U.S. 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 MARCH 31,
  2006                  
|                                                                  |                                                                                           
|or                                                               
|                                                                 
|o                                                                 | TRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                                  |                                                                                           
|FOR THE TRANSITION PERIOD FROM
  ______________ TO ______________

COMMISSION FILE NUMBER: 000-28271

THE KNOT, INC.(Exact Name of
Registrant as Specified in its Charter)

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

462 Broadway, 6th 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, or a non-accelerated filer. See definition of accelerated filer and
large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ̈          Accelerated
filer  ̈          Non-accelerated
filer x

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

Yes o          No
x

As of May 5, 2006, there were 23,380,998 shares of the registrants
  common stock outstanding.

---



|         |  |                                                                                                      |               | 
|-------- |  | ---------------------------------------------------------------------------------------------------- | ------------- | 
|         |  |                                                                                                      | Page
  Number
|         |  |                                                                                                      |              
|         |  |                                                                                                      |               | 
|PART I   |  | FINANCIAL
  INFORMATION                                                                              |               | 
|         |  |                                                                                                      |               | 
|Item 1:  |  | Financial Statements (Unaudited):                                                                    |               | 
|         |  |                                                                                                      |               | 
|         |  | Condensed Consolidated Balance Sheets as of March 31, 2006 and
  December 31, 2005                   | 3             | 
|         |  | Condensed Consolidated Statements of Operations for the three months
  ended March 31, 2006 and 2005 | 4             | 
|         |  | Condensed Consolidated Statements of Cash Flows for the three months
  ended March 31, 2006 and 2005 | 5             | 
|         |  | Notes to Condensed Consolidated Financial Statements                                                 | 6             | 
|         |  |                                                                                                      |               | 
|Item 2:  |  | Managements Discussion and Analysis of Financial Condition and
  Results of Operations              | 14            | 
|         |  |                                                                                                      |               | 
|Item 3:  |  | Quantitative and Qualitative Disclosures About Market Risk                                           | 23            | 
|         |  |                                                                                                      |               | 
|Item 4:  |  | Controls and Procedures                                                                              | 23            | 
|         |  |                                                                                                      |               | 
|PART II  |  | OTHER INFORMATION                                                                                    |               | 
|         |  |                                                                                                      |               | 
|Item 1:  |  | Legal Proceedings                                                                                    | 23            | 
|         |  |                                                                                                      |               | 
|Item 1A: |  | Risk Factors                                                                                         | 24            | 
|         |  |                                                                                                      |               | 
|Item 6:  |  | Exhibits                                                                                             | 24            | 

2

---



Item 1. Financial
Statements (Unaudited)

THE KNOT, INC.CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                       |  |                                |             |                                  |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ----------- | -------------------------------- | - | ----------- | -
|                                                                                                                                                                                       |  | March 31,
  2006
  (Unaudited) |             | December
  31,
  2005
  (Note 1) |  
|                                                                                                                                                                                       |  |                                |             |                                  |  
|ASSETS                                                                                                                                                                                 |  |                                |             |                                  |   |             |  
|Current assets:                                                                                                                                                                        |  |                                |             |                                  |   |             |  
|Cash and cash equivalents                                                                                                                                                              |  | $                              | 18,128,347  |                                  | $ | 17,685,067  |  
|Short-term investments                                                                                                                                                                 |  |                                | 13,050,000  |                                  |   | 11,550,000  |  
|Accounts receivable, net of allowances of
  $734,790 and $379,464 at March 31, 2006 and December 31, 2005, respectively                                                                |  |                                | 5,773,392   |                                  |   | 4,804,581   |  
|Inventories                                                                                                                                                                            |  |                                | 1,785,512   |                                  |   | 1,622,056   |  
|Deferred production and marketing costs                                                                                                                                                |  |                                | 584,283     |                                  |   | 419,555     |  
|Other current assets                                                                                                                                                                   |  |                                | 907,048     |                                  |   | 881,114     |  
|                                                                                                                                                                                       |  |                                |             |                                  |   |             |  
|Total current assets                                                                                                                                                                   |  |                                | 40,228,582  |                                  |   | 36,962,373  |  
|Property and equipment, net                                                                                                                                                            |  |                                | 3,765,335   |                                  |   | 2,986,354   |  
|Intangible assets, net                                                                                                                                                                 |  |                                | 9,080,269   |                                  |   | 9,110,269   |  
|Other assets                                                                                                                                                                           |  |                                | 1,218,190   |                                  |   | 325,927     |  
|                                                                                                                                                                                       |  |                                |             |                                  |   |             |  
|Total assets                                                                                                                                                                           |  | $                              | 54,292,376  |                                  | $ | 49,384,923  |  
|                                                                                                                                                                                       |  |                                |             |                                  |   |             |  
|                                                                                                                                                                                       |  |                                |             |                                  |   |             |  
|LIABILITIES AND
  STOCKHOLDERS EQUITY                                                                                                                                                 |  |                                |             |                                  |   |             |  
|Current liabilities:                                                                                                                                                                   |  |                                |             |                                  |   |             |  
|Accounts payable and accrued expenses                                                                                                                                                  |  | $                              | 5,816,264   |                                  | $ | 5,574,078   |  
|Deferred revenue                                                                                                                                                                       |  |                                | 9,929,496   |                                  |   | 7,816,435   |  
|Current portion of long-term debt                                                                                                                                                      |  |                                | 46,651      |                                  |   | 46,651      |  
|                                                                                                                                                                                       |  |                                |             |                                  |   |             |  
|Total current liabilities                                                                                                                                                              |  |                                | 15,792,411  |                                  |   | 13,437,164  |  
|Long term debt                                                                                                                                                                         |  |                                | 105,906     |                                  |   | 105,906     |  
|Other liabilities                                                                                                                                                                      |  |                                | 493,711     |                                  |   | 504,565     |  
|                                                                                                                                                                                       |  |                                |             |                                  |   |             |  
|Total liabilities                                                                                                                                                                      |  |                                | 16,392,028  |                                  |   | 14,047,635  |  
|Commitments and contingencies                                                                                                                                                          |  |                                |             |                                  |   |             |  
|Stockholders equity:                                                                                                                                                                  |  |                                |             |                                  |   |             |  
|Preferred stock, $0.001 par value;
  5,000,000 shares authorized; no shares issued and outstanding                                                                                     |  |                                |            |                                  |   |            |  
|Common stock, $.01 par value; 100,000,000
  shares, authorized; 23,364,210 shares and 23,049,416 shares issued and
  outstanding at March 31, 2006 and December 31, 2005, respectively |  |                                | 233,642     |                                  |   | 230,494     |  
|Additional paid-in capital                                                                                                                                                             |  |                                | 78,203,780  |                                  |   | 77,550,250  |  
|Deferred compensation                                                                                                                                                                  |  |                                |            |                                  |   | (221,034    | )
|Accumulated deficit                                                                                                                                                                    |  |                                | (40,537,074 | )                                |   | (42,222,422 | )
|                                                                                                                                                                                       |  |                                |             |                                  |   |             |  
|Total stockholders equity                                                                                                                                                             |  |                                | 37,900,348  |                                  |   | 35,337,288  |  
|                                                                                                                                                                                       |  |                                |             |                                  |   |             |  
|Total liabilities and stockholders
equity                                                                                                                                             |  | $                              | 54,292,376  |                                  | $ | 49,384,923  |  
|                                                                                                                                                                                       |  |                                |             |                                  |   |             |  

See accompanying notes.

3

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THE KNOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

|                                                       |  |                                |            |      |   |            | 
|------------------------------------------------------ |  | ------------------------------ | ---------- | ---- | - | ---------- | 
|                                                       |  | Three
  Months Ended March 31, |           
|                                                       |  |                                |           
|                                                       |  | 2006                           |            | 2005 |  
|                                                       |  |                                |            |      |  
|                                                       |  |                                |            |      |   |            | 
|Net
  revenues:                                        |  |                                |            |      |   |            | 
|Online sponsorship and advertising                     |  | $                              | 7,799,205  |      | $ | 5,774,784  | 
|Merchandise                                            |  |                                | 3,137,810  |      |   | 3,386,219  | 
|Publishing and other                                   |  |                                | 3,814,338  |      |   | 2,771,654  | 
|                                                       |  |                                |            |      |   |            | 
|Total net
  revenues                                   |  | $                              | 14,751,353 |      | $ | 11,932,657 | 
|Cost of
  revenues:                                    |  |                                |            |      |   |            | 
|Online sponsorship and advertising                     |  | $                              | 312,947    |      | $ | 156,843    | 
|Merchandise                                            |  |                                | 1,550,192  |      |   | 1,600,071  | 
|Publishing and other                                   |  |                                | 1,265,814  |      |   | 1,154,580  | 
|                                                       |  |                                |            |      |   |            | 
|Total cost
  of revenues                               |  | $                              | 3,128,953  |      | $ | 2,911,494  | 
|                                                       |  |                                |            |      |   |            | 
|Gross profit                                           |  |                                | 11,622,400 |      |   | 9,021,163  | 
|Operating
  expenses:                                  |  |                                |            |      |   |            | 
|Product and content development                        |  |                                | 1,785,661  |      |   | 1,680,940  | 
|Sales and marketing                                    |  |                                | 4,714,548  |      |   | 3,627,554  | 
|General and administrative                             |  |                                | 3,261,816  |      |   | 3,118,153  | 
|Depreciation and amortization                          |  |                                | 372,174    |      |   | 280,597    | 
|                                                       |  |                                |            |      |   |            | 
|Total
  operating expenses                             |  |                                | 10,134,199 |      |   | 8,707,244  | 
|                                                       |  |                                |            |      |   |            | 
|Income from
  operations                               |  |                                | 1,488,201  |      |   | 313,919    | 
|Interest
  income, net                                 |  |                                | 300,222    |      |   | 130,409    | 
|                                                       |  |                                |            |      |   |            | 
|Income
  before income taxes                           |  |                                | 1,788,423  |      |   | 444,328    | 
|Provision
  for income taxes                           |  |                                | 103,075    |      |   | 35,220     | 
|                                                       |  |                                |            |      |   |            | 
|Net income                                             |  | $                              | 1,685,348  |      | $ | 409,108    | 
|                                                       |  |                                |            |      |   |            | 
|Net earnings
  per sharebasic                         |  | $                              | 0.07       |      | $ | 0.02       | 
|                                                       |  |                                |            |      |   |            | 
|Net earnings
  per sharediluted                       |  | $                              | 0.07       |      | $ | 0.02       | 
|                                                       |  |                                |            |      |   |            | 
|Weighted
  average number of common shares outstanding |  |                                |            |      |   |            | 
|Basic                                                  |  |                                | 23,084,772 |      |   | 22,410,542 | 
|                                                       |  |                                |            |      |   |            | 
|Diluted                                                |  |                                | 25,578,559 |      |   | 24,296,093 | 
|                                                       |  |                                |            |      |   |            | 

See accompanying notes.

4

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THE KNOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                                                                    |  |                                |            |      |   |             |  
|----------------------------------------------------------------------------------- |  | ------------------------------ | ---------- | ---- | - | ----------- | -
|                                                                                    |  | Three
  Months Ended March 31, |           
|                                                                                    |  |                                |           
|                                                                                    |  | 2006                           |            | 2005 |  
|                                                                                    |  |                                |            |      |  
|                                                                                    |  |                                |            |      |   |             |  
|Operating activities                                                                |  |                                |            |      |   |             |  
|Net income                                                                          |  | $                              | 1,685,348  |      | $ | 409,108     |  
|Adjustments to reconcile net income to net
  cash provided by operating activities: |  |                                |            |      |   |             |  
|Depreciation and amortization                                                       |  |                                | 342,174    |      |   | 237,429     |  
|Amortization of intangibles                                                         |  |                                | 30,000     |      |   | 43,168      |  
|Stock-based compensation                                                            |  |                                | 328,554    |      |   |            |  
|Non-cash services expense                                                           |  |                                | 148,611    |      |   | 138,770     |  
|Reserve for returns                                                                 |  |                                | 1,148,123  |      |   | 947,526     |  
|Allowance for doubtful accounts                                                     |  |                                | 31,595     |      |   | 30,287      |  
|Other non-cash charges                                                              |  |                                | 33,877     |      |   | 892         |  
|Changes in operating assets and liabilities
  (net of business acquired):           |  |                                |            |      |   |             |  
|Accounts receivable                                                                 |  |                                | (2,148,529 | )    |   | (1,742,729  | )
|Inventories                                                                         |  |                                | (197,333   | )    |   | 112,847     |  
|Deferred production and marketing costs                                             |  |                                | (164,728   | )    |   | (49,595     | )
|Other current assets                                                                |  |                                | (25,934    | )    |   | 12,091      |  
|Other assets                                                                        |  |                                | (892,263   | )    |   | 9,324       |  
|Accounts payable and accrued expenses                                               |  |                                | 228,413    |      |   | (910,089    | )
|Deferred revenue                                                                    |  |                                | 2,113,061  |      |   | 1,396,453   |  
|Other liabilities                                                                   |  |                                | (10,854    | )    |   | 1,957       |  
|                                                                                    |  |                                |            |      |   |             |  
|Net cash provided by operating
activities                                           |  |                                | 2,650,115  |      |   | 637,439     |  
|                                                                                    |  |                                |            |      |   |             |  
|Investing activities                                                                |  |                                |            |      |   |             |  
|Purchases of property and equipment                                                 |  |                                | (1,107,382 | )    |   | (861,388    | )
|Purchases of short-term investments                                                 |  |                                | (1,500,000 | )    |   | (10,150,000 | )
|Proceeds from sales of short-term
  investments                                     |  |                                |           |      |   | 10,450,000  |  
|Acquisition of business, net of cash
  acquired                                     |  |                                |           |      |   | (621,105    | )
|                                                                                    |  |                                |            |      |   |             |  
|Net cash used in investing activities                                               |  |                                | (2,607,382 | )    |   | (1,182,493  | )
|                                                                                    |  |                                |            |      |   |             |  
|Financing activities                                                                |  |                                |            |      |   |             |  
|Proceeds from issuance of common stock                                              |  |                                | 95,436     |      |   | 59,242      |  
|Proceeds from exercise of stock options                                             |  |                                | 305,111    |      |   | 439,598     |  
|                                                                                    |  |                                |            |      |   |             |  
|Net cash provided by financing
activities                                           |  |                                | 400,547    |      |   | 498,840     |  
|                                                                                    |  |                                |            |      |   |             |  
|Increase (decrease) in cash and cash
  equivalents                                  |  |                                | 443,280    |      |   | (46,214     | )
|Cash and cash equivalents at beginning of
  period                                  |  |                                | 17,685,067 |      |   | 3,487,818   |  
|                                                                                    |  |                                |            |      |   |             |  
|Cash and cash equivalents at end of period                                          |  | $                              | 18,128,347 |      | $ | 3,441,604   |  
|                                                                                    |  |                                |            |      |   |             |  

See accompanying notes.

5

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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 Companys management in accordance with U.S. generally accepted
accounting principles for interim financial information and applicable rules
and regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and disclosures required by U.S. generally
accepted accounting principles for complete financial statements. In the
opinion of the management, all adjustments (consisting only of normally
recurring adjustments) considered necessary for a fair presentation have been
included.

The
accompanying balance sheet and financial information as of December 31, 2005 is
derived from audited financial statements but does not include all of the
information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements. The results of operations for the
three months ended March 31, 2006 are not necessarily indicative of the results
that may be expected for the full year. These financial statements should be
read in conjunction with the Companys audited financial statements and notes
thereto included in its Annual Report on Form 10-K for the year ended December
31, 2005.

The
Company has only achieved operating income in recent periods and has an
accumulated deficit of $40,537,074 as of March 31, 2006. The Company believes
that its current cash and cash equivalents will be sufficient to fund its
working capital and capital expenditure requirements for at least the next
twelve months. This expectation is primarily based on internal estimates of
revenue growth, as well as continuing emphasis on controlling operating
expenses. However, there can be no assurance that actual costs will not exceed
amounts estimated, that actual revenues will equal or exceed estimated amounts,
or that the Company will sustain profitable operations, due to significant
uncertainties surrounding its estimates and expectations.

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 significant 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 March 31,
2006 and 2005, 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 2,493,788 and 1,885,551, respectively. The
calculation of earnings per share for the three months ended March 31, 2005
excludes a weighted average number of stock options of 51,400, because to
include them in the calculation would be antidilutive.

SEGMENT INFORMATION

The
Company operates in one reportable segment because it is generally 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

6

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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.

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 three 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 months ended March 31, 2006 and 2005, no customer accounted for more
than 2% of net revenues. As of March 31, 2006 and December 31, 2005, no single
customer accounted for more than 11% and 7%, respectively, of accounts
receivable.

STOCK-BASED COMPENSATION

Prior
to January 1, 2006, stock-based compensation was accounted for using the
intrinsic value-based method in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related
interpretations, and the Company complied with the disclosure provisions of
SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting
for Stock-Based Compensation-Transition and Disclosure. Accordingly, the Company only recorded compensation
expense for stock options granted with an exercise price that was less than the
fair market value of the underlying stock at the date of grant or in connection
with the issuance of restricted common stock. Compensation expense was
recognized over the service periods necessary to vest the awards. To the extent
stock awards were forfeited prior to vesting, the corresponding expense that
was previously recognized, including expense for pro-forma disclosure purposes,
was reversed in the period of forfeiture. In addition, the Company did not
record compensation expense for rights to purchase shares under its Employee
Stock Purchase Plan (ESPP) because the plan satisfied certain conditions
under APB No. 25.

Effective
January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, using
the modified prospective method. Under this method, previously reported amounts
are not restated. 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. Under the modified
prospective method, the Company recognizes compensation expense for all stock
awards granted after December 31, 2005, and for awards granted prior to January
1, 2006 that remained unvested as of that date or which may be subsequently
modified. 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, which is consistent with the Companys valuation techniques
previously utilized for options in footnote disclosures required under SFAS No.
123 and SFAS No. 148.

The
Company will continue to recognize 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 under
SFAS No. 123(R), for
stock awards granted after December 31, 2005, the Company has adopted the
straight-line attribution method.
In addition, effective January 1, 2006, the Company has included an estimate of
stock awards to be forfeited in the future in calculating stock-based
compensation expense for the period. The cumulative effect of this accounting
change for forfeitures was not material due to the significant reduction in
both the number of personnel receiving stock awards and the aggregate amount of
stock awards granted by the Company in 2004 and 2005.

In
accordance with the requirements of SFAS No. 123(R), deferred stock-based
compensation previously recorded on the Companys balance sheet as of December
31, 2005 was netted against additional paid-in capital effective January 1,
2006.

Total
stock-based compensation expense related to all of the Companys stock awards
was included in various operating expense categories for the three months ended
March 31, 2006, as follows:

7

---



| |                                        |  |   |         | 
| | -------------------------------------- |  | - | ------- | 
| | Product and content development        |  | $ | 29,000  | 
| | Sales and marketing                    |  |   | 54,000  | 
| | General and administrative             |  |   | 246,000 | 
| |                                        |  |   |         | 
| | Total stock-based compensation expense |  | $ | 329,000 | 
| |                                        |  |   |         | 

The
adoption of SFAS No. 123(R) resulted in an increase to stock-based compensation
and a decrease to net income of $128,000 for the three months ended March 31,
2006, and a related reduction in basic earnings per share of $0.01. There was
no impact on diluted earnings per share.

The
following table details the effect on net income and earnings per share had
stock-based compensation expense been recorded based on the fair value method
under SFAS No. 123, as amended, for the three months ended March 31, 2005.

| |                                                                                                                 |  |                      |          |  
| | --------------------------------------------------------------------------------------------------------------- |  | -------------------- | -------- | -
| |                                                                                                                 |  | Three
  Months Ended |         
| |                                                                                                                 |  | March 31,
  2005     |         
| |                                                                                                                 |  |                      |         
| | Net income, as reported                                                                                         |  | $                    | 409,108  |  
| | Add: Total
  stock-based employee compensation expense included in reported net income                          |  |                      |         |  
| | Deducted: Total
  stock-based employee compensation expense determined under fair value method
  for all awards |  |                      | (239,091 | )
| |                                                                                                                 |  |                      |          |  
| | Net income, pro
  forma                                                                                         |  | $                    | 170,017  |  
| |                                                                                                                 |  |                      |          |  
| | Basic earnings
  per share, as reported                                                                         |  | $                    | 0.02     |  
| |                                                                                                                 |  |                      |          |  
| | Basic earnings
  per share, pro forma                                                                           |  | $                    | 0.01     |  
| |                                                                                                                 |  |                      |          |  
| | Diluted earnings
  per share, as reported                                                                       |  | $                    | 0.02     |  
| |                                                                                                                 |  |                      |          |  
| | Diluted earnings
  per share, pro forma                                                                         |  | $                    | 0.01     |  
| |                                                                                                                 |  |                      |          |  

3.  SHIPPING AND HANDLING CHARGES

For
the three months ended March 31, 2006 and 2005, merchandise revenue included
outbound shipping and handling charges of approximately $452,000 and $466,000,
respectively.

4.  INVENTORY

Inventory
consists of the following:

| |                |  |           |           |                |   |           | 
| | -------------- |  | --------- | --------- | -------------- | - | --------- | 
| |                |  | March 31, |           | December
  31, |  
| |                |  |           |           |                |  
| |                |  | 2006      |           | 2005           |  
| |                |  |           |           |                |  
| |                |  |           |           |                |   |           | 
| | Raw materials  |  | $         | 196,912   |                | $ | 215,940   | 
| | Finished goods |  |           | 1,588,600 |                |   | 1,406,116 | 
| |                |  |           |           |                |   |           | 
| |                |  | $         | 1,785,512 |                | $ | 1,622,056 | 
| |                |  |           |           |                |   |           | 

5.  INTANGIBLE
ASSETS

Intangible
assets consist of the following:

| |                                  |  |           |           |                |   |           |  
| | -------------------------------- |  | --------- | --------- | -------------- | - | --------- | -
| |                                  |  | March 31, |           | December
  31, |  
| |                                  |  |           |           |                |  
| |                                  |  | 2006      |           | 2005           |  
| |                                  |  |           |           |                |  
| | Goodwill, net                    |  | $         | 8,904,714 |                | $ | 8,904,714 |  
| | Covenant not to compete          |  |           | 700,000   |                |   | 700,000   |  
| | Less accumulated amortization    |  |           | (600,000  | )              |   | (575,000  | )
| |                                  |  |           |           |                |   |           |  
| | Covenant not to compete, net     |  |           | 100,000   |                |   | 125,000   |  
| |                                  |  |           |           |                |   |           |  
| | Trademarks and domain names      |  |           | 100,000   |                |   | 100,000   |  
| | Less accumulated amortization    |  |           | (24,445   | )              |   | (19,445   | )
| |                                  |  |           |           |                |   |           |  
| | Trademarks and domain names, net |  |           | 75,555    |                |   | 80,555    |  
| |                                  |  |           |           |                |   |           |  
| | Total                            |  | $         | 9,080,269 |                | $ | 9,110,269 |  
| |                                  |  |           |           |                |   |           |  

8

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The
Company completed its most recent goodwill impairment test as of October 1,
2005. The test primarily involved the assessment of the fair market value of
the Company as the single reporting unit. No impairment of goodwill was
indicated at that time. Under SFAS No. 142, the Company is required to perform
goodwill impairment tests on at least an annual basis or more frequently if
circumstances dictate. There can be no assurance that future goodwill
impairment tests will not result in a charge to income.

The
covenant not to compete is being amortized over the related contractual period
of seven years.
Trademarks and domain names are being amortized on a straight-line basis over
five years.

Amortization
expense was $30,000 and $43,000 for the three months ended March 31, 2006 and
2005, respectively. Estimated annual amortization expense is $120,000 in 2006,
$45,000 in 2007, $20,000 in each of 2008 and 2009 and $1,000 in 2010.

6.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts
payable and accrued expenses consist of the following:

| |                                   |  |           |           |                |   |           | 
| | --------------------------------- |  | --------- | --------- | -------------- | - | --------- | 
| |                                   |  | March 31, |           | December
  31, |  
| |                                   |  |           |           |                |  
| |                                   |  | 2006      |           | 2005           |  
| |                                   |  |           |           |                |  
| | Accounts payable                  |  | $         | 1,954,698 |                | $ | 1,971,455 | 
| | Professional services             |  |           | 663,261   |                |   | 1,198,788 | 
| | Compensation and related benefits |  |           | 1,203,266 |                |   | 1,030,129 | 
| | Other accrued expenses            |  |           | 1,995,039 |                |   | 1,373,706 | 
| |                                   |  |           |           |                |   |           | 
| |                                   |  | $         | 5,816,264 |                | $ | 5,574,078 | 
| |                                   |  |           |           |                |   |           | 

7.  LONG-TERM DEBT

Long-term
debt as of March 31, 2006 consists of the following:

| |                                                                                                       |  |   |         | 
| | ----------------------------------------------------------------------------------------------------- |  | - | ------- | 
| | Note due in annual installments
  of $60,000 through October 2008, based on imputed interest of 8.75% |  | $ | 152,557 | 
| |                                                                                                       |  |   |         | 
| | Less current portion                                                                                  |  |   | 46,651  | 
| |                                                                                                       |  |   |         | 
| |                                                                                                       |  |   |         | 
| | Long term-debt, excluding
  current portion                                                           |  | $ | 105,906 | 
| |                                                                                                       |  |   |         | 

Maturities
of long-term obligations during the three years ending March 31, 2009 are as
follows: 2007, $46,651; 2008, $50,733 and 2009, $55,173. Interest expense was approximately $3,000 and
$4,000 for the three months ended March 31, 2006 and 2005, respectively.

8.  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.

9

---



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 issuances, 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 March 31, 2006, an
additional 1,835,711 shares were added to the reserve pursuant to the automatic
share increase provisions of the 1999 Plan. Awards may be granted to such
non-employee directors, officers, employees and consultants of the Company as
the Compensation Committee of the Board of Directors shall in its discretion
select. Only employees of the Company are eligible to receive grants of
incentive stock options. 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). In January
2006, the Board of Directors exercised its discretion under the 1999 Plan and
determined that there would be no increase in the number of shares reserved for
this year pursuant to the automatic increase provision. 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 two to four years.

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 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 vest over a four-year period and have terms not to exceed 10 years.

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. Under
the ESPP, employees of the Company who elect to participate are granted options
to purchase common stock at semi-annual intervals within the offering period at
a 15 percent discount from the market value, as defined, of such stock. Each
offering period is determined by the plan administrator and may not exceed two
years. The ESPP permits an enrolled 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. 300,000 shares of common
stock of the Company were initially reserved for issuance 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 March 31, 2006, 329,243 shares were issued under the ESPP
and 305,203 shares were added to the reserve pursuant to the automatic increase
provision.

The
following represents a summary of the Companys stock option activity under the
1999 and 2000 Plans for the three months ended March 31, 2006:

|                                         |  |        |           |                                     |  |   |      |  | 
|---------------------------------------- |  | ------ | --------- | ----------------------------------- |  | - | ---- |  | 
|                                         |  | Shares |           | Weighted
  Average
  Exercise Price | 
|                                         |  |        |           |                                     | 
|Options outstanding at December 31, 2005 |  |        | 2,515,749 |                                     |  | $ | 2.63 |  | 
|Options granted                          |  |        |          |                                     |  |   |     |  | 
|Options exercised                        |  |        | (96,754   | )                                   |  |   | 3.09 |  | 
|Options canceled                         |  |        | (33,647   | )                                   |  |   | 4.78 |  | 
|                                         |  |        |           |                                     |  |   |      |  | 
|Options outstanding at March 31, 2006    |  |        | 2,385,348 |                                     |  | $ | 2.58 |  | 
|                                         |  |        |           |                                     |  |   |      |  | 

The
weighted average grant-date fair value of options granted during the three
months ended March 31, 2005 was $2.54. The fair value of options which vested
during the three months ended March 31, 2006 and March 31, 2005 was $1.78 and
$1.59, respectively. The total intrinsic value of options exercised during the
three months ended March 31, 2006 and 2005 was $1.1 million and $1.4 million,
respectively.

The
following table summarizes information about options outstanding at March 31,
2006:

10

---



|                        |  |                                        |           |                                                                  |  |                                       |  |                                        |   |                                       |  |  |           |  |   |      | 
|----------------------- |  | -------------------------------------- | --------- | ---------------------------------------------------------------- |  | ------------------------------------- |  | -------------------------------------- | - | ------------------------------------- |  |  | --------- |  | - | ---- | 
|                        |  |                                        |           | Options Outstanding                                              |  | Options Exercisable                   | 
|                        |  |                                        |           |                                                                  |  |                                       | 
|Range of exercise price |  | Number
  Outstanding
  as of
  3/31/06 |           | Weighted
  Average
  Remaining
  Contractual
  Life
  (In Years) |  | Weighted
  Average
  Exercise
  Price |  | Number
  Exercisable
  as of
  3/31/06 |   | Weighted
  Average
  Exercise
  Price | 
|                        |  |                                        |           |                                                                  |  |                                       |  |                                        |   |                                       | 
|$0.42 to
  $1.03        |  |                                        | 664,604   |                                                                  |  | 5.03                                  |  |                                        | $ | 0.75                                  |  |  | 660,238   |  | $ | 0.75 | 
|$1.37 to
  $4.10        |  |                                        | 1,562,344 |                                                                  |  | 6.58                                  |  |                                        |   | 3.08                                  |  |  | 1,248,015 |  |   | 2.94 | 
|$4.80 to
  $9.00        |  |                                        | 158,400   |                                                                  |  | 8.25                                  |  |                                        |   | 5.41                                  |  |  | 59,092    |  |   | 6.14 | 
|                        |  |                                        |           |                                                                  |  |                                       |  |                                        |   |                                       |  |  |           |  |   |      | 
|                        |  |                                        | 2,385,348 |                                                                  |  | 6.26                                  |  |                                        | $ | 2.58                                  |  |  | 1,967,345 |  | $ | 2.30 | 
|                        |  |                                        |           |                                                                  |  |                                       |  |                                        |   |                                       |  |  |           |  |   |      | 

As
of March 31, 2006, there were 2,228,908 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 March 31, 2006 was
$37.0 million, of which $31.1 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
March 31, 2006. The following table summarizes nonvested stock option activity
for the three months ended March 31, 2006:

|                                                     |  |        |          |                                       |   |      | 
|---------------------------------------------------- |  | ------ | -------- | ------------------------------------- | - | ---- | 
|                                                     |  | Shares |          | Weighted
  Average
  Exercise
  Price |  
|                                                     |  |        |          |                                       |  
|Nonvested
  options outstanding at December 31, 2005 |  |        | 558,377  |                                       | $ | 3.89 | 
|Vested                                               |  |        | (107,040 | )                                     |   | 3.42 | 
|Canceled                                             |  |        | (33,334  | )                                     |   | 4.80 | 
|                                                     |  |        |          |                                       |   |      | 
|Nonvested
  options outstanding at March 31, 2006    |  |        | 418,003  |                                       | $ | 3.93 | 

The
weighted average grant-date fair value of ESPP rights arising from elections
made by ESPP plan participants during the three months ended March 31, 2006 and
2005 was $8.92 and $1.74, respectively. During the three months ended March 31,
2006, ESPP rights to approximately 11,300 shares were granted to employees who elected
to change their payroll percentage deductions effective February 1, 2006, as
permitted semi-annually within the current offering period under the ESPP plan.
These ESPP rights were treated as modified stock awards which had a weighted
average grant-date value of $10.70. The fair value of ESPP rights that vested
during the three months ended March 31, 2006 and 2005 was $4.26 and $1.29,
respectively. On January 31, 2006, the Company issued 24,040 shares at a
weighted average price of $3.89 under the ESPP.

The
intrinsic value of shares purchased through the ESPP on January 31, 2006 and of
outstanding ESPP rights as of March 31, 2006 were $237,000 and $501,000,
respectively. The intrinsic value of 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 March 31, 2006, there was $423,000 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 1.4 years.

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:

|                                         |  |                             |     |             |  |         |            |             |  |  |         |  |  |  |        |  | 
|---------------------------------------- |  | --------------------------- | --- | ----------- |  | ------- | ---------- | ----------- |  |  | ------- |  |  |  | ------ |  | 
|                                         |  | Three Months Ended March 31 |    
|                                         |  |                             |    
|                                         |  | 2006                        |     | 2005        | 
|                                         |  |                             |     |             | 
|                                         |  | Options                     |     | ESPP Rights |  | Options |            | ESPP Rights | 
|                                         |  |                             |     |             |  |         |            |             | 
|Weighted
  average expected option lives |  |                             | N/A |             |  |         | 0.50 years |             |  |  | 4 years |  |  |  | 1 year |  | 
|Risk-free
  interest rate                |  |                             | N/A |             |  |         | 4.60%      |             |  |  | 3.25%   |  |  |  | 2.95%  |  | 
|Expected
  volatility                    |  |                             | N/A |             |  |         | 25.8%      |             |  |  | 67.1%   |  |  |  | 34.2%  |  | 
|Dividend
  yield                         |  |                             | N/A |             |  |         | 0%         |             |  |  | 0%      |  |  |  | 0%     |  | 

11

---



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 March 31, 2006, the Company recorded $128,000 of
compensation expense related to options and ESPP rights and received cash from
the exercise of options and ESPP rights of $401,000 for which the Company
issued new shares of common stock.

As
of March 31, 2006, there were 229,000 of service-based restricted stock awards
outstanding. During the three months ended March 31, 2006, 194,000 shares of
restricted stock were awarded at a weighted average grant-date fair value of
$11.43, and no shares of restricted stock vested or canceled during the period.
The aggregate intrinsic value of restricted shares at March 31, 2006 was $4.1
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 March 31, 2006.

As
of March 31, 2006, there was $2.2 million of total unrecognized compensation
cost related to nonvested restricted shares which is expected to be recognized
over a weighted average period of 2.6 years. As of March 31, 2006, no
forfeitures of restricted shares were anticipated. During the three months
ended March 31, 2006, the Company recorded $201,000 of compensation expense
related to restricted shares.

9.
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 a term
of three years, the Company delivers online and print advertising services to
Collages in exchange for having received Collages Series A Preferred Stock,
which vests over the first two years of the Agreement. Through March 31, 2006,
the fair value of the marketing services to be provided over the term of the Agreement
approximated the fair value of Series A Preferred Stock received.

As
of March 31, 2006, the Company has earned approximately $558,000 in revenue
pursuant to the Agreement. The Company has deferred recognition of this revenue
since the realization of the resulting asset, representing an equity investment
in Collages, is not reasonably assured.

10. COMMITMENTS AND
CONTINGENCIES

Legal
Proceedings

On
September 19, 2003, WeddingChannel.com, Inc. (WeddingChannel) filed a
complaint against the Company in the United States District Court for the
Southern District of New York. The complaint alleges that the Company has
violated U.S. Patent 6,618,753 (Systems and Methods for Registering Gift
Registries and for Purchasing Gifts), and further alleges that certain actions
of the Company give rise to various federal statute, state statute and common
law causes of actions. WeddingChannel is seeking, among other things, damages
and injunctive relief. If the Company is found to have willfully infringed the
patent-in-suit, enhanced damages may be awarded. This complaint was served on
the Company on September 22, 2003.

Based
on information currently available, the Company believes that the claims are
without merit and is vigorously defending itself against all claims. On October
14, 2003, the Company filed an answer and counterclaims against WeddingChannel.
The Companys answer raises various defenses to the counts alleged by
WeddingChannel. Additionally, the Company has brought counterclaims including a
request that the court declare that the patent-in-suit is invalid,
unenforceable and not infringed. On April 15, 2005, WeddingChannel specified
that they were seeking damages in an amount ranging from approximately
$1,100,000 to in excess of approximately $13,000,000 plus interest. The Company
has raised defenses to WeddingChannels patent and other claims, which, if
successful, would

12

---



obviate or
substantially limit any potential damages payments. WeddingChannel has also
requested unspecified damages in connection with other claims set forth in its
complaint.

The
Company has filed a series of summary judgment motions seeking to dismiss
entirely and/or limit WeddingChannels claims for patent infringement, and
WeddingChannel filed certain cross-motions for summary judgment concerning
certain of the Companys defenses. These motions were argued before the Court
on September 28 and October 19, 2005, and have not yet been decided. On January
17, 2006, a stay was entered in the litigation between the Company and
WeddingChannel for a period of not less than 60 days, upon the joint request of
the parties. If the stay is lifted, and if the Companys motions are
unsuccessful and some portion of WeddingChannels patent infringement claims
remain, the case may go to trial in the third quarter of 2006.

Because
the Company believes the claims are without merit, management does not believe
that the outcome will have a material impact on the operations or results of
the Company; and the Company has not recorded a contingency for this
litigation. However, if the Companys answer and its defenses do not succeed or
if its counterclaims are found to be without merit, or if the Company
determines to settle this litigation at a later date, the Company could suffer
harm to its business and a material adverse effect to its financial condition
and results of operations.

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.

13

---



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. Our
actual results and timing of various events could differ materially from those
anticipated in such forward-looking statements as a result of a variety of
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 is a leading lifestage media and services company providing products and
services to couples planning their weddings and future lives together. Our
website, at www.theknot.com,
is the most trafficked wedding destination online and offers comprehensive
content, extensive wedding-related shopping, an online wedding gift registry
and an active community. The Knot is the leading wedding content provider to
MSN and Comcast. We publish The Knot
Weddings Magazine, which features editorial content and a shopping
directory format which covers every major wedding planning decision and is
distributed to newsstands and bookstores across the nation. We also publish The Knot Weddings regional magazines
in 15
markets in the United States and The Knot Real Weddings in two additional
local markets. We also author books on wedding and newlywed related topics. In
November 2004, we launched our newlywed website, The Nest, at www.thenest.com, the first online
destination for the newly married audience. In January 2005, we acquired the
business and assets of GreatBoyfriends LLC including the websites www.greatboyfriends.com
and www.greatgirlfriends.com,
which are referral-based online dating services supported by subscriptions. We
are based in New York and have several other offices across the country.

Each
year, approximately 2.2 million couples get married in the United States.
According to an independent research report, the domestic wedding market
generates approximately $72 billion in retail sales annually, including gifts
purchased from couples registries. Presumed to be a once-in-a-lifetime
occasion, a wedding is a major milestone event and, therefore, consumers tend
to allocate significant budgets to the wedding and related purchases. Weddings
also generate substantial revenues for travel services companies. Honeymoon
travel generates an estimated $4.5 billion annually.

Vendors
and advertisers highly value to-be-weds as a consumer group. Replenished on an
annual basis, wielding substantial budgets and facing a firm deadline, engaged
couples are ideal recipients of advertisers messages and vendors products and
services. During the six months prior to and the six months following a
wedding, the average couple will make more buying decisions and purchase more
products and services than at any other time in their lives. The challenges and
obstacles that engaged couples face make them especially receptive to marketing
messages. We provide national and local advertisers with targeted access to
couples actively seeking information and advice and making meaningful spending
decisions relating to all aspects of their weddings.

National
online advertisers can enter into arrangements to exclusively sponsor entire
editorial areas or special features on our site. We may also offer sponsors
additional online promotional events such as a sweepstakes, newsletter and
direct e-mail programs, or inclusion of their special offers in our membership
gateway. With our expansion into local markets and the further development of The Knot Weddings Magazine, we have
expanded
the scope of the integrated marketing programs we offer to our national online
advertisers to include print advertising in our national and regional
magazines. Also, we now offer national advertisers the opportunity to sponsor
content on The Knot TV, a streaming video channel that broadcasts 24/7 on our
website. Advertisers can promote their services and products within the
programming on this channel.

The
Local Resources area on The Knot website provides access to the local wedding
market through 67 online city and regional guides that host profiles for over
13,000 local vendors, such as reception halls, bands, florists and caterers.
Local wedding vendors can supplement print advertisements in our regional
magazines with profiles and sponsorship badges as well as preferred placement
and other premium programs within their appropriate online city guide, and they
can also reach their markets through targeted local emails. We also offer
programs to local vendors that include advertising placement in The Knot Weddings Magazine.

We
address a portion of the retail opportunity in the wedding market by
integrating our informative content with shopping services which range from
wedding gifts to a comprehensive array of supplies that relate to the wedding
itself. We sell wedding supplies direct to consumers through our integrated
shopping destination, The Knot Wedding

14

---



Shop. We offer
over one thousand products, including disposable cameras, wedding bubbles and
bells, candy and cookies, ring pillows, toasting flutes, reception decorations,
table centerpieces, goblets and glasses, garters and unity candles. We offer
personalization options for many of our wedding supplies. We have launched our
own line of Knot-branded wedding supplies called The Knot Wedding Collections
and our own line of wedding-themed apparel, which can be personalized as well.
In 2005, we launched ShopForWeddings.com,
our separate online store for wedding supplies, which we developed in order to
attract additional users and generate further revenues. In addition, we sell
wedding supplies directly to other select bridal retailers through our
wholesale wedding supplies division. We fulfill all retail and wholesale
wedding supplies orders from our Redding, California facility.

The
Knot Gift Registry Center offers a large selection of china, crystal and
flatware through our partnership with Michael C. Fina. In addition, in 2005, we
announced a new partnership with Target Corporation under which Target Club
Wedd became our premier registry provider allowing our members easy access to
Target Club Wedds extensive registry assortment. We earn commissions from the
sale of products in connection with these retail partnerships.

Our
strategy is to expand our position as a leading lifestage media and services
company providing comprehensive planning and other information, products and
services to couples planning their weddings and future lives together. Key
elements of our business strategy include the following:

Build Strong
Brand Recognition. Building a dominant brand is critical to
attracting and expanding both our online and offline user base and securing our
leading position in the bridal market.

We
promote our brand through aggressive public relations outreach, including
television appearances by Carley Roney, our editor in chief and lead wedding
expert. Through our regional magazines and the expansion of our in-depth online
city guides, we are aggressively increasing our brand awareness at the local
level. Our local advertising sales force further supports The Knot brand
through participation in their local wedding professional associations and
appearances at local bridal events.

Capitalize
on Multiple Revenue Opportunities. We intend to use the size and
favorable demographics of our online and offline communities to continue to
grow our existing multiple revenue streams within the wedding space. We will
pursue additional revenue opportunities in connection with the needs of todays
engaged and newly married couples including premium services.

Leverage our
Relationship with our Audience.
We believe a large and active membership base is critical to our success.
Membership enrollment is free; and our members enjoy the use of personal Web
pages, message boards, budgeting and planning tools, wedding checklists and
wedding fashion and honeymoon searches. New membership growth has leveled off
in recent years. We enrolled approximately 1.0 million and 1.1 million new
members in the years 2005 and 2004, respectively. During the first three months
of 2006, we were enrolling an average of approximately 3,600 new members per
day. Our priority in the wedding space is to increase member usage through our
content and product offerings, additional interactive premium services, active
community participation and strategic relationships.

Expansion
into other Life Stages and Services. With the launch of our website at www.thenest.com, we are expanding our
relationship with our
core membership base and providing access to additional products and services
relevant to newlyweds and growing families. We plan to develop The Nest brand
in the same manner we built The Knot brand with increased consumer awareness
leading to increased advertiser adoption.

Becoming
parents for the first time is another major life change for newlyweds, and we
believe there will be an opportunity to continue serving our audience as they
enter this next significant life stage. We have also created or acquired other
small properties to leverage the clients and technologies we have developed and
to broaden the complementary services we offer.

The
pursuit of our business strategies may involve potential acquisitions, or
investments in, complementary businesses or products.

For
the three months ended March 31, 2006, our revenue increased by $2.8 million,
or approximately 24%, when compared to 2005. This growth resulted primarily
from increases in our higher margin online sponsorship and advertising revenues
of $2.0 million, or 35%, as a result of the continued expansion of our client
base, increased spending by our clients on additional or premium programs and
through the impact of price increases in local markets. In addition, publishing
and other revenue increased by $1.0 million or 38%. This increase primarily
reflects growth in the sale of advertising pages to designers in our national
publication and to local vendors in our local print

15

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publications,
as well as rate increases. Merchandise revenue, derived primarily from the sale
of wedding supplies to retail customers, decreased by $248,000, or 7%. The
leveling of new membership growth in recent years has impacted retail supplies
sales directly since our brides or members are the principal buyers, and we
also believe there is further competition developing online with respect to the
sale of wedding supplies products. Our primary goal continues to be increasing
the percentage of members who purchase merchandise from us online and their
average spending to support further revenue growth from our existing
membership. Retail supplies sales were relatively flat in the first quarter. We
also conducted a review of our wholesale customer base in the last half of 2004
and eliminated a number of marginal accounts in 2004 and 2005 which contributed
to a decline in wholesale revenue of $123,000 for the three months ended March
31, 2006 as compared to the prior year. Revenue from our registry services
decreased by $140,000. In 2006, we are no longer maintaining inventory and
recording sales of registry-related products. We are now generally receiving
only commissions from the sale of products through our retail partnerships.

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 and returns, 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 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. To
date, we have recognized applicable online sponsorship and advertising revenues
over the duration of the contracts on a straight-line basis, as we have
exceeded minimum guaranteed impressions. To the extent that minimum guaranteed
impressions are not met, we are generally obligated to extend the period of the
contract until the guaranteed impressions are achieved. If this were to occur,
we would defer and recognize the corresponding revenues over the extended
period.

Merchandise
revenues generally include 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 also include commissions earned in connection with the sale of
products from our gift registry under agreements with certain retail partners
where we are not primarily obligated, not subject to inventory risk and amounts
earned are determined using a fixed percentage. Merchandise revenues are
recognized when products are shipped to customers, reduced by discounts as well
as an allowance for estimated sales returns.

Publishing
revenue includes print advertising revenue derived from the publication of The Knot Weddings Magazine, the
publication of regional magazines, The Knot
Weddings and other publications, as well as fees from the license of
the Weddingpages name for use in publication by certain former franchisees.
These revenues and fees are recognized upon the publication of the related
magazines, at which time all material services related to the magazine have
been performed, or as fees are earned under the terms of license agreements.
Additionally, publishing revenues are derived from the sale of magazines on
newsstands and in bookstores, and from author royalties received related to

16

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book
publishing contracts. Revenues from the sale of magazines are recognized when
the products are shipped, reduced by an allowance for estimated sales returns.
Author royalties, to date, have been derived 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.

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 March 31, 2006
and December 31, 2005, our allowance for doubtful accounts amounted to $270,000
and $274,000, 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

As
of March 31, 2006, we had recorded goodwill and other intangible assets of $9.1
million. In our most recent assessment of impairment of goodwill as of October
1, 2005, 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
March 31, 2006, no 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 Taxes

A
tax valuation allowance is established, as needed, to reduce net deferred tax
assets to the amount for which recovery is probable. As of March 31, 2006, we
have established a full valuation allowance of $14.3 million against our net deferred
tax assets. Depending on the amount and timing of taxable income we may
ultimately generate in the future, as well as other factors including
limitations which may arise from changes in the Companys ownership, we could
recognize no benefit from our deferred tax assets, in accordance with our
current estimate, or we could recognize some or all of their full value.

Stock-Based Compensation

Effective
January 1, 2006, we adopted Statement of Financial Accounting Standards
(SFAS) No. 123(R), Share-Based Payment, using the modified
perspective method. Under this method, previously reported amounts are not
restated. 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. Under the modified perspective
method, we recognize compensation expense for all stock awards granted after
December 31, 2005, and for awards granted prior to January 1, 2006 that
remained unvested as of that date or which may be subsequently modified.

17

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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 will
continue to recognize stock-based compensation for service-based graded-vesting
stock awards granted prior to January 1, 2006 using the accelerated method
prescribed by 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. In addition, effective January 1, 2006, we
have included an estimate of stock awards to be forfeited in the future in
calculating stock-based compensation expense for the period. The cumulative
effect of this accounting change for forfeitures as of January 1, 2006 was not
material due to the significant reduction in both the number of personnel
receiving stock awards and the aggregate amount of stock awards granted by us
in 2004 and 2005. 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.

Refer
to the section entitled Stock-Based Compensation on page 20 for a further
discussion of the impact of SFAS No. 123(R) on our recording of stock-based
compensation for the three months ended March 31, 2006.

Results of Operations

Net Revenues

Net
revenues increased to $14.8 million for the three months ended March 31, 2006
from $11.9 million for the three months ended March 31, 2005.

Online
sponsorship and advertising revenues increased to $7.8 million for the three
months ended March 31, 2006 as compared to $5.8 million for the three months ended
March 31, 2005. Revenue from local vendor online advertising programs increased
by $1.2 million, or by approximately 30%, primarily as a result of an increase
in the number and average spending of local vendor clients, including the
continuing impact of price increases. In addition, there was an increase of
$861,000 or approximately 47% in national online sponsorship and advertising
revenue, largely due to an increase in the average spending by our national
accounts. Online sponsorship and advertising revenues amounted to 53% of our net revenues for the three months ended
March 31, 2006 and 48% of our net revenues for the three months ended March 31,
2005.

Merchandise
revenues, which consist primarily of the sale of wedding supplies to retail
customers, decreased to $3.1 million for the three months ended March 31, 2006
as compared to $3.4 million for the three months ended March 31, 2005. Retail
supplies revenue was relatively flat for the quarter. We believe retail
supplies revenue has been affected by the leveling of our new membership growth
and by further competition developing online with respect to the sale of
wedding supplies products. The sale of wedding supplies to wholesale customers
decreased by $123,000 for the three months ended March 31, 2006 as compared to
the prior year. We previously conducted a review of our wholesale customer base
and eliminated a number of marginally profitable accounts in 2004 and 2005. The
balance of the merchandise revenue variance related to registry revenue. In
2006, we are no longer maintaining inventory and recording sales of
registry-related products. We are now generally receiving only commissions from
the sale of products through our retail partnerships. Merchandise revenues
amounted to 21% of our net revenues for the three months ended March 31, 2006
and 28% of our net revenues for the three months ended March 31, 2005.

Publishing
and other revenues increased to $3.8 million for the three months ended March
31, 2006, as compared to $2.8 million for the three months ended March 31,
2005. Local print revenue increased by $351,000, or by 31%, due to an increase
in advertising pages sold, including pages associated with the local section of
our national magazine, and a small increase in pricing. National print revenue
derived from The Knot Weddings Magazine
increased by $342,000 or 22% as a result of an increase in the number of
designer advertisers and advertising page rates for both designer and national
advertisers. In 2006, we also recorded $230,000 in author royalties upon the
delivery and acceptance of our first book on newlywed related topics.
Publishing and other revenue amounted to 26% of our net revenues for the three
months ended March 31, 2006 and 23% of our net revenues for the three months
ended March 31, 2005.

18

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Cost of Revenues

Cost
of revenues consists of the cost of merchandise sold, including outbound
shipping costs, costs related to the production of regional magazines and our
national magazine, 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 $3.1 million for the three months ended March 31,
2006, as compared to $2.9 million for the three months ended March 31, 2005.
The cost of revenues from the sale of merchandise decreased by $50,000 due to a
decrease in related revenue offset, in part, by a small decline in margin as a
result of increased product promotions. Publishing and other cost of revenue
increased by $111,000 due to higher costs for both our national and local print
publications as a result of increased advertising page counts which was offset,
in part, by improved margins driven by the gains in print advertising revenue.
As a percentage of our net revenues, cost of revenues decreased to 21% for the
three months ended March 31, 2006 from 24% in the prior year. This overall
margin improvement resulted from a greater mix of higher margin online
advertising revenue and the increased margins for national and local print
revenue.

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 $1.8 million for the three months
ended March 31, 2006 from $1.7 million for the three months ended March 31,
2005. Personnel and related expenses increased by $202,000 due to additional
investments in editorial, creative and information technology staff. This
increase included approximately $29,000 related to stock-based compensation.
For the three months ended March 31, 2005, we incurred severance and other
costs of approximately $120,000 in connection with the relocation of a
significant portion of our information technology function to Austin, Texas. As
a percentage of our net revenues, product and content development expenses
decreased to 12% for the three months ended March 31, 2006 from 14% for the
three months ended March 31, 2005.

Sales and Marketing

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

Sales
and marketing expenses increased to $4.7 million for the three months ended
March 31, 2006 from $3.6 million for the three months ended March 31, 2005.
Personnel and related costs increased by $699,000 primarily as a result of
investments in national and local sales staff, in part, as additional support
for sales efforts for new initiatives, including The Nest. This increase
included approximately $54,000 related to stock-based compensation. We also
incurred higher sales commissions and incentives of $150,000 in 2006 as a
result of the increases in online advertising and print revenue as well as
higher promotion costs of $153,000. As a percentage of our net revenues, sales
and marketing expenses increased to 32% for the three months ended March 31,
2006 from 30% for the three months ended March 31, 2005.

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 $3.3 million for the three months
ended March 31, 2006, from $3.1 million for the three months ended March 31,
2005. Legal and other professional costs related to our current litigation with
WeddingChannel.com, Inc. amounted to $180,000 during the three months ended
March 31, 2006. On January 17, 2006, a stay was entered in this litigation for
a period of not less than 60 days. Prior to the stay, we filed a series of
summary judgment motions seeking to dismiss entirely and/or limit
WeddingChannels claims for patent infringement, and WeddingChannel filed
certain cross-motions for summary judgment concerning certain of our
defenses. These motions were argued before the Court on September 28 and
October 19, 2005, and have not yet

19

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been decided. If the stay is lifted, and if our
motions are ultimately unsuccessful and some portion of WeddingChannels patent
infringement claims remain, the case may go to trial in the third quarter of
2006. Legal costs related to this litigation were $683,000 in the three months
ended March 31, 2005. For the three months ended March 31, 2006, we recorded
stock-based compensation expense of approximately $246,000, $200,000 in costs
with respect to the development of a formal disaster recovery plan for the
Company and additional professional and other legal costs of $138,000. In March
2005, we incurred $95,000 in fees in connection with our re-listing on the
Nasdaq National Market. As a percentage of our net revenues, general and
administrative expenses decreased to 22% for the three months ended March 31,
2006 from 26% for the three months ended March 31, 2005.

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 months ended
March 31, 2006, as follows:

|                                       |  |   |         | 
|-------------------------------------- |  | - | ------- | 
|Product and content development        |  | $ | 29,000  | 
|Sales and marketing                    |  |   | 54,000  | 
|General and administrative             |  |   | 246,000 | 
|                                       |  |   |         | 
|Total stock-based compensation expense |  | $ | 329,000 | 
|                                       |  |   |         | 

We
did not record any stock-based compensation expense for the three months ended
March 31, 2005.

The
following table details the effect on net income and earnings per share had
stock-based compensation expense been recorded based on the fair value method
under SFAS No. 123, as amended, for the three months ended March 31, 2005.

|                                                                                                                |  |                      |          |  
|--------------------------------------------------------------------------------------------------------------- |  | -------------------- | -------- | -
|                                                                                                                |  | Three
  Months Ended |         
|                                                                                                                |  | March 31,
  2005     |         
|                                                                                                                |  |                      |         
|Net income, as
  reported                                                                                       |  | $                    | 409,108  |  
|Add: Total
  stock-based employee compensation expense included in reported net income                          |  |                      |         |  
|Deducted: Total
  stock-based employee compensation expense determined under fair value method
  for all awards |  |                      | (239,091 | )
|                                                                                                                |  |                      |          |  
|Net income, pro
  forma                                                                                         |  | $                    | 170,017  |  
|                                                                                                                |  |                      |          |  
|Basic earnings
  per share, as reported                                                                         |  | $                    | 0.02     |  
|                                                                                                                |  |                      |          |  
|Basic earnings
  per share, pro forma                                                                           |  | $                    | 0.01     |  
|                                                                                                                |  |                      |          |  
|Diluted earnings
  per share, as reported                                                                       |  | $                    | 0.02     |  
|                                                                                                                |  |                      |          |  
|Diluted earnings
  per share, pro forma                                                                         |  | $                    | 0.01     |  
|                                                                                                                |  |                      |          |  

As
of March 31, 2006, total unrecognized estimated compensation expense related to
nonvested stock options, restricted shares and ESPP rights was $2.7 million,
which is expected to be recognized over a weighted average period of 2.4 years.
We currently believe that stock-based compensation expense for the calendar
year ended December 31, 2006 will range from $1.6 million to $1.9 million.

Since
June 2005, we have awarded shares of restricted stock as our primary form of
stock-based compensation. However, we may elect to resume granting stock
options in the future.

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 increased to $372,000 for the three months ended March 31,
2006, from $281,000 for the three months ended March 31, 2005. The increase was
primarily due to an increase in capital expenditures over 2005 and in the three
months ended March 31, 2006.

20

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Interest
Income

Interest
income, net of interest expense, increased to $300,000 for the three months
ended March 31, 2006, from $130,000 for the three months ended March 31, 2005,
as a result of higher funds available for investment and higher interest rates.

Provision
for Taxes on Income

For
the three months ended March 31, 2006 and 2005, we incurred income tax expense
of $103,000 and $35,000, respectively, primarily due to operating income
generated in certain states. We continue to utilize net operating loss
carryforwards for federal income tax purposes.

Liquidity
and Capital Resources

As
of March 31, 2006, our cash, cash equivalents and short-term investments
amounted to $31.2 million. We currently invest primarily in short-term debt
instruments that are highly liquid, of high-quality investment grade, and have
maturities of less than three months, with the intent to make such funds
readily available for operating purposes.

Net
cash provided by operating activities was $2.7 million for the three months
ended March 31, 2006. This resulted primarily from the net income for the
quarter of $1.7 million, depreciation, amortization, non-cash services expense
and stock-based compensation of $849,000, a decrease in accounts receivable,
net of deferred revenue, of $1.1 million due to improved collection efforts and
further credit card usage by local vendors. These sources of cash were offset,
in part, by an increase in inventory of $163,000 in anticipation of higher
seasonal sales of wedding supplies in the second and third quarters and an
increase in other assets of $892,000. Net cash provided by operating activities
was $637,000 for the three months ended March 31, 2005. This resulted from the
net income for the period of $409,000, depreciation and amortization of
$281,000 and a decrease in accounts receivable, net of deferred revenue, of
$632,000 due to improved collection efforts and further credit card usage by
local vendors. We also reduced our merchandise inventory balance by $113,000.
These sources of cash were offset, in part, by a decrease in accounts payable
and accrued expenses of $910,000, primarily related to payments for legal
services.

Net
cash used in investing activities was $2.6 million for the three months ended
March 31, 2006 due primarily to purchases of property, equipment and software
of $1.1 million and purchases of short-term investments, net of proceeds from
sales, of $1.5 million. Net cash used in investing activities was $1.2 million
for the three months ended March 31, 2005 and consisted primarily of purchases
of property, equipment and software of $861,000 and cash paid for the
acquisition of the business and assets of GreatBoyfriends LLC of $621,000
offset, in part, by proceeds from the sale of short-term investments, net of
purchases, of $300,000. We currently believe that purchases of property and
equipment for the calendar year ended December 31, 2006 will increase to
between $3.0 million and $3.5 million as a result of the planned acquisition of
additional computer hardware and software to establish secondary back-up
systems in connection with the development of a formal disaster recovery plan
and due to leasehold improvements to be made at our Omaha facility.

Net
cash provided by financing activities was $401,000 and $499,000 for the three
months ended March 31, 2006 and 2005, respectively, primarily due to proceeds
from the issuance of common stock in connection with the exercise of stock
options and through our Employee Stock Purchase Plan.

Through
March 31, 2006, we have reserved all future tax benefits resulting from tax
deductions in excess of recognized stock-based compensation expense and,
accordingly, we have not reflected any such benefits in our consolidated statements
of cash flows.

We
have only achieved operating income in recent periods, and we have an
accumulated deficit of $40.5 million as of March 31, 2006. We believe that our
current cash and cash equivalents will be sufficient to fund our working capital
and capital expenditure requirements for at least the next twelve months. This
expectation is primarily based on internal estimates of revenue growth, as well
as continuing emphasis on controlling operating expenses. However, there can be
no assurance that actual costs will not exceed amounts estimated, that actual
revenues will equal or exceed estimated amounts, or that we will sustain
profitable operations, due to significant uncertainties surrounding our
estimates and expectations.

21

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Contractual
Obligations and Commitments

We
do not have any special purposes 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, host services and bandwidth.

As
of March 31, 2006, we had no material commitments for capital expenditures.

As
of March 31, 2006, we had commitments under non-cancelable operating leases
amounting to approximately $4.6 million.

As
of March 31, 2006, other long term liabilities of $494,000 substantially
represented accruals to recognize rent expense on a straight-line basis over
the respective lives of three 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 March 31, 2006 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          |  | $                      | 153   |                    | $ | 47          |  | $           | 106   |                     | $ |      |  | $ |    | 
|Operating leases        |  |                        | 4,622 |                    |   | 953         |  |             | 1,762 |                     |   | 1,297 |  |   | 610 | 
|Purchase commitments    |  |                        | 1,648 |                    |   | 1,080       |  |             | 568   |                     |   |      |  |   |    | 
|                        |  |                        |       |                    |   |             |  |             |       |                     |   |       |  |   |     | 
|Total                   |  | $                      | 6,423 |                    | $ | 2,080       |  | $           | 2,436 |                     | $ | 1,297 |  | $ | 610 | 
|                        |  |                        |       |                    |   |             |  |             |       |                     |   |       |  |   |     | 

Seasonality

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

22

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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, cash equivalents and short-term investments of
approximately $31.2 million as of March 31, 2006. 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 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 March 31,
2006. 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
SECs rules and forms, 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 March 31, 2006 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.

PART II. OTHER INFORMATION

Item 1. Legal
Proceedings

On
September 19, 2003, WeddingChannel.com, Inc. (WeddingChannel) filed a
complaint against The Knot in the United States District Court for the Southern
District of New York. The complaint alleges that The Knot has violated U.S.
Patent 6,618,753 (Systems and Methods for Registering Gift Registries and for
Purchasing Gifts), and further alleges that certain actions of The Knot give
rise to various federal statute, state statute and common law causes of
actions. WeddingChannel is seeking, among other things, damages and injunctive
relief. If The Knot is found to have willfully infringed the patent-in-suit,
enhanced damages may be awarded. This complaint was served on the Company on September
22, 2003.

Based
on information currently available, The Knot believes that the claims are
without merit and is vigorously defending itself against all claims. On October
14, 2003, The Knot filed an answer and counterclaims against WeddingChannel.
The Knots answer raises various defenses to the counts alleged by
WeddingChannel. Additionally, The Knot has brought counterclaims including a
request that the court declare that the patent-in-suit is invalid,
unenforceable and not infringed. On April 15, 2005, WeddingChannel specified
that they were seeking damages in an amount ranging from approximately
$1,100,000 to in excess of approximately $13,000,000 plus interest. The Knot
raised defenses to WeddingChannels patent and other claims, which, if
successful, would obviate or substantially limit any potential damages
payments. WeddingChannel has also requested unspecified damages in connection
with other claims set forth in its complaint.

The
Knot has filed a series of summary judgment motions seeking to dismiss entirely
and/or limit WeddingChannels claims for patent infringement, and
WeddingChannel filed certain cross-motions for summary judgment concerning
certain of The Knots defenses. These motions were argued before the Court on
September 28 and October 19, 2005, and have not yet been decided. On January
17, 2006, a stay was entered in the litigation

23

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between The
Knot and WeddingChannel for a period of not less than 60 days, upon the request
of the parties. If the stay is lifted, and if The Knots motions are
unsuccessful and some portion of WeddingChannels patent infringement claims
remain, the case may go to trial in the third quarter of 2006.

There
can be no assurance that The Knots answer or counterclaims against
WeddingChannel will be successful. If The Knots answer and its defenses do not
succeed or if its counterclaims are found to be without merit, or if The Knot
determines to settle this litigation at a later date, The Knot could suffer
harm to its business and a material adverse effect to its financial condition
and results of operations.

The
Knot 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.

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 and limited operating history, (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 risks and related costs
associated with ongoing litigation, (v) the seasonality of the wedding industry
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 17,
2006.

There
have been no material changes to the risk factors described in the Form 10-K.

Item 6. Exhibits

| |      |                                                                                                                                                                           
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 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.                    

24

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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: May
  11, 2006 |  | THE KNOT,
  INC.
|                     |  |                  |                                                                                      
|                     |  | By:              | /s/ Richard
  Szefc                                                                  
|                     |  |                  |                                                                                      
|                     |  |                  | Richard
  Szefc                                                                      
|                     |  |                  | Chief
  Financial Officer (Principal Financial Officer and Duly
  Authorized Officer)

25

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EXHIBIT INDEX

|       |                                                                                                                                                                           
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number | Description                                                                                                                                                               
|       |                                                                                                                                                                           
|       |                                                                                                                                                                           
|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.                    

26

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