*Table
            of Contents*





**UNITED
      STATES OF AMERICA**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**




**FORM
      10-Q**




**(Mark
      One)**




**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                EXCHANGE ACT OF 1934**




**FOR
      THE QUARTERLY PERIOD ENDED: MARCH 31, 2007**




**o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                EXCHANGE ACT OF 1934**




**For
      the transition period from ___ to ____**




**Commission
      File Number: 001-32325**




**ANSWERS
        CORPORATION**


(Exact
      name of Registrant as specified in its charter)





**Delaware**
            98-0202855(State
                or Other Jurisdiction of Incorporation or Organization)
            (I.R.S.
                Employer Identification No.)**237
                West 35****th****Street, Suite 1101, New York, New York**
            **10001**(Address
                of principal executive offices)
            (Zip
                Code)**(646)
                502-4777**(Registrant’s
                telephone number)(Former
                Name, Former Address and Former Fiscal Year, if changed since last
                report)






Indicate
      by check mark 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 x No o




Indicate
      by check mark whether the Registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
      (Check one):




Large
      accelerated Filer o Accelerated
      filer o Non-accelerated
      filer x




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




Yes o No x




The
      number of the registrant’s shares of common stock outstanding was 7,853,590 as
      of May 11, 2007.





*Table
        of Contents*




**ANSWERS
      CORPORATION**




**FORM
      10-Q**




**CONTENTS**




**PART I
—
FINANCIAL
                  INFORMATION**
  Item
                    1.
                Consolidated
                    Financial Statements(unaudited)
                4Consolidated
                    Balance Sheets as of March 31, 2007 (unaudited)
                    and December 31, 2006
                4Consolidated
                    Statements of Operations for the three months ended March 31,
                    2007 and2006
                    (unaudited)
                5Consolidated
                    Statements of Cash Flows for the three months
                    ended March 31, 2007 and 2006 (unaudited)
                6Notes
                    to Unaudited Consolidated Financial
                    Statements
                7Item
                    2.
                Management’s
                    Discussion and Analysis of Financial Condition
                    and Results of Operations
                12Item
                    3.
                Quantitative
                    and Qualitative Disclosures About Market
                    Risk
                20Item
                    4.
                Controls
                    and Procedures
                20
  **PART II
—
OTHER
                  INFORMATION**
  Item
                    1.
                Legal
                    Proceedings
                21Item
                    1A.
                Risk
                    Factors
                21Item
                    6.
                Exhibits
                21Signatures
                
                22
 
 -2-
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              of Contents*
  **INTRODUCTORY
        NOTE**




**This
      Report on Form 10-Q for Answers Corporation (“Answers” or the “Company”)
      may contain forward-looking statements. You can identify these statements
      by forward-looking words such as “may,” “will,” “expect,” “intend,”
“anticipate,” believe,” “estimate” and “continue” or similar words.
      Forward-looking statements include information concerning possible or assumed
      future business success or financial results. You should read statements that
      contain these words carefully because they discuss future expectations and
      plans, which contain projections of future results of operations or financial
      condition or state other forward-looking information.  We believe that it
      is important to communicate future expectations to investors. However, there
      may be events in the future that we are not able to accurately predict or
      control. Accordingly, we do not undertake any obligation to update any
      forward-looking statements for any reason, even if new information becomes
      available or other events occur in the future.**




**The
      forward-looking statements included herein are based on current expectations
      that involve a number of risks and uncertainties set forth under “Risk Factors”
in our Annual Report on Form 10-KSB for the year ended December 31,
      2007 and other periodic reports filed with the SEC. Accordingly, to the extent
      that this Report contains forward-looking statements regarding the financial
      condition, operating results, business prospects or any other aspect of the
      Company, please be advised that Answers' actual financial condition, operating
      results and business performance may differ materially from that projected
      or estimated by the Company in forward-looking statements.**


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**PART
      I - FINANCIAL INFORMATION**




**ITEM
      1.****CONSOLIDATED
      FINANCIAL STATEMENTS****(UNAUDITED)**




Answers
      Corporation and Subsidiary




**Consolidated
      Balance Sheets (unaudited, in thousands except share and
      per share data)**





**March
                31**
            
            **December
                31****2007**
            
            **2006****$**
            
            **$****Assets****Current
                assets:**Cash
                and cash equivalents
            
            
            **4,186**
            
            
            4,976Investment
                securities
            
            
            **4,787**
            
            
            4,102Accounts
                receivable
            
            
            **1,362**
            
            
            1,304Prepaid
                expenses and other current assets
            
            
            **657**
            
            
            416**Total
                current assets**
            
            
            **10,992**
            
            
            10,798**Long-term
                deposits (restricted)**
            
            
            **217**
            
            
            218**Deposits
                in respect of employee severance obligations**
            
            
            **921**
            
            
            856**Property
                and equipment, net**
            
            
            **1,162**
            
            
            998**Other
                assets:**Intangible
                assets, net
            
            
            **5,696**
            
            
            6,010Goodwill
            
            
            **437**
            
            
            437Prepaid
                expenses, long-term, and other assets
            
            
            **322**
            
            
            362**Total
                other assets**
            
            
            **6,455**
            
            
            6,809**Total
                assets**
            
            
            **19,747**
            
            
            19,679**Liabilities
                and stockholders' equity****Current
                liabilities:**Accounts
                payable
            
            
            **245**
            
            
            366Accrued
                expenses
            
            
            **879**
            
            
            805Accrued
                compensation
            
            
            **636**
            
            
            623Deferred
                revenues, short-term
            
            
            **24**
            
            
            465**Total
                current liabilities**
            
            
            **1,784**
            
            
            2,259**Long-term
                liabilities:**Liability
                in respect of employee severance obligations
            
            
            **1,006**
            
            
            828**Total
                long-term liabilities**
            
            
            **1,006**
            
            
            828**Commitments
                and contingencies****Stockholders'
                equity:**Preferred
                stock: $0.01 par value; 1,000,000 shares authorized, none
                issued
            
            
            **—**
            
            
            **—**Common
                stock; $0.001 par value; 30,000,000 shares authorized; 7,853,590
                and
                7,809,394
              shares
                issued and outstanding as of March 31, 2007 and December 31, 2006,
                respectively
            
            
            **8**
            
            
            8Additional
                paid-in capital
            
            
            **72,266**
            
            
            71,599Accumulated
                other comprehensive loss
            
            
            **(30**
            **)**
            
            (31
            )Accumulated
                deficit
            
            
            **(55,287**
            **)**
            
            (54,984
            )**Total
                stockholders' equity**
            
            
            **16,957**
            
            
            16,592**Total
                liabilities and stockholders' equity**
            
            
            **19,747**
            
            
            19,679


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


-4-
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Answers
      Corporation and Subsidiary





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





**Three
                months ended March 31****2007**
            
            **2006****$**
            
            **$****Revenues:**Advertising
                revenue
            
            
            **2,884**
            
            
            1,090Answers
                services licensing
            
            
            **77**
            
            
            53Subscriptions
            
            
            **425**
            
            
            11**3,386**
            
            
            1,154**Costs
                and expenses:**Cost
                of revenue
            
            
            **1,144**
            
            
            684Research
                and development
            
            
            **722**
            
            
            2,637Sales
                and marketing
            
            
            **982**
            
            
            642General
                and administrative
            
            
            **926**
            
            
            800**Total
                operating expenses**
            
            
            **3,774**
            
            
            4,763**Operating
                loss**
            
            
            **(388**
            **)**
            
            (3,609
            )Interest
                income, net
            
            
            **100**
            
            
            141Other
                expense, net
            
            
            **(15**
            **)**
            
            (3
            )**Loss
                before income taxes**
            
            
            **(303**
            **)**
            
            (3,471
            )Income
                taxes
            
            
            **—**
            
            
            (2
            )**Net
                loss**
            
            
            **(303**
            **)**
            
            (3,473
            )**Basic
                and diluted net loss per common share**
            
            
            **(0.04**
            **)**
            
            (0.47
            )**Weighted
                average shares used in computing basic and diluted**
              **net
                loss per common share**
            
            
            **7,826,584**
            
            
            7,432,817


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


-5-
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            of Contents*




Answers
      Corporation and Subsidiary




**Consolidated
      Statements of Cash Flows****(unaudited,
      in thousands)**





**Three
                months ended March 31****2007**
            
            **2006****$**
            
            **$****Cash
                flows from operating activities:****Net
                loss**
            
            
            **(303**
            **)**
            
            (3,473
            )**Adjustments
                to reconcile net loss to net cash used in operating
                activities:**Depreciation
                and amortization
            
            
            **448**
            
            
            284Deposits
                in respect of employee severance obligations
            
            
            **(62**
            **)**
            
            (19
            )Increase
                in liability in respect of employee severance obligations
            
            
            **179**
            
            
            61Deferred
                income taxes
            
            
            **—**
            
            
            2Stock-based
                compensation to employees and directors
            
            
            **525**
            
            
            408Stock-based
                compensation in connection with the Brainboost transaction
            
            
            **—**
            
            
            2,093Exchange
                rate losses
            
            
            **15**
            
            
            3**Changes
                in operating assets and liabilities:**Increase
                in accounts receivable and other current assets
            
            
            **(58**
            **)**
            
            (189
            )Increase
                in prepaid expenses and other current assets
            
            
            **(201**
            **)**
            
            (16
            )Decrease
                in accounts payable
            
            
            **(122**
            **)**
            
            (160
            )Increase
                in accrued expenses and other current liabilities
            
            
            **83**
            
            
            149Decrease
                in short-term deferred revenues
            
            
            **(441**
            **)**
            
            (20
            )Decrease
                in long-term deferred revenues
            
            
            **—**
            
            
            (6
            )**Net
                cash provided by (used in) operating activities**
            
            
            **63**
            
            
            (883
            )**Cash
                flows from investing activities:**Capital
                expenditures
            
            
            **(298**
            **)**
            
            (108
            )Capitalization
                of software development costs
            
            
            **—**
            
            
            (18
            )Purchase
                of intangible assets
            
            
            **—**
            
            
            (16
            )Increase
                in long-term deposits
            
            
            **1**
            
            
            (1
            )Purchases
                of investment securities
            
            
            **(3,203**
            **)**
            
            (6,519
            )Proceeds
                from sales of investment securities
            
            
            **2,517**
            
            
            7,368**Net
                cash provided by (used in) investing activities**
            
            
            **(983**
            **)**
            
            706**Cash
                flows from financing activities:**Exercise
                of common stock options
            
            
            **142**
            
            
            98**Net
                cash provided by financing activities**
            
            
            **142**
            
            
            98Effect
                of exchange rate changes on cash and cash equivalents
            
            
            **(12**
            **)**
            
            (2
            )**Net
                decrease in cash and cash equivalents**
            
            
            **(790**
            **)**
            
            (81
            )Cash
                and cash equivalents at beginning of period
            
            
            **4,976**
            
            
            2,840**Cash
                and cash equivalents at end of period**
            
            
            **4,186**
            
            
            2,759




**Supplemental
                disclosures of cash flow information:**Income
                taxes paid
            
            
            **1**
            
            
            2**Non-cash
                investing activities:**Unrealized
                net loss from securities
            
            
            **1**
            
            
            2


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


-6-
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          of Contents*




**ANSWERS
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**




**Note
      1** **- Business and Summary of Significant Accounting Policies**





**The
      Company**





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 Subsidiary”), primarily for the purpose of providing research and
      development services to the Parent. The Parent and its wholly owned Subsidiary
      are collectively referred to as “the Company.” The Company provides
      answer-based search services to users through its flagship Website, Answers.com,
      its Q&A platform, WikiAnswers.com, downloadable applications and
      co-brands.





**Basis
      of Presentation**





The
      accompanying consolidated financial statements include the accounts of Answers
      Corporation and its Subsidiary and are presented in accordance with accounting
      principles generally accepted in the United States. All significant intercompany
      balances and transactions have been eliminated in consolidation.





According
      to item 10 of Regulation S-B, commencing January 1, 2007, the Company is no
      longer considered a “small business issuer”.





The
      accompanying unaudited interim consolidated financial statements were prepared
      in accordance with the instructions for Form 10-Q 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, 2006. The results of operations for
      the
      three months ended March 31, 2007 are not necessarily indicative of the results
      that may be expected for the entire fiscal year or any other interim
      period.





**Use
      of Estimates**





The
      preparation of consolidated financial statements in conformity with generally
      accepted accounting principles in the United States of America requires
      management to make certain estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the consolidated financial statements and the
      reported results of operations during the reporting periods. Actual results
      could differ from those estimates.


-7-
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            of Contents*




**ANSWERS
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


**(UNAUDITED)**




**Note
      1 - Business and Summary of Significant Accounting Policies
      (cont’d)**





**Revenue
      Recognition**





The
      Company, through its Websites
      Answers.com and WikiAnswers.com and co-branded sub-domains of Answers.com,
      generates revenues via 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-per-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.





To
      date,
      the vast majority of the Company’s advertising revenue has been obtained through
      the efforts of third parties and has not been the result of direct contracts
      with advertisers. 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.





In
      2003,
      the Company sold lifetime subscriptions to its GuruNet product, which had no
      defined termination date. Cash received from such lifetime subscriptions was
      recorded as deferred revenues and amounted to $425,000 as of December 31, 2006.
      In February 2007, in accordance with the Company’s rights under the agreements
      it previously entered into with such lifetime subscribers, the Company
      terminated its GuruNet service and thereby extinguished its service obligation
      to such subscribers. Thus, the Company recognized the $425,000 previously
      deferred, as revenue in the first quarter of 2007.





**Recently
      Issued Accounting Standards**





In
      February 2007, the FASB issued SFAS No. 159, *“The
      Fair Value Option for Financial Assets and Financial Liabilities”* (SFAS
      159), which permits entities to choose to measure many financial instruments
      and
      certain other items at fair value that are not currently required to be measured
      at fair value. SFAS 159 will become effective on January 1, 2008. The Company
      is
      currently evaluating the impact of adopting SFAS 159 on its financial position,
      cash flows, and results of operations.


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            of Contents*




**ANSWERS
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


**(UNAUDITED)**




**Note
      2 - Stockholders’ Equity**





**General**





The
      following table summarizes the changes in the Company’s stockholders’ equity
      during the three-month
      period ending March 31, 2007:





**$
                (in thousands)****December
                31, 2006**
            
            
            **16,592**Exercise
                of stock options
            
            
            **142**Stock-based
                compensation
            
            
            **525**Other
                comprehensive income
            
            
            **1**Net
                loss for the period
            
            
            **(303**
            **)****March
                31, 2007**
            
            
            **16,957**





**Common
      Stock**





During
      the three months ended March 31, 2007, the Company issued a total of 44,196
      shares of common stock due to the exercise of 44,196 of the Company’s
      outstanding stock options, for a total consideration of approximately
      $142,000.





**Stock
      Warrants**





As
      of
      March 31, 2007 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 three months ended March 31,
      2007.





**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 2000 Stock Plan and the 2003 Stock Plan (collectively, the
      “Prior Option Plans”), the 2004 Stock Plan and the 2005 Incentive
      Com pensation
      Plan (the “2005 Plan”).





Under
      all
      of the Company’s 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 Company issues new shares upon
      share option exercises.





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, 2007, the Company granted a total of 286,600
      stock options to its employees and officers at an average exercise price of
      $11.67 per option. All such options were granted under the Company’s 2005 Plan.
      Additionally, during the same period, 17,000 stock options were
      forfeited.





As
      of
      March 31, 2007, 129,550 and 2,703 options were available for grant under the
      2005 Plan and the 2004 Stock Plan, respectively. All Prior Option Plans are
      closed for future grants.




The
      total
      fair value of stock options vested during the first quarter of 2007, amounted
      to
      $525 thousand and was recorded as stock-based compensation
      expense.


-9-
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            of Contents*




**ANSWERS
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


**(UNAUDITED)**




**Note
      3 - Commitments and Contingencies**





(a)
            Future
                minimum lease payments under operating leases for office space and
                cars,
                as of March 31, 2007, are as
                follows:





**Year
                ending December 31**
            
            **$
                (in thousands)**2007
                (nine months ending December 31)
            
            
            3812008
            
            
            4182009
            
            
            3632010
            
            
            2071,369





Rental
      expense for operating leases for the three months ended March 31, 2007 and
      2006
      was $122,000 and $108,000, respectively.







(b)
            All
                of the Subsidiary’s obligations to its bank, including the bank guarantee
                given to the Subsidiary’s landlord, are secured by a lien on all of the
                Subsidiary’s deposits at such bank. As of March 31, 2007, deposits at such
                bank amounted to $400,000, including a restricted long-term deposit
                of
                $95,000.





(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, 2007, the total future cash commitments under these
                arrangements amount to approximately
                $1,343,000.





(d)
            On
                November 2, 2006 (the “Closing Date”), the Parent acquired certain assets
                of Interesting.com, Inc. including the domain nameswww.faqfarm.comand www.wikianswers.com in exchange for $2,000,000 in cash (the
                “Acquisition Costs”). For the period commencing on the Closing Date and
                ending one year thereafter, the parties to the agreement have agreed
                to
                indemnify each other for damages resulting from any breach of their
                respective representations, warranties and covenants provided under
                the
                agreement.





(e)
            On
                July 14, 2005, a former marketing employee of the Company (“the
                Employee”), filed a statement of claim (“the Claim) with the Regional
                Labor Court in Jerusalem, Israel (“the Court”), against the Parent, the
                Subsidiary, the Parent’s Chief Executive Officer and its Chief Financial
                Officer, in the amount of approximately US$50,000, for deferred salary,
                severance pay and unpaid commissions, as well as 43,441 options to
                purchase such number of our shares of common stock, with an exercise
                price
                of $2.76 per share. The Company is currently in the process of negotiating
                a settlement with the Employee. The Company denies the Claim, but
                nonetheless has included a provision in its financial statements
                for an
                amount it believes is sufficient, based on consultation with its
                legal
                counsel.





-10-
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            of Contents*




**ANSWERS
      CORPORATION**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**


**(UNAUDITED)**




**Note
      4 - Income Tax**





(a)
            In
                June 2006, the FASB issued Interpretation No. 48,*"Accounting
                for Uncertainty in Income Taxes - An Interpretation of FASB Statement
                No.
                109"*(FIN 48). FIN 48 clarifies the accounting for uncertainties in income
                taxes recognized in a company's financial statements in accordance
                with
                SFAS No. 109,*"Accounting
                for Income Taxes”*.
                FIN 48 prescribes a recognition threshold and measurement attribute
                for
                the financial statement recognition and measurement of a tax position
                taken or expected to be taken in a tax return. The Company adopted
                the
                provisions of FIN 48 as of January 1, 2007. Interest and penalties
                related
                to unrecognized tax benefits are recognized as a component of income
                tax
                expense.





As
      of the
      adoption date, the Company had unrecognized tax benefits of approximately
      $180,000, including associated estimated interest and penalties which were
      not
      material, both of which did not change significantly during the three months
      ended March 31, 2007. Of such amount, approximately $90,000, if recognized,
      would impact the effective tax rate in 2007. We do not reasonably estimate
      that
      the unrecognized tax benefit will change significantly within the next twelve
      months.




The
      Parent or its Subsidiary files income tax returns in the U.S. federal
      jurisdiction, various state & local, and foreign jurisdictions. With the
      exception of one state jurisdiction, the Parent is no longer subject to U.S.
      federal, state and local income tax examinations by tax authorities for years
      prior to 2003, whereas the Subsidiary is no longer subject to foreign
      examinations by its tax authority for years prior to 2004. The New York State
      Department of Taxation and Finance commenced an examination of the Company’s New
      York State income tax returns for 2003 through 2005 but has not yet notified
      the
      Company of any proposed adjustments. While we cannot predict or provide
      assurance as to the final outcome of these proceedings, we do not expect the
      ultimate liability to have a material adverse effect on our consolidated
      financial position, results of operations or cash flows.





(b)
            The
                2006 financial statements as previously presented by the Company
                in
                reports and SEC filings, have been modified to account for an immaterial
                error in the income tax expense in the Consolidated Statements of
                Operations and deferred taxes on the Consolidated Balance Sheets
                involving
                an over-accrual of deferred income taxes relating to the Subsidiary’s
                accumulated earnings, as a result of applying the distributed tax
                rate as
                opposed to the undistributed tax
                rate.




**Note
      5 - Major Customer**





During
      the first three months of 2007, practically all of the Company's advertising
      revenue was generated through the efforts of third party suppliers (the
“Monetization Partners”). Additionally, during the three months ending March 31,
      2007, the Company earned approximately 66% of its advertising revenue through
      one of its Monetization Partners.


-11-
 *Table
            of Contents*




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




*The
      following discussion should be read in conjunction with our consolidated
      financial statements and other financial information appearing elsewhere in
      this
      Quarterly Report. In addition to historical information, the following
      discussion and other parts of this quarterly report contain forward-looking
      information that involves risks and uncertainties, including the risks referred
      to in Item 1A of Part II in this quarterly report.* ** *Our
      actual results may differ materially from those anticipated in such
      forward-looking statements.*





**Overview**





Our
      flagship Web property, launched in January 2005, Answers.com TM ,
      is an
      online answer-based information portal that provides users with answers covering
      millions of topics. At our core, we are an aggregator and publisher of rich
      content spanning such categories as health, finance, entertainment, business
      and
      much more. Our technology aggregates and presents targeted information from
      disparate sources and delivers results to users’ queries in a single
      consolidated view - a unified snapshot of content from a multitude of sources.
      Our topic library contains over 180 reference titles, many 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 an instant, pop-up AnswerTip information bubble. Our common stock is listed
      on the Nasdaq Global Market under the symbol "ANSW".





Prior
      to
      January 2005, we sold subscriptions to our reference-based product, GuruNet.
      Since the launch of Answers.com in January 2005, we have ceased offering new
      subscriptions to GuruNet and as of February 2007, we terminated the GuruNet
      service.





In
      addition to Answers.com, we own and operate WikiAnswers TM (accessible at www.wikianswers.com ),
      a Web
      property designed to serve a community of people asking and collaboratively
      improving answers to everyday questions. WikiAnswers, formerly known as FAQ
      Farm, was acquired in November 2006.





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





Our
      revenue is primarily driven by the query traffic generated by Answers.com and
      our ability to effectively monetize that traffic. Our current Answers.com
      traffic originates primarily from:





·
            *Search
                engines*(most of which is currently provided by Google): When our pages rank
                very
                high in the search engines’ algorithmic systems, Answers.com results are
                more likely to be accessed by
                users;




·
            *Google’s
                definition link*:
                Our informal, non-contractual relationship, pursuant to which Google
                currently links to our pages for definitions based on a list of trigger
                words we have provided Google; and




·
            *Answers.com
                direct users*:
                Users visiting our site directly via “1-Click Answers” or AnswerTips.





Our
      primary revenue model for Answers.com traffic is based on advertising. 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
      pay-per-impression advertising, whereby revenues are derived from the display
      of
      ads (e.g., graphic display ads). Prior to the fourth quarter of 2006, it was
      generally our practice not to contract directly with advertisers, but rather,
      to
      obtain advertisements through the efforts of third parties that contract with
      advertisers seeking to advertise in their network of Web sites, including our
      Web sites. 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 sites. In the latter half of 2006 we began developing direct ad sales
      capabilities within our organization, and we began seeing some direct ad revenue
      in the fourth quarter of 2006. We expect direct ad revenue to become a greater
      part of our overall revenue in the second half of 2007.




Since
      a
      great deal of our traffic originates from search engines, we expend considerable
      resources on improving and optimizing the volume of this traffic. The industry
      commonly refers to such efforts as "Search Engine Optimization," or "SEO."
      Answers.com is presently an SEO-intensive Web property, as most of its traffic
      originates from search engine search results. We also continuously invest in
      improving our visitors’ user experience. This leads potentially to increased
      pages per visit ("stickiness") and improved return visits ("user-retention").
      Finally, we approach third-party sites and incentivize them for traffic they
      send to Answers.com or co-branded sub-domains of Answers.com. The fees we pay
      to
      such partners are calculated based upon a percentage of the revenue we earn
      from
      such traffic.





We
      also
      earn revenues from partners that pay us for providing them with our answer-based
      services that they then use in their own products, via co-branded Web pages.
      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.


-12-
 *Table
            of Contents*




*Acquisition
      of WikiAnswers (formerly FAQ Farm) and Related Assets*





On
      November 2, 2006, we entered into a purchase agreement with Interesting.com,
      Inc. (the “Seller”) and Chris Whitten, the sole shareholder of the Seller,
      pursuant to which we acquired from the Seller for an aggregate of $2,000,000
      in
      cash, the domain name and Web property known as www.faqfarm.com and www.wikianswers.com ,
      a
      questions and answers Website collaboratively written and edited by its
      community of users. As part of the acquisition, we also purchased certain other
      assets, including, software utilized for the operation of the Website, other
      domain names, certain trade names, trademarks and other related intellectual
      property rights, certain databases of questions and answers accumulated to
      date
      by the Website and the goodwill associated with the Website. Since the
      acquisition, we have re-branded the product's name to WikiAnswers, and the
      site
      is presently available at wikianswers.com .
      This
      Web property will be referred to as "WikiAnswers" in the remainder of this
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations.





**Results
      of Operations**





**Revenues**





Revenues
      in the first quarter of 2007 increased by $2,232 thousand, or 193%, compared
      to
      the same period in 2006. The table below sets forth the composite details of
      our
      revenues for these periods (in thousands):





**Three
                Months Ended****March
                31, 2007**
            
            **March
                31, 2006**Advertising
                Revenue
            
            $
            2,884
            
            $
            1,090Answers
                Services Licensing
            
            
            77
            
            
            53Subscriptions
            
            
            425
            
            
            11**$**
            **3,386**
            
            **$**
            **1,154**




*Advertising
      Revenues and Monetization*





Our
      advertising revenue is a function of various factors, the most basic of which
      is
      the level of our traffic or queries on our Web properties, answers.com and
      wikianswers.com, 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.





Naturally,
      we are interested in causing users to experience longer visits and perform
      more
      queries once they discover our sites. This is what we refer to as increasing
      "stickiness." Additionally, our objective is to satisfy our users and increase
      their brand awareness so as to cause them to access our sites directly and
      become loyal, regular users. This is what we refer to as "user-retention."
      Our
      efforts and resources invested in increasing stickiness and user-retention
      are
      manifested by our constant and continuous development of our sites via new
      features, enhanced user interface and newly added content.




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
            
            $
            4.67Q-2
                2006
            
            
            2,690,000
            
            $
            1,457
            
            $
            5.95Q-3
                2006
            
            
            3,020,000
            
            $
            1,810
            
            $
            6.48Q-4
                2006
            
            
            3,850,000
            
            $
            2,400
            
            $
            6.77Q-1
                2007
            
            
            4,860,000
            
            $
            2,768
            
            $
            6.32





-13-
 *Table
          of Contents*




In
      2005
      and 2006, our Answers.com RPM rose each quarter due to the implementation of
      various optimization methods, including, changes to Answers.com's design,
      changes of color, background, placement and number of textual ads displayed
      on
      our Answers.com web pages, increasing the size and number of display ads per
      page, adding or switching Monetization Partners, increases in the revenue-share
      percentage offered by Monetization Partners, the types of ads we introduced,
      the
      type of content displayed and the introduction of direct ad sales toward the
      end
      of 2006. In the first quarter of 2007 we experienced a decline in our
      Answers.com RPM, as compared to the fourth quarter of 2006, our first
      Answers.com RPM decline since we launched Answers.com. The decline was primarily
      the result of the slow start of our direct ad sales efforts. In the fourth
      quarter of 2006, we had one very large advertising campaign that generated
      approximately $240,000 of our total direct ad sales revenue of $291,000. In
      the
      first quarter of 2007, our total direct ad sales revenue amounted to only
      $94,000, and was comprised of many small and moderately sized campaigns. The
      lack of a very large campaign in the first quarter of 2007 of the magnitude
      of
      the one we had in the fourth quarter of 2006 is the primary reason for the
      decline in Answers.com RPM. While we plan to continue focusing on optimizing
      our
      monetization, utilizing and expanding on many of the techniques we’ve used in
      the past, we believe that the primary factor that will improve our Answers.com
      RPMs is selling ads directly through our own sales force alongside the continued
      use of Monetization Partners. Absent growth in direct ad sales revenue, our
      Answers.com RPMs will fluctuate somewhat around current levels. In the second
      quarter of 2007 we plan on adding three new ad salespersons to our team, in
      addition to the one person who is now selling ads. Thus, we expect direct ad
      sales to grow a small amount in the second quarter of 2007, as compared to
      this
      quarter, and more significantly in the third and fourth quarters of 2007. As
      our
      ad sales grow and become a more significant part of our revenue, we expect
      to
      see growth in our Answers.com RPM.




While
      we
      earn advertising revenue from various Monetization Partners, two of the
      providers, Google and Shopping.com, accounted for approximately 60% and 9%,
      respectively, of our total revenue, in the first quarter of 2007 and 66% 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 Answers.com.
      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 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. Nevertheless,
      the
      loss of Google as a Monetization Partner would have an adverse impact on our
      financial condition, as we may not succeed in receiving terms and ad services
      as
      favorable as those provided under our agreement with Google .





Advertising
      revenues in the first quarter of 2007 include $116 thousand generated from
      WikiAnswers, representing 4% of the quarter’s advertising revenue. Going
      forward, we expect that WikiAnswers will comprise a larger percentage of our
      advertising revenue.





Approximately
      $49 thousand and $26 thousand of the advertising revenues generated during
      the
      first quarters of 2007 and 2006, respectively, resulted from traffic that
      partners, such as Mozilla Corporation, the owner of the Mozilla Firefox Web
      property, sent us. We incurred fees to those partners of approximately $22
      thousand and $12 thousand, for such traffic, during the first quarters of 2007
      and 2006, respectively. Such amount is reflected in cost of revenue sold, and
      we
      refer to this as traffic acquisition costs.





*Subscription
      Revenue*





Prior
      to
      December 2003, we sold lifetime subscriptions to GuruNet, generally for
      approximately $40. In December 2003, we altered our pricing model and moved
      to a
      fixed-term subscription model, generally, for $30 per year. We have not sold
      subscriptions since January 2005.





Subscription
      revenue in the first quarter of 2006 relates to fixed-term subscriptions we
      sold
      prior to January 2005, as we recognized the revenue from fixed term
      subscriptions over the lives of such subscriptions. Prior to the first quarter
      of 2007, we did not recognize any revenue from the lifetime subscriptions we
      previously sold since such subscriptions had no defined term. As of December
      31,
      2006, such deferred subscription revenue amounted to $425 thousand. On February
      2, 2007, in accordance with our rights under the agreements we entered into
      with
      such subscribers, we terminated the GuruNet service and
      thereby extinguished our service obligation to such subscribers;
      thus, we recognized the entire $425 thousand previously deferred, as revenue,
      in
      the first quarter of 2007.





***Cost
      of Revenue***





Cost
      of
      revenue is comprised almost entirely of fees to third party providers of
      content, Web search service fees, ad serving 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 or co-branded sub-domains of Answers.com), as well
      as
      the salaries, benefits, travel and overhead costs relating to personnel who
      are
      responsible for content editing and integration, production operations and
      customer support.  -14-
 *Table
            of Contents*




Cost
      of
      revenue in the first quarter of 2007 was $1,144 thousand compared to $684
      thousand during the same period in 2006, a net increase of $460 thousand or
      67%.
      The increase in costs was due mostly to increases in compensation costs of
      $79
      thousand as a result of staffing additions in our production operations, and
      content departments, and March 2007 salary increases; increases in data center
      costs (including depreciation of information technology assets) required to
      manage more internet traffic of $160 thousand; and increases in content
      licensing costs of $92 thousand. Additionally, in the first quarter of 2007
      we
      incurred $57 thousand in ad serving service costs, and $32 thousand of
      amortization relating to wikianswers intangible assets we purchased in November
      2006, costs we did not have in the first quarter of 2006. We began using
      third-party ad serving services in June 2006, to assist us in managing the
      multiple monetization partners, we now utilize, and to support our direct ad
      sales operations, thus we had no similar third-party ad serving costs during
      the
      first quarter of 2006.





***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
      almost all of our research and development expenses. Our research and
      development team works mostly on projects related to user interface
      improvements, enhanced product functionality, disambiguation, scalability,
      performance and other development related to increasing traffic, monetization
      and site retention.





Research
      and development expenses in the first quarter of 2007 was $722 thousand compared
      to $2,637 thousand in the same quarter in 2006, a net decrease of $1,915
      thousand or 73%. The net decrease is due, primarily, to compensation charges
      resulting from the acquisition of Brainboost Technology, LLC, discussed below,
      that amounted to $2,093 thousand in the first quarter of 2006, but did not
      recur
      in the first quarter of 2007. The aforesaid decrease was partially offset by
      increases in compensation-related expenses, of approximately $115 thousand,
      due
      to growth in our research and development team and March 2007 salary increases.





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. Under the terms
      of
      the Brainboost purchase, 50% and 25% of the shares of the aforesaid restricted
      stock were held in escrow for 3 and 6 months after the purchase date,
      respectively, and release from escrow was contingent upon our continued
      employment of one of the principals of the general partnership that formerly
      owned Brainboost Technology, LLC, an expert in artificial intelligence and
      natural language search technology, thus such escrowed shares were deemed to
      be
      compensation for services to be performed by the said principal of the seller
      over the six-month period ending May 31, 2006. Because the escrow criteria
      were
      met, such shares were released from escrow, as scheduled, on March 1, 2006
      and
      June 1, 2006. The value of such shares, of approximately $4.2 million, was
      charged to compensation expense, on a straight-line basis, over the requisite
      six-month employment commitment period, thus resulting in $2,093 thousand of
      compensation expense in the first quarter of 2006.




***Sales
      and Marketing Expenses***





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





Sales
      and
      marketing expense in the first quarter of 2007 was $982 thousand compared to
      $642 thousand during the same period in 2006, a net increase of $340 thousand
      or
      53%. The net increase is due to a number of factors. Compensation-related
      expenses, rose $304 thousand, from $455 thousand to $759 thousand, primarily
      due
      to growth in our sales and marketing team, including the hiring of a Vice
      President of Ad Sales, an ad sales manager and a business development manager.
      Overhead rose $34 thousand and we incurred $54 thousand of expenses relating
      to
      internet and marketing metrics software and information services (i.e.
      third-party services such as ComScore and Web Side Story) in the first quarter
      of 2007, expenses we did not incur during the same period in 2006. The
      aforementioned increases were offset, to some extent, by decreases in
      advertising and promotion expenses of approximately $89 thousand. We have found
      that spending large amounts of money on traditional advertising activities
      is
      not generally cost effective. Since we obtain so much of our traffic from search
      engines, we in effect have hundreds of thousands of visitors coming to our
      site
      each day, at no direct cost to us. Our limited advertising and promotional
      activities are focused on public relations and reaching “influencers” such as
      educators and librarians.




***General
      and Administrative Expenses***





General
      and administrative expenses consist primarily of salaries, benefits and 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.  -15-
 *Table
            of Contents*




General
      and administrative expenses in the first quarter of 2007 was $926 thousand
      compared to $800 thousand during the same period in 2006, a net increase of
      $126
      thousand or 16%. The net increase is comprised of many individual line expenses
      that increased and decreased. The most significant changes were increased
      compensation expense, excluding stock-based compensation, of $93 thousand,
      and
      increased stock-based compensation expense of $47 thousand.




***Interest
      Income, Net***





Interest
      income, net, in the first quarters of 2007 and 2006, was $100 thousand and
      $141
      thousand, respectively. The decrease resulted primarily from significantly
      lower
      average cash and investment securities balances during the first quarter of
      2007
      as compared to the same quarter in 2006.




***Other
      Expenses***





Other
      expenses, which are comprised of foreign currency exchange gains and losses,
      were $15 thousand in the first quarter of 2007 compared to $3 thousand during
      the same period in 2006, an increase of $12 thousand.




***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 of 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.





We
      had
      net operating loss carryforwards for federal income tax purposes of
      approximately $49 million at March 31, 2007 and $43 million at March 31, 2006.
      The federal net operating losses will expire if not utilized on various dates
      from 2019 through 2027. Because we have experienced one or more ownership
      changes, within the meaning of Section 382 of the Internal Revenue Code of
      1986,
      as amended, an annual limitation is imposed on our ability to use $32 million
      of
      these carryforwards. Our best estimate at this time is that the annual
      limitation on the use of $32 million of our NOLs is approximately $1.8 million
      per year. Any unused portion of the $1.8 million annual limitation applicable
      to
      our restricted NOLs is available for use in future years until such NOLs are
      scheduled to expire. Our other $17 million of NOLs are not currently subject
      to
      such limitations. Our Israeli subsidiary has capital loss carryforwards of
      approximately $680 thousand 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 quarters ending March 31, 2007 and
      2006, resulting from its cost plus agreement with the parent company. Pursuant
      to such agreement, the Israeli subsidiary charges Answers for research and
      development services it provides Answers, 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
      distributions by the subsidiary to the parent, the subsidiary would have to
      pay
      a 10% corporate tax on the amount distributed.





***Net
      Loss***





Our
      net
      loss decreased to $303 thousand in the first quarter of 2007, from $3,473
      thousand during the same period in 2006, 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,
      2006
      and 2005, and our consolidated interim financial statements for the quarters
      ended March 31, 2007 and 2006, 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.




***Goodwill,
      Intangibles and Other Long-Lived Assets***




We
      account for our purchases of acquired companies in accordance with SFAS No.
      141, "Business
      Combinations" (SFAS
      141) and for goodwill and other identifiable definite and indefinite-lived
      acquired intangible assets in accordance with SFAS No. 142, “Goodwill
      and Other Intangible Assets *”* (SFAS
      142). Additionally, we review our long-lived assets for recoverability in
      accordance with SFAS No. 144, *“* Accounting
      for the Impairment or Disposal of Long-Lived Assets” ** (SFAS
      144). **  -16-
 *Table
            of Contents*




The
      identification and valuation of intangible assets and the determination of
      the
      estimated useful lives at the time of acquisition are made in consultation
      with
      an independent valuation consultant and are based on various valuation
      methodologies including reviews of projected future cash flows.  The use of
      alternative estimates and assumptions could increase or decrease the estimated
      fair value of our goodwill and other intangible assets, and potentially result
      in a different impact to our results of operations.  Further, changes in
      business strategy and/or market conditions may significantly impact these
      judgments thereby impacting the fair value of these assets, which could result
      in an impairment of the goodwill and acquired intangible assets.





We
      evaluate our long-lived tangible and intangible assets for impairment in
      accordance with SFAS 142, “Goodwill and Other Intangible Assets,” and SFAS 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” whenever
      events or changes in circumstances indicate that the carrying amount of an
      asset
      may not be recoverable. Goodwill is subject to an annual test for
      impairment.  If
      such
      assets are considered to be impaired, the impairment to be recognized is
      measured by the amount by which the carrying amount of the assets exceeds the
      fair value of the assets. While
      we use available information to prepare our estimates and to perform impairment
      evaluations, t he completion
      of annual impairment tests requires significant management judgments and
      estimates.




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





As
      of
      January 1, 2006, we adopted SFAS No. 123 (revised 2004), *“Share-Based
      Payments”* (SFAS
      123R), 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, using the modified prospective
      method. 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, including volatility estimates that are inherently highly
      uncertain and subjective, since prior to our IPO there had been no public market
      for our stock. Subsequent to our IPO, we have not had sufficient history to
      actually predict our volatility, therefore, 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 three months ended March 31, 2007 and
      2006.




***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. 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 US taxable income prior to
      the
      expiration of such deferred tax assets were the primary factors considered
      by
      management in establishing the valuation allowance.





In
      July
      2006, FASB released FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an Interpretation of FASB Statement 109” (FIN 48) effective for
      fiscal years beginning after December 15, 2006. FIN 48 prescribes how a company
      should recognize, measure, present and disclose in its financial statements
      uncertain tax positions that the company has taken or expects to take on a
      tax
      return. Additionally, for tax positions to qualify for deferred tax benefit
      recognition under FIN 48, the position must have at least a “more likely than
      not” chance of being sustained upon challenge by the respective taxing
      authorities, otherwise, the company must increase the valuation allowance
      correspondingly. We adopted the provisions of FIN 48 as of January 1, 2007
      and
      it has not had a material impact on our financial statements.


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**Recently
      Issued Accounting Pronouncements**




***SFAS
      159 -*** ***The
      Fair Value Option for Financial Assets and Financial
      Liabilities***





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (SFAS 159) which permits entities to
      choose to measure many financial instruments and certain other items at fair
      value that are not currently required to be measured at fair value. SFAS 159
      will become effective for us on January1, 2008. We are currently evaluating
      the
      impact of adopting SFAS 159 on our financial position, cash flows, and results
      of operations.





**Liquidity
      and Capital Resources**





Our
      principal sources of liquidity are our cash and cash equivalents, and investment
      securities, which amounted to $8,973 thousand, as of March 31, 2007, and were
      raised through various financing events that took place in 2004 and 2005, and
      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 certain bridge notes
      that
      did not convert to common shares at the time of the IPO, of $3,160,000,
      approximately $7.6 million remained. In 2005, we raised approximately $15.4
      million from the exercise of warrants and options, of which approximately $12.2
      million was raised from a February 2005 Warrant Reload Agreement with certain
      holders of warrants that were issued by us in 2004 in connection with a bridge
      financing. The first quarter of 2007 marks the first time we’ve ever had net
      cash provided by our operations. Previously, we used cash in our operations
      in
      every quarter since inception. Our ability to continue this positive trend
      will
      depend primarily on our ability to produce net income before non-cash expenses
      such as depreciation and amortization and stock-based compensation, although,
      even if we achieve that goal we could still use cash in operations if we
      experience changes in our operating assets and liabilities because of the timing
      of collection on revenues or payment of expenses.




Cash
      flows were as follows (in thousands):




**Three
                Months Ended March 31, 2007**
            
            **Three
                Months Ended March 31, 2006**Net
                cash provided by (used in) operating activities
            
            $
            63
            
            $
            (883
            )Net
                cash (used in) provided by investing activities
            
            $
            (983
            )
            $
            706Net
                cash provided by financing activities
            
            $
            142
            
            $
            98





Despite
      a
      net loss of $303 thousand in the first quarter of 2007, we had net cash provided
      by operations of $63 thousand. The adjustments to reconcile the two amounts,
      including changes to the balances of our various operating assets and
      liabilities, are noted in detail on the accompanying statement of cash flows.
      The largest reconciling items are the $525 thousand of operating expenses that
      were the result of non-cash, stock-based compensation to employees and
      directors, depreciation and amortization of $448 thousand, and the recognition
      of $441 thousand of previously deferred revenue, $425 thousand of which, relates
      to the lifetime subscriptions we sold in 2003. Despite a net loss of $3,473
      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).





Net
      cash
      used in and provided by investing activities in the first quarters of 2007
      and
      2006, respectively, is attributable mostly to purchases of investment securities
      less the proceeds from the sale of investment securities, as delineated in
      our
      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 **.** Additionally,
      in the first quarters of 2007 and 2006 we invested $298 thousand and $108
      thousand in capital expenditures, respectively.





Cash
      flow
      from financing activities in the first quarters of 2007 and 2006 relates to
      the
      net proceeds from the exercise of stock options.





We
      believe we have sufficient cash to meet our planned operating needs for the
      next
      twelve months. Notwithstanding, our business strategy includes growth through
      additional 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 and raising additional capital. 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.


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**Off-Balance
      Sheet Arrangements**





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.





**Contractual
      Obligations and Commitments**




As
      of
      March 31, 2007, we had the following known contractual obligations and
      commitments (in thousands):


**$****Purchase
                Contracts**
            
            **Operating
                Leases**
            
            **Total**Remainder
                of 2007
            
            
            649
            
            
            381
            
            
            1,0302008
            
            
            433
            
            
            418
            
            
            8512009
            
            
            235
            
            
            363
            
            
            5982010
            
            
            25
            
            
            207
            
            
            2321,342
            
            
            1,369
            
            
            2,711


**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.


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**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




*Currency
      Risk.* Our
      revenue is denominated solely in U.S. dollars. Most of our expenses are also
      based in U.S. dollars; however, we are subject to a significant amount of
      expenses that are denominated in New Israeli Shekels (NIS). We expect this
      level
      of NIS expenses to continue in the near future. If the value of the U.S. dollar
      weakens against the value of NIS, there will be a negative impact on our results
      of operations. In addition, to the extent we hold cash and cash equivalents
      that
      are denominated in currencies other than the U.S. dollar, we are subject to
      the
      risk of exchange rate fluctuations. We are currently considering using various
      hedging tools in order to minimize the effect of currency fluctuations on our
      income; however, to date, we have not utilized such tools.




*Other
      Market Risk.* We
      invest
      most of our excess cash in highly liquid investments with an original maturity
      of three months or less, and in i nvestment
      securities that 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. Due to the short-term nature of these
      investments, we believe that there is no material exposure to interest rate
      risk
      arising from our investments. We invest some of the excess cash we have for
      terms in excess of three months in order to achieve a higher yield. Based on
      our
      investment policy, such instruments are highly rated by rating agencies and
      therefore we believe that there is no material exposure to the principal amount
      nor to interest rate risks arising from these longer-term
      investments.




**ITEM
      4. CONTROLS AND PROCEDURES**




Based
      on
      an 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, 2007, our Chief Executive Officer and
      Principal Financial Officer 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 Principal
      Financial Officer also concluded that, as of March 31, 2007, 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 accumulated and communicated to our management, including our Chief Executive
      Officer and Principal Financial Officer, to allow timely decisions regarding
      required disclosure.




During
      the three months ended March 31, 2007, there were no changes in our internal
      control over financial reporting identified in connection with the evaluation
      required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially
      affected, or is reasonably likely to materially affect, our internal control
      over financial reporting.


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          of Contents*




**PART
      II. OTHER INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS**





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 March 5, 2006 pre-trial hearing, the Court
      recommended that we explore the possibility of resolving the dispute through
      mediation. We are currently in the process of negotiating an out-of-court
      settlement of Tover's claims.




**ITEM
      1A. RISK FACTORS**




In
      addition to the other information set forth in this report, you should carefully
      consider the factors discussed in Item 6 (Management's Discussion and Analysis
      of Financial Condition and Plan of Operation) of our Annual Report on
      Form 10-KSB for the year ended December 31, 2006 (the "Annual
      Report"), which could materially affect our business, financial condition or
      future results. There
      have been no material changes to the risk factors disclosed in the Annual
      Report.




**ITEM
      6. EXHIBITS**





31.1
            Certification
                of Chief Executive Officer required under
                Rule 13a-14(a)/15d-14(a) under the Exchange
                Act.31.2
            Certification
                of Principal Financial Officer required under
                Rule 13a-14(a)/15d-14(a) under the Exchange
                Act.32.1
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
            Certification
                of Principal Financial Officer pursuant to 18 U.S.C Section 1350, as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




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          of Contents*




**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**(Registrant)Date:
                May 14, 2007
            By:
            /s/
                Robert S. RosenscheinRobert
                S. RosenscheinChief
                Executive OfficerDate:
                May 14, 2007
            By:
            /s/
                Steven SteinbergSteven
                SteinbergChief
                Financial Officer(Principal
                Financial Officer)






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