corporation.




The
      accompanying unaudited interim consolidated financial statements were prepared
      in accordance with the instructions for Form 10-QSB and, therefore, do not
      include all disclosures necessary for a complete presentation of financial
      condition, results of operations, and cash flows in conformity with generally
      accepted accounting principles. All adjustments, which are, in the opinion
      of
      management, of a normal recurring nature and are necessary for a fair
      presentation of the interim financial statements, have been included.
      Nevertheless, these financial statements should be read in conjunction with
      the
      consolidated financial statements and related notes included in the Company’s
      Annual Report on Form 10-KSB for the year ended December 31, 2005. The results
      of operations for the period ended March 31, 2006 are not necessarily indicative
      of the results that may be expected for the entire fiscal year or any other
      interim period.




**Note
      2 - Revenue Recognition**




The
      Company generates revenues through advertising in the form of sponsored links
      and image ads. This includes both pay-per-performance ads and
      paid-for-impression advertising. In the pay-for performance model, the Company
      earns revenue based on the number of clicks associated with such ads; in the
      paid-for-impression model, the Company’s revenue is derived from the display of
      ads.




Generally,
      the Company does not contract directly with advertisers, but rather, obtains
      those advertisers through the efforts of third parties. The third party is
      obligated to pay the Company a portion of the revenue it receives from
      advertisers, as compensation for the Company’s sale of promotional space on its
      Internet properties. Amounts received from such third parties are reflected
      as
      revenue in the period in which such advertising services are
      provided.




The
      Company also provides its answers based search services to third parties that
      include the service in co-branded websites. Revenues from the provision of
      such
      services are recognized in the period the services are provided.




The
      Company recognizes revenues from sales of subscriptions over the life of the
      subscription, which is generally one year, in accordance with Statement of
      Position (SOP) No. 97-2, “Software Revenue Recognition”, issued by the American
      Institute of Certified Public Accountants (AICPA). Sales that do not yet meet
      the criteria for revenue recognition, are classified as “Deferred Revenues” on
      the balance sheet, and are amortized over the subscription period.




In
      2003,
      the Company sold lifetime subscriptions to its consumer product, which had
      no
      defined termination date. Cash received from such lifetime subscriptions was
      recorded as deferred revenues. Beginning April 2004, certain users who purchased
      lifetime subscriptions in 2003, exchanged their lifetime subscriptions for
      free
      two-year subscriptions to a newer enhanced version of the GuruNet product.
      The
      cash previously received from such users is recognized over the new two-year
      subscription. Lifetime subscriptions, which were not exchanged for subscriptions
      with defined termination date, continue to be deferred.




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**Note
      3 - Accounting for Stock-Based Compensation**




**Adoption
      of Statement of Financial Accounting Standards No. 123 (revised
      2004)**





Prior
      to
      January 1, 2006, the Company accounted for stock-based awards to employees
      and
      directors under the intrinsic value method, which followed the recognition
      and
      measurement principles of Accounting Principles Board (APB) Opinion No. 25,
      “Accounting for Stock Issued to Employees” (APB 25). The intrinsic value method
      of accounting resulted in compensation expense for stock options to the extent
      option exercise prices were set below the market value of the Company’s stock on
      the date of grant. To the extent stock option awards were forfeited prior to
      vesting, the previously recognized expense was reversed and recorded as a
      reduction to operating expenses.




Additionally,
      prior to January 1, 2006, the Company adopted the disclosure requirements of
      Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for
      Stock-based Compensation” (SFAS 123) and SFAS No. 148, “ *Accounting
      for Stock-Based Compensation—Transition and Disclosure”* (SFAS
      148) *,* for
      awards to its directors and employees. The fair value of options granted to
      employees and directors prior to May 12, 2004, the date of the Company’s first
      filing with the U.S. Securities and Exchange Commission (SEC), in connection
      with its Initial Public Offering (IPO), was estimated on the date of grant
      using
      the minimum-value method. The fair value of options granted to employees and
      directors subsequent to May 12, 2004, was measured according to the
      Black-Scholes option-pricing model.




The
      fair
      value of options and warrants granted to non-employees prior to January 1,
      2006,
      has been computed and accounted for in accordance with SFAS 123 and Emerging
      Issues Task Force (EITF) 96-18, “Accounting for Equity Instruments That Are
      Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
      Goods or Services”, and was measured according to the Black-Scholes
      option-pricing model.




As
      of
      January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based
      Payments” (SFAS 123R) using the modified prospective method, which requires
      measurement of compensation cost for all stock-based awards based upon the
      fair
      value on date of grant and recognition of such compensation cost over the
      service period for awards expected to vest. Under this method, the Company
      recognizes compensation cost for awards granted beginning January 1, 2006,
      based
      on the Black-Scholes option-pricing model. Furthermore, with the exception
      of
      stock options granted to employees prior to May 12, 2004, the date of the
      Company’s first filing with the SEC in connection with its IPO, the Company will
      recognize cost for unvested share-based awards as of January 1, 2006 based
      on
      the grant date fair value of those awards, adjusted for estimated forfeitures,
      if any, as previously calculated and reported for pro-forma disclosure purposes.
      The Company will recognize cost for unvested share-based awards as of January
      1,
      2006 and that were granted prior to May 12, 2004, based on the intrinsic value
      of such grants on their grant date.




The
      value
      of stock options, as noted, is recognized as compensation expense on a
      straight-line basis, over the requisite service period of the entire award,
      net
      of estimated forfeitures. Based on its decision to use the modified prospective
      method in adopting SFAS 123R, the Company did not need to adjust the
      corresponding 2005 amounts included in these financial statements.




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**Note
      3 - Accounting for Stock-Based Compensation (cont’d)**




**Valuation
      Assumptions for Stock Options**





The
      fair
      value for each stock option granted to employees and directors during the first
      quarter 2006 and 2005, was estimated at the date of grant using the
      Black-Scholes option-pricing model, assuming no dividends and the following
      assumptions:




**Three
                months ended March 31****2006**
            
            **2005**Weighted
                average risk-free interest rate
            
            
            4.47
            %
            
            3.85
            %Expected
                life (in years)
            
            
            4.08
            
            
            4.00Weighted
                average expected volatility
            
            
            41.19
            %
            
            54.19
            %





The
      fair
      value for each stock option granted to non-employees during the first quarter
      of
      2005, was estimated at the date of grant using the Black-Scholes option-pricing
      model, assuming no dividends and the following assumptions (no such options
      were
      granted in the first quarter of 2006):




**Three
                months ended March 31****2006**
            
            **2005**Weighted
                average risk-free interest rate
            
            
            N/A
            
            
            3.85
            %Contractual
                term (in years)
            
            
            N/A
            
            
            9.95Weighted
                average expected volatility
            
            
            N/A
            
            
            74.52
            %





The
      risk-free interest rate is based on the U.S. Treasury yield curve in effect
      at
      the time of grant for periods corresponding with the expected life of the
      option.




The
      expected life represents the weighted average period of time that options
      granted are expected to be outstanding. The expected life of the options granted
      to employees and directors during the first quarter of 2006, is calculated
      based
      on the Simplified Method as allowed under Staff Accounting Bulletin No. 107
      (SAB
      107), giving consideration to the contractual term of the options and their
      vesting schedules. The expected life of the options granted to non-employees
      equals their contractual term.




Due
      to
      the lack of sufficient history of the Company’s own stock volatility, the
      Company estimates its own expected stock volatility based on the historical
      stock volatility of three other companies, which are similar to the Company.




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**Note
      3 - Accounting for Stock-Based Compensation (cont’d)**




**Fair
      Value Disclosures — Prior to SFAS 123(R) Adoption**





Prior
      to
      January 1, 2006, as allowed by SFAS 123, the Company accounted for stock-based
      awards to employees and directors under the intrinsic value method, and adopted
      the disclosure requirements of SFAS 123 and SFAS 148, for awards to its
      directors and employees.




The
      following table illustrates the effect on net loss and net loss per share,
      as if
      the Company had applied the fair value methods of SFAS No. 123 for accounting
      purposes:




**Three
                months ended**
              **March
                31****2005****$
                (in thousands, except**
              **for
                per share data)****(Unaudited)**


Net
                loss, as reported
            
            
            **(1,505**
            **)**Add:Stock-based
                compensation expense to employees and directors included
              in
                reported net loss, net of related tax effects
            
            
            **10**Deduct:Stock-based
                compensation expense to employees and directors determined
              under
                fair value based method for all awards, net of related tax
                effects
            
            
            **(73**
            **)**Pro-forma
                net loss
            
            
            **(1,568**
            **)**Net
                loss per common share, basic and diluted:As
                reported
            
            
            **(0.25**
            **)**Pro-forma
            
            
            **(0.26**
            **)**







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**Note
      4 - Acquisition of Brainboost**




On
      December 1, 2005, (the “Acquisition Closing Date”) the Company entered into a
      purchase agreement (the “Purchase Agreement”) to acquire all of the limited
      liability interests of Brainboost Technology, LLC, (“Brainboost”), a Delaware
      limited liability company, from the Brainboost Partnership (the “Seller”). The
      Company, as a result of the acquisition, took title to, and possession of,
      all
      assets owned by Brainboost, primarily, all intellectual property rights
      associated with a functionality known as the Brainboost Answer Engine, a
      cutting-edge artificial intelligence technology targeting natural language
      search on the World-Wide-Web. The Company intends to integrate the Brainboost
      Answer Engine to enable natural language search through
      Answers.com.




Pursuant
      to the Agreement, at the Acquisition Closing Date, the Company paid the Seller
      an aggregate of $4,000,000 in cash and 439,000 shares of restricted common
      stock
      (the “Stock Consideration”) in the Company. The number of shares issued was
      determined based upon the average share price of $10.2575 over a 20 consecutive
      day period that was designated by the Company and the Seller prior to the
      Acquisition Closing Date. The fair value of the Stock Consideration was
      determined to be approximately $5.6 million, or $12.716 per share, based upon
      an
      average share price within 2 days before and after the Acquisition Closing
      Date.
      The Stock Consideration is subject to certain lock-up agreements that limit
      its
      transferability during the year subsequent to the Acquisition Closing
      Date.




Furthermore,
      on the date of acquisition, the Company entered into an Employment Agreement
      with one of the principals of the Seller (the “Principal”), with an effective
      date of December 5, 2005 (the “Employment Agreement”). Pursuant to the
      Employment Agreement, the Principal joined the Company as Director of Natural
      Language Research and took charge of the integration and further development
      of
      the acquired technology within the Company’s systems and proprietary
      products.




In
      connection with the Purchase Agreement and the Employment Agreement, the Company
      entered into an escrow agreement on the acquisition date whereby 50%, 25%,
      and
      25% of the Stock Consideration was scheduled to be released on March 1, June
      1,
      and December 1, 2006, respectively, subject to certain performance and
      non-performance obligations. On March 1, 2006, the Company released 50% of
      the
      Stock Consideration, or 219,500 shares. Under the Purchase Agreement, the Stock
      Consideration released in March 2006, a total of 219,500 shares, was designated
      for the purpose of securing the continued employment of the Principal, and
      the
      Stock Consideration scheduled for release in June 2006, a total of 109,750
      shares, continues to serve the same purpose. As the release of the 219,500
      shares was originally subject to forfeiture based on the Principal’s employment,
      and the 109,750 shares continue to be subject to such forfeiture, the value
      of
      such escrowed shares, in the amount of $4,186,743 on the date of acquisition,
      is
      being recognized as research and development expense over the six-month
      requisite service period, beginning December 2005. The remaining 25% of shares
      that release from escrow on December 1, 2006, a total of 109,750 shares, are
      not
      subject to the Principal’s employment.




Additionally,
      the stock component of the consideration is subject to a Registration Rights
      Agreement pursuant to which the Company agreed to file a registration statement
      to register such stock component with the Securities and Exchange Commission
      within 75 days following December 1, 2005. Pursuant to the Registration Rights
      Agreement, the Company agreed to use its reasonable best efforts to cause the
      registration statement to be declared effective under the Securities Act of
      1933
      as promptly as possible after the filing thereof, but in any event not later
      than April 1, 2006. The Company further agreed that if its registration
      statement is not effective by April 1, 2006, it must pay the Seller a penalty
      of
      $100,000 per month, pro rated per day. As of the date of this report, the
      Securities and Exchange Commission is still reviewing the Company’s registration
      statement and its amendments and the registration statement has yet to be
      declared effective. As of May 11, 2006, the Company owes the Seller
      approximately $135,000 in penalty payments.




The
      agreement also grants the Seller certain non-transferable price protection
      rights, whereby a decline in the Company’s average stock price for the 20
      consecutive trading days immediately preceding the one-year anniversary of
      the
      Acquisition Closing Date below $10.2575, would trigger the Seller’s right to
      receive from the Company compensation for the reduction in the Stock
      Consideration’s value (the “Price Protection”). In such an event, the Company
      would either pay the Seller cash for the difference between the $10.2575 and
      the
      average stock price, or repurchase the shares at $10.2575, for the remaining
      Stock Consideration held by the Seller on the one-year anniversary of the
      acquisition close. The Price Protection is also subject to cancellation at
      the
      cumulative occurrence of certain conditions relating to the market price of
      the
      Stock Consideration, the registration of the Stock Consideration, and other
      criteria including termination of the Principal from the Company prior to the
      one-year anniversary of the Acquisition Closing Date. Any cash consideration
      payable pursuant to the Price Protection will be accounted for upon settlement
      as an adjustment to the value of the shares issued at closing. Upon adoption
      of
      SFAS 123R on January 1, 2006, the value of the portion of the Price Protection
      that relates to the Stock Consideration that was deemed compensation expense
      (see above), is being charged as stock-based compensation over the requisite
      six-month employment service period ending May 31, 2006. As a result, the
      Company recorded additional stock-based compensation expense of $33,000 during
      the three months ending March 31, 2006.




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The
      transaction was accounted for as an asset acquisition. The allocation of the
      purchase price to the assets acquired was as follows:




**$
                (in thousands)**Acquired
                Technology - Brainboost Answer Engine
            
            
            **5,355**In-Process
                Research & Development
            
            
            **97**Total
                Assets Acquired
            
            
            **5,452**Value
                of escrowed shares being charged to compensation expense
              over
                the six months ending May 31, 2006
            
            
            **4,187**Total
                Purchase Price
            
            
            **9,639**





The
      Acquired Technology is included on the accompanying balance sheets in intangible
      assets, net, and is being amortized on a straight-line basis over an estimated
      useful life of six years. The In-Process Research and Development relates to
      projects that were substantive, yet incomplete as of the acquisition date.
      Accordingly, it has not been recorded as a separate asset on the balance sheet
      but as additional research and development expense as of the Acquisition Closing
      Date. The value of escrowed shares being charged to compensation expense over
      the six months ending May 31, 2006, relates to the Stock Consideration,
      associated with the March and June escrow release dates, and is being recorded
      as equity and charged to expenses on a straight-line basis over six months.
      As
      of March 31, 2006, $2,791,000 of such value was amortized.




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**Note
      5 - Stockholders’ Equity**




**General**





The
      following table summarizes the changes in the Company’s stockholders’ equity
      during the three-month period ending March 31, 2006:




**$
                (in thousands)****December
                31, 2005**
            
            
            **19,343**Exercise
                of stock options
            
            
            **98**Stock-based
                compensation excluding amounts relating to Brainboost transaction
                (see
                Note 4)
            
            
            **408**Other
                comprehensive loss
            
            
            **(1**
            **)**Stock-based
                compensation in connection with the Brainboost transaction
              (see
                Note 4)
            
            
            **2,093**Net
                loss for the period
            
            
            **(3,480**
            **)****March
                31, 2006**
            
            
            **18,461**




Additionally,
      upon the adoption of SFAS 123R effective January 1, 2006, the balance of
      deferred compensation as of December 31, 2005, amounting to $3,517,844, was
      reversed against additional paid-in capital, and will be recorded based on
      the
      vesting terms of the stock-based awards for which this deferred compensation
      has
      been recorded in the past.




**Common
      Stock**





During
      the first quarter of 2006, the Company issued a total of 63,205 shares of common
      stock due to the exercise of 63,205 of the Company’s outstanding stock options,
      for a total consideration of $98,000.




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**Note
      5 - Stockholders’ Equity (cont’d)**




**Stock
      Warrants**





As
      of
      March 31, 2006, there were 1,157,763 outstanding stock warrants with a weighted
      average exercise price of $16.21. All warrants are exercisable immediately.
      No
      warrants were exercised during the first quarter of 2006.




On
      February 4, 2005 the Company entered into an agreement (the "Warrants
      Agreement"), with certain holders of stock warrants, pursuant to which such
      holders exercised an aggregate of 1,871,783 stock warrants at the stated
      exercise price thereof. As a result, the Company issued an aggregate of
      1,871,783 shares of its common stock, for aggregate gross consideration of
      $12,559,700. Under the terms of the Warrants Agreement, in order to provide
      incentive to the warrant holders to exercise their stock warrants , for every
      share of common stock purchased by the holders through the exercise of stock
      warrants , the Company issued to the warrant holders new warrants, dated
      February 4, 2005, to purchase such number of shares of common stock equal to
      55%
      of the number of shares of common stock underlying their respective stock
      warrants (the "New Warrants"). As a result, the Company issued 1,029,488 of
      New
      Warrants at an exercise price of $17.27 per share. The New Warrants are
      immediately exercisable and expire on February 4, 2010.




**Stock
      Compensation Plans**





The
      Company provides for direct grants or sales of common stock, and common stock
      options to employees and non-employees through the following: the 1999 Stock
      Option Plan (the 1999 Plan), the 2000 Stock Option Plan (the 2000 Plan) and
      the
      2003 Stock Option Plan (the 2003 Plan) (thereafter collectively “Prior Option
      Plans”), the 2004 Stock Option Plan (the 2004 Plan) and the 2005 Incentive
      Compensation Plan (the 2005 Plan). In addition, in prior years, the Company
      had
      granted stock options outside of its stock options plans, to certain individuals
      and entities. As of March 31, 2006, 35,651 options were issued and outstanding
      outside of the Company’s stock option plans.




The
      2005
      Plan was approved by the Company’s stockholders in July, 2005, following the
      earlier adoption by the Company’s board of directors. Under the 2005 Plan, the
      Company may grant stock options, stock appreciation rights, restricted stock,
      deferred stock, other stock-related awards and performance awards to officers,
      directors, employees, consultants and other persons who provide services to
      the
      Company. The total number of Company shares of common stock reserved and
      available for grant under the 2005 Plan was set at 850,000, upon its
      adoption.




Under
      all
      option plans, options generally vest 25%, with respect to the number granted,
      upon the first anniversary date of the option grant, and the remainder vest
      in
      equal monthly installments over the 36 months thereafter. Vested options are
      exercisable immediately.




The
      options generally expire between six to ten years after grant date. Except
      for
      grants to certain executives, employee options are generally forfeited, if
      not
      exercised, within three months of termination of employment.




**Stock
      Options**





During
      the three months ended March 31, 2006, the Company granted a total of 388,600
      stock options to its employees and officers, of which 384,600 stock options
      were
      granted under the Company’s 2005 Compensation Plan, and 4,000 stock options
      under its 2004 Stock Option Plan.




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**Note
      5 - Stockholders’ Equity (cont’d)**




**Stock
      Options (cont’d)**





The
      following table summarizes the Company’s stock option activity in the first
      quarter of 2006:




**Number**
              **of
                stock**
              **options**
            
            **Weighted**
              **average**
              **exercise**
              **price****Outstanding
                as of December 31, 2005**
            
            
            **1,429,521**
            
            $
            8.27Granted
                (2005 and 2004 Plans)
            
            
            388,600
            
            
            13.70Exercised
            
            
            (63,205
            )
            
            1.56Forfeited
            
            
            (10,700
            )
            
            11.36**Outstanding
                as of March 31, 2006**
            
            
            **1,744,216**
            
            $
            10.27**Exercisable
                as of March 31, 2006**
            
            
            **516,131**
            
            $
            6.15





The
      weighted average fair value of options granted during the first quarter of
      2006
      was $5.28 per option.




As
      of
      March 31, 2006, 418,400 and 10,952 options were available for grant under the
      2005 Plan and the 2004 Plan, respectively. All Prior Option Plans are closed
      for
      future grants.




The
      following table summarizes information about stock options outstanding as of
      March 31, 2006:




**Options
                outstanding**
            
            **Options
                exercisable****Range
                of**
              **exercise
                price**
            
            **Number**
              **outstanding**
            
            **Weighted**
              **average**
              **remaining**
              **contractual
                life**
              **(years)**
            
            **Weighted**
              **average**
              **exercise**
              **price**
            
            **Number**
              **outstanding**
            
            **Weighted**
              **average**
              **remaining**
              **contractual
                life**
              **(years)**
            
            **Weighted**
              **average**
              **exercise**
              **price**$0.69
                - 5.00
            
            
            **272,547**
            
            
            6.72
            
            $
            2.99
            
            
            **194,613**
            
            
            6.27
            
            $
            2.525.06
                - 9.21
            
            
            **523,159**
            
            
            8.09
            
            
            5.33
            
            
            **238,821**
            
            
            7.87
            
            
            5.4010.54
                - 14.49
            
            
            **612,310**
            
            
            6.66
            
            
            13.17
            
            
            **32,697**
            
            
            5.59
            
            
            11.5115.35
                - 20.35
            
            
            **336,200**
            
            
            9.06
            
            
            18.59
            
            
            **50,000**
            
            
            8.96
            
            
            20.35$0.69
                - 20.35
            
            
            **1,744,216**
            
            
            7.56
            
            $
            10.27
            
            
            **516,131**
            
            
            7.03
            
            $
            6.15





The
      aggregate intrinsic value of stock options outstanding as of March 31, 2006,
      was
      $6,055,000, of which $3,442,000 relates to vested awards. Intrinsic value for
      stock options is calculated based on the exercise price of the underlying awards
      and the quoted price of the Company’s common stock as of the reporting
      date.




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**Note
      5 - Stockholders’ Equity (cont’d)**




**Stock
      Options (cont’d)**





The
      total
      fair value of stock options vested during the three months ending March 31,
      2006, amounts to $408,000, net of estimated forfeitures of $3,000, and was
      recorded as stock-based compensation expense following the adoption of SFAS
      123R
      (see Note 3). Such stock-based compensation expense includes $33,000, related
      to
      Brainboost’s Price Protection (see Note 4). As of March 31, 2006, there was
      $5,562,000 of unrecognized compensation cost, net of estimated forfeitures
      of
      $9,000, related to nonvested stock options granted under the Company’s various
      stock option plans. That cost is expected to be recognized as
      follows:


**Year
                  ending****December
                  31**
              
              **$
                  (in thousands)**2006
              
              
              1,2782007
              
              
              1,6832008
              
              
              1,6402009
              
              
              9182010
              
              
              435,562





**Note
      6 - Commitments and Contingencies**




(a)
            Future
                minimum lease payments under non-cancelable operating leases for
                office
                space and cars, as of March 31, 2006 are as
                follows:




**Year
                ending December 31**
            
            **$
                (in thousands)**2006
            
            
            3682007
            
            
            4912008
            
            
            3472009
            
            
            3162010
            
            
            2071,729





Rental
      expense for operating leases for the three months ended March 31, 2006 and
      2005
      was $108,000 and $60,000, respectively.




(b)
            All
                of the Israel Subsidiary’s obligations to its bank, including the bank
                guarantee given to the Israel Subsidiary’s landlord, are secured by a lien
                on all of the Israel Subsidiary’s deposits at such bank. As of March 31,
                2006, deposits at such bank amounted to $221,000, including a restricted
                long-term deposit of $92,000 as mentioned
                above.




(c)
            In
                the ordinary course of business, the Company enters into various
                arrangements with vendors and other business partners, principally
                for
                content, web-hosting, marketing and investor relations arrangements.
                As of
                March 31, 2006, the total future commitments under these arrangements
                amount to approximately $535,000.




(d)
            As
                part of the acquisition of Brainboost (see Note 4), the Company agreed
                that in the event that the average closing price of its common stock
                for
                the 20 consecutive trading days (“Average Closing Price”) immediately
                preceding December 1, 2006 is less than $10.2575, at the Company’s option
                it will either repurchase the common stock held by the sellers at
                such
                date for $10.2575 per share or pay the sellers the difference between
                $10.2575 per share and the Average Closing Price for shares they
                are still
                holding, subject to certain conditions in the purchase agreement.
                In the
                event that the Average Closing Price of the Company’s common stock is
                below $10.2575 on December 1, 2006 and the sellers have not sold
                a
                significant amount of the common stock issued to them, the Company
                may be
                obligated to pay the sellers a significant amount of additional
                cash.






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**Note
      6 - Commitments and Contingencies (cont’d)**




(e)
            On
                March 8, 2006 the Company submitted a statement of claim with the
                Tel-Aviv, Israel District Court against Babylon Ltd., for infringement
                of
                Israel Patent Number 121,457. The patent, entitled "Computerized
                Dictionary and Thesaurus Applications," covers a computerized searching
                process of indicating a target word on a display screen and employing
                at
                least one word appearing in the vicinity of the target word in order
                to
                eliminate ambiguity in the meaning of the target word. The patent
                was
                first filed in 1997 and was granted in 2004. The remedies that the
                Company
                seeks, initially, are damages in the sum of NIS 1,000,000 (approximately
                $210,000), an accounting of revenues derived from the infringing
                use and
                an injunction. Following the accounting, the Company may modify the
                sum it
                seeks in damages.




**Note
      7 - Major Customer**




Generally,
      the Company does not contract directly with advertisers, but rather, obtains
      advertising through the efforts of a third party supplier (the “Monetization
      Partners”). During the three months ended March 31, 2006 and 2005, the Company
      earned approximately 65% and 52% of its revenue, respectively, through one
      of
      its Monetization Partners. In addition, during the three months ended March
      31,
      2006, the Company earned 15% of its revenue through another Monetization
      Partner.




**Note
      8 - Subsequent Events**




Pursuant
      to a Registrations Right Agreement that the Company entered into in connection
      with the acquisition of Brainboost Technology, LLC (see Note 4 for further
      details), the Company agreed that if its registration statement is not effective
      by April 1, 2006, it must pay the sellers a penalty of $100,000 per month,
      pro
      rated per day. As of the date of this report, the Securities and Exchange
      Commission is still reviewing the Company’s registration statement and its
      amendments and the registration statement has yet to be declared effective.
      As
      of May 11, 2006, the Company owes the Seller approximately $135,000 in penalty
      payments.




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ITEM
      2.MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
      OPERATION




*The
      following discussion of our financial condition and results of operations should
      be read in conjunction with the financial statements and the notes to those
      statements included elsewhere in this filing. This discussion includes
      forward-looking statements that involve risks and uncertainties. Our actual
      results may differ materially from those anticipated in these forward-looking
      statements.*




**Overview**




We
      own,
      operate and provide an online answer-based information-retrieval service that
      offers Internet users conveniently formatted snapshot, multi-faceted definitions
      and explanations, integrated into a single consolidated browser view. Our
      flagship site, Answers.com, is a leading aggregator of information and reference
      content, on more than 3 million topics, covering general reference, business,
      arts and culture, legal, medical, science and technology, people, places, music
      and many others. Our topic library contains over 60 titles from brand-name
      publishers. Additionally, we offer "1-Click Answers" - a software tool that
      facilitates more efficient access to Answers.com by allowing users working
      in
      almost any application such as e-mail, spreadsheet or word processing to click
      on a word or phrase within a document and access Answers.com’s online library
      via a pop-up window.




In
      January 2005, we announced the release of Answers.com. The launch of the Website
      represented our gravitation to a new ad-based revenue model, as opposed to
      our
      previous subscription-based model. Prior to January 2005, we sold subscriptions
      to our answer engine product, GuruNet. Prior to December 2003, we sold lifetime
      subscriptions to GuruNet, generally for $40. In December 2003, we decided to
      alter our pricing model and moved to an annual subscription model, generally,
      $30 per year. A desire to grow revenues led to our current implementation,
      in
      January 2005, of a free-to-customer product, Answers.com and "1-Click Answers"
      software. Since the launch of Answers.com in January 2005, we have ceased
      offering new subscriptions to GuruNet.




On
      October 17, 2005, we changed our corporate name from GuruNet Corporation to
      Answers Corporation. On August 2, 2005 we began trading on NASDAQ under the
      symbol ANSW. Prior to such date, our shares were traded on the American Stock
      Exchange under the symbol GRU.




**Answers.com
      Traffic, Answers Services and Monetization**




Our
      revenue is primarily driven by the query traffic generated by Answers.com and
      our ability to effectively monetize that traffic. Our current traffic is
      primarily based on: (i) Search engines: when our pages rank very high in the
      search engines’ algorithmic systems, Answers.com results are more likely to be
      accessed by users; (ii) Google’s definition link: our informal, non-contractual
      relationship, in which Google links to our pages for definitions; and (iii)
      Answers.com direct users - users visiting our site either directly, through
      partnering websites, or via “1-Click Answers”. Our primary revenue model for
      Answers.com traffic is based on advertising. Most of our ad revenue is earned
      from performance-based ads, whereby we earn revenue based on number of clicks
      associated with such ads (e.g., sponsored links), and paid-per-impression
      advertising, whereby revenues are derived from the display of ads (e.g., graphic
      ads). Generally, we do not contract directly with advertisers, but rather,
      obtain advertisements through the efforts of third parties that contract with
      advertisers seeking to advertise in their network of web sites, including our
      web site. We refer to such third parties as “Monetization Partners”.
      Monetization Partners generally compensate us by paying Answers a portion of
      the
      revenue they earn from advertisers for our provision of promotional space on
      our
      web site.




The
      more
      users to whom we deliver answer-based search services results, the more revenues
      we will potentially earn. Thus, we approach third-party sites offering to
      incentivize them for the right to deliver our services to their users. The
      fees
      we pay to such partners are often calculated as a percentage of the revenue
      we
      earn by delivering services to their users. We also earn revenues from partners
      that pay us for providing our answer-based search services to their users.
      These
      arrangements are based on various formulas, including a percentage of the
      revenues they earn by delivering our services to their users, fees based on
      the
      number of user queries and fixed periodic fees.




**Brainboost
      Answer Engine**




On
      December 1, 2005, we acquired Brainboost Technology, LLC, creators of the
      Brainboost Answer Engine (“BAE”) - artificial intelligence technology enabling
      natural language search on the Web - for $4 million in cash and 439,000 shares
      of restricted stock (including certain price protection rights), valued at
      approximately $5.6 million. As a result of the purchase we acquired software
      technology, the BAE, valued at approximately $5.4 million. In connection with
      the transaction, the developer of the BAE joined our company as Director of
      Natural Language Research.




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The
      BAE
      delivers answers to end-user generated natural language questions by identifying
      pages on the web that contain sentences or phrases that appear to answer such
      specific questions. We are currently in the process of integrating the BAE
      into
      our own product line. We also plan that in cases where Answers.com’s library of
      topics contains the information that answers an end-user’s question, the results
      will be extracted by the BAE from our internal content-base. We expect that
      initial integration of the BAE into Answers.com will be completed by the end
      of
      the second quarter of 2006.




**Results
      of Operations**




***Revenues***




Revenues
      in the first quarter of 2006 were $1,154 thousand compared to $176 thousand
      during the same period in 2005, an increase of $978 thousand or 556%. Revenues
      in the first quarter of 2006 consisted of Answers.com advertising revenues
      of
      $1,090 thousand, revenues from co-brands of $53 thousand, and subscription
      revenue of $11 thousand. In contrast, revenues during the same period in 2005
      resulted from Answers.com advertising revenues of $107 thousand, recognition
      of
      previously deferred subscription license revenue of $50 thousand, and revenues
      from co-brands and other revenues, of $19 thousand.





As
      noted
      above, on January 3, 2005, we announced the release of Answers.com, and embarked
      on a new ad-based revenue model. Generally, we do not contract directly with
      advertisers, but rather, obtain advertisements through the efforts of
      Monetization Partners. While we receive monetization services from various
      Monetization Partners, two of the providers, Google and Shopping.com, accounted
      for approximately 65% and 15%, respectively, of our total revenue in the first
      quarter of 2006. In
      addition to Google and Shopping.com, we utilize the services of other
      Monetization Partners that provide us with ads that are served on our
      Website.




Our
      Answers.com advertising revenue is a function of various factors, the most
      basic
      of which are the level of our traffic or queries, and how effectively we
      monetize such traffic. We gauge the effectiveness of our monetization efforts
      and trends by measuring our revenue per one thousand queries, or RPM. Our
      objective is to increase both traffic and RPMs in a manner that values the
      critical impact that each has on the outcome of our advertising revenue. We
      need
      to increase our RPMs while ensuring that we do not alienate our current and
      potential users and partners.




Our
      Answers.com average daily queries and RPMs have grown significantly since our
      launch in January 2005, as follows:




Average
                Daily Queries
            Advertising
                Revenues (thousands)
            RPMQ-1
                2005
            900,000
            $107
            $1.32Q-2
                2005
            1,780,000
            $357
            $2.20Q-3
                2005
            1,770,000
            $500
            $3.07Q-4
                2005
            2,100,000
            $807
            $4.18Q-1
                2006
            2,590,000
            $1,090
            $4.67




Our
      RPMs
      have risen since the launch of Answers.com due to various initiatives,
      including, changes to our site design, adding or switching Monetization
      Partners, the location and number of ads on our Answer pages and the types
      of
      ads we present. More specifically, in the first quarter of 2006 our RPMs rose
      due to continued optimization of ads from Google and an increase in the
      revenue-share percentage offered by Google, improvements in performance of
      Shopping.com and an increase in our usage of impression-based advertising. There
      are
      many companies in the market that provide Internet ad services similar to those
      provided by our own Monetization Partners, including Google and Shopping.com.
      Thus, while Google and Shopping.com contributed most of our revenue in the
      first
      quarter of 2006, we do not feel that our ad revenue strategy is dependent on
      any
      one provider. Our strategy is to work with Monetization Partners that we believe
      maximize the average amount of revenue we earn per page view.




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Our
      co-branding arrangements with third parties, whereby users gain access to our
      answer-based search services on a co-branded web site, resulted in $53 thousand
      of revenues in the first quarter of 2006.




Subscription
      revenue of $11,000, in the first quarter of 2006, resulted from recognition
      of
      previously deferred subscription license revenue. We have not sold subscriptions
      since January 2005. The Q-1 2006 subscription revenue relates to fixed-term
      subscriptions we sold prior to such date. As of March 31, 2006, we still have
      $13,000 of deferred revenue from fixed-term subscriptions that will be
      recognized over the remainder of 2006. Additionally, as of March 31, 2006,
      we
      have approximately $425,000 of long-term deferred revenues, relating to
      subscriptions, which had no defined term, which we sold in 2003. We have not
      yet
      determined what the ultimate disposition of such long-term deferred revenues
      will be, and when it will impact our Statement of Operations.




***Cost
      of Revenues*** **




Cost
      of
      revenues is comprised almost entirely of fees to third party providers of
      content, web search service fees, amortization of the cost of acquired software
      used in our products, data center costs (including depreciation of information
      technology assets), traffic acquisition costs (contractual revenue sharing
      fees
      to various web site operators for visitors directed to Answers.com) and the
      salaries, benefits, travel and overhead costs relating to personnel who are
      responsible for content editing and integration, production operations and
      customer support.




Cost
      of
      revenues in the first quarter of 2006 was $684 thousand compared to $243
      thousand during the same period in 2005, a net increase of $441 thousand or
      181%. This net increase was due, primarily, to $223 thousand of amortization
      resulting from the acquisition of the BAE; increased compensation costs
      (excluding stock-based compensation) of approximately $70 thousand as a result
      of staffing additions in our production operations, content and customer support
      departments, and January raises; stock-based compensation of $28 thousand;
      increases in data center costs (including depreciation of information technology
      assets) required to manage more Internet traffic of $61 thousand; increase
      in
      fees we pay Google for the web search results they provide us of $17 thousand;
      and increases in content licensing costs of $21 thousand.




***Research
      and Development Expenses***




The
      salaries, benefits, travel and overhead costs of personnel conducting research
      and development of our products and services, and consulting costs, comprise
      practically all of our research and development expenses. In the first quarter
      of 2006, the projects being conducted by the research and development team
      related mostly to user interface improvements and enhanced product functionality
      and features.




Research
      and development expenses in the first quarter of 2006 were $2,637 thousand
      compared to $296 thousand during the same period in 2005, a net increase of
      $2,341 thousand or 791%. The net increase is due, primarily, to compensation
      charges resulting from the acquisition of Brainboost Technology, LLC, discussed
      further below, and increases in compensation-related expenses of approximately
      $258 thousand, due to growth in our research and development team, January
      salary increases and stock-based compensation of $89 thousand.




As
      noted
      earlier, in December 2005 we purchased Brainboost Technology, LLC. A portion
      of
      the purchase price was deemed to be compensation expense over the six month
      period ending May 31, 2006, to account for the certain escrow arrangements
      related to the restricted stock component of the purchase price. Under the
      terms
      of the Brainboost purchase, 50% and 25% of the shares of restricted stock are
      in
      escrow for 3 and 6 months, respectively, after the purchase date. Release from
      escrow is contingent upon the continued employment, at Answers, of one of the
      principals of the general partnership which formerly owned Brainboost
      Technology, LLC, an expert in artificial intelligence and natural language
      search technology. The value of such escrowed shares, of approximately $4.2
      million, is being charged to compensation expense, on a straight-line basis,
      over the requisite six-month employment commitment period. As a result, in
      the
      first quarter of 2006, we recorded $2,093 thousand of compensation expense
      in
      Research and Development. The remaining value of the escrowed shares as of
      March
      31, 2006, of $1,396 thousand, will be amortized in the second quarter of
      2006.




***Sales
      and Marketing Expenses*** **




The
      salaries, benefits, travel and overhead costs of sales and marketing personnel,
      marketing consulting, public relations and marketing services and advertising
      costs, comprise substantially all of sales and marketing expenses.




Sales
      and
      marketing expenses in the first quarter of 2006 were $642 thousand compared
      to
      $361 thousand during the same period in 2005, a net increase of $281 thousand
      or
      78%. The net increase is primarily due to increased compensation expense of
      $396
      thousand, due to increases in the number of employees in our sales and marketing
      department, January salary increases and stock-based compensation of $151
      thousand. We hired our Chief Revenue Officer at the end of the first quarter
      of
      2005; therefore, the first quarter of 2005 only includes approximately 20%
      of
      his quarterly salary. Additionally, our advertising and promotion expenses
      rose
      from $52 thousand to $68 thousand, and our overhead expenses rose from $20
      thousand to $46 thousand. The aforementioned increases were offset mostly due
      to
      the non-recurrence, in the first quarter of 2006, of two expenses that took
      place in the first quarter of 2005. In the first quarter of 2005, we incurred
      approximately $135 thousand in consulting costs, including $113 thousand of
      stock-based compensation, relating to a strategic consultant who assisted us
      in
      formulating our product and marketing strategy, and we incurred $35 thousand
      in
      recruiting fees.




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***General
      and Administrative Expenses***




General
      and administrative expenses consist primarily of salaries, benefits, travel
      costs for financial, legal and administrative personnel, overhead, insurance
      fees, fees for professional services, including investor relations, legal,
      accounting and other consulting fees, investment banking fees, and other general
      corporate expenses. Overhead costs consist primarily of rent,
      telecommunications, utilities and depreciation expenses.




General
      and administrative expenses in the first quarter of 2006 were $800 thousand
      compared to $852 thousand during the same period in 2005, a net decrease of
      $52
      thousand or 6%. The net decrease is comprised of many individual line expenses,
      the most significant of which follow:




·
            On
                January 20, 2005, we entered into an agreement with an investment-banking
                firm, which also acted as one of the underwriters of our IPO, to
                provide
                general financial advisory and investment banking services for a
                minimum
                term of six months. Further, upon signing of the contract, the underwriter
                received fully vested warrants to acquire 100,000 shares of Common
                Stock
                at an exercise price of $11.00. This agreement was terminated in
                September
                2005. As a result of this agreement, in Q-1 2005, we recorded
                approximately $25 thousand of cash compensation and $225 thousand
                in
                stock-based compensation, which represents the amortization of the
                fair
                value of the warrants on the date of their issuance, over the minimum
                term
                of the agreement. This expense did not recur in Q-1
                2006.·
            In
                December 2004, we entered into an agreement with an investor relations
                firm pursuant to which we incurred $100 thousand of fees over a one-year
                period for investor relations services. Additionally, pursuant to
                the
                agreement, in March 2005, we issued 7,800 shares of common stock
                to such
                firm. As a result of this agreement, in Q-1 2005, we recorded $44
                thousand
                of stock-based compensation, which represents the amortization of
                the fair
                value of the stock on the date of its issuance, over the expected
                life of
                the agreement. This agreement was renewed for an additional year,
                at $8
                thousand per month, with no stock component; therefore there was
                no
                recurrence of stock-based compensation to our investor relations
                firm in
                the first quarter of 2006.·
            Legal
                fees decreased by approximately $115 thousand. Legal fees in Q-1
                2005 were
                high to due legal services relating to a registration statement and
                merger
                and acquisition activities.·
            The
                aforementioned decreases were offset, to a large extent, by increased
                compensation expense of $245 thousand, due to increases in the number
                of
                employees in the general and administrative department, January salary
                increases and stock-based compensation of $130 thousand. The remaining
                net
                increase in general and administrative expenses of $107 thousand
                stems
                mostly from increases in overhead, accounting, travel and insurance
                costs.




***Interest
      Income (Expense), Net***




Interest
      income in the first quarter of 2006, was $141 thousand compared to $86 thousand
      during the same period in 2005, an increase of $55 thousand. The increase
      resulted primarily from higher average cash and investment securities balances
      during the first quarter of 2006 as compared to the same quarter in
      2005.




***Other
      Expense, Net***




Other
      expense, net in the first quarter of 2006, of $3 thousand is comprised mostly
      of
      foreign exchange net losses. There were no other expenses, net in the first
      quarter of 2005.




***Income
      Tax Expense***




Our
      effective tax rate differs from the statutory federal rate due to differences
      between income and expense recognition prescribed by income tax regulations
      and
      Generally Accepted Accounting Principles. We utilize different methods and
      useful lives for depreciating and amortizing property, equipment and intangible
      assets and differ in the methods and timing for calculating and recording stock
      compensation expense. Furthermore, permanent differences arise from certain
      income and expense items recorded for financial reporting purposes but not
      recognizable for income tax purposes. In addition, our income tax expense has
      been adjusted for the effect state and local taxes and foreign income from
      our
      wholly owned subsidiary. Our deferred tax assets are mostly offset by a
      valuation allowance because realization depends on generating future taxable
      income, which, in our estimation, is not more likely than not to
      transpire.




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We
      had
      net operating loss carryforwards for federal and state income tax purposes
      of
      approximately $43 million at March 31, 2006 and $37 million at March 31, 2005.
      The federal and state net operating losses will expire if not utilized on
      various dates from 2009 through 2025. Section 382 of the Internal Revenue Code
      of 1986 generally imposes an annual limitation on the amount of net operating
      loss carryforwards that may be used to offset taxable income where a corporation
      has undergone significant changes in its stock ownership. In January 2006,
      we
      completed an analysis to determine the potential applicability of any annual
      limitations imposed by Section 382 using assumptions regarding the respective
      values of our stock. Based upon our analysis, we estimate two significant
      changes of ownership, as defined under Section 382 of the Internal Revenue
      Code
      of 1986 that would trigger the limitations. The first took place in September
      1999 in connection with our Preferred Stock Class C issuance and the second
      took
      place in October 2004 with respect to our Initial Public Offering. Based on
      our
      current estimates and assumptions, we may utilize approximately $840 thousand
      for the period prior to September 1999 and approximately $1.8 million in net
      operating loss carryforwards on an annual basis attributable to the NOL
      carryforwards between 2000 through 2004, assuming we generate sufficient taxable
      income in any given year to utilize such amounts. Any unused annual limitation
      may be carried over to future years. Our Israeli subsidiary has capital loss
      carryforwards of approximately $600,000 that can be applied to future capital
      gains for an unlimited period of time under current tax rules.




Our
      Israeli subsidiary had income during the three months ending March 31, 2006
      and
      2005, resulting from its cost plus agreement with the parent company, whereby
      it
      charges it for research and development services it provides to us, plus 12.5%.
      However, the subsidiary is an “approved enterprise” under Israeli law, which
      means that income arising from the subsidiary’s approved activities is subject
      to zero tax under the “alternative benefit” path for a period of ten years. In
      the event of distribution by the subsidiary of a cash dividend out of retained
      earnings which were tax exempt due to the “approved enterprise” status, the
      subsidiary would have to pay a 10% corporate tax on the amount distributed,
      and
      the recipient would have to pay a 15% tax (to be withheld at source) on the
      amounts of such distribution received.




As
      of
      March 31, 2006, we accrued approximately $85 thousand, net of deferred tax
      assets, to reflect the estimated taxes that our subsidiary would have to pay
      if
      it distributed its accumulated earnings to us. Should the subsidiary derive
      income from sources other than the approved enterprise during the relevant
      period of benefits, this income will be taxable at the tax rate in effect at
      that time (currently 31%, gradually being reduced to 25% in 2010). Through
      March
      31, 2006, our Israeli subsidiary received tax benefits of approximately $780
      thousand.




***Net
      Loss***




Our
      net
      loss increased to $3,480 thousand in the first quarter of 2006, from $1,505
      thousand during the same period in 2005, as a result of the changes in our
      revenues, income, costs and expenses as described above.




**Critical
      Accounting Judgments and Estimates**




While
      our
      significant accounting policies are more fully described in the notes to our
      audited consolidated financial statements for the years ended December 31,
      2005
      and 2004, and our consolidated interim financial statements for the quarters
      ended March 31, 2006 and 2005, we believe the following accounting policies
      to
      be the most critical in understanding the judgments and estimates we use in
      preparing our consolidated financial statements.




***Revenue
      Recognition***




In
      2003,
      we sold lifetime subscriptions to our consumer product and did not recognize
      revenue from those sales since the obligation to continue serving such content
      had no defined termination date and adequate history to estimate the life of
      the
      customer relationship was not available. Cash received from such lifetime
      licenses is reflected as long-term deferred revenues on the accompanying balance
      sheets. Those deferred lifetime subscriptions amount to approximately $425,000
      as of March 31, 2006. We have not yet determined what the ultimate disposition
      of such deferred revenues will be, and when it will impact our Statement of
      Operations. Beginning December 2003 and throughout 2004, we generally, sold
      consumers one-year subscriptions to GuruNet. We recognized the amounts we
      received from those subscriptions over the life of the related subscription.
      Beginning April 2004, certain users who purchased lifetime subscriptions in
      2003
      exchanged their lifetime subscriptions for free two-year subscriptions to a
      newer, enhanced version of the GuruNet product. The cash previously received
      from such users is being recognized as revenues over the new two-year
      subscription.




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Beginning
      January 2005, we no longer offered subscriptions to our consumer products and/or
      websites. Our business model for Answers.com is, since January 2005, primarily
      an advertising model. Generally, we do not contract directly with advertisers,
      but rather, obtain advertisements through the efforts of third parties that
      contract with advertisers seeking to advertise in their network of web sites,
      including our product. The third parties are obligated to pay us a portion
      of
      the revenue it earns from advertisers, as compensation for our sale of
      promotional space on our Internet properties. Amounts earned from such third
      parties are reflected as revenue on our statement of operations in the period
      in
      which such advertising services were provided.




***Accounting
      for Stock-based Compensation***




As
      of
      January 1, 2006, we adopted SFAS No. 123 (revised 2004),  *“Share-Based
      Payments”* (“SFAS
      123R”) using the modified prospective method, which requires measurement of
      compensation cost for all stock-based awards at fair value on date of grant
      and
      recognition of compensation over the service period for awards expected to
      vest.
      The estimation of stock awards that will ultimately vest requires judgment,
      and
      to the extent actual results differ from our estimates, such amounts will be
      recorded as a cumulative adjustment in the period estimates are revised. We
      consider various factors when estimating expected forfeitures, including
      historical experience. Actual results may differ substantially from these
      estimates.





With
      the
      exception of stock options granted to employees prior to May 12, 2004, the
      date
      of our first filing with the U.S. Securities and Exchange Commission in
      connection with our IPO, we determine the fair value of stock options (for
      disclosure purposes prior to January 1, 2006, and for accounting purposes
      beginning January 1, 2006) granted to employees and directors using the
      Black-Scholes valuation model, which considers the exercise price relative
      to
      the market value of the underlying stock, the expected stock price volatility,
      the risk-free interest rate and the dividend yield, and the estimated period
      of
      time option grants will be outstanding before they are ultimately exercised.
      We
      also determine the fair value of stock options and warrants granted to
      non-employees, for accounting purposes, using the Black-Scholes valuation model.
      Prior to our IPO, in October 2004, the market value of the underlying stock
      was
      based on estimates that are inherently highly uncertain and subjective.
      Additionally, since prior to our IPO there had been no public market for our
      stock, and as subsequent to our IPO we have not had sufficient history to
      actually predict our volatility, our assumptions about stock price volatility
      are based on the volatility rates of comparable publicly held companies. These
      rates may or may not reflect our actual stock price volatility. Had we made
      different assumptions about the market value of our stock, stock price
      volatility or the estimated time option and warrant grants will be outstanding
      before they are ultimately exercised, the related stock based compensation
      expense and our net loss and net loss per share amounts could have been
      significantly different, in the first quarter of 2006, as well as in periods
      prior to our adoption of SFAS 123R.




***Accounting
      For Income Taxes*** ******




As
      part
      of the process of preparing our consolidated financial statements, we are
      required to estimate our income taxes in each of the jurisdictions in which
      we
      operate. This process involves management estimating our actual current tax
      exposure together with assessing temporary differences resulting from differing
      treatment of items for tax and accounting purposes. These differences result
      in
      deferred tax assets and liabilities, which are included within our consolidated
      balance sheet. We must then assess the likelihood that our deferred tax assets
      will be recovered from future taxable income and, to the extent we believe
      that
      recovery is not likely, we must establish a valuation allowance. To the extent
      we establish a valuation allowance or increase this allowance in a period,
      we
      must include an expense within the tax item in the statement of operations.
      Significant management judgment is required in determining our provision for
      income taxes, our deferred tax assets and liabilities and any valuation
      allowance recorded against our net deferred tax assets. We have fully offset
      our
      US deferred tax asset with a valuation allowance. Our lack of earnings history
      and the uncertainty surrounding our ability to generate taxable income prior
      to
      the expiration of such deferred tax assets were the primary factors considered
      by management in establishing the valuation allowance. Deferred tax assets
      and
      liabilities in the financial statements result from the tax amounts that would
      result if our Israeli subsidiary distributed its retained earnings to us. This
      subsidiary is entitled to a tax holiday, as described above, yet continues
      to
      generate taxable income in respect of services provided to us, and therefore
      were the subsidiary to distribute its retained earnings to us, we believe that
      the deferred tax asset relating to the Israeli subsidiary would be realized.
      In
      the event that our subsidiary’s products would not generate such taxable income,
      we would need to write off the deferred tax asset as an expense in the statement
      of operations. It should be noted that as the income is derived from us, it
      is
      eliminated upon consolidation.




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**Recently
      Issued Accounting Pronouncements**




***SFAS
      123R - Share-Based Payments***




In
      December 2004, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based
      Payments” (SFAS 123R). SFAS 123R requires entities to measure the cost of
      employee and director services received in exchange for an award of equity
      instruments based on the grant-date fair value of the award and recognize the
      cost over the period during which an employee is required to provide service
      in
      exchange for the award. SFAS 123R does not change the accounting guidance for
      share-based payment transactions with parties other than employees and
      directors, provided in SFAS 123 as originally issued and EITF Issue No. 96-18,
      “Accounting for Equity Instruments That Are Issued to Other Than Employees for
      Acquiring, or in Conjunction with Selling, Goods or Services”. We were required
      to implement SFAS 123R as of the beginning of the first interim or annual
      reporting period that begins after December 15, 2005.




As
      of
      January 1, 2006, we adopted SFAS 123R using the modified prospective method,
      thus there was no impact on the prior period financial statements. Under this
      method, we began recognizing compensation cost for new awards and to awards
      modified, repurchased or cancelled, based on the SFAS 123R fair value model,
      after January 1, 2006. Furthermore, we will recognize cost for unvested
      share-based awards as of January 1, 2006 based on the grant date fair value
      of
      those awards, adjusted for estimated forfeitures, if any, as previously
      calculated and reported for proforma disclosure purposes.




The
      total
      fair value of stock options vested during the three months ending March 31,
      2006, which amounts to $408 thousand, net of estimated forfeitures of $3
      thousand, was recorded as stock-based compensation expense. Had we accounted
      for
      stock-based awards to employees and directors under the intrinsic value method
      of APB 25, the method used in periods prior to January 1, 2006, the stock-based
      compensation expenses would have amounted to $4 thousand.





As
      of
      March 31, 2006, there was $5,562 thousand of unrecognized compensation cost,
      net
      of estimated forfeitures of $9 thousand, related to non-vested stock options
      granted under our various stock option plans. That cost is expected to be
      recognized as follows:





Year
                ending December 31
            
            $
                (in thousands)2006
            
            
            1,2782007
            
            
            1,6832008
            
            
            1,6402009
            
            
            9182010
            
            
            435,562





**Liquidity
      and Capital Resources**




Our
      principal sources of liquidity are our cash and cash equivalents, and investment
      securities that we raised through various financing events that took place
      in
      2004 and 2005, and to a lesser extent, cash inflows from revenues. In October
      2004, we raised approximately $10.8 million, net of underwriting fees and
      offering expenses, through our IPO and the exercise of the over-allotment
      option. After repaying the portion of bridge notes that did not convert to
      common shares, of $3,160,000, approximately $7.6 million remained. In 2005,
      we
      raised approximately $15.4 million from the exercise of warrants and options.
      We
      have incurred negative cash flow from operations since our inception. We have
      spent, and expect to continue to spend, substantial amounts in connection with
      implementing our business strategy.




Cash
      flows for the three months ended March 31, 2006 and 2005 were as follows (in
      thousands):




**March
                  31, 2006**
              
              **March
                  31, 2005**Net
                  cash used in operating activities
              
              $
              (883
              )
              $
              (964
              )Net
                  cash provided by (used in) investing activities
              
              $
              706
              
              $
              (11,075
              )Net
                  cash provided by financing activities
              
              $
              98
              
              $
              13,525






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Despite
      a
      net loss of $3,480 thousand in the first quarter of 2006, our net cash used
      in
      operations was $883 thousand. The primary reason for the large difference is
      that $408 thousand of our operating expenses were the result of non-cash,
      stock-based compensation to employees and directors, and approximately $2.1
      million of our operating expenses were the result of non-cash, stock-based
      compensation that resulted from the Brainboost transaction (see Research and
      Development discussion above for further details). In the first quarter of
      2005,
      despite a net loss of $1,505 thousand, our net cash used in operations was
      $964
      thousand. The primary reasons for the difference is that $386 thousand of our
      operating expenses were the result of non-cash, stock-based compensation, and
      various changes in our operating assets and liabilities.




Net
      cash
      provided by and used in investing activities in the first quarters of 2006
      and
      2005, respectively, is attributable primarily to purchases of investment
      securities less the proceeds from the sale of investment securities, as
      delineated in our Interim Consolidated Statement of Cash Flows. Investment
      securities consist mostly of investments in auction rate, investment grade,
      corporate and municipal debt instruments, and auction rate preferred shares
      of
      closed-end investment funds that invest in long-term fixed income securities,
      with auction reset periods of 28 days, classified as available-for-sale
      securities and stated at fair value.




Cash
      flow
      from financing activities during the first quarters of 2006 and 2005 relates
      to
      the net proceeds from the exercise of stock warrants and stock options.




On
      December 1, 2005, we acquired Brainboost Technology, LLC for $4 million in
      cash
      and 439,000 shares of common stock. The stock component of the consideration
      is subject
      to a Registration Rights Agreement pursuant to which we agreed to file a
      registration statement to register such stock component with the Securities
      and
      Exchange Commission within 75 days following December 1, 2005. Pursuant to
      the
      Registration Rights Agreement, we agreed to use our reasonable best efforts
      to
      cause the registration statement to be declared effective under the Securities
      Act of 1933 as promptly as possible after the filing thereof, but in any event
      not later than April 1, 2006. We further agreed that if our registration
      statement is not effective by April 1, 2006, we must pay the sellers a penalty
      of $100,000 per month, pro rated per day. As of the date of this quarterly
      report, the Securities and Exchange Commission is still reviewing our
      registration statement and its amendments and the registration statement has
      yet
      to be declared effective. As of May 11, 2006, the Company owes the Seller
      approximately $135,000 in penalty payments.




As part of
      the acquisition, we granted the sellers certain price protection rights. We
      agreed that in the event that the average closing price of our common stock
      for
      the 20 consecutive trading days (“Average Closing Price”) immediately preceding
      December 1, 2006 is less than $10.2575, at our option we will either repurchase
      the common stock held by the sellers at such date for $10.2575 per share or
      pay
      the sellers the difference between $10.2575 per share and the Average Closing
      Price for shares they are still holding (the “Brainboost Price Protection”). The
      Brainboost Price Protection is subject to cancellation at the cumulative
      occurrence of certain conditions relating to the market price of our common
      stock and other factors that have not yet transpired, and may never transpire.
      In the event that the Average Closing Price of our common stock is below
      $10.2575 on December 1, 2006, the Brainboost Price Protection is not cancelled,
      and the sellers have not sold a significant amount of the common stock issued
      to
      them, we may be obligated to pay the sellers a significant amount of additional
      cash.




Even
      if
      there is a significant decrease in our stock price, we believe we have
      sufficient cash to pay the sellers of Brainboost, LLC the amount owed to them
      as
      described above, and meet our planned operating needs for the next twelve
      months. Notwithstanding, our business strategy includes growth
      through business combinations and licensing or acquiring products and
      technologies complementary to our business, which could require use of a
      significant amount of our available cash.  We may therefore need to
      raise additional capital through future debt or equity financing to finance
      such
      initiatives and to finance growth.  We cannot be certain that
      additional financing will be available on acceptable terms, or at
      all.  To the extent that we raise additional funds by issuing equity
      securities, our stockholders may experience significant dilution.




**Off-Balance
      Sheet Arrangements**




Except
      for the Brainboost Price Protection discussed immediately above, we have not
      entered into any transactions with unconsolidated entities in which we have
      financial guarantees, subordinated retained interests, derivative instruments
      or
      other contingent arrangements that expose us to material continuing risks,
      contingent liabilities or any other obligations under a variable interest in
      an
      unconsolidated entity that provides us with financing, liquidity, market risk
      or
      credit risk support.




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**Contractual
      Obligations and Commitments**




As
      of
      March 31, 2006, we had the following known contractual obligations and
      commitments:









$
                (in thousands)Year
                Ending December 31
            
            Purchase
              Contracts
            
            Operating
              Leases
            
            Total2006
            
            
            273
            
            
            368
            
            
            6412007
            
            
            195
            
            
            491
            
            
            6862008
            
            
            67
            
            
            347
            
            
            4142009
            
            
            —
            
            
            316
            
            
            3162010
            
            
            —
            
            
            207
            
            
            207Total
            
            $
            535
            
            $
            1,729
            
            $
            2,264




**Other
      Commitments**




In
      the
      ordinary course of business, we may provide indemnifications of varying scope
      and terms to customers, vendors, lessors, business partners and other parties
      with respect to certain matters, including, but not limited to, losses arising
      out of our breach of such agreements, services to be provided by us, or from
      intellectual property infringement claims made by third parties. In addition,
      we
      have entered into indemnification agreements with our directors, officers and
      certain employees that will require us, among other things, to indemnify them
      against certain liabilities that may arise by reason of their status or service
      to us. We maintain director and officer insurance, which may cover certain
      liabilities arising from our obligation to indemnify our directors, officers
      and
      certain employees.




It
      is not
      possible to determine the maximum potential amount under these indemnification
      agreements due to the limited history of prior indemnification claims and the
      unique facts and circumstances involved in each particular agreement. Such
      indemnification agreements may not be subject to maximum loss clauses. To date,
      we have not incurred costs as a result of obligations under these agreements
      and
      we have not accrued any liabilities related to such indemnification obligations
      in our financial statements.




ITEM
      3. CONTROLS AND PROCEDURES




Our
      Chief
      Executive Officer and Chief Financial Officer, based on evaluation of our
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      of the Securities Exchange Act of 1934, as amended) required by paragraph (b)
      of
      Rule 13a-15 or Rule 15d-15, as of March 31, 2006, have concluded that our
      disclosure controls and procedures were effective in ensuring that information
      required to be disclosed by us in the reports that we file or submit under
      the
      Exchange Act is recorded, processed, summarized and reported within the time
      periods specified in the Commission’s rules and forms. Our Chief
      Executive Officer and Chief Financial Officer also concluded that, as of
      March 31, 2006, our disclosure controls and procedures are effective in ensuring
      that information required to be disclosed by us in the reports that we file
      or
      submit under the Exchange Act is accumulated and communicated to our management,
      including our Chief Executive Officer and Chief Financial Officer, to allow
      timely decisions regarding required disclosure.





We
      believe that a controls system, no matter how well designed and operated, is
      based in part upon certain assumptions about the likelihood of future events,
      and therefore can only provide, reasonable, not absolute, assurance that the
      objectives of the controls system are met, and no evaluation of controls can
      provide absolute assurance that all control issues and instances of fraud,
      if
      any, within a company have been detected.




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There
      were no changes in our internal controls over financial reporting that occurred
      during the quarter ended March 31, 2006 that materially affected or are
      reasonably likely to materially affect our internal controls over financial
      reporting.





**PART
      II. OTHER INFORMATION**





ITEM
      1. LEGAL PROCEEDINGS




*Steven
      Tover Litigation*




On
      July
      14, 2005, Mr. Steven Tover (“Tover”), former Vice President, Business
      Development & Sales of the Company, filed a statement of claim with the
      Regional Labor Court in Jerusalem, Israel (the “Court”), against (i) us, (ii)
      our Israeli subsidiary, GuruNet Israel Ltd., (iii) Mr. Robert Rosenschein (our
      CEO and Chairman of the Board), and (iv) Mr. Steven Steinberg (our CFO) in
      the
      amount of approximately US$50,000, for deferred salary, severance pay and
      allegedly unpaid commissions. Tover’s action further claimed that he is entitled
      to certain additional and future commissions pursuant to various business
      transactions and to exercise stock options granted to him, which, according
      to
      us, have expired at the close of fiscal year 2004. The stock options discussed
      in Tover’s claim consist of 43,441 options to purchase such number of our shares
      of common stock, with an exercise price of $2.76 per share.




On
      September 28, 2005 the Court accepted the named defendants’ motion and ordered
      Tover to re-file his statement of claim, for lack of facts substantiating his
      claims and for lack of clarity in describing the damages sought. On December
      6,
      2005 Tover filed his amended statement of claim, in which he raised the amount
      of damages sought to $70,000, in addition to aforementioned declaratory redress
      pertaining to future commissions and stock options. The named defendants
      completely reject the validity of Tover’s claims and on February 1, 2006, filed
      a joint statement of defense together with a motion to dismiss the amended
      statement of claim on the grounds that Tover did not pay the full Court fees
      and
      for lack of cause.




Following
      a pre-trial hearing that took place on March 5, 2006, the Court recommended
      that
      the litigants explore the possibility of resolving the dispute through mediation
      and we are currently in the process of commencing the mediation proceedings.
      We
      estimate that the probability of Tover prevailing in the Claim is low, although
      we cannot guarantee how any court will rule on a given matter.




*Babylon
      Litigation*





On
      March
      8, 2006, we submitted a statement of claim with the Tel-Aviv District Court
      against Babylon Ltd., for infringement of Israel Patent Number 121,457. The
      remedies that we seek are damages in the sum of NIS 1,000,000 (approximately
      $210,000), an accounting and an injunction. Babylon Ltd. has not yet filed
      its
      statement of defense. We estimate that the chances of success are reasonable,
      although we cannot guarantee how any court will rule on a given
      matter.




ITEM
      2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS





Not
      applicable




ITEM
      3. DEFAULTS UPON SENIOR SECURITIES




Not
      applicable.




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





Not
      Applicable




ITEM
      5. OTHER INFORMATION





Not
      applicable.




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ITEM
      6. EXHIBITS





31.1
            Certification
                of Principal Executive Officer required under Rule 13a-14(a) or Rule
                15d-14(a) of the Securities and Exchange Act of 1934, as
                amended.





31.2
            Certification
                of Principal Financial Officer required under Rule 13a-14(a) or Rule
                15d-14(a) of the Securities and Exchange Act of 1934, as
                amended.





32*
            Certification
                  of Principal Executive Officer and Principal Financial Officer
                  required
                  under Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange
                  Act
                  of 1934, as amended, and 18 U.S.C. Section
                  1350.






*
            The
                certifications attached as Exhibit 32 accompany this Quarterly Report
                on Form 10-QSB pursuant to Section 906 of the Sarbanes-Oxley Act
                of 2002 and shall not be deemed "filed" by Answers Corporation for
                purposes of Section 18 of the Securities Exchange Act of 1934, as
                amended.







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SIGNATURES





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.





ANSWERS
      CORPORATION


Date:
      May
      12, 2006


/s/
      Robert S. Rosenschein


Robert
      S.
      Rosenschein


Chief
      Executive Officer


(Principal
      Executive Officer)




/s/
      Steven Steinberg


Steven
      Steinberg


Chief
      Financial Officer


(Principal
      Financial and Accounting Officer)




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EXHIBIT
      INDEX




31.1
            Certification
                of Principal Executive Officer required under Rule 13a-14(a) or Rule
                15d-14(a) of the Securities and Exchange Act of 1934, as
                amended.





31.2
            Certification
                of Principal Financial Officer required under Rule 13a-14(a) or Rule
                15d-14(a) of the Securities and Exchange Act of 1934, as
                amended.





32*
            Certification
                of Principal Executive Officer and Principal Financial Officer required
                under Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange
                Act
                of 1934, as amended, and 18 U.S.C. Section
                1350.






*
            The
                certifications attached as Exhibit 32 accompany this Quarterly Report
                on Form 10-QSB pursuant to Section 906 of the Sarbanes-Oxley Act
                of 2002 and shall not be deemed "filed" by Answers Corporation for
                purposes of Section 18 of the Securities Exchange Act of 1934, as
                amended.