**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 SEPTEMBER 30, 2007**





**or**




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




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


**New
      York, New York 10013**


(Address
      of Principal Executive Officer and Zip Code)




**(212)
      219-8555**


(Registrant’s
      Telephone Number, Including Area Code)




Indicate
      by check whether the registrant: (1) filed all reports required to be filed
      by
      Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
      months (or for such shorter period that the Registrant was required to file
      such
      reports), and (2) has been subject to such filing requirements for the past
      90
      days.




Yes x    No  ̈




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, 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 x    Non-accelerated
      filer  ̈




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
      November 2, 2007, there were 31,553,468 shares of the registrant’s common stock
      outstanding.


Page
                NumberPART
                  I
              FINANCIAL
                  INFORMATIONItem
                  1:
              Financial
                  Statements (Unaudited):Condensed
                    Consolidated Balance Sheets as of September
                    30, 2007 and December 31, 2006
              3Condensed
                  Consolidated Statements of
                  Operations for the three and nine months ended September 30, 2007
                  and
                  2006
              4Condensed
                    Consolidated Statements of Cash Flows for the
                    nine months ended September 30, 2007 and 2006
              5Notes
                  to Condensed Consolidated Financial
                  Statements
              6Item
                  2:
              Management’s
                  Discussion and Analysis of Financial Condition
                  and Results of Operations
              16Item
                  3:
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              25Item
                  4:
              Controls
                  and Procedures
              25PART
                  II
              OTHER
                  INFORMATIONItem
                  1:
              Legal
                  Proceedings
              25Item
                  1A:
              Risk
                  Factors
              25Item
                  2:
              Unregistered
                  Sales of Equity Securities and Use
                  of Proceeds
              26Item
                  6:
              Exhibits
              26


2


***Item
      1.******Financial
      Statements (Unaudited)***




**THE
      KNOT, INC.**


**CONDENSED
      CONSOLIDATED BALANCE
      SHEETS**




**September
                30,**
            
            **December
                31,****2007**
            
            **2006****(Unaudited)**
            
            **(Note
                1)****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            20,564,621
            
            $
            73,633,011Short-term
                investments
            
            
            80,840,681
            
            
            7,000,000Accounts
                receivable, net of allowances of $1,519,658 and $707,567 atSeptember
                30, 2007 and December 31, 2006, respectively
            
            
            13,386,448
            
            
            9,742,920Inventories
            
            
            2,240,776
            
            
            1,345,150Deferred
                production and marketing costs
            
            
            551,663
            
            
            584,210Deferred
                tax assets, current portion
            
            
            5,041,274
            
            
            8,369,121Other
                current assets
            
            
            1,489,609
            
            
            1,499,851Total
                current assets
            
            
            124,115,072
            
            
            102,174,263Property
                and equipment, net
            
            
            7,910,751
            
            
            9,375,815Intangible
                assets, net
            
            
            31,891,472
            
            
            34,015,125Goodwill
            
            
            32,763,029
            
            
            33,853,840Deferred
                tax assets
            
            
            20,682,979
            
            
            24,489,992Other
                assets
            
            
            342,123
            
            
            341,467Total
                assets
            
            $
            217,705,426
            
            $
            204,250,502**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            6,775,804
            
            $
            7,661,023Deferred
                revenue
            
            
            13,843,346
            
            
            10,497,552Current
                portion of long-term debt
            
            
            50,733
            
            
            50,733Total
                current liabilities
            
            
            20,669,883
            
            
            18,209,308Deferred
                tax liabilities
            
            
            14,156,700
            
            
            15,013,770Long
                term debt
            
            
            55,173
            
            
            55,173Other
                liabilities
            
            
            477,217
            
            
            547,793Total
                liabilities
            
            
            35,358,973
            
            
            33,826,044Commitments
                and contingenciesStockholders’
                equity:Preferred
                stock, $0.001 par value; 5,000,000 shares authorized; no shares issued
                and
                outstanding
            
            
            —
            
            
            —Common
                stock, $0.01 par value; 100,000,000 shares authorized;
              31,502,968
                shares and 31,129,628 shares issued and outstanding at September
                30, 2007
                and December 31, 2006, respectively
            
            
            315,030
            
            
            311,297Additional
                paid-in capital
            
            
            191,534,425
            
            
            188,908,678Accumulated
                deficit
            
            
            (9,503,002
            )
            
            (18,795,517
            )Total
                stockholders’ equity
            
            
            182,346,453
            
            
            170,424,458Total
                liabilities and stockholders’ equity
            
            $
            217,705,426
            
            $
            204,250,502




See
      accompanying notes.


3





**THE
      KNOT, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF
      OPERATIONS**


**(UNAUDITED)**






**Three
              Months Ended September 30,**
            
            **Nine
                Months Ended September 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Net
                revenues:Online
                sponsorship and advertising
            
            $
            12,394,070
            
            $
            9,379,888
            
            $
            35,691,614
            
            $
            25,533,198Registry
                services
            
            
            3,665,755
            
            
            954,965
            
            
            8,782,342
            
            
            1,097,880Merchandise
            
            
            5,316,915
            
            
            4,273,656
            
            
            16,447,195
            
            
            12,165,753Publishing
                and other
            
            
            3,632,668
            
            
            3,897,744
            
            
            13,603,111
            
            
            12,189,710Total
                net revenues
            
            $
            25,009,408
            
            $
            18,506,253
            
            $
            74,524,262
            
            $
            50,986,541Cost
                of revenues:Online
                sponsorship and advertising
            
            $
            386,190
            
            $
            320,854
            
            $
            1,163,120
            
            $
            928,621Registry
                services
            
            
            —
            
            
            —
            
            
            —
            
            
            —Merchandise
            
            
            2,446,873
            
            
            2,160,277
            
            
            7,720,728
            
            
            6,048,440Publishing
                and other
            
            
            1,561,030
            
            
            1,719,472
            
            
            5,177,081
            
            
            4,410,451Total
                cost of revenues
            
            $
            4,394,093
            
            $
            4,200,603
            
            $
            14,060,929
            
            $
            11,387,512Gross
                profit
            
            
            20,615,315
            
            
            14,305,650
            
            
            60,463,333
            
            
            39,599,029Operating
                expenses:Product
                and content development
            
            
            3,486,799
            
            
            2,170,369
            
            
            9,937,098
            
            
            5,784,068Sales
                and marketing
            
            
            6,230,330
            
            
            4,657,215
            
            
            18,567,666
            
            
            13,739,820General
                and administrative
            
            
            4,399,333
            
            
            4,232,411
            
            
            12,470,968
            
            
            10,820,420Goodwill
                impairment
            
            
            495,578
            
            
            —
            
            
            495,578
            
            
            —Depreciation
                and amortization
            
            
            2,078,598
            
            
            975,106
            
            
            6,384,499
            
            
            1,799,908Total
                operating expenses
            
            
            16,690,638
            
            
            12,035,101
            
            
            47,855,809
            
            
            32,144,216Income
                from operations
            
            
            3,924,677
            
            
            2,270,549
            
            
            12,607,524
            
            
            7,454,813Interest
                income, net
            
            
            1,272,843
            
            
            1,082,226
            
            
            3,496,047
            
            
            1,745,687Income
                before income taxes
            
            
            5,197,520
            
            
            3,352,775
            
            
            16,103,571
            
            
            9,200,500Provision
                for income taxes
            
            
            2,299,213
            
            
            90,199
            
            
            6,811,056
            
            
            366,451Net
                income
            
            $
            2,898,307
            
            $
            3,262,576
            
            $
            9,292,515
            
            $
            8,834,049Net
                earnings per share—basic
            
            $
            0.09
            
            $
            0.12
            
            $
            0.30
            
            $
            0.36Net
                earnings per share—diluted
            
            $
            0.09
            
            $
            0.11
            
            $
            0.28
            
            $
            0.33Weighted
                average number of common shares outstandingBasic
            
            
            31,034,101
            
            
            27,472,080
            
            
            30,915,579
            
            
            24,592,760Diluted
            
            
            32,767,237
            
            
            29,766,300
            
            
            32,786,345
            
            
            27,059,012





See
      accompanying notes. 4




**THE
      KNOT, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


**(UNAUDITED)**








**Nine
                Months Ended September 30,****2007**
            
            **2006****Operating
                activities**Net
                income
            
            $
            9,292,515
            
            $
            8,834,049Adjustments
                to reconcile net income to net cash provided byoperating
                activities:Depreciation
                and amortization
            
            
            3,510,846
            
            
            1,386,619Amortization
                of intangibles
            
            
            2,873,653
            
            
            413,289Stock-based
                compensation
            
            
            1,676,226
            
            
            1,077,270Deferred
                income taxes
            
            
            6,111,790
            
            
            —Non-cash
                services expense
            
            
            —
            
            
            445,833Reserve
                for returns
            
            
            2,503,522
            
            
            2,400,954Goodwill
                impairment
            
            
            495,578
            
            
            —Allowance
                for doubtful accounts
            
            
            421,824
            
            
            123,646Other
                non-cash charges
            
            
            29,723
            
            
            97,937Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (5,935,383
            )
            
            (2,710,922
            )Inventories
            
            
            (826,416
            )
            
            (16,814
            )Deferred
                production and marketing costs
            
            
            32,547
            
            
            (121,342
            )Other
                current assets
            
            
            (34,849
            )
            
            (98,806
            )Other
                assets
            
            
            (656
            )
            
            (76,596
            )Accounts
                payable and accrued expenses
            
            
            (1,430,021
            )
            
            (37,969
            )Deferred
                revenue
            
            
            3,362,050
            
            
            1,854,964Other
                liabilities
            
            
            (70,576
            )
            
            56,741Net
                cash provided by operating activities.
            
            
            22,012,373
            
            
            13,628,853**Investing
                activities**Purchases
                of property and equipment
            
            
            (2,338,775
            )
            
            (3,059,165
            )Purchases
                of short-term investments
            
            
            (126,812,681
            )
            
            (9,300,000
            )Proceeds
                from sales of short-term investments
            
            
            52,972,000
            
            
            13,850,000Acquisition
                of business, net of cash acquired
            
            
            52,410
            
            
            (53,313,362
            )Net
                cash used in investing activities
            
            
            (76,127,046
            )
            
            (51,822,527
            )**Financing
                activities**Financing
                costs
            
            
            —
            
            
            (5,285,741
            )Proceeds
                from issuance of common stock
            
            
            423,138
            
            
            95,403,788Proceeds
                from exercise of stock options and warrants
            
            
            932,907
            
            
            1,042,362Repurchase
                of common stock
            
            
            (309,762
            )
            
            —Net
                cash provided by financing activities
            
            
            1,046,283
            
            
            91,160,409(Decrease)
                increase in cash and cash equivalents
            
            
            (53,068,390
            )
            
            52,966,735Cash
                and cash equivalents at beginning of period
            
            
            73,633,011
            
            
            17,685,067Cash
                and cash equivalents at end of period
            
            $
            20,564,621
            
            $
            70,651,802




See
      accompanying notes.  5


**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 condensed consolidated balance sheet and financial information
      as
      of December 31, 2006 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 and nine months ended September 30, 2007 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, 2006.





The
      Company has only achieved operating income in recent periods and has an
      accumulated deficit of $9,503,002 as of September 30, 2007. The Company believes
      that its current cash and cash equivalents will be sufficient to fund its
      working capital and capital expenditure requirements for the foreseeable future.
      The Company’s ability to meet its obligations in the ordinary course of business
      is dependent upon its ability to maintain profitable operations and/or raise
      additional financing through public or private equity financings, or other
      arrangements with corporate sources, or other sources of financing to fund
      operations. However, there is no assurance that the Company will maintain
      profitable operations or that additional funding, if required, will be available
      to the Company in amounts or on terms acceptable to the Company.







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





**PRINCIPLES
      OF CONSOLIDATION**





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





**USE
      OF ESTIMATES**





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





**EARNINGS
      PER SHARE**





The
      Company computes earnings per share in accordance with Statement of Financial
      Accounting Standards (“SFAS”) No. 128, *Earnings
      per Share.* Basic
      earnings per share is computed by dividing net income by the weighted average
      number of common shares outstanding during the period. Diluted earnings per
      share adjusts basic earnings per share for the effects of stock options,
      restricted common stock, warrants and other potentially dilutive financial
      instruments, only in the periods in which the effects are dilutive. For the
      three months ended September 30, 2007 and 2006, the weighted average number
      of
      shares used in calculating diluted earnings per share includes stock options,
      restricted common stock and warrants to purchase common stock of 1,733,136
      and
      2,294,220, respectively. For the nine months ended September 30, 2007 and 2006,
      the weighted average number of shares used in calculating diluted earnings
      per
      share includes stock options, restricted common stock and warrants to purchase
      common stock of 1,870,766 and 2,466,252, respectively. The calculation of
      earnings per share for the three and nine months ended September 30, 2007
      excludes a weighted average number of stock options of 410,000 and 186,227,
      respectively, because to include them in the calculation would be antidilutive.


6


**SEGMENT
      INFORMATION**





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


****


**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 and nine months ended September 30, 2007, one customer accounted for
      12%
      and 10% of net revenues, respectively. No other customer accounted for more
      than
      2% of revenue for the three and nine months ended September 30, 2007; and no
      customer accounted for more than 5% and 3% of net revenues, respectively, for
      the three and nine months ended September 30, 2006. As of September 30, 2007
      and
      December 31, 2006, one customer accounted for approximately 10% and 7%,
      respectively, of accounts receivable.





**STOCK-BASED
      COMPENSATION**





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 continues 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.





Total
      stock-based compensation expense related to all of the Company’s stock awards
      was included in various operating expense categories for the three and nine
      months ended September 30, 2007 and 2006, as follows:





**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30**
            
            **September
                30****2007**
            
            **200****6**
            
            **2007**
            
            **2006**Product
                and content development
            
            $
            93,000
            
            $
            62,000
            
            $
            333,000
            
            $
            116,000Sales
                and marketing
            
            
            77,000
            
            
            62,000
            
            
            295,000
            
            
            183,000General
                and administrative
            
            
            456,000
            
            
            264,000
            
            
            1,048,000
            
            
            778,000Total
                stock-based compensation expense
            
            $
            626,000
            
            $
            388,000
            
            $
            1,676,000
            
            $
            1,077,000


7


**RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes- An Interpretation of FASB Statement No.
      109* (“FIN
      48”). FIN 48 provides detailed guidance for the financial statement recognition,
      measurement and disclosure of *uncertain* tax
      positions recognized in an enterprise’s financial statements in accordance with
      SFAS 109. Tax positions must meet a more-likely-than-not recognition threshold
      at the effective date to be recognized upon the adoption of FIN 48 and in
      subsequent periods. The Company adopted FIN 48 effective January 1, 2007. The
      adoption of FIN 48 did not impact the Company’s operating results or financial
      position.





The
      Company is subject to taxation in the United States and various state and local
      jurisdictions. The Company is currently under audit with respect to its 2005
      U.S. Federal tax return. As of September 30, 2007, none of the Company’s other
      tax returns have been examined by any income taxing authorit *y.* As a
      result of the ongoing use of tax loss carryforwards, all of the Company’s prior
      U.S. Federal and more significant state and local returns remain subject to
      examination. Through September 30, 2007, the Company has not recorded any
      interest and penalties related to uncertain tax positions.





**3.** **ACQUISITIONS**





*WeddingChannel*





On
      September 8, 2006, the Company completed the acquisition of WeddingChannel.com,
      Inc. (“WeddingChannel”), through the merger of IDO Acquisition Corporation, a
      wholly-owned subsidiary of the Company, with and into WeddingChannel. The
      Company undertook the acquisition to increase the Company’s market share and
      provide the Company additional opportunities to leverage its core assets
      including its audience and local and national sales forces. In addition, the
      Company undertook the acquisition to enhance the services the Company is able
      to
      provide engaged couples and their wedding guests, through WeddingChannel’s
      registry offerings. The purchase price for all of the capital stock and stock
      options of WeddingChannel was approximately $81.9 million, representing cash
      paid of $60.9 million, the issuance of 1,144,144 shares of common stock valued
      at $18.6 million and direct transaction costs of $2.4 million. The purchase
      price included a working capital adjustment of $2.9 million. The value of the
      common stock portion of the purchase price was determined based on the market
      price of the Company’s common stock at the time the Company made its
      determination to pay the primary consideration, as defined in the merger
      agreement, which fixed the consideration for the outstanding capital stock
      and
      stock options of WeddingChannel. The purchase price reflects a reduction of
      $808,000 and 5,732 shares of common stock based upon a final determination
      of
      WeddingChannel’s working capital, as defined, as of September 8, 2006. In
      addition, approximately $5.9 million in cash and 109,268 shares of common stock
      included in the purchase price are currently held in an escrow account and
      are
      subject to certain deductions in the event indemnification claims are
      successfully asserted by the Company pursuant to the merger
      agreement.





In
      connection with this acquisition, the Company also recorded estimated
      liabilities of $1.1 million, primarily for costs resulting from a plan to
      involuntarily terminate certain employees of WeddingChannel and for the cost
      of
      remaining lease obligations for acquired facilities to be closed or for acquired
      space leased which exceeds the Company’s current or projected needs due to staff
      reductions. As of September 30, 2007, substantially all of these estimated
      liabilities have been paid.





The
      estimated cost of the acquisition has been allocated to the assets acquired
      and
      liabilities assumed of WeddingChannel based on a determination of their fair
      values.





The
      following table summarizes the cost allocation at the date of
      acquisition:


Current
                assets
            
            $
            19,755,000Property
                and equipment
            
            
            5,395,000Intangible
                assets
            
            
            35,570,000Goodwill
            
            
            22,534,000Deferred
                tax assets
            
            
            20,915,000Other
                assets
            
            
            22,000Total
                assets acquired
            
            $
            104,191,000Current
                liabilities
            
            $
            6,316,000Deferred
                tax liabilities
            
            
            14,901,000Total
                liabilities acquired
            
            
            21,217,000Total
                estimated cost
            
            $
            82,974,000


8


T he
      acquisition of WeddingChannel was a stock transaction for tax purposes, which
      results in different book and tax bases. Accordingly, the purchase price
      allocation includes $14.9 million of deferred tax liabilities related to the
      tax
      effect of the preliminary differences in the book and tax bases of property
      and
      equipment and acquired intangibles other than goodwill. In addition, a deferred
      tax asset of $22.7 million, associated with a reduction in a portion of the
      valuation allowance previously recorded by WeddingChannel with respect to its
      net operating carryforwards has been recorded. To the extent further reductions
      in the valuation allowance are recorded, the offsetting credit would reduce
      goodwill.





The
      results of operations for WeddingChannel have been included in the Company’s
      condensed consolidated statements of operations since September 8, 2006. The
      following unaudited pro forma financial information presents a summary of the
      results of operations assuming the acquisition of WeddingChannel occurred on
      January 1, 2006:





Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30, 2006
            
            September
                30, 2006Net
                revenues
            
            $
            24,318,817
            
            $
            70,119,910Net
                income
            
            $
            2,949,615
            
            $
            8,149,178Net
                earnings per share - basic
            
            $
            0.10
            
            $
            0.30Net
                earnings per share - diluted
            
            $
            0.09
            
            $
            0.27




Pro
      forma
      adjustments have been made to reflect depreciation and amortization using asset
      values recognized after applying purchase accounting adjustments and related
      tax
      effects as well as to eliminate legal fees incurred in connection with the
      litigation between the Company and WeddingChannel, which was withdrawn following
      the acquisition. Direct transaction and other costs related to the acquisition,
      a gain on the sale of an investment and losses from discontinued operations,
      all
      of which were recorded by WeddingChannel prior to September 8, 2006, have been
      eliminated from the pro forma financial information. The pro forma earnings
      per
      share amounts are based on the pro forma weighted average number of shares
      outstanding which include the shares issued by the Company as a portion of
      the
      total consideration for the acquisition and the shares sold on August 15, 2006
      by the Company in connection with a follow-on offering, the net proceeds from
      which were used to fund a portion of the cash consideration for the
      acquisition.





The
      pro
      forma consolidated financial information is presented for information purposes
      only. The pro forma consolidated financial information does not reflect the
      effects of any anticipated changes to be made by the Company to the operations
      of the combined companies, including synergies and cost savings and does not
      include one time charges expected to result from the acquisition. The pro forma
      consolidated financial information should not be construed to be indicative
      of
      results of operations or financial position that actually would have occurred
      had the acquisition been consummated as of the date indicated or the Company’s
      future results of operations or financial position.





*Lilaguides*




On
      July
      25, 2006, the Company acquired the publishing business and related assets of
      OAM
      Solutions, Inc., the publisher of the *Lilaguides* ,
      local
      information guides for parents, for $2.1 million, which includes direct
      transaction costs. The acquisition represented the Company’s first significant
      step into the business of catering to the needs of first-time parents. The
      cost
      of this acquisition was allocated to the assets acquired based upon a
      determination of their fair values as follows:  9




Current
                assets
            
            $
            8,700Property
                and equipment
            
            
            14,300Tradename
            
            
            83,000Other
                intangibles
            
            
            168,000Goodwill
            
            
            1,820,000Total
                cost
            
            $
            2,094,000





This
      acquisition would not have had a material impact with respect to the condensed
      consolidated results of operations for the three and nine months ended September
      30, 2006, had the acquisition been consummated on January 1, 2006.








**4. 
      SHIPPING AND HANDLING CHARGES**





For
      the
      three months ended September 30, 2007 and 2006, merchandise revenues included
      outbound shipping and handling charges of approximately $794,000 and $655,000,
      respectively. For the nine months ended September 30, 2007 and 2006, merchandise
      revenues included outbound shipping and handling charges of approximately
      $2,367,000 and $1,815,000, respectively.








**5** **. 
      INVENTORY**





Inventory
      consists of the following:





**September
                30,**
            
            **December
                31,****2007**
            
            **2006**Raw
                materials
            
            $
            251,010
            
            $
            194,122Finished
                goods
            
            
            1,989,766
            
            
            1,151,028$
            2,240,776
            
            $
            1,345,150








**6.
      GOODWILL**





The
      changes in the carrying amount of goodwill for the nine months ended September
      30, 2007 are as follows:





Balance
                as of December 31, 2006
            
            $
            33,853,840Acquisition
                of WeddingChannel.com, Inc. (see Note 3):Adjustments
                to purchase price and additional direct transaction costs
            
            
            (375,387
            )Adjustments
                to fair value of net assets acquired other than goodwill
            
            
            (219,846
            )Goodwill
                impairment
            
            
            (495,578
            )Balance
                as of September 30, 2007
            
            $
            32,763,029




The
      Company completed its most recent goodwill impairment test as of October 1,
      2006. 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. During its business
      planning process for calendar year 2008, which commenced in September 2007,
      the
      Company concluded that it would not currently commit additional marketing
      resources for its online personals site, GreatBoyfriends.com. Accordingly,
      the
      Company reduced its future revenue expectations and estimated future cash flows
      for that reporting unit. The Company also determined that the carrying value
      of
      goodwill for GreatBoyfriends.com exceeded its implied fair value at September
      30, 2007 and recorded an impairment charge of approximately $496,000. There
      can
      be no assurance that future goodwill impairment tests will not result in
      additional charges to income.


10


**7.** **INTANGIBLE
      ASSETS**




**September
                  30, 2007**
              
              **December
                  31, 2006**Gross
                  CostCarrying Amount
              
              Accumulated
                  Amortization
              
              NetCost
              
              Gross
                  Cost Carrying Amount
              
              Accumulated
                  Amortization
              
              NetCostIndefinite
                  lived intangibles:Tradenames
              
              $
              15,220,000
              
              $
              --
              
              $
              15,220,000
              
              $
              15,220,000
              
              $
              --
              
              $
              15,220,000Amortizable
                  intangibles:Customer
                  and advertiserRelationships
              
              
              5,610,000
              
              
              672,378
              
              
              4,937,622
              
              
              4,940,000
              
              
              175,000
              
              
              4,765,000Developed
                  technologyand
                  patents
              
              
              12,280,000
              
              
              2,613,000
              
              
              9,667,000
              
              
              12,280,000
              
              
              771,000
              
              
              11,509,000Trademarks
                  andTradenames
              
              
              211,920
              
              
              96,240
              
              
              115,680
              
              
              211,920
              
              
              56,153
              
              
              155,767Service
                  contracts andOther
              
              
              3,328,000
              
              
              1,376,830
              
              
              1,951,170
              
              
              3,248,000
              
              
              882,642
              
              
              2,365,35821,429,920
              
              
              4,758,448
              
              
              16,671,472
              
              
              20,679,920
              
              
              1,884,795
              
              
              18,795,125Total
              
              $
              36,649,920
              
              $
              4,758,448
              
              $
              31,891,472
              
              $
              35,899,920
              
              $
              1,884,795
              
              $
              34,015,125





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





Customer
                and advertiser relationships
            4
                to 10 yearsDeveloped
                technology and patents
            5
                yearsTrademarks
                and tradenames
            3
                to 5 yearsService
                contracts and other
            1
                to 7 years





The
      increase in the gross cost carrying amount of intangibles for the nine months
      ended September 30, 2007 resulted from adjustments to the appraised fair value
      of assets acquired in connection with the acquisition of WeddingChannel (see
      Note 3).




Amortization
      expense was $941,000 and $352,000 for the three months ended September 30,
      2007
      and 2006, respectively, and $2,874,000 and $413,000 for the nine months ended
      September 30, 2007 and 2006, respectively. Estimated
      annual amortization expense is $3,812,000 in 2007, $3,635,000 in 2008,
      $3,598,000 in 2009, $3,524,000 in 2010, $2,375,000 in 2011, $555,000 in 2012
      and
      $2,046,000, thereafter.








**8.** **ACCOUNTS
      PAYABLE AND ACCRUED EXPENSES**





Accounts
      payable and accrued expenses consist of the following:





**September
                30,**
            
            **December
                31,****2007**
            
            **2006**Accounts
                payable
            
            $
            2,039,586
            
            $
            2,156,070Professional
                services
            
            
            531,717
            
            
            536,602Compensation
                and related benefits
            
            
            1,431,441
            
            
            1,658,577Other
                accrued expenses
            
            
            2,773,060
            
            
            3,309,774$
            6,775,804
            
            $
            7,661,023


11
 **9.** **LONG-TERM
      DEBT**





Long-term
      debt as of September 30, 2007 consists of the following:


Note
                  due in annual installments of $60,000 through October
                  2008,based
                  on imputed interest of 8.75%
              
              $
              105,906Less
                  current portion
              
              
              50,733Long
                  term-debt, excluding current portion
              
              $
              55,173


The
      long-term obligation matures in October, 2008. Interest
      expense was approximately $2,000 and $3,000 for the three months ended September
      30, 2007 and 2006, respectively. Interest expense was approximately $7,000
      and
      $10,000 for the nine months ended September 30, 2007 and 2006,
      respectively.








**10.
      STOCK PLANS**




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




Under
      the
      terms of the 1999 Plan, 3,849,868 shares of common stock of the Company were
      initially reserved for incentive stock options, nonqualified stock options
      (incentive and nonqualified stock options are collectively referred to as
“options”), stock appreciation rights, stock issuances (which may be subject to
      the attainment of designated performance goals or service requirements
      (“restricted stock”), or any combination thereof. On May 15, 2001, the Company’s
      stockholders approved a further increase of 1,000,000 to the number of shares
      reserved for issuance under the 1999 Plan. Through September 30, 2007, an
      additional 2,458,304 shares were added to the reserve pursuant to the automatic
      share increase provisions of the 1999 Plan. The shares reserved under the 1999
      Plan automatically increase on the first trading day in January of each calendar
      year by an amount equal to two percent (2%) of the total number of shares of
      the
      Company’s common stock outstanding on the last trading day of December in the
      prior calendar year, but in no event will this annual increase exceed 1,000,000
      shares (or such other lesser number determined by the Board of Directors).
      Awards may be granted to such non-employee directors, officers, employees and
      consultants of the Company as the Compensation Committee of Board of Directors
      shall in its discretion select. Only employees of the Company are eligible
      to
      receive grants of incentive stock options. Options are granted at the fair
      market value of the stock on the date of grant. Options vest over periods up
      to
      four years and have terms not to exceed 10 years. Restricted stock awards vest
      over periods ranging from one to four years.




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




The
      Employee Stock Purchase Plan (the “ESPP”) was adopted by the Board of Directors
      and approved by the stockholders in November 1999 and became effective upon
      completion of the Company’s initial public offering of its common stock. The
      Compensation Committee of the Board of Directors administers the ESPP. The
      ESPP
      permits a participating employee to make contributions to purchase shares of
      common stock by having withheld from his or her salary an amount between 1
      percent and 15 percent of compensation. Under the ESPP, eligible employees
      of
      the Company may elect to participate on the start date of an offering period
      or
      subsequent semi-annual entry date, if any, within the offering period. On each
      purchase date during an offering period, a participating employee’s
      contributions will be used to purchase up to 1,000 shares of the Company’s
      common stock for such participating employee at a 15 percent discount from
      the
      fair market value, as defined in the ESPP, of such stock. Each offering period
      is determined by the plan administrator and may not exceed two years. The
      Company initially reserved 300,000 shares of common stock under the ESPP. The
      shares reserved automatically increase on the first trading day in January
      of
      each calendar year by the lesser of the (i) the number of shares of common
      stock
      issued under the ESPP in the immediately preceding calendar year, (ii) 300,000
      shares or (iii) such other lesser amount approved by the Board of Directors.
      Through September 30, 2007, 393,239 shares were issued under the ESPP and
      365,767 shares were added to the reserve pursuant to the automatic share
      increase provision.


12


The
      following table represents a summary of the Company’s stock option activity
      under the 1999 and 2000 Plans and related information, without regard for
      estimated forfeitures, for the nine months ended September 30,
      2007:





Shares
            
            Weighted
                AverageExercise
                PriceOptions
                outstanding at December 31, 2006
            
            
            1,853,976
            
            $
            2.76Options
                granted
            
            
            410,000
            
            
            18.26Options
                exercised
            
            
            (282,916
            )
            
            2.33Options
                canceled
            
            
            (5,938
            )
            
            3.36Options
                outstanding at September 30, 2007
            
            
            1,975,122
            
            $
            6.04





The
      weighted average grant-date fair value of options granted during the nine months
      ended September 30, 2007, was $5.95. No options were granted during the three
      months ended September 30, 2007 and in 2006. The fair value of options which
      vested during the three months ended September 30, 2007 and 2006 was $1.75
      and
      $1.99, respectively. The fair value of options which vested during the nine
      months ended September 30, 2007 and 2006 was $1.96 and $1.82, respectively.
      The
      total intrinsic value of options exercised during the three months ended
      September 30, 2007 and 2006 was $1.2 million and $5.6 million, respectively.
      The
      total intrinsic value of options exercised during the nine months ended
      September, 2007 and 2006 was $6.0 million and $7.9 million, respectively.





The
      following table summarizes information about options outstanding at September
      30, 2007:




**Options
                Outstanding**
            
            
            **Options
                Exercisable****Range
                of exercise price**
            
            
            **Number**
              **Outstanding**
              **as
                of**
              **September
                30,****2007**
            
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life**
              **(In
                Years)**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            
            **Number**
              **Exercisable**
              **as
                of**
              **September
                30****,
                2007**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**$0.42
                to $1.03
            
            
            416,509
            
            
            3.34
            
            $
            0.90
            
            
            416,509
            
            $
            0.90$1.37
                to $4.10
            
            
            1,060,113
            
            
            5.91
            
            
            3.36
            
            
            1,054,174
            
            
            3.36$4.80
                to $9.00
            
            
            88,500
            
            
            6.36
            
            
            5.61
            
            
            51,693
            
            
            6.04$18.26
            
            
            410,000
            
            
            9.66
            
            
            18.26
            
            
            --
            
            
            --1,975,122
            
            
            6.17
            
            $
            6.04
            
            
            1,522,376
            
            $
            2.78





The
      weighted average remaining contractual life of options exercisable as of
      September 30, 2007 was 5.20 years.





As
      of
      September 30, 2007, there were 2,210,752 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 September 30, 2007
      was
      $30.1 million, of which $28.1 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
      September 30, 2007. The following table summarizes nonvested stock option
      activity for the nine months ended September 30, 2007:  13





Shares
            
            Weighted
                Average Exercise
              PriceNonvested
                options outstanding at December 31, 2006
            
            
            173,447
            
            $
            4.24Granted
            
            
            410,000
            
            
            18.26Vested
            
            
            (125,641
            )
            
            4.05Canceled
            
            
            (5,060
            )
            
            3.71Nonvested
                options outstanding at September 30, 2007
            
            
            452,746
            
            $
            16.99





The
      weighted average grant-date fair value of ESPP rights arising from elections
      made by ESPP plan participants was $2.32 and $5.07 during the three and nine
      months ended September 30, 2007, respectively, and $2.07 and $6.30 during the
      three and nine months ended September 30, 2006. During the nine months ended
      September 30, 2006, ESPP rights to approximately 13,000 shares were granted
      to
      employees who elected to change their payroll percentage deductions effective
      February 1, 2006, as permitted semi-annually within the offering period in
      effect at that date under the ESPP plan. These ESPP rights were treated as
      modified stock awards which had a weighted average grant-date value of $10.60.
      The fair value of ESPP rights that vested during the three and nine months
      ended
      September 30, 2007 was $3.51 and $5.26, respectively, and was $10.14 and $7.80
      during the three and nine months ended September 30, 2006, respectively. On
      January 31, 2007, the Company issued 12,130 shares at a weighted average price
      of $15.32 under the ESPP. On July 31, 2007, the Company issued 15,342 shares
      at
      a weighted average price of $15.43 under the ESPP.




The
      intrinsic value of shares purchased through the ESPP on January 31, and July
      31,
      2007 as of September 30, 2007 was $180,000 and $42,000, respectively. The
      intrinsic value of outstanding ESPP rights as of September 30, 2007 was $91,000.
      The intrinsic value of the ESPP rights is calculated as the discount from the
      quoted price of the Company’s common stock, as defined in the ESPP, which was
      available to employees as of the respective dates.





As
      of
      September 30, 2007, there was $2.2 million of unrecognized compensation cost
      related to nonvested stock options and ESPP rights, net of estimated
      forfeitures, which is expected to be recognized over a weighted average period
      of 2.61 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:





Nine
                Months Ended September 30,2007
            
            2006Options
            
            ESPP
                Rights
            
            Options
            
            ESPP
                RightsWeighted
                average expected option lives
            4.0
                years
            
            0.5
                years
            
            N/A
            
            0.5
                yearsRisk-free
                interest rate
            4.83%
            
            4.96%-5.16%
            
            N/A
            
            4.60%-5.18%Expected
                volatility
            32.1%
            
            20.3-29.3%%
            
            N/A
            
            25.8%-26.8%Dividend
                yield
            0%
            
            0%
            
            N/A
            
            0%








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





During
      the three months ended September 30, 2007 and 2006, the Company recorded
      $240,000 and $111,000, respectively, of compensation expense related to options
      and ESPP rights. During the nine months ended September 30, 2007 and 2006,
      the
      Company recorded $429,000 and $383,000, respectively, of compensation expense
      related to options and ESPP rights and received cash from the exercise of
      options and ESPP rights of $1.3 million in each period for which the Company
      issued new shares of common stock.  14





As
      of
      September 30, 2007 and 2006, there were 365,668 and 333,500 service-based
      restricted stock awards outstanding, respectively. During the three and nine
      months ended September 30, 2007, 30,000 shares and 86,000 shares, respectively,
      of restricted stock were awarded at weighted average grant-date fair values
      of
      $19.68 and $20.05, respectively. During the three and nine months ended
      September 30, 2006, 99,500 shares and 301,000 shares, respectively, of
      restricted stock were awarded at weighted average grant-date fair values of
      $16.95 and $13.36, respectively. During the three and nine months ended
      September 30, 2007, 115,832 and 123,332 shares of restricted stock vested,
      respectively. During the three and nine months ended September 30, 2007, 16,500
      and 20,500 shares of restricted stock, respectively, were canceled. During
      the
      three and nine months ended September 30, 2006, 2,500 shares of restricted
      stock
      vested. The aggregate intrinsic value of restricted shares at September 30,
      2007
      was $7.8 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 September 30, 2007.





As
      of
      September 30, 2007, there was $4.9 million of total unrecognized compensation
      cost related to nonvested restricted shares, net of estimated forfeitures,
      which
      is expected to be recognized over a weighted average period of 3.1 years. During
      the three months ended September 30, 2007 and 2006, the Company recorded
      $387,000 and $277,000, respectively, of compensation expense related to
      restricted shares. During the nine months ended September 30, 2007 and 2006,
      the
      Company recorded $1,247,000 and $694,000 of compensation expense related to
      restricted shares.





The
      tax
      benefit attributable to all recorded stock-based compensation was $250,000
      and
      $157,000 for the three months ended September 30, 2007 and 2006, respectively,
      and $668,000 and $430,000 for the nine months ended September 30, 2007 and
      2006,
      respectively. Through September 30, 2007, the Company has not recorded any
      tax
      benefits attributable to tax deductions generated from the exercise of employee
      stock options, vesting of restricted stock and the exercise of stock warrants
      in
      excess of related stock-based compensation, non-cash services expense and
      non-cash sales and marketing expense recorded for financial reporting purposes.
      In accordance with SFAS No. 123(R), the tax benefits for these deductions are
      recognized when they result in a reduction to current taxes payable and will
      be
      accounted for as additional paid-in-capital.





**11. 
      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 September 30, 2007, 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.





Since
      inception of the Agreement through September 30, 2007, the Company has earned
      approximately $1.5 million 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.




**12. 
      COMMITMENTS AND CONTINGENCIES**





**Legal
      Proceedings**





The
      Company is engaged in 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.** **WARRANT
      EXERCISE**




In
      October 2004, the Company retained Allen & Company LLC (“Allen”) as a
      financial advisor for a period of two years with respect to various matters.
      In
      consideration for Allen’s services and a cash payment of $1,100, the Company
      issued warrants to Allen to purchase 220,000 shares of the Company’s common
      stock at $3.79 per share, subject to certain anti-dilution provisions. The
      warrants became fully exercisable in October 2005. The warrants expire in
      October 2010.





On
      February 8, 2007, the Company issued 18,050 shares of common stock upon the
      exercise of a portion of the warrant by Allen and received proceeds of
      approximately $68,000.


15


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





**Milestones**





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





In
      September 2006, we acquired WeddingChannel.com, Inc. The acquisition of
      WeddingChannel increases our market share and provides us additional
      opportunities to leverage core assets including our commerce operations and
      local and national sales forces. WeddingChannel’s registry offerings also
      enhance the services we are able to provide our audience of engaged couples
      and
      their wedding guests. We intend to maintain WeddingChannel.com as a separate
      website and continue to offer WeddingChannel’s services ranging from planning
      content and interactive tools to convenient, comprehensive shopping and
      community participation. The results of operations for WeddingChannel have
      been
      included in our consolidated statements of operations since the acquisition
      date.





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





**Strategy**





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





**Increase
      Our Market Share and Leverage Assets** .
      Acquiring companies or services that are complementary to our business increases
      our leverage with advertisers as well as our ability to satisfy our customers.
      The acquisition of WeddingChannel has significantly increased our share of
      the
      online bridal audience and provides additional opportunities to leverage our
      local and national sales forces as well as our wedding merchandise offerings.
      WeddingChannel's registry search platform will also enhance the service we
      are
      able to provide all of our engaged couples and their wedding guests. The launch
      of PartySpot.com leverages our technologies as well as our local sales force
      and
      vendor relationships to provide local party planning information to families
      hosting rehearsal dinners, bar mitzvahs, sweet sixteens and graduation
      parties.  16


**Deepen
      Our Relationship with Our Audience.** A large
      and active membership base is critical to our success. Annual new membership
      has
      remained consistent in recent years. Membership enrollment in 2006 was
      approximately 1.2 million and 768,000 for The Knot and WeddingChannel websites,
      respectively. Membership enrollment is free and gives members the use of
      important services such as free personal wedding webpages, message boards,
      interactive planning tools, wedding checklists and wedding gown databases.
      Our
      priority in the wedding space is to increase the depth of member engagement
      with
      our sites through new content and product offerings, additional interactive
      premium services, and active community participation. We also acquire and create
      properties to expand our services. Our websites, WeddingTracker.com and
      Wed-o-rama.com, allow us to offer our engaged couples premium personal wedding
      webpage design and hosting for a fee.





**Expand
      into Other Life Stages and Services** .
      In the
      first years of marriage, The Knot members will spend even more than they did
      on
      their weddings as they buy and furnish homes, organize their finances and start
      having children. With TheNest.com, we are now extending our relationship with
      our core membership base - and new advertiser categories -- by providing access
      to services and products relevant to newlyweds and growing families. Getting
      pregnant is another intense event for young married couples, and we believe
      there is an opportunity to continue serving our audience as they enter this
      significant life stage. The launch of TheNestBaby.com extends our social network
      to provide pregnant moms and new parents with essential information such as
      stage-by-stage advice, expert Q&As, interactive tools, 30,000 product
      reviews, checklists, as well as local events listings and resource reviews
      in 26
      local markets powered by sibling site Lilaguide.com.




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





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




**Critical
      Accounting Policies**




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





*Revenue
      Recognition*




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




Online
      sponsorship programs are designed to integrate advertising with online editorial
      content. Sponsors can purchase the exclusive right to promote products or
      services on a specific online editorial area and can purchase a special feature
      on our sites. These programs commonly include banner advertisements and direct
      e-mail marketing. Sponsors can also promote their services and products within
      the programming on our streaming video channel, The Knot TV.  17




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
      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 occurs, we defer and recognize the corresponding revenues
      over the extended period.




Registry
      services revenue represents commissions earned in connection with the sale
      of
      products from gift registries under agreements with certain retail partners
      where we are not primarily obligated in a transaction, not subject to inventory
      risk and amounts earned are determined using a fixed percentage. This commission
      revenue is recognized when the products are sold by the retail
      partners.




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




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




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 September 30,
      2007 and December 31, 2006, our allowance for doubtful accounts amounted to
      $713,000 and $462,000, 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
      and Other Intangibles*




As
      of
      September 30, 2007, we had recorded goodwill and other intangible assets of
      $64.7 million, which included estimated goodwill and other intangible assets
      of
      $54.3 million arising from our acquisition of WeddingChannel in September 2006.
      In our most recent assessment of impairment of goodwill as of October 1, 2006,
      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. During our business planning
      process for calendar year 2008, which commenced in September 2007, we concluded
      that we would not currently commit additional marketing resources for our online
      personals site, GreatBoyfriends.com. Accordingly, we reduced our future revenue
      expectations and estimated future cash flows for that reporting unit. We also
      determined that the carrying value of goodwill for GreatBoyfriends.com exceeded
      its implied fair value at September 30, 2007 and recorded an impairment charge
      of approximately $496,000. As of September 30, 2007, no other 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 additional impairment charges in the future.


18


*Deferred
      Tax Asset Valuation Allowance*





As
      of
      September 30, 2006, we had maintained a valuation allowance with respect to
      certain deferred tax assets as a result of uncertainties associated with our
      future profitability. We had reduced a portion of the valuation allowance
      previously recorded by WeddingChannel with respect to its net operating loss
      carryforwards based on the recognition and timing of reversal of certain
      estimated deferred tax liabilities recorded as a result of the acquisition.
      See
      Note 3 to the Condensed Consolidated Financial Statements for additional
      information.





During
      the three months ended December 31, 2006, we continued to evaluate the need
      for
      a valuation allowance against our remaining net deferred tax assets. We
      considered many factors as part of our assessment including our recent earnings
      experience by taxing jurisdiction, expectations of future taxable income
      resulting from the completion of our business planning process for 2007 and
      the
      status of the integration activities and related identified cost synergies
      associated with the acquisition of WeddingChannel.





As
      of
      December 31, 2006, we concluded, based upon our assessment of positive and
      negative evidence, that it was more likely than not that an additional portion
      of our net deferred tax assets will be realized and, accordingly, we recorded
      a
      non-cash tax benefit in the fourth quarter of 2006 of $9.4 million resulting
      from the reversal of a portion of the valuation allowance. As of December 31,
      2006, we also recorded a deferred tax asset related to certain acquired tax
      loss
      carryforwards of WeddingChannel of $21.9 million which resulted in a reduction
      of goodwill associated with the acquisition. The acquired tax loss carryforwards
      of WeddingChannel are subject to a limitation on future utilization under
      Section 382 of the Internal Revenue Code. We currently estimate that the effect
      of Section 382 will generally limit the amount of the loss carryforwards of
      WeddingChannel which is available to offset future taxable income to
      approximately $3.6 million annually. The overall determination of the annual
      loss limitation is subject to interpretation, and therefore, the annual loss
      limitation could be subject to change.





As
      of
      September 30, 2007, we continued to maintain a valuation allowance for deferred
      tax assets associated with certain state net operating loss carryforwards of
      WeddingChannel. To the extent further reductions to this valuation allowance
      are
      recorded, the offsetting credit would reduce goodwill.





As
      of
      September 30, 2007, we had recorded deferred tax assets of $25.7 million. The
      realization of these deferred tax assets depends upon our ability to continue
      to
      generate taxable income in the future, as well as other factors including
      limitations which may arise from changes in our ownership. The valuation
      allowance may need to be adjusted in the future if facts and circumstances
      change causing a reassessment of the realization of the deferred tax
      assets.




*Stock-Based
      Compensation*




Effective
      January 1, 2006, we adopted Statement of Financial Accounting Standards (“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, 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.




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.


19




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.




**Results
      of Operations**




*General*




Net
      revenue and operating expenses of WeddingChannel have been included in our
      condensed consolidated statements of operations since September 8,
      2006.




*Net
      Revenues*




Net
      revenues increased to $25.0 million and $74.5 million for the three and nine
      months ended September 30, 2007, respectively, from $18.5 million and $51.0
      million for the corresponding periods in 2006.





Online
      sponsorship and advertising revenues increased to $12.4 million and $35.7
      million for the three and nine months ended September 30, 2007, respectively,
      as
      compared to $9.4 million and $25.5 million for the corresponding periods in
      2006. Revenue from local vendor online advertising programs increased by $2.1
      million and $6.5 million for the three and nine months ended September 30,
      2007,
      respectively, or by approximately 36% and 40% respectively, when compared to
      the
      corresponding periods in 2006. The increases were primarily the result of the
      continuing impact of price increases as well as an increase in the number of
      local vendor clients, including the addition of local vendors acquired through
      WeddingChannel. In addition, there was an increase of $948,000 and $3.7 million
      in national online sponsorship and advertising revenues for the three and nine
      months ended September 30, 2007, or approximately 26% and 40%, respectively,
      when compared to the corresponding periods in 2006 due, in part, to the addition
      of WeddingChannel national accounts. Online sponsorship and advertising revenues
      amounted to 50% and 51% of our net revenues for the three months ended September
      30, 2007 and 2006, respectively. For the nine months ended September 30, 2007
      and 2006, online sponsorship and advertising revenues amounted to 48% and 50%
      of
      our net revenues, respectively.




Registry
      services revenue was $3.7 million and $8.8 million for the three and nine months
      ended September 30, 2007, respectively, as compared to $955,000 and $1.1 million
      for the corresponding periods in 2006. The increases are primarily the result
      of
      commissions earned from WeddingChannel’s retail partners. Registry services
      revenue amounted to 15% and 12% of our net revenues for the three and nine
      months ended September 30, 2007, respectively, and 5% and 2% of our net revenues
      for the corresponding periods in 2006.




Merchandise
      revenues, which consist primarily of the sale of wedding supplies, increased
      to
      $5.3 million and $16.4 million for the three and nine months ended September
      30,
      2007, respectively, as compared to $4.3 million and $12.2 million for the
      corresponding periods in 2006. The 2007 revenue amounts include $1.4 million
      and
      $4.4 million sold through the WeddingChannel store for the three and nine month
      periods, respectively. For the three and nine months ended September 30, 2006,
      the revenue amounts include $262,000 sold through the WeddingChannel store.
      In
      addition, revenues for The Knot Wedding Shop increased by $124,000 and $509,000
      or 3% and 4% for the three and nine months ended September 30, 2007,
      respectively, as compared to the corresponding periods in the prior year,
      generally due to an increase in average order size.  The
      sale
      of wedding supplies to wholesale customers decreased by $50,000 and $214,000
      for
      the three and nine months ended September 30, 2007, respectively, as compared
      to
      the corresponding periods in prior year. Subsequent to August 2006, we are
      no
      longer pursuing wholesale customers. Merchandise revenues amounted to 21% and
      23% of our net revenues for the three months ended September 30, 2007 and 2006,
      respectively. For the nine months ended September 30, 2007 and 2006, merchandise
      revenue was 22% and 24% of our net revenues, respectively.  20


Publishing
      and other revenues decreased to $3.6 million and increased to $13.6 million
      for
      the three and nine months ended September 30, 2007, respectively, as compared
      to
      $3.9 million and $12.2 million for the corresponding periods in 2006. The
      decrease for the three months ended September 30, 2007 resulted from a decline
      in national print revenue due to a decrease in the number of advertising pages
      sold in *The
      Knot Weddings* magazine
      offset, in part, by a small increase in revenue contributed by *The
      Nest* magazine. In addition, local print revenue was relatively flat compared to
      the
      third quarter of 2006. For the nine months ended September 30, 2007, local
      print
      revenue increased by $1.2 million as compared to the corresponding period in
      2006. This increase included approximately $753,000 of revenue contributed
      by
      the inaugural issue of our annual publication, *The
      Knot Best of Weddings,* which
      was published in April 2007. The remaining increase for local print revenue
      was
      primarily due to the residual impact of an increase in pricing in 2006 and
      a
      small increase in advertising pages. For the nine months ended September 30,
      2007, we also recorded revenue of $389,000 associated with the April
      WeddingChannel Couture Show. Publishing and other revenue amounted to 15% and
      21% of our net revenues for the three months ended September 30, 2007 and 2006,
      respectively. For the nine months ended September 30, 2007 and 2006, publishing
      and other revenue was 18% and 24% of our net revenues,
      respectively.





*Cost
      of Revenues*





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





Cost
      of
      revenues increased to $4.4 million and $14.1 million for the three and nine
      months ended September 30, 2007, respectively, as compared to $4.2 million
      and
      $11.4 million for the corresponding periods in 2006. The cost of revenues from
      the sale of merchandise increased by $287,000 and $1.7 million for the three
      and
      nine months ended September 30, 2007, primarily due to the increases in wedding
      supplies revenue. Publishing and other cost of revenues decreased by $158,000
      and increased by $767,000 for the three and nine months ended September 30,
      2007, respectively. The decrease for the recent quarter was primarily due to
      reduced page counts for *The
      Knot Weddings* magazine.
      The increase for the nine months ended September 30, 2007, was primarily due
      to
      production costs associated with additional issues of our quarterly *The
      Nest* magazine
      which launched in August 2006 and our annual *The
      Knot Best of Weddings* magazine
      which launched in April 2007. As a percentage of our net revenues, cost of
      revenues was 18% and 19%, respectively, for the three and nine months ended
      September 30, 2007, as compared to 23% and 22% for the corresponding periods
      in
      2006. Margin improvements in 2007 resulted from a higher mix of registry
      services revenue and higher margins for merchandise revenue due to price
      increases.





*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 $3.5 million and $9.9 million
      for
      the three and nine months ended September 30, 2007, as compared to $2.2 million
      and $5.8 million for the three and nine months ended September 30, 2006. These
      increases include $546,000 and $2.5 million, respectively, in additional
      expenses associated with WeddingChannel, primarily for personnel and related
      expenses. The remaining increases were generally due to additional investments
      for other information technology and editorial staff. As a percentage of our
      net
      revenues, product and content development expenses increased to 14% and 13%
      for
      the three and nine months ended September 30, 2007, respectively, from 12%
      and
      11% for the corresponding periods in 2006.





*Sales
      and Marketing*




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





Sales
      and
      marketing expenses increased to $6.2 million and $18.6 million for the three
      and
      nine months ended September 30, 2007, respectively, as compared to $4.7 million
      and $13.7 million for the corresponding periods in 2006. These increases include
      $510,000 and $2.3 million, respectively, in additional expenses associated
      with
      WeddingChannel, primarily for personnel and related expenses. Other personnel
      and related costs increased by $731,000 and $1.5 million for the three and
      nine
      months ended September 30, 2007, respectively, 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. Also, for the nine
      months ended September 30, 2007, we incurred increased fulfillment expenses
      of
      $636,000 due to the publication of two additional issues in 2007 of *The
      Nest* magazine
      and increased fulfillment and distribution costs of $619,000 at our Redding,
      California warehouse as a result of the increased sales volume for wedding
      supplies in 2007. As a percentage of our net revenues, sales and marketing
      expenses was 25% for each of the three and nine months ended September 30,
      2007,
      as compared to 25% and 27% for the corresponding periods in
      2006.


21


*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 $4.4 million and $12.5 million for
      the
      three and nine months ended September 30, 2007, respectively, as compared to
      $4.2 million and $10.8 million for the corresponding periods in 2006. These
      increases include $93,000 and $857,000, respectively, of additional expenses
      associated with WeddingChannel for personnel and related costs and other
      administrative expenses. Other personnel and related expenses increased by
      $446,000 and $960,000 for the three and nine months ended September 30, 2007
      to
      support the growth of the Company. For the nine months ended September 30,
      2007,
      we also incurred higher computer software expenses, credit card fees, recruiting
      costs and director stock-based compensation in an aggregate amount of
      approximately $662,000. For the three and nine months ended September 30, 2006,
      we incurred higher consulting costs associated with the development of a formal
      disaster recovery plan for the Company and with respect to Sarbanes-Oxley
      compliance, and we also recorded non-cash services expense associated with
      a
      warrant issued in October, 2004 to Allen & Company LLC for financial
      advisory services. The reduction in these expenses for 2007 aggregated $675,000
      and $1.3 million for the respective periods. As a percentage of our net
      revenues, general and administrative expenses decreased to 18% and 17% for
      the
      three and nine months ended September 30, 2007, respectively, from 23% and
      21%
      for the corresponding periods in 2006.





*Stock-Based
      Compensation*




Total
      stock-based compensation expense related to all of the Company’s stock awards
      was included in various operating expense categories for the three and nine
      months ended September 30, 2007 and 2006, as follows:





**Three
                Months Ended**
            
            **Nine
                Months Ended****September
                30**
            
            **September
                30****2007**
            
            **200****6**
            
            **2007**
            
            **2006**Product
                and content development
            
            $
            93,000
            
            $
            62,000
            
            $
            333,000
            
            $
            116,000Sales
                and marketing
            
            
            77,000
            
            
            62,000
            
            
            295,000
            
            
            183,000General
                and administrative
            
            
            456,000
            
            
            264,000
            
            
            1,048,000
            
            
            778,000Total
                stock-based compensation expense
            
            $
            626,000
            
            $
            388,000
            
            $
            1,676,000
            
            $
            1,077,000





As
      of
      September 30, 2007, total unrecognized estimated compensation expense related
      to
      nonvested stock options, restricted shares and ESPP rights was $7.1 million,
      which is expected to be recognized over a weighted average period of 3.0 years.




*Goodwill
      Impairment*




For
      the
      three months ended September 30, 2007, we recorded an impairment charge of
      $496,000 after determining that the carrying value of goodwill for
      GreatBoyfriends.com exceeded its implied fair value at September 30,
      2007.


22


*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 $2.1 million and $6.4 million for the three and
      nine months ended September 30, 2007, respectively, as compared to $975,000
      and
      $1.8 million for the corresponding periods in 2006. For the three and nine
      months ended September 30, 2007, we recorded additional depreciation and
      amortization of property, equipment, capitalized software and intangible assets
      of $1.0 million and $4.0 million, respectively, related to the assets acquired
      as a result of the WeddingChannel acquisition. The remaining increases in 2007
      were due to increasing capital expenditures during calendar year 2006, including
      amounts for additional computer hardware and software to establish secondary
      back-up systems in connection with the development of a formal disaster recovery
      plan.





*Interest
      Income*




Interest
      income, net of interest expense, increased to $1.3 million and $3.5 million
      for
      the three and nine months ended September 30, 2007, respectively, as compared
      to
      $1.1 million and $1.7 million for the corresponding periods in 2006. The
      increase was primarily the result of higher funds available for investment,
      including proceeds from the issuance of common stock in connection with the
      completion of a private placement in July 2006.




*Provision
      for Taxes on Income*




The
      effective tax rate for each of the three and nine months ended September 30,
      2007, was approximately 42% which differed from the amount computed by applying
      the Federal statutory income tax rate primarily due to state income taxes,
      net
      of Federal benefit, and non-deductible stock-based compensation
      expense. **





** Prior
      to
      December 31, 2006, we had maintained a valuation allowance with respect to
      certain deferred tax assets related to net operating loss carryforwards as
      a
      result of uncertainties associated with our future profitability. As of December
      31, 2006, we concluded, based upon our assessment of positive and negative
      evidence, that it was more likely than not that an additional portion of our
      net
      deferred tax assets would be realized and, accordingly, we recorded a non-cash
      tax benefit in the fourth quarter of 2006 of $9.4 million resulting from the
      reversal of a portion of the valuation allowance. During 2006, we also utilized
      approximately $14.0 million of our net operating loss carryforwards.
      Accordingly, for the three and nine months ended September 30, 2006, our
      provision for income taxes was $90,000 and $366,000, respectively, primarily
      due
      to operating income generated in certain states.








**Liquidity
      and Capital Resources**




As
      of
      September 30, 2007, our cash, cash equivalents and short-term investments
      amounted to $101.4 million. We currently invest primarily in short-term debt
      instruments that are highly liquid, of high-quality investment grade, and have
      maturities ranging from one to six months, with the intent to make such funds
      readily available for operating purposes.





Net
      cash
      provided by operating activities was $22.0 million for the nine months ended
      September 30, 2007. This resulted primarily from the net income for the period
      of $9.3 million and depreciation, amortization, stock-based compensation,
      deferred income taxes and goodwill impairment of $14.7 million. These sources
      of
      cash were offset, in part, by an increase in inventory of $896,000 and a
      decrease in accounts payable and accrued expenses of $1.4 million. Net cash
      provided by operating activities was $13.6 million for the nine months ended
      September 30, 2006. This resulted primarily from the net income for the period
      of $8.8 million, depreciation, amortization, non-cash services expense and
      stock-based compensation of $3.3 million and a decrease in accounts receivable,
      net of deferred revenue and net of businesses acquired of $1.7 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 deferred
      production and marketing costs of $121,000.  23


Net
      cash
      used in investing activities was $76.1 million for the nine months ended
      September 30, 2007, due primarily to purchases of short-term investments, net
      of
      proceeds from sales, of $73.8 million, and purchases of property and equipment
      of $2.3 million. Net cash used in investing activities was $51.8 million for
      the
      nine months ended September 30, 2006 due primarily to cash paid in connection
      with the acquisition of WeddingChannel, net of cash acquired, and the business
      and assets of OAM Solutions, Inc., aggregating $53.3 million, and purchases
      of
      property, equipment and software of $3.1 million, offset, in part, by the sale
      of short-term investments, net of purchases, of $4.6 million.




Net
      cash
      provided by financing activities was $1.0 million for the nine months ended
      September 30, 2007 primarily due to proceeds from the issuance of common stock
      in connection with the exercise of stock options and warrants and through our
      Employee Stock Purchase Plan. Net cash provided by financing activities was
      $91.2 million for the nine months ended September 30, 2006 primarily due to
      proceeds from the issuance of common stock in connection with the completion
      of
      the private placement and follow-on offering in the third quarter of 2006 for
      which we received aggregate net proceeds of $89.9 million. We also received
      proceeds from the exercise of stock options and through our Employee Stock
      Purchase Plan of $1.3 million.




Through
      September 30, 2007, 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
      currently believe that our cash and cash equivalents will be sufficient to
      fund
      our working capital and capital expenditure requirements for the foreseeable
      future. Our ability to meet our obligations in the ordinary course of business
      is dependent upon our ability to maintain profitable operations and/or raise
      additional financing through public or private equity financings, or other
      arrangements with corporate sources, or other sources of financing to fund
      operations. However, there is no assurance that we will maintain profitable
      operations or that additional funding, if required, will be available to us
      in
      amounts or on terms acceptable to us.




**Contractual
      Obligations and Commitments**




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




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




As
      of
      September 30, 2007, we had no material commitments for capital expenditures.




As
      of
      September 30, 2007, we had commitments under non-cancelable operating leases
      amounting to approximately $4.3 million.




As
      of
      September 30, 2007, other long-term liabilities of $477,000 primarily
      represented accruals to recognize rent expense on a straight-line basis over
      the
      respective lives of four of our operating leases under which rental payments
      increase over the lease periods. These accruals will be reduced as the operating
      lease payments, summarized in the table of contractual obligations below, are
      made.




Our
      contractual obligations as of September 30, 2007 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
            
            $
            106
            
            $
            51
            
            $
            55
            
            $
            —
            
            $
            —Operating
                leases
            
            
            4,303
            
            
            1,288
            
            
            2,006
            
            
            1,009
            
            
            —Purchase
                commitments
            
            
            1,507
            
            
            1,324
            
            
            183
            
            
            —
            
            
            —Total
            
            $
            5,916
            
            $
            2,663
            
            $
            2,244
            
            $
            1,009
            
            $
            —


24


**Seasonality**





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




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




Market
      risk represents the risk of loss that may impact the financial position, results
      of operations, or cash flows of the Company due to adverse changes in financial
      market prices, including interest rate risk, foreign currency exchange rate
      risk, commodity price risk, and other relevant market rate or price
      risks.




We
      are
      exposed to some market risk through interest rates related to the investment
      of
      our current cash, cash equivalents and short-term investments of approximately
      $101.4 million as of September 30, 2007. 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 September
      30, 2007. Based on that evaluation, the Chief Executive Officer and Chief
      Financial Officer concluded that the disclosure controls and procedures are
      effective to ensure that information required to be disclosed by the Company
      in
      the reports that the Company files or submits under the Exchange Act is
      recorded, processed, summarized and reported, within the time periods specified
      in the rules and forms of the Securities and Exchange Commission (“SEC”), and to
      ensure that such information is accumulated and communicated to the Company’s
      management, including the Chief Executive Officer and Chief Financial Officer,
      as appropriate to allow timely decisions regarding required
      disclosure.




There
      were no changes in the Company’s internal control over financial reporting
      during the quarter ended September 30, 2007 identified in connection with the
      evaluation thereof by the Company’s management, including the Chief Executive
      Officer and Chief Financial Officer, that has materially affected, or is
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




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





**PART
      II. OTHER INFORMATION**




***Item
      1.******Legal
      Proceedings***






The
      Knot
      is engaged in 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, (ii) The Knot’s history of significant losses, (iii) risks related to The
      Knot’s recent acquisition of WeddingChannel, (iv) the significant fluctuation to
      which The Knot’s quarterly revenues and operating results are subject, (v) the
      seasonality of the wedding industry and (vi) other factors detailed in documents
      The Knot files from time to time with the SEC. A more detailed description
      of
      each of these and other risk factors can be found under the caption “Risk
      Factors” in our most recent Annual Report on Form 10-K, filed on March 13, 2007.
      There have been no material changes to the risk factors described in the Form
      10-K.


25


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




**Issuer
      Purchases of Equity Securities**





**Period**
            **(a)
                Total Number of Shares Purchased**
            **(b)
                Average PricePaid per Share**
            **(c)
                Total Numberof Shares Purchasedas Part of PubliclyAnnounced
                Plans orPrograms**
            **(d)
                MaximumNumber of Sharesthat May Yet BePurchased Underthe
                Plans orPrograms****July
                1 to July 31, 2007**
            **4,997**
            **$20.58**
            **n/a**
            **n/a****August
                1 to August 31, 2007**
            **9,362**
            **$20.95**
            **n/a**
            **n/a****September
                1 to September 30, 2007**
            **507**
            **$21.26**
            **n/a**
            **n/a****Total**
            **14,866**
            **$20.84**
            **n/a**
            **n/a**







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








***Item
          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.


26


**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:
              November 8, 2007
            THE
              KNOT,
              INC.By:
            /s/ Richard
              SzefcRichard
              SzefcChief
              Financial Officer (Principal Financial Officerand Duly Authorized
              Officer)


27


**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.




28