*Table
        of Contents*







**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**




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




**FOR
      THE QUARTERLY PERIOD ENDED JUNE 30, 2008**





**or**




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




**COMMISSION
      FILE NUMBER: 000-28271**




**THE
      KNOT, INC.**


(Exact
      Name of Registrant as Specified in its Charter)




**Delaware**
              (State
                of incorporation)
            **13-3895178**
              (I.R.S.
                Employer Identification Number)




**462
      Broadway, 6** **th** **Floor**


**New
      York, New York 10013**


(Address
      of Principal Executive Officer and Zip Code)




**(212)
      219-8555**


(Registrant’s
      Telephone Number, Including Area Code)




Indicate
      by check whether the registrant: (1) filed all reports required to be filed
      by
      Section 13 or 15(d) of the Securities Exchange Act 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  ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.




Large
              accelerated filer ̈
            Accelerated
              filerxNon-accelerated
              filer ̈(Do not check if a smaller reporting company.)
            Smaller
              reporting company ̈


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




Yes o    No x




As
      of
      August 1, 2008, there were 32,102,717 shares of the registrant’s common stock
      outstanding.












*Table
        of Contents*




**TABLE
      OF CONTENTS**




Page
              NumberPART
                I
            FINANCIAL
                INFORMATIONItem
                1:
            Financial
                Statements (Unaudited):Condensed
                Consolidated Balance Sheets as of June 30, 2008 and
                December 31, 2007
            4Condensed
                Consolidated Statements of Operations for the three
                and six months ended June 30, 2008 and 2007
            5Condensed
                Consolidated Statements of Cash Flows for the six
                months ended June 30, 2008 and 2007
            6Notes
                to Condensed Consolidated Financial
                Statements
            7Item
                2:
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            19Item
                3:
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            29Item
                4:
            Controls
                and Procedures
            30PART
                II
            OTHER
                INFORMATIONItem
                1:
            Legal
                Proceedings
            31Item
                1A:
            Risk
                Factors
            31Item
                2:
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            32Item
                4:
            Submission
                of Matters to a Vote of Security
                Holders
            32Item
                6:
            Exhibits
            33Signatures
            
            34




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**SPECIAL
      NOTE ON FORWARD-LOOKING STATEMENTS**




This
      report contains forward-looking statements relating to future events and the
      future performance of The Knot, Inc. based on our current expectations,
      assumptions, estimates and projections about us and our industry. These
      forward-looking statements involve risks and uncertainties. Actual results
      or
      events could differ materially from those anticipated in such forward-looking
      statements as a result of certain factors, as more fully described in Item
      1A
      (Risk Factors) in each of our most recent Annual Report on Form 10-K and Part
      II
      of this report, and elsewhere in this report. We undertake no obligation to
      update publicly any forward-looking statements for any reason, even if new
      information becomes available or other events occur in the future.




Unless
      the context otherwise indicates, references in this report to the terms “The
      Knot,” “we,” “our” and “us” refer to The Knot, Inc., its divisions and its
      subsidiaries.





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          of Contents*




**PART
      I - FINANCIAL INFORMATION**




**ITEM
              1.**
            **Financial
                Statements**




**THE
      KNOT, INC.**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(UNAUDITED)**


**June
                30,**
            
            **December
                31,****2008**
            
            **2007****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            62,438,006
            
            $
            33,127,457Short-term
                investments
            
            
            —
            
            
            72,648,519Accounts
                receivable, net of allowances of $1,366,367 and $1,416,280 at June
                30,
                2008 and December 31, 2007, respectively
            
            
            10,327,232
            
            
            14,927,145Accounts
                receivable from affiliate
            
            
            1,133,729
            
            
            1,327,029Inventories
            
            
            2,971,440
            
            
            1,878,478Deferred
                production and marketing costs
            
            
            723,539
            
            
            482,833Deferred
                tax assets, current portion
            
            
            3,748,419
            
            
            3,388,419Other
                current assets
            
            
            1,628,739
            
            
            1,622,556Total
                current assets
            
            
            82,971,104
            
            
            129,402,436Long-term
                investments
            
            
            50,900,000
            
            
            —Property
                and equipment, net
            
            
            9,301,126
            
            
            8,497,030Intangible
                assets, net
            
            
            29,768,185
            
            
            30,952,683Goodwill
            
            
            33,770,366
            
            
            32,105,110Deferred
                tax assets
            
            
            20,303,910
            
            
            22,017,689Other
                assets
            
            
            229,274
            
            
            278,517Total
                assets
            
            $
            227,243,965
            
            $
            223,253,465**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            8,363,033
            
            $
            7,616,431Deferred
                revenue
            
            
            14,785,519
            
            
            14,665,083Current
                portion of long-term debt
            
            
            55,173
            
            
            55,173Total
                current liabilities
            
            
            23,203,725
            
            
            22,336,687Deferred
                tax liabilities
            
            
            13,746,361
            
            
            14,177,960Other
                liabilities
            
            
            424,299
            
            
            455,631Total
                liabilities
            
            
            37,374,385
            
            
            36,970,278Commitments
                and contingencies (Note 13)
            
            
            —
            
            
            —Stockholders’
                equity:Preferred
                stock, $0.001 par value; 5,000,000 shares authorized; no shares issued
                and
                outstanding
            
            
            —
            
            
            —Common
                stock, $0.01 par value; 100,000,000 shares authorized;32,054,575
                shares and 31,578,404 shares issued and outstanding at June 30, 2008
                and
                December 31, 2007, respectively
            
            
            320,546
            
            
            315,784Additional
                paid-in capital
            
            
            196,705,585
            
            
            192,893,753Accumulated
                deficit
            
            
            (4,056,551
            )
            
            (6,926,350
            )Accumulated
                other comprehensive loss
            
            
            (3,100,000
            )
            
            —Total
                stockholders’ equity
            
            
            189,869,580
            
            
            186,283,187Total
                liabilities and stockholders’ equity
            
            $
            227,243,965
            
            $
            223,253,465


*See
      accompanying Notes to Condensed Consolidated Financial
      Statements*


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          of Contents*




**THE
      KNOT, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF
      OPERATIONS**


**(UNAUDITED)**




**Three
                Months Ended June 30,**
            
            **Six
                Months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Net
                revenues:Online
                sponsorship and advertising
            
            $
            13,463,493
            
            $
            12,521,087
            
            $
            26,373,604
            
            $
            23,297,544Registry
                services
            
            
            3,289,226
            
            
            3,356,596
            
            
            5,067,307
            
            
            5,116,587Merchandise
            
            
            7,133,270
            
            
            6,499,767
            
            
            11,727,372
            
            
            11,130,280Publishing
                and other
            
            
            4,784,675
            
            
            6,108,790
            
            
            9,303,473
            
            
            9,970,443Total
                net revenues
            
            
            28,670,664
            
            
            28,486,240
            
            
            52,471,756
            
            
            49,514,854Cost
                of revenues:Online
                sponsorship and advertising
            
            
            459,796
            
            
            438,349
            
            
            982,274
            
            
            776,930Merchandise
            
            
            3,424,585
            
            
            3,108,766
            
            
            5,528,954
            
            
            5,273,856Publishing
                and other
            
            
            1,880,075
            
            
            2,103,614
            
            
            3,724,168
            
            
            3,616,050Total
                cost of revenues
            
            
            5,764,456
            
            
            5,650,729
            
            
            10,235,396
            
            
            9,666,836Gross
                profit
            
            
            22,906,208
            
            
            22,835,511
            
            
            42,236,360
            
            
            39,848,018Operating
                expenses:Product
                and content development
            
            
            5,037,395
            
            
            3,306,326
            
            
            9,989,192
            
            
            6,450,299Sales
                and marketing
            
            
            7,616,849
            
            
            6,447,209
            
            
            15,195,836
            
            
            12,337,337General
                and administrative
            
            
            5,213,009
            
            
            3,986,588
            
            
            10,021,896
            
            
            8,071,635Depreciation
                and amortization
            
            
            2,238,208
            
            
            2,198,306
            
            
            4,439,167
            
            
            4,305,901Total
                operating expenses
            
            
            20,105,461
            
            
            15,938,429
            
            
            39,646,091
            
            
            31,165,172Income
                from operations
            
            
            2,800,747
            
            
            6,897,082
            
            
            2,590,269
            
            
            8,682,846Interest
                income, net
            
            
            880,283
            
            
            1,236,279
            
            
            2,082,529
            
            
            2,223,204Income
                before income taxes
            
            
            3,681,030
            
            
            8,133,361
            
            
            4,672,798
            
            
            10,906,050Provision
                for income taxes
            
            
            1,390,001
            
            
            3,373,400
            
            
            1,802,999
            
            
            4,511,842Net
                income
            
            $
            2,291,029
            
            $
            4,759,961
            
            $
            2,869,799
            
            $
            6,394,208Net
                earnings per share—basic
            
            $
            0.07
            
            $
            0.15
            
            $
            0.09
            
            $
            0.21Net
                earnings per share—diluted
            
            $
            0.07
            
            $
            0.15
            
            $
            0.09
            
            $
            0.19Weighted
                average number of common shares outstandingBasic
            
            
            31,445,490
            
            
            30,898,378
            
            
            31,348,660
            
            
            30,855,336Diluted
            
            
            32,592,425
            
            
            32,759,935
            
            
            32,592,375
            
            
            32,795,590


*See
      accompanying Notes to Condensed Consolidated Financial
      Statements*


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          of Contents*


**THE
      KNOT, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


**(UNAUDITED)**




**Six
                  Months Ended June 30,****2008**
              
              **2007****Operating
                  activities**Net
                  income
              
              $
              2,869,799
              
              $
              6,394,208Adjustments
                  to reconcile net income to net cash provided byoperating
                  activities:Depreciation
                  and amortization
              
              
              2,583,658
              
              
              2,373,268Amortization
                  of intangibles
              
              
              1,836,498
              
              
              1,932,633Stock-based
                  compensation
              
              
              1,864,248
              
              
              1,049,973Deferred
                  income taxes
              
              
              1,423,180
              
              
              4,084,800Reserve
                  for returns
              
              
              1,696,012
              
              
              1,872,922Allowance
                  for doubtful accounts
              
              
              (79,142
              )
              
              181,669Excess
                  tax benefits from stock-based awards
              
              
              (767,000
              )
              
              —Other
                  non-cash (income) charges
              
              
              (58,921
              )
              
              30,161Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              3,019,146
              
              
              (2,942,086
              )Accounts
                  receivable from affiliate
              
              
              193,300
              
              
              (689,669
              )Inventories
              
              
              (1,015,031
              )
              
              (708,007
              )Deferred
                  production and marketing costs
              
              
              (210,772
              )
              
              189,758Other
                  current assets
              
              
              (6,183
              )
              
              359,057Other
                  assets
              
              
              49,485
              
              
              51,278Accounts
                  payable and accrued expenses
              
              
              276,598
              
              
              (272,978
              )Deferred
                  revenue
              
              
              76,826
              
              
              1,390,630Other
                  liabilities
              
              
              (42,747
              )
              
              (48,032
              )Net
                  cash provided by operating activities
              
              
              13,708,954
              
              
              15,249,585**Investing
                  activities**Purchases
                  of property and equipment
              
              
              (3,640,915
              )
              
              (1,291,064
              )Purchases
                  of short-term investments
              
              
              (63,707
              )
              
              (75,881,884
              )Proceeds
                  from sales of short-term investments
              
              
              13,937,226
              
              
              32,025,000Purchases
                  of long-term investments
              
              
              (39,600,000
              )
              
              —Proceeds
                  from sales of long-term investments
              
              
              44,375,000
              
              
              —Acquisition
                  of business, net of cash acquired
              
              
              (1,358,355
              )
              
              100,573Net
                  cash provided by (used in) investing activities
              
              
              13,649,249
              
              
              (45,047,375
              )**Financing
                  activities**Proceeds
                  from issuance of common stock
              
              
              218,405
              
              
              186,315Proceeds
                  from exercise of stock options and warrants
              
              
              1,088,959
              
              
              715,042Excess
                  tax benefits from stock-based awards
              
              
              767,000
              
              
              —Repurchase
                  of common stock
              
              
              (122,018
              )
              
              —Net
                  cash provided by financing activities
              
              
              1,952,346
              
              
              901,357Increase
                  (decrease) in cash and cash equivalents
              
              
              29,310,549
              
              
              (28,896,433
              )Cash
                  and cash equivalents at beginning of period
              
              
              33,127,457
              
              
              73,633,011Cash
                  and cash equivalents at end of period
              
              $
              62,438,006
              
              $
              44,736,578


*See
      accompanying Notes to Condensed Consolidated Financial
      Statements*


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          of Contents*




**THE
      KNOT, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**




**1.**
            **BASIS
                OF PRESENTATION AND NATURE OF
                OPERATIONS**





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared by the management of The Knot, Inc. (“The Knot” or the “Company”) in
      accordance with U.S. generally accepted accounting principles for interim
      financial information and applicable rules and regulations of the Securities
      and
      Exchange Commission (“SEC”). Certain information and footnote disclosures
      normally included in financial statements prepared in accordance with accounting
      principles generally accepted in the United States of America have been
      condensed or omitted from this report as is permitted by SEC rules and
      regulations. However, the Company believes that the disclosures are adequate
      to
      make the information presented not misleading. This report should be read in
      conjunction with the audited consolidated financial statements and notes
      thereto, included in the Company’s Annual Report on Form 10-K filed with the SEC
      for the year ended December 31, 2007.





In
      the
      opinion of management, the accompanying unaudited condensed consolidated
      financial statements contain all normal and recurring adjustments necessary
      to
      present fairly the consolidated financial condition, results of operations
      and
      changes in cash flows of the Company for the interim periods presented. The
      results of operations for the quarter and six months ended June 30, 2008 are
      not
      necessarily indicative of results to be expected for the entire fiscal year,
      which will end on December 31, 2008.





The
      Company has only achieved operating income in recent periods and has an
      accumulated deficit of $4,056,551 as of June 30, 2008. The Company believes
      that
      its current cash and cash equivalents will be sufficient to fund its working
      capital and capital expenditure requirements for the foreseeable future. The
      Company’s ability to meet its obligations in the ordinary course of business is
      dependent upon its ability to maintain profitable operations and/or raise
      additional financing through public or private debt or equity financings, or
      other arrangements with corporate sources, or other sources of financing to
      fund
      operations. However, there is no assurance that the Company will maintain
      profitable operations or that additional funding, if required, will be available
      to the Company in amounts or on terms acceptable to the Company.




**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**





**PRINCIPLES
      OF CONSOLIDATION**





The
      condensed consolidated financial statements include the accounts of the Company
      and its wholly-owned subsidiaries. All intercompany accounts and transactions
      have been eliminated.





**USE
      OF ESTIMATES**





Preparing
      financial statements in conformity with U.S. generally accepted accounting
      principles requires management to make estimates and assumptions that affect
      the
      reported amounts of assets, liabilities, revenues and expenses. Actual results
      may differ from these estimates. Interim results are not necessarily indicative
      of results for a full year.





**EARNINGS
      PER SHARE**





The
      Company computes earnings per share in accordance with Statement of Financial
      Accounting Standards (“SFAS”) No. 128, *Earnings
      per Share.* Basic
      earnings per share is computed by dividing net income by the weighted average
      number of common shares outstanding during the period. Diluted earnings per
      share adjusts basic earnings per share for the effects of stock options,
      restricted common stock, warrants and other potentially dilutive financial
      instruments, only in the periods in which the effects are dilutive. For the
      three months ended June 30, 2008 and 2007, the weighted average number of shares
      used in calculating diluted earnings per share includes stock options,
      restricted common stock and warrants to purchase common stock of 1,146,935
      and
      1,861,557, respectively. For the six months ended June 30, 2008 and 2007, the
      weighted average number of shares used in calculating diluted earnings per
      share
      includes stock options, restricted common stock and warrants to purchase common
      stock of 1,243,714 and 1,940,254,


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respectively.
      The calculation of earnings per share excludes a weighted average number of
      stock options and restricted stock of 755,282 and 712,366 for the three and
      six
      months ended June 30, 2008, respectively, and 148,681 and 74,341 for the three
      and six months ended June 30, 2007, respectively, because to include them in
      the
      calculation would be antidilutive.




**SEGMENT
      INFORMATION**





The
      Company operates in one reportable segment because it is organized around its
      online and offline media and e-commerce service lines. These service lines
      do
      not have operating managers who report to the chief operating decision maker.
      The chief operating decision maker generally reviews financial information
      at a
      consolidated results of operations level but does review revenue and cost of
      revenue results of the individual service lines.




**CASH
      EQUIVALENTS AND SHORT-TERM INVESTMENTS**




The
      Company considers all highly liquid investments with a maturity of three months
      or less when purchased to be cash equivalents. The market value of the Company’s
      cash equivalents approximates their cost plus accrued interest. Short-term
      investments at December 31, 2007 represented commercial paper with maturity
      dates in excess of 90 days and auction rate securities which had interest rate
      resets every 90 days or less but maturity dates of greater than 90 days. (See
      Note 4 for a further discussion of the Company’s investment in auction rate
      securities.) Short-term investments are classified as available-for-sale and
      are
      carried at cost, which approximates market value.




**CONCENTRATION
      OF CREDIT RISK**





Financial
      instruments that potentially subject the Company to concentrations of credit
      risk consist principally of cash and cash equivalents, short-term investments
      and accounts receivable. Cash, cash equivalents and short-term investments
      are
      deposited with four major financial institutions. The Company's customers are
      primarily concentrated in the United States. The Company performs on-going
      credit evaluations, generally does not require collateral, and establishes
      an
      allowance for doubtful accounts based upon factors surrounding the credit risk
      of customers, historical trends and other information.





For
      the
      three and six months ended June 30, 2008, one customer, Macy’s accounted for 10%
      and 9% of net revenues, respectively. For the three and six months ended June
      30, 2007, Macy’s accounted for 10% and 9% of net revenues, respectively. No
      other customer accounted for more than 2% of revenue for the three and six
      months ended June 30, 2008 and 2007. As of June 30, 2008 and December 31, 2007,
      no customer accounted for more than 10% of accounts receivable.





**STOCK-BASED
      COMPENSATION**





The
      Company computes stock-based compensation in accordance with SFAS No. 123(R), *Share-Based
      Payment.* SFAS No.
      123(R) requires the measurement of compensation expense for all stock awards
      granted to employees and non-employee directors at fair value on the date of
      grant and recognition of compensation expense over the related service periods
      for awards expected to vest. The fair value of restricted stock is determined
      based on the number of shares granted and the quoted price of the Company’s
      common stock, and the fair value of stock options granted is determined using
      the Black-Scholes valuation model. The Company continued to recognize
      stock-based compensation for service-based graded-vesting stock awards granted
      prior to the adoption of SFAS No. 123(R), using the accelerated method
      prescribed by Financial Accounting Standards Board (“FASB”) *Interpretation
      No. 28.* As
      permitted under SFAS No. 123(R), ** for
      stock
      awards granted after December 31, 2005, the Company has adopted the
      straight-line attribution method. The Company includes an estimate of stock
      awards to be forfeited in the future in calculating stock-based compensation
      expense for the period.





Total
      stock-based compensation expense related to all of the Company’s stock awards
      was included in various operating expense categories for the three and six
      months ended June 30, 2008 and 2007, as follows:





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**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2008**
            
            **200****7**
            
            **2008**
            
            **2007**Product
                and content development
            
            $
            181,000
            
            $
            122,000
            
            $
            358,000
            
            $
            240,000Sales
                and marketing
            
            
            223,000
            
            
            116,000
            
            
            413,000
            
            
            218,000General
                and administrative
            
            
            713,000
            
            
            339,000
            
            
            1,093,000
            
            
            592,000Total
                stock-based compensation expense
            
            $
            1,117,000
            
            $
            577,000
            
            $
            1,864,000
            
            $
            1,050,000




**RECENTLY
      ADOPTED ACCOUNTING PRONOUNCEMENT**




On
      January 1, 2008, the Company adopted SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      157”), which defines fair value, establishes a framework for measuring fair
      value in accordance with generally accepted accounting principles, and expands
      disclosures about fair value measurements. SFAS 157 does not require any new
      fair value measurements, but provides guidance on how to measure fair value
      by
      providing a fair value hierarchy used to classify the source of the information.
      In February 2008, the FASB issued FASB Staff Position 157-2 (“FSP 157-2”) which
      would delay the effective date of SFAS 157 for all nonfinancial assets and
      nonfinancial liabilities, except those that are recognized or disclosed at
      fair
      value in the financial statements on a recurring basis (at least annually)
      until
      January 1, 2009. The Company is currently evaluating the impact of SFAS 157
      on
      its nonfinancial assets and liabilities.




**NEW
      ACCOUNTING PRONOUNCEMENTS**





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities — including an Amendment of FASB Statement No.
      115* (“SFAS
      159”), which allows an entity to choose to measure certain financial instruments
      and liabilities at fair value. Subsequent measurements for the financial
      instruments and liabilities an entity elects to fair value will be recognized
      in
      earnings. SFAS 159 also establishes additional disclosure requirements. Through
      June 30, 2008, the Company has elected not to extend the use of the fair value
      option to its assets and liabilities.




In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), *Business
      Combinations* (“SFAS
      141R”). SFAS 141R establishes principles and requirements for how an acquirer
      recognizes and measures in its financial statements the identifiable assets
      acquired, the liabilities assumed, any noncontrolling interest in the acquiree
      and the goodwill acquired. SFAS 141R also establishes disclosure requirements
      to
      enable the evaluation of the nature and financial effects of the business
      combination. This statement is effective beginning January 1, 2009. The Company
      is currently evaluating the potential impact of the adoption of SFAS 141R on
      its
      consolidated financial position, results of operations and cash
      flows.




In
      December 2007, the FASB issued SFAS No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements- an amendment of Accounting
      Research Bulletin* No.
      51
      (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for
      ownership interests in subsidiaries held by parties other than the parent,
      the
      amount of consolidated net income attributable to the parent and to the
      noncontrolling interest, changes in a parent’s ownership interest, and the
      valuation of retained noncontrolling equity investments when a subsidiary is
      deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
      identify and distinguish between the interests of the parent and the interests
      of the noncontrolling owners. This statement is effective beginning January
      1,
      2009. The Company is currently evaluating the potential impact of the adoption
      of SFAS 160 on its consolidated financial position, results of operations and
      cash flows.





**RECLASSIFICATION**




Certain
      amounts in the accompanying consolidated statement of cash flows for the six
      months ended June 30, 2007 have been reclassified to conform to the current
      year’s presentation.


-
          9
          -
 *Table
          of Contents*






**3.**
            **CASH
                AND CASH EQUIVALENTS AND SHORT-TERM
                INVESTMENTS**




Cash
      and
      cash equivalents and short-term investments consist of the
      following:




**June
                30,**
            
            **December
                31,****2008**
            
            **2007**Cash
            
            $
            4,653,940
            
            $
            3,170,537Money
                market funds
            
            
            8,570,592
            
            
            18,895,945US
                Treasury funds
            
            
            13,543,415
            
            
            —Commercial
                paper
            
            
            35,670,059
            
            
            11,060,975Cash
                and cash equivalents
            
            $
            62,438,006
            
            $
            33,127,457Auction
                rate securities (See Note 4)
            
            $
            —
            
            $
            58,775,000Commercial
                paper
            
            
            —
            
            
            13,856,293Certificate
                of deposit
            
            
            —
            
            
            17,226Short-term
                investments
            
            $
            —
            
            $
            72,648,519




The
      Company’s investments in commercial paper at June 30, 2008, consisted of P1/A1
      rated corporate debt securities.




**4.**
            **FAIR
                VALUE MEASUREMENTS**




The
      fair
      value hierarchy for disclosure of fair value measurements under SFAS 157 is
      as
      follows:




Level
      1-
      Quoted prices in active markets for identical assets or liabilities


Level
      2-
      Quoted prices for similar assets and liabilities in active markets or inputs
      that are observable


Level
      3-
      Inputs that are unobservable (for example, cash flow modeling inputs based
      on
      assumptions)




As
      of
      June 30, 2008, the Company’s investment in cash equivalents of approximately
      $62.4 million was measured at fair value using Level 1 inputs.




As
      of
      June 30, 2008, the Company estimated the fair value of its investment in auction
      rate securities of $54.0 million through discounted cash flow models which
      were
      classified as Level 3 inputs. These auction rate securities consisted of AAA/Aaa
      rated variable rate debt securities whose interest rates reset every 35 days.
      The securities are collateralized by student loans, with approximately 87%
      of
      such collateral in the aggregate guaranteed by the United States government
      under the Federal Family Education Loan Program. $3.0 million of these
      securities have an underlying maturity date of November 1, 2009 while the
      remaining securities have underlying maturity dates ranging from March 1, 2022
      through December 1, 2041. From February 14, 2008 through June 30, 2008, all
      auctions for these securities failed. An auction fails when there is
      insufficient demand. However, this does not represent a default by the issuer
      of
      the auction rate security. Upon an auction failure, the interest rates reset
      based on a formula contained in the security, which rate is generally higher
      than the current market rate. The reset interest rates on the auction rate
      securities currently held by the Company range from a short-term debt index
      plus
      100 to 200 basis points.





No
      Level
      1 inputs were considered in valuing the auction rate securities since there
      were
      no active markets and quoted prices for these securities as of June 30,
      2008.  Certain Level 2 inputs such as the current cost of funds for recent
      student bond issuances of similar credit quality were observed and used in
      computing the risk adjusted interest rate used in the Company’s discounted cash
      flow valuation model.  However, other Level 3 inputs were more significant
      to the overall fair value measurement, particularly other components of the
      risk
      adjusted interest rate, including an illiquidity premium of 170 basis points,
      and an expected holding period for these securities of five years.




-
          10
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          of Contents*




The
      Company estimated that the fair market value of these securities at June 30,
      2008 was approximately $50.9 million and recorded a temporary impairment charge
      of $3.1 million in other comprehensive loss within stockholders’ equity. The
      Company concluded that the impairment charge recorded was temporary because
      (i)
      the Company believes that the decline in market value is due to general market
      conditions; (ii) the auction-rate securities continue to be of a high credit
      quality and interest is paid when due; and (iii) the Company currently has
      the
      intent and ability to hold the auction-rate securities until a recovery in
      market value occurs. However, if the issuers of these securities continue to
      be
      unable to successfully close future auctions and their credit ratings
      deteriorate, or if they default with respect to such securities, the Company
      may
      be required to record additional temporary or other-than-temporary impairment
      charges if there are further reductions in fair value in future periods. It
      may
      also take until the final maturity of the underlying securities to realize
      the
      Company’s investments.




The
      discounted cash flow models assume an average expected holding period for these
      auction rate securities in excess of one year due to the lack of liquidity
      in
      the auction rate securities markets and the long-term remaining duration of
      the
      underlying securities. Therefore, these securities are classified as long-term
      investments on the accompanying condensed consolidated balance sheet as of
      June
      30, 2008.




In
      June
      2008, $5.0 million of auction rate securities held by the Company were redeemed
      at par; however, the Company is currently unable to determine whether other
      issuers of its remaining portfolio of auction rate securities will attempt
      or be
      able to redeem securities.




As
      of
      December 31, 2007, the carrying value of the auction rate securities
      approximated fair value. The following table summarizes the Company’s fair value
      measurements using significant Level 3 inputs at June 30, 2008:




Balance
                  as of December 31, 2007
              
              $
              58,775,000Purchases
                  and sales, net
              
              
              (4,775,000
              )Unrealized
                  losses included in other comprehensive income
              
              
              (3,100,000
              )Realized
                  losses
              
              
              —Balance
                  as of June 30, 2008
              
              $
              50,900,000


**5.**
            **COMPREHENSIVE
                INCOME (LOSS)**





Comprehensive
      income (loss) is comprised of the following:




**Three
                Months**
              **Ended
                June 30,**
            
            
            **Six
                Months**
              **Ended
                June 30,****2008**
            
            
            **2008**Net
                income
            
            $
            2,291,029
            
            $
            2,869,779Unrealized
                loss on auction rate securities
            
            
            (2,033,000
            )
            
            (3,100,000
            )Comprehensive
                income (loss)
            
            $
            258,029
            
            $
            (230,221
            )





Through
      December 31, 2007, the Company’s comprehensive income equaled its net
      income.





**6.**
            **SHIPPING
                AND HANDLING CHARGES**





For
      the
      three months ended June 30, 2008 and 2007, merchandise revenues included
      outbound shipping and handling charges of approximately $1,171,000 and $926,000,
      respectively. For the six months ended June 30, 2008 and 2007, merchandise
      revenues included outbound shipping and handling charges of approximately
      $1,861,000 and $1,573,000, respectively.





-
          11
          -
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          of Contents*






**7.**
            **INVENTORY**





Inventory
      consists of the following:




**June
                30,**
            
            **December
                31,****2008**
            
            **2007**Raw
                materials
            
            $
            403,991
            
            $
            204,811Finished
                goods
            
            
            2,567,449
            
            
            1,673,667$
            2,971,440
            
            $
            1,878,478




**8.**
            **GOODWILL
                AND OTHER INTANGIBLE
                ASSETS**





The
      changes in the carrying amount of goodwill at June 30, 2008 is as
      follows:





Balance
                as of December 31, 2007
            
            $
            32,105,110Acquisition
                of The Bump Media, Inc. (See Note 14)
            
            
            1,665,256Balance
                as of June 30, 2008
            
            $
            33,770,366


During
      the three months ended June 30, 2008, the fair value of assets acquired other
      than goodwill in connection with the acquisition of The Bump Media, Inc. was
      increased by $85,745 with a corresponding reduction to previously recorded
      goodwill.




Other
      intangible assets consisted of the following:




**June
                30, 2008**
            
            **December
                31, 2007**Gross
                Cost
            
            Accumulated
            
            Net
            
            Gross
                Cost
            
            Accumulated
            
            NetCarrying
                Amount
            
            Amortization
            
            Book
                Value
            
            Carrying
                Amount
            
            Amortization
            
            Book
                ValueIndefinite
                lived intangibles:Tradenames
            
            $
            15,770,000
            
            $
            —
            
            $
            15,770,000
            
            $
            15,220,000
            
            $
            —
            
            $
            15,220,000Amortizable
                intangibles:Customer
                and advertiserrelationships
            
            
            5,712,000
            
            
            1,160,129
            
            
            4,551,871
            
            
            5,610,000
            
            
            830,378
            
            
            4,779,622Developed
                technologyand
                patents
            
            
            12,280,000
            
            
            4,455,000
            
            
            7,825,000
            
            
            12,280,000
            
            
            3,227,000
            
            
            9,053,000Trademarks
                andtradenames
            
            
            211,920
            
            
            136,328
            
            
            75,592
            
            
            211,920
            
            
            109,603
            
            
            102,317Service
                contracts andOther
            
            
            3,328,000
            
            
            1,782,278
            
            
            1,545,722
            
            
            3,328,000
            
            
            1,530,256
            
            
            1,797,74421,531,920
            
            
            7,533,735
            
            
            13,998,185
            
            
            21,429,920
            
            
            5,697,237
            
            
            15,732,683Total
            
            $
            37,301,920
            
            $
            7,533,735
            
            $
            29,768,185
            
            $
            36,649,920
            
            $
            5,697,237
            
            $
            30,952,683


Definite
      lived intangible assets are amortized over their estimated useful lives as
      follows:





Customer
                and advertiser relationships
            2
                to 10 yearsDeveloped
                technology and patents
            5
                yearsTrademarks
                and tradenames
            3
                to 5 yearsService
                contracts and other
            1
                to 7 years




The
      increase in the gross cost carrying amount of intangibles for the six months
      ended June 30, 2008 resulted from a preliminary determination of the fair value
      of assets acquired in connection with the acquisition of The Bump Media, Inc.
      (See Note 14).


-
          12
          -
 *Table
          of Contents*




Amortization
      expense was $908,000 and $941,000 for the three months ended June 30, 2008
      and
      2007, respectively, and $1.8 million and $1.9 million for the six months ended
      June 30, 2008 and 2007, respectively. Estimated
      annual amortization expense is $3.7 million in 2008, $3.6 million in 2009,
      $3.5
      million in 2010 $2.4 million in 2011, $564,000 in 2012, and $2.1 million,
      thereafter.




**9.**
            **ACCOUNTS
                PAYABLE AND ACCRUED
                EXPENSES**





Accounts
      payable and accrued expenses consist of the following:




**June
                30,**
            
            **December
                31,****2008**
            
            **2007**Accounts
                payable
            
            $
            2,647,966
            
            $
            2,053,126Professional
                services
            
            
            848,207
            
            
            680,067Compensation
                and related benefits
            
            
            1,414,831
            
            
            1,621,464Other
                accrued expenses
            
            
            3,452,029
            
            
            3,261,774$
            8,363,033
            
            $
            7,616,431




**10.**
            **LONG-TERM
                DEBT**





The
      current portion of long-term debt as of June 30, 2008 consists of the
      following:




Note
                  due in annual installments of $60,000 through October 2008, based
                  on
                  imputed interest of 8.75%
              
              $
              55,173


Interest
      expense was approximately $1,000 and $2,000 for the three months ended June
      30,
      2008 and 2007, respectively. Interest expense was approximately $2,000 and
      $5,000 for the three and six months ended June 30, 2008 and 2007,
      respectively.




**11.**
            **STOCK
                PLANS**




The
      1999
      Stock Incentive Plan (the “1999 Plan”) was adopted by the Board of Directors and
      approved by the stockholders in November 1999, as a successor plan to the
      Company’s 1997 Long Term Incentive Plan (the “1997 Plan”). All options under the
      1997 Plan have been incorporated into the 1999 Plan. The 1999 Plan became
      effective upon completion of the Company’s initial public offering of its common
      stock and was amended and restated as of March 27, 2001.




Under
      the
      terms of the 1999 Plan, 3,849,868 shares of common stock of the Company were
      initially reserved for incentive stock options, nonqualified stock options
      (incentive and nonqualified stock options are collectively referred to as
“options”), stock appreciation rights, stock issuances (which may be subject to
      the attainment of designated performance goals or service requirements
      (“restricted stock”), or any combination thereof. On May 15, 2001, the Company’s
      stockholders approved a further increase of 1,000,000 to the number of shares
      reserved for issuance under the 1999 Plan. Through June 30, 2008, an additional
      3,089,872 shares were added to the reserve pursuant to the automatic share
      increase provisions of the 1999 Plan. The shares reserved under the 1999 Plan
      automatically increase on the first trading day in January of each calendar
      year
      by an amount equal to two percent (2%) of the total number of shares of the
      Company’s common stock outstanding on the last trading day of December in the
      prior calendar year, but in no event will this annual increase exceed 1,000,000
      shares (or such other lesser number determined by the Board of Directors).
      Awards may be granted to such non-employee directors, officers, employees and
      consultants of the Company as the Compensation Committee of Board of Directors
      shall in its discretion select. Only employees of the Company are eligible
      to
      receive grants of incentive stock options. Options are granted at the fair
      market value of the stock on the date of grant. Options vest over periods up
      to
      four years and have terms not to exceed 10 years. Restricted stock awards vest
      over periods ranging from one to four years.


-
          13
          -
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          of Contents*




The
      2000
      Non-Officer Stock Incentive Plan (the “2000 Plan”) was approved by the Board of
      Directors in June 2000. Under the terms of the 2000 Plan, 435,000 shares of
      common stock of the Company have been reserved for nonqualified stock options,
      stock issuances (which may be restricted stock) or any combination thereof.
      Awards may be granted to employees (other than officers or directors of the
      Company) and consultants and other independent advisors who provide services
      to
      the Company. Options are granted at the fair market value of the stock on the
      date of grant. Generally, options have vested over a four-year period and have
      terms not to exceed 10 years. Currently, there are no unvested options
      outstanding under the 2000 Plan.




The
      Employee Stock Purchase Plan (the “ESPP”) was adopted by the Board of Directors
      and approved by the stockholders in November 1999 and became effective upon
      completion of the Company’s initial public offering of its common stock. The
      Compensation Committee of the Board of Directors administers the ESPP. The
      ESPP
      permits a participating employee to make contributions to purchase shares of
      common stock by having withheld from his or her salary an amount between 1
      percent and 15 percent of compensation. Under the ESPP, eligible employees
      of
      the Company may elect to participate on the start date of an offering period
      or
      subsequent semi-annual entry date, if any, within the offering period. On each
      purchase date during an offering period, a participating employee’s
      contributions will be used to purchase up to 1,000 shares of the Company’s
      common stock for such participating employee at a 15 percent discount from
      the
      fair market value, as defined in the ESPP, of such stock. Each offering period
      is determined by the plan administrator and may not exceed two years. The
      Company initially reserved 300,000 shares of common stock under the ESPP. The
      shares reserved automatically increase on the first trading day in January
      of
      each calendar year by the lesser of the (i) the number of shares of common
      stock
      issued under the ESPP in the immediately preceding calendar year, (ii) 300,000
      shares or (iii) such other lesser amount approved by the Board of Directors.
      Through June 30, 2008, 410,429 shares were issued under the ESPP and 393,239
      shares were added to the reserve pursuant to the automatic share increase
      provision.




The
      following table represents a summary of the Company’s stock option activity
      under the 1999 and 2000 Plans and related information, without regard for
      estimated forfeitures, for the six months ended June 30, 2008:





Shares
            
            Weighted
                AverageExercise
                PriceOptions
                outstanding at December 31, 2007
            
            
            1,972,054
            
            $
            6.04Options
                granted
            
            
            —
            
            
            —Options
                exercised
            
            
            (310,058
            )
            
            3.51Options
                canceled
            
            
            (28,047
            )
            
            4.24Options
                outstanding at June 30, 2008
            
            
            1,633,949
            
            $
            6.55





The
      fair
      value of options which vested during the three months ended June 30, 2008 and
      2007 was $5.90 and $1.99, respectively. The fair value of options which vested
      during the six months ended June 30, 2008 and 2007 was $5.71 and $1.99,
      respectively. The total intrinsic value of options exercised during the three
      months ended June 30, 2008 and 2007 was $825,000 and $1.3 million, respectively.
      The total intrinsic value of options exercised during the six months ended
      June
      30, 2008 and 2007 was $2.5 million and $4.7 million, respectively.







-
          14
          -
 *Table
          of Contents*


The
      following table summarizes information about options outstanding at June 30,
      2008:




**Options
                Outstanding**
            
            
            **Options
                Exercisable****Range
              of exercise price**
            
            
            **Number**
              **Outstanding**
              **as
                of**
              **June
                30, 2008**
            
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life**
              **(In
                Years)**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            
            **Number**
              **Exercisable**
              **as
                of**
              **June
                30, 2008**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**$0.42
                to $1.03
            
            
            337,968
            
            
            2.61
            
            $
            0.89
            
            
            337,968
            
            $
            0.89$1.37
                to $4.10
            
            
            885,981
            
            
            5.21
            
            
            3.30
            
            
            885,199
            
            
            3.30$18.26
            
            
            410,000
            
            
            3.91
            
            
            18.26
            
            
            136,667
            
            
            18.261,633,949
            
            
            4.35
            
            $
            6.55
            
            
            1,359,834
            
            $
            4.20





The
      weighted average remaining contractual life of options exercisable as of June
      30, 2008 was 4.43 years.




As
      of
      June 30, 2008, there were 2,637,992 shares available for future grants under
      the
      1999 Plan and 270,418 shares available for future grants under the 2000
      Plan.




The
      aggregate intrinsic value of stock options outstanding at June 30, 2008 was
      $8.7
      million, of which $7.6 million relates to vested awards. The 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 June 30, 2008. The
      following table summarizes nonvested stock option activity for the six months
      ended June 30, 2008:




Shares
            
            Weighted
                Average Exercise
              PriceNonvested
                options outstanding at December 31, 2007
            
            
            440,611
            
            $
            17.33Granted
            
            
            —
            
            
            —Vested
            
            
            (145,662
            )
            
            17.41Canceled
            
            
            (20,834
            )
            
            5.05Nonvested
                options outstanding at June 30, 2008
            
            
            274,115
            
            $
            18.22




The
      weighted average grant-date fair value of ESPP rights arising from elections
      made by ESPP plan participants was $3.71 during the three and six months ended
      June 30, 2008, and $6.28 during the three and six months ended June 30, 2007.
      The fair value of ESPP rights that vested was $4.13 during the three and sixth
      months ended June 30, 2008 and $3.96 during the three and six months ended
      June
      30, 2007. On January 31, 2008, the Company issued 17,190 shares at a weighted
      average price of $12.44 under the ESPP.




The
      intrinsic value of shares purchased through the ESPP on January 31, 2008 and
      of
      outstanding ESPP rights as of June 30, 2008 was $38,000 and $27,000,
      respectively. The intrinsic value of the ESPP rights is calculated as the
      discount from the quoted price of the Company’s common stock, as defined in the
      ESPP, which was available to employees as of the respective dates.




As
      of
      June 30, 2008, there was $1.1 million of unrecognized compensation cost related
      to nonvested stock options and ESPP rights, net of estimated forfeitures, which
      is expected to be recognized over a weighted average period of 1.89
      years.






-
          15
          -
 *Table
          of Contents*






The
      fair
      value for options and ESPP rights have been estimated on the date of grant
      using
      the Black-Scholes option pricing model with the following
      assumptions:





Six
                Months Ended June 30,2008
            
            2007Options
            
            ESPP
                Rights
            
            Options
            
            ESPP
                RightsWeighted
                average expected option lives
            
            
            N/A
            
            
            0.5
                years
            
            
            4.0
                years
            
            
            0.5
                yearsRisk-free
                interest rate
            
            
            N/A
            
            
            2.15
            %
            
            4.83
            %
            
            5.16
            %Expected
                volatility
            
            
            N/A
            
            
            44.6
            %
            
            32.1
            %
            
            20.3
            %Dividend
                yield
            
            
            N/A
            
            
            0
            %
            
            0
            %
            
            0
            %




Expected
      volatility is based on the historical volatility of the market price of the
      Company’s stock. The expected lives of options granted are based on analyses of
      historical employee termination rates and option exercises. The risk-free
      interest rates are based on the expected option lives and the corresponding
      U.S.
      treasury yields in effect at the time of grant. The fair value for ESPP rights
      includes the option exercise price discount from market value provided for
      under
      the ESPP.




During
      the three months ended June 30, 2008 and 2007, the Company recorded $417,000
      and
      $132,000, respectively, of compensation expense related to options and ESPP
      rights. During the six months ended June 30, 2008 and 2007, the Company recorded
      $584,000 and $190,000, respectively, of compensation expense related to options
      and ESPP rights and received cash from the exercise of options and ESPP rights
      of $1.3 million and $832,000, respectively, for which the Company issued new
      shares of common stock.




As
      of
      June 30, 2008 and 2007, there were 526,793 and 468,000 service-based restricted
      stock awards outstanding, respectively. During the three months ended June
      30,
      2008 and 2007, 116,500 shares and 52,000 shares, respectively, of restricted
      stock were awarded at weighted average grant-date fair values of $11.35 and
      $19.87, respectively. During the six months ended June 30, 2008 and 2007,
      191,500 shares and 56,000 shares, respectively, of restricted stock were awarded
      at weighted average grant-date fair values of $12.09 and $20.25, respectively.
      During the six months ended June 30, 2008, 45,254 shares of restricted stock
      vested, 32,000 shares of restricted stock were cancelled and 10,577 shares
      of
      restricted stock were repurchased by the Company in connection with the
      surrender of these shares by employees to satisfy tax withholding obligations
      related to the vesting of the stock awards. During the six months ended June
      30,
      2007, 7,500 shares of restricted stock vested and 4,000 shares of restricted
      stock were canceled. The aggregate intrinsic value of restricted shares at
      June
      30, 2008 was $5.1 million. The intrinsic value for restricted shares is
      calculated based on the par value of the underlying shares and the quoted price
      of the Company’s common stock as of June 30, 2008.




As
      of
      June 30, 2008, there was $6.0 million of total unrecognized compensation cost
      related to nonvested restricted shares, net of estimated forfeitures, which
      is
      expected to be recognized over a weighted average period of 2.46 years. During
      the three months ended June 30, 2008 and 2007, the Company recorded $700,000
      and
      $445,000, respectively, of compensation expense related to restricted shares.
      During the six months ended June 30, 2008 and 2007, the Company recorded $1.3
      million and $860,000, respectively, of compensation expense related to
      restricted shares.




**12.**
            **AGREEMENT
                WITH COLLAGES. NET, INC.
                (“Collages”)**





In
      March
      2005, the Company entered into a Marketing Services Agreement (the “Agreement”)
      with Collages, a provider of hosting and website development services to
      professional photographers. Under the Agreement, which has expired, the Company
      delivered online and print advertising services to Collages in exchange for
      having received Collages Series A Preferred Stock, which vested over the first
      two years of the Agreement. The fair value of the marketing services provided
      over the term of the Agreement approximated the fair value of Series A Preferred
      Stock received.




The
      Company earned approximately $1.9 million in revenue pursuant to the Agreement
      and has deferred recognition of this revenue since the realization of the
      resulting asset, representing an equity investment in Collages, is not
      reasonably assured.


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**13.**
            **COMMITMENTS
                AND CONTINGENCIES**





**Legal
      Proceedings**





A
      putative amended class action complaint captioned *Haslam
      v. Macy’s, Inc., The Knot, Inc., WeddingChannel.com, Inc. and Does
      1-100* was
      filed in the United States District Court for the Southern District of Florida
      on February 22, 2008. The complaint alleged that the defendants provided
      customers with electronically printed receipts for credit card and debit card
      point of sale transactions that contained more than the last five digits of
      the
      customer’s card number and/or the card’s expiration date in violation of the
      Federal Fair and Accurate Credit Transactions Act (FACTA). On May 16, 2008,
      an
      order was entered granting the motions to dismiss filed by Macy’s, The Knot and
      WeddingChannel, with prejudice.




The
      Company is engaged in other legal actions arising in the ordinary course of
      business and believes that the ultimate outcome of these actions will not have
      a
      material effect on its results of operations, financial position or cash
      flows.




**14.**
            **ACQUISITION**




In
      February 2008, the Company acquired The Bump Media, Inc. (“The Bump”), through
      the merger of a wholly-owned subsidiary of the Company with and into The Bump.
      The Bump is a publisher of local print and website guides to pregnancy,
      maternity and baby resources, and the acquisition will expand the Company’s
      service offerings in these areas. The purchase price for all of the capital
      stock of The Bump, including transaction costs, was approximately $1.7 million
      in cash.




The
      estimated cost of this acquisition was allocated to the assets acquired and
      the
      liabilities assumed based upon a preliminary determination of their values
      as
      follows:




**Assets
                and Liabilities Acquired**
            
            **Amount**Current
                assets
            
            $
            74,014Property
                and equipment
            
            
            23,400Intangible
                assets:Trademarks
            
            
            550,000Advertiser
                relationships
            
            
            48,000Distribution
                network
            
            
            54,000Goodwill
            
            
            1,665,256Other
                assets
            
            
            242Total
                assets acquired
            
            
            2,414,912Current
                liabilities
            
            
            447,119Deferred
                tax liabilities
            
            
            266,000Other
                liabilities
            
            
            5,439Total
                liabilities assumed
            
            
            718,558Total
                estimated cost
            
            $
            1,696,354




This
      acquisition would not have had a material impact with respect to the
      consolidated results of operations for the three and six months ended June
      30,
      2008 and 2007 had the acquisition been consummated on January 1,
      2007.





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**15.**
            **INCOME
                TAXES**




As
      of
      June 30, 2008, the Company has approximately $4.3 million in unrecognized tax
      benefits related to certain acquired net operating loss carryforwards of
      WeddingChannel arising from a tax position taken in the 2006 income tax filings
      related to losses associated with the dissolution of a subsidiary. This amount
      has been netted against the related deferred tax assets and, if recognized,
      would result in a reduction of goodwill. However, a portion of these
      unrecognized tax benefits could be subject to a valuation allowance if and
      when
      recognized in a future period.




The
      Company is subject to taxation in the United States and various state and local
      jurisdictions. In December 2007, the Internal Revenue Service completed its
      audit of the Company’s 2005 U.S. federal tax return with no adjustment. As of
      June 30, 2008, none of the Company’s other tax returns have been examined by any
      income taxing authority. As a result of the ongoing use of tax loss
      carryforwards, all of the Company’s U.S. federal tax returns from 1998 through
      2004 and 2006, its more significant state and local returns, as well as all
      tax
      returns of WeddingChannel remain subject to examination. Through June 30, 2008,
      the Company has not recorded any interest and penalties related to uncertain
      tax
      positions.




**16.**
            **REGISTRATION
                RIGHTS AGREEMENT**




On
      April
      30, 2008, the Company entered into a Registration Rights Agreement (the
“Registration Rights Agreement”) with Macy’s, Inc. (“Macy’s”). The Company had
      entered into an agreement with Macy’s on June 5, 2006 (the “Macy’s Agreement”)
      which was effective on September 8, 2006, the date of the closing of the
      Company’s acquisition of WeddingChannel.com, Inc. (“WeddingChannel.com”).
      Pursuant to the Macy’s Agreement, Macy’s is entitled to certain registration
      rights. The Registration Rights Agreement is the definitive agreement with
      respect to these registration rights. Under the Registration Rights Agreement,
      the shares that are eligible for registration rights are those shares of the
      Company’s common stock that are restricted securities under the Securities Act
      of 1933, as amended, and owned by Macy’s and its affiliates as of the date of
      the Registration Rights Agreement (the “Registrable Securities”). Macy’s and any
      person or entity to whom Macy’s sells, transfers or assigns in the aggregate 10%
      or more of the Registrable Securities are entitled to registration rights under
      the Registration Rights Agreement (each, a “Holder”). At any time after the date
      of the Registration Rights Agreement that the Company is eligible to file a
      registration statement on Form S-3, a Holder owning at least 20% of the
      Registrable Securities has the right to demand that the Company file a
      registration statement on Form S-3, provided that the aggregate amount of
      securities to be sold under the registration statement on Form S-3 must be
      at
      least $10,000,000. The Company is obligated to file no more than one
      registration statement on Form S-3. These registration rights are subject to
      specified conditions and limitations, including the right of the underwriters,
      if any, to limit the number of shares included in any such registration under
      specified circumstances. If the Company registers any securities for public
      sale, subject to certain exceptions, Holders have the right to include
      Registrable Securities in the registration statement. These registration rights
      are subject to specified conditions and limitations, including the right of
      the
      underwriters, if any, and the Company to limit the number of shares included
      in
      any such registration under specified circumstances. The Company will pay all
      expenses relating to demand registrations and piggyback registrations, other
      than underwriting discounts and commissions. However, the Company will not
      pay
      for the expenses of any demand registration if the request is subsequently
      withdrawn by the Holders, subject to specified exceptions. Each of the Company
      and the Holders and certain of their affiliates and representatives have certain
      rights to indemnification in connection with the registration of Registrable
      Securities. The registration rights for each Holder terminate on the earlier
      of
      (1) the date that all Registrable Securities held by such Holder may be sold
      in
      a single three-month period under Rule 144 under the Securities Act of 1933,
      as
      amended, or (2) the date on which there are no Holders owning Registrable
      Securities constituting at least 5% of the Company’s common stock outstanding as
      of the closing of the Company’s acquisition of WeddingChannel.com on September
      8, 2006.




Macy’s
      accounted for approximately 10% of the Company’s consolidated net revenues
      during the six months ended June 30, 2008 and as of June 30, 2008 Macy’s
      beneficially owned 11.4% of the Company’s common stock.





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**ITEM
              2.**
            **Management’s
                Discussion and Analysis of Financial Condition and
                Results of Operations**




*You
      should read the following discussion and analysis in conjunction with our
      financial statements and related notes included elsewhere in this report. This
      discussion contains forward-looking statements relating to future events and
      the
      future performance of The Knot based on our current expectations, assumptions,
      estimates and projections about us and our industry. These forward-looking
      statements involve risks and uncertainties. Actual results or events could
      differ materially from those anticipated in such forward-looking statements
      as a
      result of certain factors, as more fully described in this section and elsewhere
      in this report. We undertake no obligation to update publicly any
      forward-looking statements for any reason, even if new information becomes
      available or other events occur in the future.*




**Overview**




The
      Knot,
      Inc. is a leading lifestage media company targeting couples planning their
      weddings and future lives together. Our flagship brand, The Knot, is the
      nation's leading wedding resource, reaching over a million engaged couples
      each
      year through the #1 wedding website TheKnot.com. Extensions of The Knot brand
      include The Knot’s national and local magazines, The Knot books (published by
      Random House and Chronicle), and television programming bearing The Knot name
      (aired on Style Network and Comcast). The Company’s subsidiary,
      WeddingChannel.com, is the second largest wedding website overall and the #1
      gift registry website. The Nest brand focuses on the newlywed-to-pregnancy
      lifestage with the popular lifestyle website TheNest.com, a home décor book
      series with Clarkson Potter, The Nest magazine, and baby offshoot The
      NestBaby.com. Also under The Knot, Inc. umbrella are WeddingTracker.com,
      GiftRegistryLocator.com, party planning site PartySpot.com, teen-oriented
      PromSpot.com, and local baby services and community site
      Lilaguide.com.




**Milestones
      and Strategy**




We
      commenced operations in 1996. In 2000, we acquired Weddingpages, Inc., the
      nation’s largest local wedding magazine publisher, helping us to extend The Knot
      brand on the local level. In November 2004, with the launch of TheNest.com,
      we
      extended our audience relationship beyond weddings with the first online
      destination for newly married couples. In 2006, we acquired personal wedding
      website WeddingTracker.com and local baby resource Lilaguide.com, which have
      allowed us to deepen the relationship with both our core audience and
      advertisers.




In
      September 2006, we acquired WeddingChannel.com, Inc. We made the acquisition
      to
      increase our market share and provide us additional opportunities to leverage
      core assets including our commerce operations and local and national sales
      forces. We also undertook the acquisition to enhance the services we are able
      to
      provide our audience of engaged couples and their wedding guests through
      WeddingChannel’s registry offerings. We intend to maintain WeddingChannel.com as
      a separate website and continue to offer WeddingChannel’s services ranging from
      planning content and interactive tools to convenient, comprehensive shopping
      and
      community participation. The decision to retain WeddingChannel.com as a separate
      brand and a distinct destination from The Knot.com is driven, in part, by the
      fact that at the time of the acquisition, there was only a 20 percent overlap
      of
      unique visitors between the two websites. This low overlap indicated that the
      WeddingChannel brand was appealing to a different audience. As a result, keeping
      these two destinations affords us the opportunity to reach a larger engaged
      audience for our advertisers. The results of operations for WeddingChannel
      have
      been included in our consolidated statements of operations since the acquisition
      date.




In
      May
      2007, we took our first steps into the baby space with the launch of
      TheNestBaby.com, a hip new web site for soon-to-be-parents. The site
      specifically targets first time parents from fertility through pregnancy, birth
      and the first year and facilitates community by enabling moms in each stage
      to
      meet each other and to share local advice. Like TheKnot.com, the baby site
      provides content and tools surrounding the big event, featuring checklists,
      personal blogs, message boards, articles and a baby shop for personalized gifts
      and supplies.






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In
      February 2008, we acquired The Bump Media, Inc., a publisher of local print
      and
      website guides to pregnancy, maternity and baby resources which expands our
      service offerings in these areas.




Our
      strategy is to expand our position as a leading lifestage media company
      providing comprehensive information, services and products to couples from
      engagement through pregnancy on multiple platforms that keep in step with the
      changing media landscape.




*Increase
      Our Market Share and Leverage Assets.* Acquiring
      companies or services that are complementary to our business increases our
      leverage with advertisers as well as our ability to satisfy our customers.
      The
      acquisition of WeddingChannel has significantly increased our share of the
      online bridal audience and provides additional opportunities to leverage our
      local and national sales forces as well as our wedding merchandise offerings.
      WeddingChannel's registry search platform will also enhance the service we
      are
      able to provide all of our engaged couples and their wedding guests. The launch
      of PartySpot.com leverages our technologies as well as our local sales force
      and
      vendor relationships to provide local party planning information to families
      hosting rehearsal dinners, bar mitzvahs, sweet sixteens and graduation
      parties.




*Deepen
      Our Relationship with Our Audience* .  A
      large and active membership base is critical to our success. Annual new
      membership has remained generally consistent in recent years. Membership
      enrollment is free and gives members the use of important services such as
      free
      personal wedding webpages, message boards, interactive planning tools, wedding
      checklists and wedding gown databases. Our priority in the wedding space is
      to
      increase the depth of member engagement with our sites through new content
      and
      product offerings, additional interactive premium services, and active community
      participation. We also acquire and create properties to expand our services.
      Our
      websites, WeddingTracker.com and Wed-o-rama.com, allow us to offer our engaged
      couples premium personal wedding webpage design and hosting for a
      fee.




*Expand
      into Other Lifestages and Services* .  In
      the first years of marriage, The Knot members will spend even more than they
      did
      on their weddings as they buy and furnish homes, organize their finances and
      start having children. With TheNest.com, we are now extending our relationship
      with our core membership base — and new advertiser
      categories — by providing access to services and products relevant to
      newlyweds and growing families. Getting pregnant is another intense event for
      young married couples, and we believe there is an opportunity to continue
      serving our audience as they enter this significant lifestage. The launch of
      TheNestBaby.com extends our social network to provide pregnant moms and new
      parents with essential information such as stage-by-stage advice, expert
      Q&As, interactive tools, checklists, as well as local events listings and
      resource reviews in more than 100 local markets powered by sibling site
      Lilaguide.com.




*Leverage
      Brands and New Media Platforms.* Maintaining
      our strong brands is critical to attracting and expanding both our online and
      offline user base and securing our leading position in the bridal market and
      beyond. Distribution on new media platforms is a key effort in our brand
      building. We have been a leader in the production and distribution of high
      quality video content online. This branded wedding video content has been
      popular on TheKnot.com and has also gained us increased visibility on
      distribution partner portal MSN. In 2004, we partnered with Comcast, the
      nation's leading cable and broadband provider, to launch The Knot Weddings
      channel, the first-ever all-weddings Video-on-Demand service. In April 2007,
      we
      kicked off our strategic partnership with Style Network with our branded TV
      special, “My Celebrity Wedding by The Knot,” a new spin-off which showcased a
      wedding inspired by a celebrity ceremony, planned by The Knot’s Editor in Chief,
      Carley Roney. The second branded segment, “My Destination Wedding with The
      Knot,” aired in December of 2007.




Aggressive
      public relations outreach is another key tool we use to promote our brands.
      In
      the last twelve months, Carley Roney, as a leading wedding and lifestyle expert,
      has appeared on more than 35 national and local television programs promoting
      The Knot, The Nest and The Nest Baby brands. In addition, in spring 2007, our
      WeddingChannel brand was featured during a seven week wedding series on Fox
      Television’s daytime show *Mike
      & Juliet* .





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**Summary**





Over
      the
      past year and a half, we have seen many of our offline competitors increase
      their investments in online media. We have also seen a significant number of
      new
      competitors emerging both online as well as in print. For example, over the
      last
      five years, the number of independent wedding magazines has nearly doubled.
      Despite these trends in the competitive landscape, we believe we continue to
      maintain a dominant consumer market share and that our members are more engaged
      than ever. We continue to focus on better monetizing this dominant position
      within the valuable consumer group we serve.




Accordingly,
      in 2008, we are concentrating on several key initiatives that we believe will
      be
      the foundation for the future growth of The Knot. First, we are in the process
      of upgrading legacy technology platforms to more flexible and scalable systems.
      Second, we are continuing to expand our brands into the newlywed and first
      pregnancy lifestages. In addition, we are expanding our marketing efforts to
      increase awareness of our brands and products.




The
      majority of our current technology upgrades are aimed at increasing our
      operational efficiency so that we can go after a greater market share of
      advertising dollars and commerce revenue in the weddings portion of our
      business. We are developing a new content management system that will allow
      us
      to more efficiently maintain and organize information on our websites. The
      Nest
      website has been converted to the new platform, and our goal is to have both
      the
      WeddingChannel and The Knot websites converted before the end of the year.
      Our
      new local contract entry system and surrounding support applications, also
      under
      development, will allow greater pricing flexibility, which we believe will
      allow
      us to expand our local vendor base, as well as achieve operational efficiencies,
      which will provide additional time for our local sales force to pursue new
      accounts. In addition to the new contract entry system, we are also in the
      process of converting our existing local art management application off of
      our
      legacy AS/400 system. We currently believe that these local systems projects
      will be completed before the end of 2008. We then expect to proceed with further
      projects involving a self-service platform that will allow local vendors to
      automatically select their advertising programs and an auction-based platform
      for selling featured vendor positions in the local areas on our websites. We
      expect that these new programs will allow us to more effectively scale our
      local
      business and drive further growth for local online revenue.




Our
      efforts to expand our brands into the lifestages beyond weddings, such as the
      acquisition of Lilaguide in 2006 and our recent acquisition of The Bump Media,
      are designed to reduce our reliance on bridal endemic advertising, which is
      an
      important part of our strategy for increasing national online advertising
      revenue. To that end, we are also increasing our investments in editorial and
      creative staff to increase our content offerings for these additional
      lifestages.




We
      believe that we have generally excelled at marketing to our consumers with
      compelling brands, engaging content and products and a highly successful
      consumer public relations program, but we have not aggressively marketed our
      media offerings to advertisers. Accordingly, in 2008, we have established a
      new
      marketing team to develop trade marketing programs and supporting research
      aimed
      at the local vendor community and national advertising marketplace as a
      foundation to drive further national and local advertising revenue growth.
      This
      team will also be involved in launching programs to increase registry searches
      and transactions from which we would derive commission revenue, as well as
      to
      improve conversion of more of our members to customers of our online stores
      for
      wedding supplies.




We
      currently expect that our overall revenue growth for the calendar year ending
      December 31, 2008 will range from 9% to 11%. As a result of the significant
      investments we are making in 2008, particularly for additional information
      technology, project management, editorial, creative and marketing staff,
      operating expense increases for the three and six months ended June 30, 2008,
      have exceeded revenue growth for each period. As a result, our operating income
      has declined. We currently expect this trend to continue at least for the next
      quarter. We also currently believe that we will be able to effectively leverage
      our current year staffing levels to support increased revenue growth in the
      future, resulting in increases to our operating income in 2009.




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**Critical
      Accounting Policies**




The
      discussion and analysis of our financial condition and results of operations
      are
      based upon our consolidated financial statements which have been prepared in
      accordance with U.S. generally accepted accounting principles. The preparation
      of these financial statements requires us to make estimates and judgments that
      affect the reported amounts of assets, liabilities, revenues and expenses,
      and
      related disclosure of contingent assets and liabilities on an on-going basis.
      We
      evaluate these estimates including those related to revenue recognition,
      allowances for doubtful accounts, inventory provisions, impairment of intangible
      assets, including goodwill, and deferred taxes. Actual results may differ from
      these estimates under different assumptions or conditions.




***Revenue
      Recognition***




We
      derive
      revenues from the sale of online sponsorship and advertising programs, from
      commissions earned in connection with the sale of gift registry products, from
      the sale of merchandise and from the publication of magazines.




Online
      sponsorship programs are designed to integrate advertising with online editorial
      content. Sponsors can purchase the exclusive right to promote products or
      services on a specific online editorial area and can purchase a special feature
      on our sites. These programs commonly include banner advertisements and direct
      e-mail marketing. Sponsors can also promote their services and products within
      the programming on our streaming video channel, The Knot TV.




Online
      advertising includes online banner advertisements and direct e-mail marketing
      as
      well as placement in our online search tools. This category also includes online
      listings, including preferred placement and other premium programs, in the
      local
      area of our websites for local wedding and other vendors. Local vendors may
      purchase online listings through fixed term contracts or open-ended
      subscriptions.




Certain
      elements of online sponsorship and advertising contracts provide for the
      delivery of a minimum number of impressions. Impressions are the featuring
      of a
      sponsor's advertisement, banner, link or other form of content on our sites.
      We
      recognize online sponsorship and advertising revenue over the duration of the
      contracts on a straight-line basis when we deliver impressions in excess of
      minimum guarantees. To the extent that minimum guaranteed impressions are not
      met, we are often obligated to extend the period of the contract until the
      guaranteed impressions are achieved. If this occurs, we defer and recognize
      the
      corresponding revenues over the extended period.




Registry
      services revenue primarily represents commissions from retailers who participate
      in WeddingChannel’s registry aggregation service which offers couples and their
      guests the opportunity to view multiple registries in one location and for
      guests to order gifts off of these registries. Sales orders are fulfilled and
      shipped by the retail partners, at which point, the related commissions are
      contractually earned by us. Product returns or exchanges do not materially
      impact the commissions earned by the Company. In accordance with Emerging Issues
      Task Force Issue No. 99-19, *“Reporting
      Revenue Gross As A Principal Versus Net As An Agent,”* we only
      record net commissions, and not gross revenue and cost of revenue associated
      with these products, since the we are not primarily obligated in these
      transactions, are not subject to inventory risk and amounts earned are
      determined using a fixed percentage.




Merchandise
      revenue generally includes the selling price of wedding supplies through our
      websites as well as related outbound shipping and handling charges since we
      are
      the primary party obligated in a transaction, are subject to inventory risk,
      and
      we establish our own pricing and selection of suppliers. Merchandise revenues
      are recognized when products are shipped to customers, reduced by discounts
      as
      well as an allowance for estimated sales returns.




Publishing
      revenue primarily includes print advertising revenue derived from the
      publication of national and regional magazines. These revenues are recognized
      upon the publication of the related magazines, at which time all material
      services related to the magazine have been performed. Additionally, publishing
      revenues are derived from the sale of magazines on newsstands and in bookstores,
      and from author royalties received related to book publishing contracts.
      Revenues from the sale of magazines are recognized when the magazines are
      shipped, reduced by an allowance for estimated sales returns. Author royalties,
      to date, have been derived primarily from publisher royalty advances that are
      recognized as revenue when all of our contractual obligations have been met
      which is typically upon the delivery to, and acceptance by, the publisher of
      the
      final manuscript.


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For
      contracts with multiple elements, including programs which combine online and
      print advertising components, we allocate revenue to each element based on
      evidence of its fair value. Evidence of fair value is the normal pricing and
      discounting practices for those deliverables when sold separately. We defer
      revenue for any undelivered elements and recognize revenue allocated to each
      element in accordance with the revenue recognition policies set forth
      above.




Revenue
      for which realization is not reasonably assured is deferred.




***Allowance
      for Doubtful Accounts***




We
      maintain an allowance for doubtful accounts for estimated losses resulting
      from
      the inability of our customers to make required payments. As of June 30, 2008
      and December 31, 2007, our allowance for doubtful accounts amounted to $709,000
      and $1.0 million, respectively. In determining these allowances, we evaluate
      a
      number of factors, including the credit risk of customers, historical trends
      and
      other relevant information. If the financial condition of our customers were
      to
      deteriorate, additional allowances may be required.




***Inventory***




In
      order
      to record our inventory at its lower of cost or market, we assess the ultimate
      realizability of our inventory, which requires us to make judgments as to future
      demand and compare that with current inventory levels. We record a provision
      to
      adjust our inventory balance based upon that assessment. If our merchandise
      revenues grow, the investment in inventory would likely increase. It is possible
      that we would need to further increase our inventory provisions in the
      future.




***Goodwill
      and Other Intangibles***




As
      of
      June 30, 2008, we had recorded goodwill and other intangible assets of $63.5
      million. In our most recent annual assessment of impairment of remaining
      goodwill and intangible assets as of October 1, 2007, we made estimates of
      fair
      value using multiple approaches. In our ongoing assessment of impairment of
      goodwill and other intangible assets, we consider whether events or changes
      in
      circumstances such as significant declines in revenues, earnings or material
      adverse changes in the business climate, indicate that the carrying value of
      assets may be impaired. As of June 30, 2008, no current impairment indicators
      were noted. Future adverse changes in market conditions or poor operating
      results of strategic investments could result in losses or an inability to
      recover the carrying value of the investments, thereby possibly requiring
      impairment charges in the future.




***Deferred
      Tax Asset Valuation Allowance***




In
      connection with the acquisition of WeddingChannel, we recorded a deferred tax
      asset related to certain acquired tax loss carryforwards of WeddingChannel
      of
      $21.7 million which resulted in a reduction of goodwill associated with the
      acquisition. The substantial portion of the acquired tax loss carryforwards
      of
      WeddingChannel are subject to a limitation on future utilization under Section
      382 of the Internal Revenue Code. We currently estimate that the effect of
      Section 382 will generally limit the amount of the loss carryforwards of
      WeddingChannel which is available to offset future taxable income to
      approximately $3.6 million annually. The overall determination of the annual
      loss limitation is subject to interpretation, and therefore, the annual loss
      limitation could be subject to change.




Through
      June 30, 2008, we continue to maintain an estimated valuation allowance for
      deferred tax assets associated with certain state net operating loss
      carryforwards of WeddingChannel. The recognition of these additional tax
      benefits would result in a reduction to goodwill.




As
      of
      June 30, 2008, we had recorded deferred tax assets of $24.1 million. The
      realization of these deferred tax assets depends upon our ability to continue
      to
      generate taxable income in the future, as well as other factors including
      limitations which may arise from changes in our ownership. The valuation
      allowance may need to be adjusted in the future if facts and circumstances
      change causing a reassessment of the realization of the deferred tax
      assets.






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***Stock-Based
      Compensation***




We
      compute stock-based compensation in accordance with Statement of Financial
      Accounting Standards (“SFAS”) No. 123(R), *Share-Based
      Payment.* SFAS No.
      123(R) requires the measurement of compensation expense for all stock awards
      granted to employees and non-employee directors at fair value on the date of
      grant and recognition of compensation expense over the related service periods
      for awards expected to vest.




The
      fair
      value of restricted stock is determined based on the number of shares granted
      and the quoted price of our common stock, and the fair value of stock options
      is
      determined using the Black-Scholes valuation model. The calculation for fair
      value of stock options requires considerable judgment including the estimation
      of stock price volatility, expected option lives and risk-free investment rates.
      We develop estimates based on historical data and market information which
      may
      change significantly over time and, accordingly, have a large impact on
      valuation.




We
      recognized stock-based compensation for service-based graded-vesting stock
      awards granted prior to January 1, 2006 using the accelerated method prescribed
      by Financial Accounting Standards Board (“FASB”) *Interpretation
      No. 28.* As
      permitted by SFAS No. 123(R), for stock awards granted after December 31, 2005,
      we have adopted the straight-line attribution method. We include an estimate
      of
      stock awards to be forfeited in the future in calculating stock-based
      compensation expense for the period. We consider several factors when estimating
      future forfeitures, including types of awards, employee level and historical
      experience. Actual forfeitures may differ substantially from our current
      estimates.




**Results
      of Operations**




*Net
      Revenues*




Net
      revenues increased to $28.7 million and $52.5 million for the three and six
      months ended June 30, 2008, respectively, from $28.5 million and $49.5 million
      for the corresponding periods in 2007.




Total
      online sponsorship and advertising revenues increased to $13.5 million and
      $26.4
      million for the three and six months ended June 30, 2008, respectively, as
      compared to $12.5 million and $23.3 million for the corresponding periods in
      2007. Revenue from local vendor online advertising programs increased to $8.0
      million and $16.3 million or by $419,000 and $1.4 million, for the three and
      six
      months ended June 30, 2008, respectively, when compared to the corresponding
      periods in 2007. These increases were primarily the result of higher average
      spending by local vendor clients due to the continuing effect of price increases
      which were offset, in part, by the impact on revenue from the elimination of
      certain acquired WeddingChannel local vendor accounts over the course of the
      year ended December 31, 2007. Revenue from these accounts amounted to
      approximately $600,000 and $1.2 million for the three and six months ended
      June
      30, 2007, respectively. In addition, national online sponsorship and advertising
      revenue increased to $5.4 million and $10.1 million for the three and six months
      ended June 30, 2008, or by $523,000 and $1.7 million, respectively, when
      compared to the corresponding periods in 2007 due to increases in the average
      spending by national accounts. Online sponsorship and advertising revenues
      amounted to 47% and 44% of our net revenues for the three months ended June
      30,
      2008 and 2007, respectively. For the six months ended June 30, 2008 and 2007,
      online sponsorship and advertising revenues amounted to 50% and 47% of our
      net
      revenues, respectively.




Registry
      services revenue was $3.3 million and $5.1 million for the three and six months
      ended June 30, 2008, respectively, and was relatively flat as compared to the
      corresponding periods in 2007. A small increase in commissions earned from
      WeddingChannel retail partners was generally offset by a small decline from
      other registry commission sources. Registry services revenue amounted to 11%
      and
      10% of our net revenues for the three and six months ended June 30, 2008,
      respectively, as compared to 12% and 10% of our net revenues for the
      corresponding periods in 2007.




Merchandise
      revenues, which consist primarily of the sale of wedding supplies, increased
      to
      $7.1 million and $11.7 million for the three and six months ended June 30,
      2008,
      respectively, as compared to $6.5 million and $11.1 million for the
      corresponding periods in 2007. Revenue for The Knot Wedding Shop increased
      by
      $1.0 million and $1.3 million or 22% and 17% for the three and six months ended
      June 30, 2008, respectively, as compared to the corresponding periods in the
      prior year, generally due to an increase in the number of orders. These
      increases were offset, in part, by declines in revenue from the WeddingChannel
      store. Merchandise revenues amounted to 25% and






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23%
      of
      our net revenues for the three months ended June 30, 2008 and 2007,
      respectively. For the six months ended June 30, 2008 and 2007, merchandise
      revenue was 22% and 23% of our net revenues, respectively.





Publishing
      and other revenues were $4.8 million and $9.3 million for the three and six
      months ended June 30, 2008, respectively, as compared to $6.1 million and $10.0
      million for the corresponding periods in 2007. The majority of the revenue
      decrease for the recent quarter resulted from the timing of publication of
      our
      annual *The
      Knot Best of Weddings* which
      contributed $816,000 to revenue in the second quarter of 2007. We published
      this
      magazine in the first quarter of 2008. Advertising revenue from our other local
      print publications which published in the second quarter of this year decreased
      by approximately $180,000 as compared to the corresponding period in the prior
      year due to a decline in advertising pages sold in several markets. In addition,
      for the six months ended June 30, 2008, revenue from the February issue of
      The
      Knot Weddings magazine decreased by slightly over $300,000 due primarily to
      a
      decline in the number of designer advertising pages sold. During the six months
      ended June 30, 2007, we recorded additional other revenue aggregating $330,000
      which included author royalties and revenue from the one-time joint publication
      of a magazine with the American Express Travel and Leisure group. The decrease
      in local print advertising in the second quarter of 2008 was generally offset
      for the six month period by increased advertising revenue in 2008 from local
      magazines publishing in the first quarter of this year. Publishing and other
      revenue amounted to 17% and 21% of our net revenues for the three months ended
      June 30, 2008 and 2007, respectively. For the six months ended June 30, 2008
      and
      2007, publishing and other revenue was 18% and 20% of our net revenues,
      respectively.





*Cost
      of Revenues*





Cost
      of
      revenues consists of the cost of merchandise sold, including outbound shipping
      costs, costs related to the production of national and regional magazines and
      The Knot TV, payroll and related expenses for our personnel who are responsible
      for the production of online and offline media, and costs of Internet and
      hosting services.




Cost
      of
      revenues increased to $5.8 million and $10.2 million for the three and six
      months ended June 30, 2008, respectively, as compared to $5.7 million and $9.7
      million for the corresponding periods in 2007. An increase in cost of revenues
      from the sale of merchandise for the three months ended June 30, 2008 due to
      an
      increase in wedding supplies revenue was generally offset by lower publishing
      and other cost of revenue due to lower production costs as a result of the
      timing of publication of *The
      Knot Best of Weddings m* agazine.
      The increase in cost of revenues for the six months ended June 30, 2008, as
      compared to the corresponding period in the prior year, was a result of higher
      merchandise cost of revenue due to the increase in revenues as well as higher
      advertising cost of revenues due to increased host services expense. As a
      percentage of our net revenues, total cost of revenues was 20% for each of
      the
      three and six months ended June 30, 2008 and 2007.





*Product
      and Content Development*





Product
      and content development expenses consist primarily of payroll and related
      expenses for editorial, creative and information technology personnel and
      computer hardware and software costs.




Product
      and content development expenses increased to $5.0 million and $10.0 million
      for
      the three and six months ended June 30, 2008, as compared to $3.3 million and
      $6.5 million for the three and six months ended June 30, 2007. These increases
      are a result of additional investments in our information technology platforms
      and related information technology and project management staff to improve
      our
      operating efficiency. The increases are also the result of additions to our
      editorial staff to increase our content offerings for lifestages beyond
      weddings. As a percentage of our net revenues, product and content development
      expenses increased to 18% and 19% for the three and six months ended June 30,
      2008, respectively, from 12% and 13% for the corresponding periods in 2007.





*Sales
      and Marketing*




Sales
      and
      marketing expenses consist primarily of payroll and related expenses for sales
      and marketing, customer service, registry and public relations personnel, as
      well as the costs for promotional activities and fulfillment and distribution
      of
      merchandise and magazines.




Sales
      and
      marketing expenses increased to $7.6 million and $15.2 million for the three
      and
      six months ended June 30, 2008, respectively, as compared to $6.4 million and
      $12.3 million for the corresponding periods in 2007. Sales personnel and related
      costs increased by $536,000 and $1.4 million, respectively, for the three and
      six months






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ended
      June 30, 2008, primarily as a result of further investments in marketing and
      national sales and sales support staff. We are also incurring additional
      marketing expenses in 2008 to support research programs, analytics and other
      promotional efforts to raise awareness of our brands and products within the
      local vendor community and national advertising marketplace, to develop programs
      designed to promote registry searches from which we derive commission revenue
      and to improve the conversion rate of our membership base to customers of our
      online stores for wedding supplies. As a percentage of our net revenues, sales
      and marketing expenses increased to 27% and 29% for the three and six months
      ended June 30, 2008, respectively, from 23% and 25% for the corresponding
      periods in 2007.




*General
      and Administrative*




General
      and administrative expenses consist primarily of payroll and related expenses
      for our executive management, finance and administrative personnel, legal and
      accounting fees, facilities costs, insurance and bad debt expenses.




General
      and administrative expenses increased to $5.2 million and $10.0 million for
      the
      three and six months ended June 30, 2008, respectively, as compared to $4.0
      million and $8.1 million for the corresponding periods in 2007. The increases
      include higher legal and professional fees of approximately $400,000 and
      $864,000, respectively, related, in part, to the putative class action complaint
      captioned *Haslam
      v. Macy’s Inc.,The Knot, Inc. WeddingChannel.com, Inc. and*  *Does*  *1-100* .
      In May
      2008, an order was entered dismissing the complaint with prejudice. The
      remaining increases were primarily due to increases in personnel and related
      costs to support the growth of the Company. As a percentage of our net revenues,
      general and administrative expenses increased to 18% and 19% for the three
      and
      six months ended June 30, 2008, respectively, from 14% and 16% for the
      corresponding periods in 2007.





*Stock-Based
      Compensation*




Total
      stock-based compensation expense related to all of our stock awards was included
      in various operating expense categories for the three and six months ended
      June
      30, 2008 and 2007, as follows:




**Three
                Months Ended**
            
            **Six
                Months Ended****June
                30,**
            
            **June
                30,****2008**
            
            **200****7**
            
            **2008**
            
            **2007**Product
                and content development
            
            $
            181,000
            
            $
            122,000
            
            $
            358,000
            
            $
            240,000Sales
                and marketing
            
            
            223,000
            
            
            116,000
            
            
            413,000
            
            
            218,000General
                and administrative
            
            
            713,000
            
            
            339,000
            
            
            1,093,000
            
            
            592,000Total
                stock-based compensation expense
            
            $
            1,117,000
            
            $
            577,000
            
            $
            1,864,000
            
            $
            1,050,000





As
      of
      June 30, 2008, total unrecognized estimated compensation expense related to
      nonvested stock options, restricted shares and ESPP rights was $ 7.1
      million, which is expected to be recognized over a weighted average period
      of
      2.37 years.




*Depreciation
      and Amortization*




Depreciation
      and amortization consists of depreciation and amortization of property and
      equipment and capitalized software, and amortization of intangible assets
      related to acquisitions.





Depreciation
      and amortization was $2.2 million for each of the three months ended June 30,
      2008 and 2007. Depreciation and amortization increased to $4.4 million for
      the
      six months ended June 30, 2008 as compared to $4.3 million for the corresponding
      period in 2007 as a result of our increasing investments in information
      technology platforms in 2008.





*Interest
      Income*





Interest
      income, net of interest expense, decreased to $880,000 and $2.1 million for
      the
      three and six months ended June 30, 2008, respectively, as compared to $1.2
      million and $2.2 million for the corresponding periods in 2007. The decreases
      were the result of generally lower average market rates in 2008 and an increase
      in the current year in investments we made in tax exempt auction rate securities
      which carry lower interest rates.






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            of Contents*






*Provision
      for Taxes on Income*




The
      effective tax rates for the three and six months ended June 30, 2008, were
      approximately 38% and 39% respectively, as compared to 41% for each of the
      corresponding periods in 2007. These effective tax rates differ from the amount
      computed by applying the Federal statutory income tax rate due primarily to
      state income taxes, net of Federal benefit and, in 2008, the increased impact
      of
      tax exempt interest income.




**Recently
      Adopted Accounting Pronouncement**




On
      January 1, 2008, we adopted SFAS No. 157, *Fair
      Value Measurements* (“SFAS
      157”), which defines fair value, establishes a framework for measuring fair
      value in accordance with generally accepted accounting principles, and expands
      disclosures about fair value measurements. SFAS 157 does not require any new
      fair value measurements, but provides guidance on how to measure fair value
      by
      providing a fair value hierarchy used to classify the source of the information.
      In February 2008, the FASB issued FASB Staff Position 157-2 (“FSP 157-2”) which
      would delay the effective date of SFAS 157 for all nonfinancial assets and
      nonfinancial liabilities, except those that are recognized or disclosed at
      fair
      value in the financial statements on a recurring basis (at least annually)
      until
      January 1, 2009. We are currently evaluating the impact of SFAS 157 on our
      nonfinancial assets and liabilities. See Note 4 to the accompanying condensed
      consolidated financial statements for a discussion of the application of SFAS
      157 to the valuation of our investments in auction rate securities as of June
      30, 2008.




**New
      Accounting Pronouncements**





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities — including an Amendment of FASB Statement No.
      115* (“SFAS
      159”), which allows an entity to choose to measure certain financial instruments
      and liabilities at fair value. Subsequent measurements for the financial
      instruments and liabilities an entity elects to fair value will be recognized
      in
      earnings. SFAS 159 also establishes additional disclosure requirements. Through
      June 30, 2008, we have elected not to extend the use of the fair value option
      to
      our assets and liabilities.




In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), *Business
      Combinations* (“SFAS
      141R”). SFAS 141R establishes principles and requirements for how an acquirer
      recognizes and measures in its financial statements the identifiable assets
      acquired, the liabilities assumed, any noncontrolling interest in the acquiree
      and the goodwill acquired. SFAS 141R also establishes disclosure requirements
      to
      enable the evaluation of the nature and financial effects of the business
      combination. This statement is effective beginning January 1, 2009. We are
      currently evaluating the potential impact of the adoption of SFAS 141R on our
      consolidated financial position, results of operations and cash
      flows.




In
      December 2007, the FASB issued SFAS No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements- an amendment of Accounting
      Research Bulletin* No.
      51
      (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for
      ownership interests in subsidiaries held by parties other than the parent,
      the
      amount of consolidated net income attributable to the parent and to the
      noncontrolling interest, changes in a parent’s ownership interest, and the
      valuation of retained noncontrolling equity investments when a subsidiary is
      deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
      identify and distinguish between the interests of the parent and the interests
      of the noncontrolling owners. This statement is effective beginning January
      1,
      2009. We are currently evaluating the potential impact of the adoption of SFAS
      160 on our consolidated financial position, results of operations and cash
      flows.




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          of Contents*




**Liquidity
      and Capital Resources**




As
      of
      June 30, 2008, our cash and cash equivalents amounted to $62.4 million. We
      currently invest primarily in short-term debt instruments that are highly
      liquid, of high-quality investment grade, and have maturities ranging from
      one
      to three months, with the intent to make such funds readily available for
      operating purposes.




Net
      cash
      provided by operating activities was $13.7 million for the six months ended
      June
      30, 2008. This resulted primarily from the net income for the period of $2.9
      million; depreciation, amortization, stock-based compensation, deferred income
      taxes and other non-cash items of $6.9 million and a decrease in accounts
      receivable, net of deferred revenue, of $4.9 million due primarily to relatively
      strong collections from both national and local accounts during the period.
      These sources of cash were offset, in part, by an increase in inventory of
      $1.0
      million to support higher seasonal sales of wedding supplies in the second
      and
      third quarters and to maintain larger quantities of promotional items and to
      add
      new products. Net cash provided by operating activities was $15.2 million for
      the six months ended June 30, 2007. This resulted primarily from the net income
      for the period of $6.4 million, depreciation, amortization, stock-based
      compensation and deferred income taxes of $9.4 million and a decrease in other
      current assets of $359,000. These sources of cash were offset, in part, by
      an
      increase in inventory of $753,000 in anticipation of higher seasonal sales
      of
      wedding supplies in the second and third quarters and a decrease in accounts
      payable and accrued expenses of $273,000.




Net
      cash
      provided by investing activities was $13.6 million for the six months ended
      June
      30, 2008, due primarily to proceeds from the sales of short-term and long-term
      investments, net of proceeds from sales, of $18.6 million and purchases of
      property and equipment of $3.6 million. Net cash used in investing activities
      was $45.0 million for the six months ended June 30, 2007 due primarily to
      purchases of short-term investments, net of proceeds from sales, of $43.9
      million, and purchases of property and equipment of $1.3 million.




Net
      cash
      provided by financing activities was $2.0 million and $901,000 for the six
      months ended June 30, 2008 and 2007, respectively, primarily due to proceeds
      from the issuance of common stock in connection with the exercise of stock
      options and warrants and through our Employee Stock Purchase Plan. For the
      six
      months ended June 30, 2008, we also repurchased $124,000 of common stock in
      connection with the surrender of restricted shares by employees to satisfy
      tax
      withholding obligations related to the vesting of the stock awards.




As
      of
      June 30, 2008, our cash and cash equivalents amounted to $62.4 million. As
      of
      June 30, 2008, we have classified our investments in auction rate securities
      of
      $54.0 million as long-term assets and recorded a temporary impairment charge
      of
      $3.1 million with respect to these securities. These auction rate securities
      consisted of AAA/Aaa rated variable rate debt securities whose interest rates
      reset every 35 days. The securities are collateralized by student loans, with
      approximately 87% of such collateral in the aggregate guaranteed by the United
      States government under the Federal Family Education Loan Program. $3.0 million
      of these securities have an underlying maturity date of November 1, 2009 while
      the remaining securities have underlying maturity dates ranging from March
      1,
      2022 through December 1, 2041. From February 14, 2008 through June 30, 2008,
      all
      auctions for these securities failed. An auction fails when there is
      insufficient demand. However, this does not represent a default by the issuer
      of
      the auction rate security. Upon an auction failure, the interest rates reset
      based on a formula contained in the security, which rate is generally higher
      than the current market rate. The reset interest rates on the auction rate
      securities currently held by us range from a short-term debt index plus 100
      to
      200 basis points.




We
      concluded that the impairment charge recorded was temporary because (i) we
      believe that the decline in market value is due to general market conditions;
      (ii) the auction-rate securities continue to be of a high credit quality and
      interest is paid when due; and (iii) we currently have the intent and ability
      to
      hold the auction-rate securities until a recovery in market value occurs.
      However, if the issuers of these securities continue to be unable to
      successfully close future auctions and their credit ratings deteriorate, or
      if
      they default with respect to such securities, we may be required to record
      additional temporary or other-than-temporary impairment charges if there are
      further reductions in fair value in future periods. It may also take until
      the
      final maturity of the underlying securities to realize our
      investments.




In
      June
      2008, $5.0 million of auction rate securities held by us were redeemed at par;
      however, we are currently unable to determine whether other issuers of our
      remaining portfolio of auction rate securities will attempt or be able to redeem
      securities.




Based
      on
      expected future operating cash flows and our other sources of cash and cash
      equivalents, we do not currently anticipate that any potential lack of liquidity
      in these auction rate securities will affect our ability to execute




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our
      current business plan and that our current liquid cash and cash equivalents
      will
      be sufficient to fund our working capital and capital expenditure requirements
      for the foreseeable future. Our ability to meet our obligations in the ordinary
      course of business is dependent upon our ability to maintain profitable
      operations and/or raise additional financing through public or private debt
      or
      equity financings, or other arrangements with corporate sources, or other
      sources of financing to fund operations. However, there is no assurance that
      we
      will maintain profitable operations or that additional funding, if required,
      will be available to us in amounts or on terms acceptable to us.




**Contractual
      Obligations and Commitments**




We
      do not
      have any special purpose entities or capital leases and, other than operating
      leases, which are described below, we do not engage in off-balance sheet
      financing arrangements.




In
      the
      ordinary course of business, we enter into various arrangements with vendors
      and
      other business partners principally for magazine production, inventory
      purchases, computer equipment, host services and bandwidth.




As
      of
      June 30, 2008, we had no material commitments for capital
      expenditures.




As
      of
      June 30, 2008, other long-term liabilities of approximately $424,000 primarily
      represented accruals to recognize rent expense on a straight-line basis over
      the
      respective lives of four of our operating leases under which rental payments
      increase over the lease periods. These accruals will be reduced as the operating
      lease payments, summarized in the table of contractual obligations below, are
      made.




Our
      contractual obligations as of June 30, 2008 are summarized as
      follows:




**Payments
                due by Period****Contractual
                Obligations**
            
            
            **Total**
            
            
            **Less
                than 1**
              **year**
            
            
            **1-3**
              **years**
            
            
            **3-5**
              **years**
            
            
            **More
                than 5**
              **years****(in
                thousands)**Long
                term debt
            
            $
            55
            
            $
            55
            
            $
            —
            
            $
            —
            
            $
            —Operating
                leases
            
            
            5,525
            
            
            1,614
            
            
            2,777
            
            
            1,107
            
            
            27Purchase
                commitments
            
            
            4,009
            
            
            3,823
            
            
            186
            
            
            —
            
            
            —Total
            
            $
            9,589
            
            $
            5,492
            
            $
            2,963
            
            $
            1,107
            
            $
            27




**Seasonality**





We
      believe that the impact of the frequency of weddings from quarter to quarter
      results in lower registry services and merchandise revenues in the first and
      fourth quarters.




**ITEM
              3.**
            **Quantitative
                and Qualitative Disclosures About Market
                Risk**




Market
      risk represents the risk of loss that may impact the financial position, results
      of operations, or cash flows of the Company due to adverse changes in financial
      market prices, including interest rate risk, foreign currency exchange rate
      risk, commodity price risk, and other relevant market rate or price risks.
      We
      are exposed to some market risk through interest rates related to the investment
      of our current cash and cash equivalents of approximately $62.4 million as
      of
      June 30, 2008. These funds are generally invested in highly liquid debt
      instruments. As such instruments mature and the funds are re-invested, we are
      exposed to changes in market interest rates. This risk is not considered
      material, and we manage such risk by continuing to evaluate the best investment
      rates available for short-term, high quality investments. We have long-term
      investments totaling $50.9 million in auction rate securities as of June 30,
      2008, with respect to which we recorded a temporary impairment charge of $3.1
      million during the six months ended June 30, 2008. These securities consisted
      of
      AAA/Aaa rated variable rate debt securities whose interest rates reset every
      35
      days. The securities are collateralized by student loans, with approximately
      87%
      of such collateral in the aggregate guaranteed by the United States government
      under the Federal Family Education Loan Program. $3.0 million of these
      securities have an underlying maturity date of November 1, 2009 while the
      remaining securities have underlying maturity dates ranging from March 1, 2022
      through December 1, 2041. From February 14, 2008 through June 30, 2008, all
      auctions for these securities failed. An auction fails when there is
      insufficient demand. However,


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this
      does
      not represent a default by the issuer of the auction rate security. Upon an
      auction failure, the interest rates reset based on a formula contained in the
      security, which rate is generally higher than the current market rate. The
      reset
      interest rates on the auction rate securities currently held by us range from
      a
      short-term debt index plus 100 to 200 basis points. We concluded that the
      impairment charge recorded was temporary because (i) we believe that the decline
      in market value is due to general market conditions; (ii) the auction-rate
      securities continue to be of a high credit quality and interest is paid when
      due; and (iii) we currently have the intent and ability to hold the auction-rate
      securities until a recovery in market value occurs. However, if the issuers
      of
      these securities continue to be unable to successfully close future auctions
      and
      their credit ratings deteriorate, or if they default with respect to such
      securities, we may be required to record additional temporary or
      other-than-temporary impairment charges if there are further reductions in
      fair
      value in future periods. It may also take until the final maturity of the
      underlying securities to realize our investments.





In
      June
      2008, $5.0 million of auction rate securities held by us were redeemed at par;
      however, we are currently unable to determine whether other issuers of our
      remaining portfolio of auction rate securities will attempt or be able to redeem
      securities. In the event we need to access these funds, we could be required
      to
      sell these securities at an amount below our original purchase value. If we
      are
      unable to liquidate these investments as necessary to execute our current
      business plan, we may need to change or postpone such business plan or find
      alternative financing, if available, for such business plan. Any of these events
      could materially affect our results of operations and our financial
      condition.




We
      have
      no activities related to derivative financial instruments or derivative
      commodity instruments, and we are not currently subject to any significant
      foreign currency exchange risk




**ITEM
              4.**
            **Controls
                and Procedures**




The
      Company’s management, including the Chief Executive Officer and Chief Financial
      Officer, evaluated the effectiveness of the Company’s disclosure controls and
      procedures, as that term is defined in Rule 13a-15(e) promulgated under the
      Securities Exchange Act of 1934, as amended (the Exchange Act), as of June
      30,
      2008. Based on that evaluation, the Chief Executive Officer and Chief Financial
      Officer concluded that the disclosure controls and procedures are effective
      to
      ensure that information required to be disclosed by the Company in the reports
      that the Company files or submits under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the rules and
      forms of the Securities and Exchange Commission (“SEC”), and to ensure that such
      information is accumulated and communicated to the Company’s management,
      including the Chief Executive Officer and Chief Financial Officer, as
      appropriate to allow timely decisions regarding required
      disclosure.




There
      were no changes in the Company’s internal control over financial reporting
      during the quarter ended June 30, 2008 identified in connection with the
      evaluation thereof by the Company’s management, including the Chief Executive
      Officer and Chief Financial Officer, that has materially affected, or is
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




Management
      does not expect that our disclosure controls and procedures or our internal
      control over financial reporting will prevent or detect all error and fraud.
      Any
      control system, no matter how well designed and operated, is based upon certain
      assumptions and can provide only reasonable, not absolute, assurance that its
      objectives will be met. Further, no evaluation of controls can provide absolute
      assurance that misstatements due to error or fraud will not occur or that all
      control issues and instances of fraud, if any, within the Company have been
      detected. The Company’s disclosure controls and procedures are designed to
      provide reasonable assurance of achieving their objectives and the Chief
      Executive Officer and Chief Financial Officer have concluded that the disclosure
      controls and procedures are effective at that reasonable assurance
      level.




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**PART
      II - OTHER INFORMATION**




**ITEM
              1.**
            **Legal
                Proceedings**




A
      putative amended class action complaint captioned *Haslam
      v. Macy’s, Inc., The Knot, Inc., WeddingChannel.com, Inc. and Does
      1-100* was
      filed in the United States District Court for the Southern District of Florida
      on February 22, 2008. The complaint alleged that the defendants provided
      customers with electronically printed receipts for credit card and debit card
      point of sale transactions that contained more than the last five digits of
      the
      customer’s card number and/or the card’s expiration date in violation of the
      federal Fair and Accurate Credit Transactions Act (FACTA). On May 16, 2008,
      an
      order was entered granting the motions to dismiss filed by Macy’s, The Knot and
      WeddingChannel, with prejudice.




We
      are
      engaged in other legal actions arising in the ordinary course of business and
      believe that the ultimate outcome of these actions will not have a material
      effect on our results of operations, financial position or cash
      flows.




**ITEM
              1A.**
            **Risk
                Factors**




Risks
      that could have a negative impact on our business, results of operations and
      financial condition include without limitation, (i) The Knot’s unproven business
      model, (ii) The Knot’s history of losses, (iii) the significant fluctuation to
      which The Knot’s quarterly revenues and operating results are subject, (iv) the
      seasonality of the wedding industry, (v) the dependence of our registry services
      business on the continued use of the WeddingChannel website by our retail
      partners, and (vi) other factors detailed in documents The Knot files from
      time
      to time with the Securities and Exchange Commission. A more detailed description
      of each of these and other risk factors can be found under the caption “Risk
      Factors” in our most recent Annual Report on Form 10-K, filed on March 13, 2008.
      Except as noted below, there have been no material changes to the risk factors
      described in the Form 10-K. In addition, the risk factor in the Form 10-K
      captioned “We have not independently verified market share and industry data and
      forecasts” should not be deemed to be included in the risk factors affecting the
      Company.




***We
      have invested in securities that are subject to market risk and the current
      negative liquidity conditions in the global credit markets could adversely
      affect the value of our assets.***




As
      of
      June 30, 2008, we have reclassified our investments in auction rate securities
      of $50.9 million as long-term assets and recorded a temporary impairment charge
      of $3.1 million with respect to these securities. These auction rate securities
      consisted of AAA/Aaa rated variable rate debt securities whose interest rates
      reset every 35 days. The securities are collateralized by student loans, with
      approximately 87% of such collateral in the aggregate guaranteed by the United
      States government under the Federal Family Education Loan Program. $3.0 million
      of these securities have an underlying maturity date of November 1, 2009 while
      the remaining securities have underlying maturity dates ranging from March
      1,
      2022 through December 1, 2041. From February 14, 2008 through June 30, 2008,
      all
      auctions for these securities failed. An auction fails when there is
      insufficient demand. However, this does not represent a default by the issuer
      of
      the auction rate security. Upon an auction failure, the interest rates reset
      based on a formula contained in the security, which rate is generally higher
      than the current market rate. The reset interest rates on the auction rate
      securities currently held by us range from a short-term debt index plus 100
      to
      200 basis points.




We
      concluded that the impairment charge recorded was temporary because (i) we
      believe that the decline in market value is due to general market conditions;
      (ii) the auction-rate securities continue to be of a high credit quality and
      interest is paid when due; and (iii) we currently have the intent and ability
      to
      hold the auction-rate securities until a recovery in market value occurs. If
      the
      issuers of these securities continue to be unable to successfully close future
      auctions and their credit ratings deteriorate, or if they default with respect
      to such securities, we may be required to record additional temporary or
      other-than-temporary impairment charges if there are further reductions in
      fair
      value in future periods. It may also take until the final maturity of the
      underlying securities to realize our investment. In June 2008, $5.0 million
      of
      auction rate securities held by us were redeemed at par; however, we are
      currently unable to determine whether other issuers of our remaining portfolio
      of auction rate securities will attempt or be able to redeem securities. In
      the
      event we need to access these funds, we could be required to sell these
      securities at an amount below our original purchase value. If we are unable
      to
      liquidate these investments as necessary to execute our current business plan,
      we may need to change or postpone such business plan or find alternative
      financing, if available, for such
      business plan. Any of these events could materially affect our results of
      operations and our financial condition.






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**ITEM
              2.**
            **Unregistered
                Sales of Equity Securities and Use of
                Proceeds**




**Issuer
      Purchases of Equity Securities**




**Period**
            **(a)
                Total Number of Shares Purchased**
            **(b)
                Average Price Paid**
              **per
                Share**
            **(c)
                Total Number of Shares Purchased as Part of Publicly Announced Plans
                or
                Programs**
            **(d)
                Maximum Number of Shares that May Yet Be Purchased Under the Plans
                or
                Programs****April
                1, 2008 to April 30, 2008**
            **1,264**
            **$11.74**
            **n/a**
            **n/a****May
                1, 2008 to May 31, 2008**
            **3,666**
            **$11.21**
            **n/a**
            **n/a****June
                1, 2008 to June 30, 2008**
            **1,380**
            **$9.78**
            **n/a**
            **n/a****Total**
            **6,310**
            **$11.00**
            **n/a**
            **n/a**




The
      terms
      of restricted stock awards granted under certain of the Company’s stock
      incentive plans allow participants to surrender or deliver shares of The Knot’s
      common stock to the Company to satisfy tax withholding obligations related
      to
      the vesting of those awards. All of the shares listed in the table above
      represent the surrender of shares to the Company in connection with such tax
      withholding obligations. For purposes of this table, the “price paid per share”
is determined by reference to the closing sales price per share of The Knot’s
      common stock on The Nasdaq Global Market on the date of such surrender (or
      on
      the last date preceding such surrender for which such reported price
      exists).




**ITEM
              4.**
            **Submission
                of Matters to a Vote of Security
                Holders**




The
      Company held its Annual Meeting of Stockholders on May 21, 2008.




The
      stockholders elected David Liu and Lisa Gersh to the class of directors whose
      terms expire at the 2011 Annual Meeting of Stockholders or until their
      successors are elected and have qualified.




The
      stockholders ratified the appointment of Ernst & Young LLP as the Company’s
      independent registered public accounting firm for the calendar year ending
      December 31, 2008.




Shares
      of
      common stock were voted as follows:




**Director
                Nominee or Proposal**
            
            **For**
            
            **Against/Withheld**
            
            **Abstentions**David
                Liu
            
            
            26,484,099
            
            
            161,366
            
            
            0Lisa
                Gersh
            
            
            26,511,092
            
            
            134,373
            
            
            0Ratification
                of Auditors
            
            
            26,569,383
            
            
            58,637
            
            
            17,445







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**ITEM
              6.**
            **Exhibits**




Incorporated
      by reference to the Exhibit Index immediately preceding the exhibits attached
      to
      this Quarterly Report on Form 10-Q.







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**SIGNATURES**




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




Date:
      August 7, 2008


THE
      KNOT,
      INC.




By: /s/
      Richard Szefc


Richard
      Szefc


Chief
      Financial Officer


(Principal
      Financial Officer and
      Duly
      Authorized Officer)






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**EXHIBIT
      INDEX**




**Number**
            **Description**





10.19
            Registration
                Rights Agreement dated as of April 30, 2008 between The Knot, Inc.
                and
                Macy’s, Inc. (Incorporated by reference to Exhibit 10.1 of the
                Registrant’s Current Report on Form 8-K filed May 2,
                2008)




10.20
            Letter
                Agreement between The Knot, Inc. and Carol Koh Evans (Incorporated
                by
                reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K
                filed May 12, 2008)




31.1
            Certification
                of Chairman and Chief Executive Officer Pursuant to Exchange Act
                Rule
                13a-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley
                Act of
                2002.




31.2
            Certification
                of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a),
                As
                Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.




32.1
            Certification
                of Chairman and 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 Chief 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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