**U.S.
      SECURITIES AND EXCHANGE COMMISSION**




**WASHINGTON,
      D.C. 20549**




**FORM
      10-Q**




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




**FOR
      THE QUARTERLY PERIOD ENDED March 31, 2008**





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




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


**New
      York, New York 10013**


(Address
      of Principal Executive Officer and Zip Code)




**(212)
      219-8555**


(Registrant’s
      Telephone Number, Including Area Code)




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




Yes x  No  ̈




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




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




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




Yes o No x




As
      of May
      5, 2008, there were 31,896,231 shares of the registrant’s common stock
      outstanding.









PageNumberPART
                I
            FINANCIAL
                INFORMATIONItem
                1:
            Financial
                Statements
                (Unaudited):Condensed
                Consolidated Balance Sheets as of March
                31, 2008 and December 31, 2007
            3Condensed
                Consolidated Statements of Operations
                for the three months ended March 31, 2008 and 2007
            4Condensed
                Consolidated Statements of Cash
                Flows for the three months ended March 31, 2008 and
                2007
            5Notes
                to Condensed Consolidated Financial
                Statements
            6Item
                2:
            Management’s
                Discussion and Analysis of Financial
                Condition and Results of Operations
            17Item
                3:
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            25Item
                4:
            Controls
                and Procedures
            26PART
                II
            OTHER
                INFORMATIONItem
                1:
            Legal
                Proceedings
            27Item
                1A:
            Risk
                Factors
            27Item
                2:
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            28Item
                6:
            Exhibits
            28


2


**Part
      I.****FINANCIAL
      INFORMATION**




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




**THE
      KNOT, INC.**


**CONDENSED
      CONSOLIDATED BALANCE
      SHEETS**




**March
                  31,**
              
              **December
                  31,****2008**
              
              **2007****(Unaudited)**
              
              **(Note
                  1)****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              49,869,594
              
              $
              33,127,457Short-term
                  investments
              
              
              —
              
              
              72,648,519Accounts
                  receivable, net of allowances of $2,461,685 and $1,416,280 at March
                  31,
                  2008 and December 31, 2007, respectively
              
              
              14,259,769
              
              
              14,927,145Accounts
                  receivable from affiliate
              
              
              1,254,176
              
              
              1,327,029Inventories
              
              
              2,108,537
              
              
              1,878,478Deferred
                  production and marketing costs
              
              
              581,714
              
              
              482,833Deferred
                  tax assets, current portion
              
              
              3,748,419
              
              
              3,388,419Other
                  current assets
              
              
              1,873,683
              
              
              1,622,556Total
                  current assets
              
              
              73,695,892
              
              
              129,402,436Long-term
                  investments
              
              
              57,200,000
              
              
              —Property
                  and equipment, net
              
              
              9,499,272
              
              
              8,497,030Intangible
                  assets, net
              
              
              30,524,642
              
              
              30,952,683Goodwill
              
              
              33,856,111
              
              
              32,105,110Deferred
                  tax assets
              
              
              21,867,266
              
              
              22,017,689Other
                  assets
              
              
              261,752
              
              
              278,517Total
                  assets
              
              $
              226,904,935
              
              $
              223,253,465**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**Current
                  liabilities:Accounts
                  payable and accrued expenses
              
              $
              8,318,802
              
              $
              7,616,431Deferred
                  revenue
              
              
              16,603,990
              
              
              14,665,083Current
                  portion of long-term debt
              
              
              55,173
              
              
              55,173Total
                  current liabilities
              
              
              24,977,965
              
              
              22,336,687Deferred
                  tax liabilities
              
              
              14,109,293
              
              
              14,177,960Other
                  liabilities
              
              
              444,840
              
              
              455,631Total
                  liabilities
              
              
              39,532,098
              
              
              36,970,278Commitments
                  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; 31,856,095
                  shares
                  and 31,578,404 shares issued and outstanding at March 31, 2008
                  and
                  December 31, 2007, respectively
              
              
              318,561
              
              
              315,784Additional
                  paid-in capital
              
              
              194,468,856
              
              
              192,893,753Accumulated
                  deficit
              
              
              (6,347,580
              )
              
              (6,926,350
              )Accumulated
                  other comprehensive loss
              
              
              (1,067,000
              )
              
              —Total
                  stockholders’ equity
              
              
              187,372,837
              
              
              186,283,187Total
                  liabilities and stockholders’ equity
              
              $
              226,904,935
              
              $
              223,253,465




See
      accompanying notes.


3





**THE
      KNOT, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF
      OPERATIONS**


**(UNAUDITED)**




**Three Months Ended March 31,****2008**
              
              **2007**Net
                  revenues:Online
                  sponsorship and advertising
              
              $
              12,910,111
              
              $
              10,776,457Registry
                  services
              
              
              1,778,081
              
              
              1,759,991Merchandise
              
              
              4,594,102
              
              
              4,630,513Publishing
                  and other
              
              
              4,518,798
              
              
              3,861,653Total
                  net revenues
              
              $
              23,801,092
              
              $
              21,028,614Cost
                  of revenues:Online
                  sponsorship and advertising
              
              $
              522,478
              
              $
              338,581Registry
                  services
              
              
              —
              
              
              —Merchandise
              
              
              2,104,369
              
              
              2,165,090Publishing
                  and other
              
              
              1,844,093
              
              
              1,512,437Total
                  cost of revenues
              
              $
              4,470,940
              
              $
              4,016,108Gross
                  profit
              
              
              19,330,152
              
              
              17,012,506Operating
                  expenses:Product
                  and content development
              
              
              4,951,797
              
              
              3,143,973Sales
                  and marketing
              
              
              7,578,987
              
              
              5,890,127General
                  and administrative
              
              
              4,808,887
              
              
              4,085,047Depreciation
                  and amortization
              
              
              2,200,959
              
              
              2,107,596Total
                  operating expenses
              
              
              19,540,630
              
              
              15,226,743(Loss)
                  income from operations
              
              
              (210,478
              )
              
              1,785,763Interest
                  and other income, net
              
              
              1,202,246
              
              
              986,926Income
                  before income taxes
              
              
              991,768
              
              
              2,772,689Provision
                  for income taxes
              
              
              412,998
              
              
              1,138,442Net
                  income
              
              $
              578,770
              
              $
              1,634,247Net
                  earnings per share—basic
              
              $
              0.02
              
              $
              0.05Net
                  earnings per share—diluted
              
              $
              0.02
              
              $
              0.05Weighted
                  average number of common shares outstandingBasic
              
              
              31,251,830
              
              
              30,811,815Diluted
              
              
              32,613,069
              
              
              32,832,516




See
      accompanying notes.


4


**THE
      KNOT, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH
      FLOWS**


**(UNAUDITED)**








**Three Months Ended March 31,****2008**
            
            **2007****Operating
                activities**Net
                income
            
            $
            578,770
            
            $
            1,634,247Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            1,253,907
            
            
            1,115,984Amortization
                of intangibles
            
            
            928,041
            
            
            991,612Stock-based
                compensation
            
            
            747,242
            
            
            472,499Deferred
                income taxes
            
            
            254,756
            
            
            1,036,636Reserve
                for returns
            
            
            1,807,314
            
            
            1,042,802Allowance
                for doubtful accounts
            
            
            106,527
            
            
            206,503Other
                non-cash charges
            
            
            (18,513
            )
            
            (8,271
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (1,100,164
            )
            
            (895,313
            )Accounts
                receivable from affiliate
            
            
            72,853
            
            
            (394,804
            )Inventories
            
            
            (192,535
            )
            
            (300,005
            )Deferred
                production and marketing costs
            
            
            (68,948
            )
            
            49,197Other
                current assets
            
            
            (251,127
            )
            
            73,843Other
                assets
            
            
            17,006
            
            
            21,395Accounts
                payable and accrued expenses
            
            
            (14,012
            )
            
            (1,162,509
            )Deferred
                revenue
            
            
            1,895,296
            
            
            3,606,858Other
                liabilities
            
            
            (22,205
            )
            
            (18,076
            )Net
                cash provided by operating activities.
            
            
            5,994,208
            
            
            7,472,598**Investing
                activities**Purchases
                of property and equipment
            
            
            (2,376,628
            )
            
            (657,224
            )Purchases
                of short-term investments
            
            
            (63,707
            )
            
            (34,375,000
            )Proceeds
                from sales of short-term investments
            
            
            13,937,226
            
            
            2,000,000Purchases
                of long-term investments
            
            
            (39,600,000
            )
            
            -Proceeds
                from sales of long-term investments
            
            
            39,375,000
            
            
            -Acquisition
                of business, net of cash acquired
            
            
            (1,354,600
            )
            
            51,501Net
                cash provided by (used in) investing activities
            
            
            9,917,291
            
            
            (32,980,723
            )**Financing
                activities**Proceeds
                from issuance of common stock
            
            
            218,405
            
            
            185,835Proceeds
                from exercise of stock options and warrants
            
            
            665,800
            
            
            421,988Repurchase
                of common stock
            
            
            (53,567
            )
            
            -Net
                cash provided by financing activities
            
            
            830,638
            
            
            607,823Increase
                (decrease) in cash and cash equivalents
            
            
            16,742,137
            
            
            (24,900,302
            )Cash
                and cash equivalents at beginning of period
            
            
            33,127,457
            
            
            73,633,011Cash
                and cash equivalents at end of period
            
            $
            49,869,594
            
            $
            48,732,709




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, 2007 is derived from audited financial statements but does
      not
      include all of the information and footnotes required by U.S. generally accepted
      accounting principles for complete financial statements. The results of
      operations for the three months ended March 31, 2008 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, 2007.





The
      Company has only achieved operating income in recent periods and has an
      accumulated deficit and an accumulated other comprehensive loss of $7,414,580,
      in the aggregate, as of March 31, 2008. The Company believes that its current
      cash and cash equivalents will be sufficient to fund its working capital and
      capital expenditure requirements for the foreseeable future. The Company’s
      ability to meet its obligations in the ordinary course of business is dependent
      upon its ability to maintain profitable operations and/or raise additional
      financing through public or private debt or equity financings, or other
      arrangements with corporate sources, or other sources of financing to fund
      operations. However, there is no assurance that the Company will maintain
      profitable operations or that additional funding, if required, will be available
      to the Company in amounts or on terms acceptable to the Company.




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





**PRINCIPLES
      OF CONSOLIDATION**





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





**USE
      OF ESTIMATES**





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





**EARNINGS
      PER SHARE**




The
      Company computes earnings per share in accordance with Statement of Financial
      Accounting Standards (“SFAS”) No. 128, *Earnings
      per Share.* Basic
      earnings per share is computed by dividing net income by the weighted average
      number of common shares outstanding during the period. Diluted earnings per
      share adjusts basic earnings per share for the effects of stock options,
      restricted common stock, warrants and other potentially dilutive financial
      instruments, only in the periods in which the effects are dilutive. For the
      three months ended March 31, 2008 and 2007, the weighted average number of
      shares used in calculating diluted earnings per share includes stock options,
      restricted common stock and warrants to purchase common stock of 1,361,239
      and
      2,020,701, respectively. The calculation of earnings per share for the three
      months ended March 31, 2008 excludes a weighted average number of stock options
      and restricted shares of 410,000 and 187,449, 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.




**CASH
      EQUIVALENTS AND SHORT-TERM INVESTMENTS**




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


****


**CONCENTRATION
      OF CREDIT RISK**





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





For
      the
      three months ended March 31, 2008 and 2007, one customer, Macy’s, accounted for
      7% of net revenues. No other single customer accounted for more than 2% of
      revenue for the three months ended March 31, 2008 and 2007. As of March 31,
      2008
      and December 31, 2007, no single customer accounted for more than 9% of accounts
      receivable.





**STOCK-BASED
      COMPENSATION**





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





Total
      stock-based compensation expense related to all of the Company’s stock awards
      was included in various operating expense categories for the three months ended
      March 31, 2008 and 2007, as follows:




**Three
                  Months Ended****March 31, 2008**
              
              **March 31, 2007**Product
                  and content development
              
              $
              177,000
              
              $
              117,000Sales
                  and marketing
              
              
              190,000
              
              
              102,000General
                  and administrative
              
              
              380,000
              
              
              253,000Total
                  stock-based compensation expense
              
              $
              747,000
              
              $
              472,000
 7


**RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities — including an Amendment of FASB Statement No.
      115* (“SFAS
      159”), which allows an entity to choose to measure certain financial instruments
      and liabilities at fair value. Subsequent measurements for the financial
      instruments and liabilities an entity elects to fair value will be recognized
      in
      earnings. SFAS 159 also establishes additional disclosure requirements. Through
      March 31, 2008, the Company has elected not to extend the use of the fair value
      option to its assets and liabilities.




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




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




**RECLASSIFICATION**




Certain
      amounts in the accompanying consolidated statement of cash flows for the three
      months ended March 31, 2007 have been reclassified to conform to the current
      year presentation.




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




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




**March
                  31,**
              
              **December
                  31,****2008**
              
              **2007**Cash
              
              $
              4,552,551
              
              $
              3,170,537Money
                  market funds
              
              
              2,440,633
              
              
              18,895,945US
                  Treasury funds
              
              
              8,501,850
              
              
              —Commercial
                  paper
              
              
              34,374,560
              
              
              11,060,975Cash
                  and cash equivalents
              
              $
              49,869,594
              
              $
              33,127,457Auction
                  rate securities (See Note 4)
              
              $
              —
              
              $
              58,775,000Commercial
                  paper
              
              
              —
              
              
              13,856,293Certificate
                  of deposit
              
              
              —
              
              
              17,226Short-term
                  investments
              
              $
              —
              
              $
              72,648,519




The
      Company’s investments in commercial paper at March 31, 2008, consisted of P1/A1
      rated corporate debt securities.


8




**4.
      FAIR VALUE MEASUREMENTS**




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




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




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




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




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




As
      of
      March 31, 2008, the Company estimated the fair value of its investment in
      auction rate securities of $59.0 million through discounted cash flow models
      which are classified as Level 3 inputs. These auction rate securities consisted
      of AAA/Aaa rated variable rate debt securities whose interest rates reset every
      35 days. The securities are collateralized by student loans, with approximately
      92% of such collateral in the aggregate guaranteed by the United States
      government under the Federal Family Education Loan Program. $3.0 million of
      these securities have an underlying maturity date of November 1, 2009 while
      the
      remaining securities have underlying maturity dates ranging from March 1, 2022
      through December 1, 2041. From February 14, 2008 through March 31, 2008, all
      auctions for these securities failed. An auction fails when there is
      insufficient demand. However, this does not represent a default by the issuer
      of
      the auction rate security. Upon an auction failure, the interest rates reset
      based on a formula contained in the security, which rate is generally higher
      than the current market rate. The reset interest rates on the auction rate
      securities currently held by the Company range from a short-term debt index
      plus
      150 to 250 basis points, to as high as 14%.





The
      discounted cash flow models used to fair value the auction rate securities
      considered the following key inputs: (i) the underlying structure of each
      security; (ii) the timing of expected future principal and interest payments;
      and (iii) discount rates that are believed to reflect current market conditions
      and the relevant risk associated with each security. The Company estimated
      that
      the fair market value of these securities at March 31, 2008 was approximately
      $57.2 million and recorded a temporary impairment charge of $1.8 million in
      other comprehensive loss within stockholders’ equity. The Company concluded that
      the impairment charge recorded was temporary because (i) the Company believes
      that the decline in market value is due to general market conditions; (ii)
      the
      auction-rate securities continue to be of a high credit quality and interest
      is
      paid when due; and (iii) the Company currently has the intent and ability to
      hold the auction-rate securities until a recovery in market value occurs.
      However, if the issuers of these securities continue to be unable to
      successfully close future auctions and their credit ratings deteriorate, or
      if
      they default with respect to such securities, the Company may be required to
      record additional temporary or other-than-temporary impairment charges if there
      are further reductions in fair value in future periods. It may also take until
      the final maturity of the underlying securities to realize the Company’s
      investments.





The
      discounted cash flow models also assumed an average expected holding period
      for
      these auction rate securities in excess of one year due to the lack of liquidity
      in the auction rate securities markets and the long-term remaining duration
      of
      the underlying securities. Therefore, these securities are classified as
      long-term investments on the accompanying condensed consolidated balance sheet
      as of March 31, 2008.





As
      of
      December 31, 2007, the carrying value of the auction rate securities
      approximated fair value. The following table summarizes the Company’s fair value
      measurements using significant Level 3 inputs for the three months ended March
      31, 2008:


9





Balance
                as of December 31, 2007
            
            $
            58,775,000Purchases
                and sales, net
            
            
            225,000Unrealized
                losses included in other comprehensive loss, net of tax
            
            
            (1,800,000
            )Realized
                losses
            
            
            —Balance
                as of March 31, 2008
            
            $
            57,200,000




**5.
      COMPREHENSIVE LOSS**





Comprehensive
      loss, net of taxes, is comprised of the following:




**Three
                  months**
                **ended**
                **March
                  31,**
              
              **Three****months**
                **ended**
                **March
                  31,****2008**
              ****
              **2007**Net
                  income
              
              $
              578,770
              
              $
              —Unrealized
                  loss on auction rate securities, net of tax
              
              
              (1,067,000
              )
              
              —Comprehensive
                  loss
              
              $
              (448,230
              )
              $
              —





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








**6.
      SHIPPING AND HANDLING CHARGES**





For
      the
      three months ended March 31, 2008 and 2007, merchandise revenue included
      outbound shipping and handling charges of approximately $690,000 and $647,000,
      respectively.




**7.
      INVENTORY**





Inventory
      consists of the following:




**March
                  31,**
              
              **December
                  31,****2008**
              
              **2007**Raw
                  materials
              
              $
              310,521
              
              $
              204,811Finished
                  goods
              
              
              1,798,016
              
              
              1,673,667$
              2,108,537
              
              $
              1,878,478




**8.
      GOODWILL**





The
      changes in the carrying amount of goodwill for the three months ended March
      31,
      2008 are as follows:





Balance
                as of December 31, 2007
            
            $
            32,105,110Acquisition
                of The Bump Media, Inc (See Note 15)
            
            
            1,751,001Balance
                as of March 31, 2008
            
            $
            33,856,111




The
      Company completed its most recent goodwill impairment test as of October 1,
      2007. No impairment of goodwill was indicated at that time. Under SFAS No.
      142,
      the Company is required to perform goodwill impairment tests on at least an
      annual basis or more frequently if circumstances dictate. There can be no
      assurance that future goodwill impairment tests will not result in a charge
      to
      income.


10


**9.** **INTANGIBLE
      ASSETS**





**March
                31, 2008**
            
            **December
                31, 2007**Gross
                Cost
            
            Accumulated
            
            Net
            
            Gross
                Cost
            
            Accumulated
            
            NetCarrying Amount
            
            Amortization
            
            Book Value
            
            Carrying Amount
            
            Amortization
            
            Book ValueIndefinite
                lived intangibles:Tradenames
            
            $
            15,220,000
            
            $
            --
            
            $
            15,220,000
            
            $
            15,220,000
            
            $
            --
            
            $
            15,220,000Amortizable
                intangibles:Customer
                and advertiserrelationships
            
            
            5,610,000
            
            
            988,378
            
            
            4,621,622
            
            
            5,610,000
            
            
            830,378
            
            
            4,779,622Developed
                technologyand
                patents
            
            
            12,280,000
            
            
            3,841,000
            
            
            8,439,000
            
            
            12,280,000
            
            
            3,227,000
            
            
            9,053,000Trademarks
                andtradenames
            
            
            711,920
            
            
            139,632
            
            
            572,288
            
            
            211,920
            
            
            109,603
            
            
            102,317Service
                contracts andOther
            
            
            3,328,000
            
            
            1,656,268
            
            
            1,671,732
            
            
            3,328,000
            
            
            1,530,256
            
            
            1,797,74421,929,920
            
            
            6,625,278
            
            
            15,304,642
            
            
            21,429,920
            
            
            5,697,237
            
            
            15,732,683Total
            
            $
            37,149,920
            
            $
            6,625,278
            
            $
            30,524,642
            
            $
            36,649,920
            
            $
            5,697,237
            
            $
            30,952,683




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





Customer
                and advertiser relationships
            
            
            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 the trademarks and trade names
      of
      $500,000 for the three months ended March 31, 2008, resulted from a preliminary
      determination of the fair value of assets acquired in connection with the
      acquisition of The Bump Media, Inc. (see Note 15).




Amortization
      expense approximated $928,000 and $992,000 for the three months ended March
      31,
      2008 and 2007, respectively. Estimated
      annual amortization expense is $3,727,000 in 2008, $3,698,000 in 2009,
      $3,624,000 in 2010, $2,475,000 in 2011, $655,000 in 2012 and $2,054,000,
      thereafter.




**10.**  **ACCOUNTS
      PAYABLE AND ACCRUED EXPENSES**





Accounts
      payable and accrued expenses consist of the following:




**March
                  31,**
              
              **December
                  31,****2008**
              
              **2007**Accounts
                  payable
              
              $
              2,944,767
              
              $
              2,053,126Professional
                  services
              
              
              1,254,872
              
              
              680,067Compensation
                  and related benefits
              
              
              1,496,365
              
              
              1,621,464Other
                  accrued expenses
              
              
              2,622,798
              
              
              3,261,774$
              8,318,802
              
              $
              7,616,431




11





**11** . **CURRENT
      PORTION OF**  **LONG-TERM
      DEBT**





The
      current portion of long-term debt as of March 31, 2008 consists of the
      following:





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





Interest
      expense was approximately $1,000 and $2,000 for the three months ended March
      31,
      2008 and 2007, respectively.




**12.
      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 March 31, 2008, an additional
      3,089,872 shares were added to the reserve pursuant to the automatic share
      increase provisions of the 1999 Plan. The shares reserved under the 1999 Plan
      automatically increase on the first trading day in January of each calendar
      year
      by an amount equal to two percent (2%) of the total number of shares of the
      Company’s common stock outstanding on the last trading day of December in the
      prior calendar year, but in no event will this annual increase exceed 1,000,000
      shares (or such other lesser number determined by the Board of Directors).
      Awards may be granted to such non-employee directors, officers, employees and
      consultants of the Company as the Compensation Committee of Board of Directors
      shall in its discretion select. Only employees of the Company are eligible
      to
      receive grants of incentive stock options. Options are granted at the fair
      market value of the stock on the date of grant. Options vest over periods up
      to
      four years and have terms not to exceed 10 years. Restricted stock awards vest
      over periods ranging from one to four years.




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 March 31, 2008, 410,429 shares were issued under the ESPP and 393,239
      shares were added to the reserve pursuant to the automatic share increase
      provision.


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 three months ended March 31, 2008:





Shares
            
            Weighted AverageExercise
                PriceOptions
                outstanding at December 31, 2007
            
            
            1,972,054
            
            $
            6.04Options
                granted
            
            
            —
            
            
            —Options
                exercised
            
            
            (203,768
            )
            
            3.26Options
                canceled
            
            
            (24,834
            )
            
            4.69Options
                outstanding at March 31, 2008
            
            
            1,743,452
            
            $
            6.39





The
      weighted average fair value of options which vested during the three months
      ended March 31, 2008 and March 31, 2007 was $2.08 and $1.98, respectively.
      The
      intrinsic value of options exercised during the three months ended March 31,
      2008 and 2007 was $1.7 million and $3.4 million, respectively.





The
      following table summarizes information about options outstanding at March 31,
      2008:




**Options
                  Outstanding**
              
              **Options
                  Exercisable****Range
                  of exercise price**
              
              **Number**
                **Outstanding**
                **as
                  of**
                **March 31, 2008**
              
              **Weighted**
                **Average**
                **Remaining**
                **Contractual**
                **Life**
                **(In
                  Years)**
              
              **Weighted**
                **Average**
                **Exercise**
                ******Price**
              
              **Number**
                **Exercisable**
                **as
                  of**
                **March
                  31,**
                **2008**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**$0.42
                  to $1.03
              
              
              341,003
              
              
              2.87
              
              $
              0.89
              
              
              341,003
              
              $
              0.89$1.37
                  to $4.10
              
              
              992,449
              
              
              5.50
              
              
              3.37
              
              
              989,947
              
              
              3.37$18.26
              
              
              410,000
              
              
              4.16
              
              
              18.26
              
              
              —
              
              
              —1,743,452
              
              
              4.67
              
              $
              6.39
              
              
              1,330,950
              
              $
              2.73





The
      weighted average remaining contractual life of options exercisable as of March
      31, 2008 was 4.82 years.





As
      of
      March 31, 2008, there were 2,733,279 shares available for future grants under
      the 1999 Plan and 270,418 shares available for future grants under the 2000
      Plan.





The
      aggregate intrinsic value of stock options outstanding at March 31, 2008 was
      $12.0 million, substantially all of which relates to vested awards. The
      intrinsic value for stock options is calculated based on the exercise price
      of
      the underlying awards and the quoted price of the Company’s common stock as of
      March 31, 2008. The following table summarizes nonvested stock option activity
      for the three months ended March 31, 2008:


13





Shares
            
            Weighted
              Average
              Exercise
              PriceNonvested
                options outstanding at December 31, 2007
            
            
            440,611
            
            $
            17.33Vested
            
            
            (7,275
            )
            
            4.70Canceled
            
            
            (20,834
            )
            
            5.05Nonvested
                options outstanding at March 31, 2008
            
            
            412,502
            
            $
            18.17




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




The
      intrinsic value of shares purchased through the ESPP on January 31, 2008 and
      of
      outstanding ESPP rights as of March 31, 2008 was $38,000 and $32,000,
      respectively. The intrinsic value of the shares of ESPP rights is calculated
      as
      the discount from the quoted price of the Company’s common stock, as defined in
      the ESPP, which was available to employees as of the respective
      dates.





As
      of
      March 31, 2008, there was $1.3 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 2.1
      years.





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





Three Months Ended March 31,2008
            
            2007Weighted
                average expected option lives
            
            
            0.50
                years
            
            
            0.50
                yearsRisk-free
                interest rate
            
            
            2.15%
            
            
            5.16%Expected
                volatility
            
            
            44.6%
            
            
            20.3%Dividend
                yield
            
            
            0%
            
            
            0%





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





During
      the three months ended March 31, 2008 and 2007, the Company recorded $167,000
      and $57,000, respectively, of compensation expense related to options and ESPP
      rights and received cash from the exercise of options and ESPP rights of
      $884,000 and $539,000, respectively, for which the Company issued new shares
      of
      common stock.





As
      of
      March 31, 2008 and 2007, there were 460,176 and 427,500 service-based restricted
      stock awards outstanding, respectively. During the three months ended March
      31,
      2008 and 2007, 75,000 and 4,000 shares, respectively, of restricted stock were
      awarded at weighted average grant-date fair values of $13.24 and $25.19. During
      the three months ended March 31, 2008, 13,371 shares of restricted stock vested,
      14,000 shares of restricted stock were canceled and 4,267 restricted shares
      were
      repurchased by the Company in connection with the surrender of these shares
      by
      employees to satisfy tax withholding obligations related to the vesting of
      the
      stock awards. The aggregate intrinsic value of restricted shares at March 31,
      2008 was $5.4 million. The intrinsic value for restricted shares is calculated
      based on the par value of the underlying shares and the quoted price of the
      Company’s common stock as of March 31, 2008.





As
      of
      March 31, 2008, there was $5.7 million of total unrecognized compensation cost
      related to nonvested restricted shares, net of estimated forfeitures, which
      is
      expected to be recognized over a weighted average period of 2.43 years. During
      the three months ended March 31, 2008 and 2007, the Company recorded $580,000
      and $415,000, respectively, of compensation expense related to restricted
      shares.


14





**13.
      AGREEMENT WITH COLLAGES.NET, INC. (“Collages”)**





In
      March
      2005, the Company entered into a Marketing Services Agreement (the “Agreement”)
      with Collages, a provider of hosting and website development services to
      professional photographers. Under the Agreement, which has expired, the Company
      delivered online and print advertising services to Collages in exchange for
      having received Collages Series A Preferred Stock, which vested over the first
      two years of the Agreement. Through March 31, 2008, the fair value of the
      marketing services provided over the term of the Agreement approximated the
      fair value of Series A Preferred Stock received.





Since
      inception of the Agreement through March 31, 2008, the Company earned
      approximately $1.9 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.





**14.
      COMMITMENTS AND CONTINGENCIES**





**Legal
      Proceedings**





A
      putative amended class action complaint captioned *Haslam
      v. Macy’s, Inc., The Knot, Inc., WeddingChannel.com, Inc. and Does
      1-100* was
      filed in the United States District Court for the Southern District of Florida
      on February 22, 2008. The complaint alleges that the defendants provided
      customers with electronically printed receipts for credit card and debit card
      point of sale transactions that contained more than the last five digits of
      the
      customer’s card number and/or the card’s expiration date in violation of the
      Federal Fair and Accurate Credit Transactions Act (FACTA). The complaint does
      not specify any actual damages for any member of the purported class. However,
      the complaint does seek statutory damages, which are $100 to $1,000 for each
      proven alleged willful violation of the statute, if any, as well as attorneys’
fees and costs, unspecified compensatory and punitive damages, and a permanent
      injunction. The Company has filed a motion to dismiss the complaint. While
      the
      Company intends to vigorously defend against the claims asserted, this case
      is
      in the preliminary stages of litigation and, as a result, the ultimate outcome
      of this case and any potential financial impact on the Company are not
      reasonably determinable at this time.





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




**15.** **ACQUISITION**




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




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




Current
                assets
            
            $
            69,993Property
                and equipment
            
            
            23,400Intangible
                assets
            
            
            500,000Goodwill
            
            
            1,751,001Other
                assets
            
            
            242Total
                assets acquired
            
            $
            2,344,636Current
                liabilities
            
            $
            447,119Deferred
                tax liabilities
            
            
            200,000Other
                liabilities
            
            
            11,414Total
                liabilities assumed
            
            $
            658,533Total
                estimated cost
            
            $
            1,686,103




15


This
      acquisition would not have had a material impact with respect to the
      consolidated results of operations for the three months ended March 31, 2008
      and
      2007 had the acquisition been consummated on January 1, 2007.




**16.** **INCOME
      TAXES**




As
      of
      March 31, 2008, the Company has approximately $4.3 million in unrecognized
      tax
      benefits related to certain acquired net operating loss carryforwards of
      WeddingChannel arising from a tax position taken in the 2006 income tax filings
      related to losses associated with the dissolution of a subsidiary. This amount
      has been netted against the related deferred tax assets and, if recognized,
      would result in a reduction of goodwill. However, a portion of these
      unrecognized tax benefits could be subject to a valuation allowance if and
      when
      recognized in a future period.




The
      Company is subject to taxation in the United States and various state and local
      jurisdictions. In December 2007, the Internal Revenue Service completed its
      audit of the Company’s 2005 U.S. federal tax return with no adjustment. As of
      December 31, 2007, none of the Company’s other tax returns have been examined by
      any income taxing authority. As a result of the ongoing use of tax loss
      carryforwards, all of the Company’s U.S. federal tax returns from 1998 through
      2004 and 2006, its more significant state and local returns, as well as all
      tax
      returns of WeddingChannel remain subject to examination. Through March 31,
      2008,
      the Company has not recorded any interest and penalties related to uncertain
      tax
      positions.




**17.** **SUBSEQUENT
      EVENT**




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


16




Macy’s
      accounted for approximately 7% of the Company’s consolidated net revenues during
      the three months ended March 31, 2008 and as of March 31, 2008, Macy’s
      beneficially owned 11.5% of the Company’s common stock.




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




**Milestones
      and Strategy**




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




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


17




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




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




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




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




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




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




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




**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.


18




***Revenue
      Recognition***




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




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




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




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




Registry
      services revenue 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 March 31, 2008
      and December 31, 2007, our allowance for doubtful accounts amounted to $1.1
      and
      $1.0 million respectively. In determining these allowances, we evaluate a number
      of factors, including the credit risk of customers, historical trends and other
      relevant information. If the financial condition of our customers were to
      deteriorate, additional allowances may be required.




***Inventory***




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


19




***Goodwill
      and Other Intangibles***




As
      of
      March 31, 2008, we had recorded goodwill and other intangible assets of $64.4
      million. In our most recent annual assessment of impairment of remaining
      goodwill and intangible assets as of October 1, 2007, we made estimates of
      fair
      value using multiple approaches. In our ongoing assessment of impairment of
      goodwill and other intangible assets, we consider whether events or changes
      in
      circumstances such as significant declines in revenues, earnings or material
      adverse changes in the business climate, indicate that the carrying value of
      assets may be impaired. As of March 31, 2008, no current impairment indicators
      were noted. Future adverse changes in market conditions or poor operating
      results of strategic investments could result in losses or an inability to
      recover the carrying value of the investments, thereby possibly requiring
      impairment charges in the future.




***Deferred
      Tax Asset Valuation Allowance***




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




Through
      March 31, 2008, we continue to maintain an estimated valuation allowance for
      deferred tax assets associated with certain state net operating loss
      carryforwards of WeddingChannel. The recognition of these additional tax
      benefits would result in a reduction to goodwill.




As
      of
      March 31, 2008, we had recorded deferred tax assets of $25.6 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***




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




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




We
      are
      continuing 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. We include an estimate
      of
      stock awards to be forfeited in the future in calculating stock-based
      compensation expense for the period. We consider several factors when estimating
      future forfeitures, including types of awards, employee level and historical
      experience. Actual forfeitures may differ substantially from our current
      estimates.




**Results
      of Operations**




*Net
      Revenues*




Net
      revenues increased to $23.8 million for the three months ended March 31, 2008,
      from $21.0 million for the three months ended March 31, 2007.





Online
      sponsorship and advertising revenues increased to $12.9 million for the three
      months ended March 31, 2008, as compared to $10.8 million for the three months
      ended March 31, 2007. Revenue from local vendor online advertising programs
      increased by $972,000 or by approximately 13%, primarily as a result of an
      increase in the average spending by local vendor clients due to the continuing
      impact of price increases offset, in part, by a decrease in revenue associated
      with acquired WeddingChannel local vendors which gradually declined over the
      year ended December 31, 2007. There was also an increase of $1.2 million in
      national online sponsorship and advertising revenue or approximately 33% largely
      due to an increase in the average spend of national accounts. Online sponsorship
      and advertising revenues amounted to 54% and 51% of
      our
      net revenues for the three months ended March 31, 2008 and 2007,
      respectively.


20


Registry
      services revenue was $1.8 million for each of the three months ended March
      31,
      2008 and 2007. A small increase in commissions earned from WeddingChannel’s
      retail partners was generally offset by a small decline from other registry
      commission sources. Registry services revenue amounted to 8% of our net revenues
      for each of the three months ended March 31, 2008 and 2007.




Merchandise
      revenues, which consist primarily of the sale of wedding supplies was relatively
      flat for the three months ended March 31, 2008, as compared to the three months
      ended March 31, 2007. Revenues for The Knot Wedding Shop increased by $242,000
      or 8% for the three months ended March 31, 2008, as compared to the prior year,
      generally due to an increase in the number of orders.  This
      increase was offset by a decline in revenue from the WeddingChannel Store.
      Merchandise revenues amounted to 19% and 22% of our net revenues for the three
      months ended March 31, 2008 and 2007, respectively.





Publishing
      and other revenues increased to $4.5 million for the three months ended March
      31, 2008, as compared to $3.9 million for the three months ended March 31,
      2007.
      The increase resulted primarily from the timing of publication of our annual *The
      Knot Best of Weddings* magazine
      which published in March of this year as compared to April in 2007 and which
      contributed $815,000 of revenue in the recent quarter. A further increase in
      print revenue from our other local publications for the three months ended
      March
      31, 2008, was generally offset by a decline in national print revenue compared
      to the prior year, as a result of a decrease in the number of designer
      advertising pages in our February issue of *The
      Knot Weddings* magazine. Publishing and other revenue amounted to 19% and 18% of our net
      revenues for the three months ended March 31, 2008 and 2007, 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.





Total
      cost of revenues increased to $4.5 million for the three months ended March
      31,
      2008 as compared to $4.0 million for the three months ended March 31, 2007
      primarily due to an increase in publishing and other cost of revenue of $332,000
      generally as a result of the timing of publication of *The
      Knot Best of Weddings* .
      As a
      percentage of our net revenues, cost of revenues was 19% for each of the three
      months ended March 31, 2008 and 2007. Margin improvements in 2008 resulting
      from
      higher margins for merchandise revenue were offset, in part, by lower margins
      for publishing and other revenue due to the decrease in revenue for *The
      Knot Weddings* magazine
      and a relatively lower margin contributed by *The
      Knot Best of Weddings.*





*Product
      and Content Development*





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




Product
      and content development expenses increased to $5.0 million for the three months
      ended March 31, 2008, as compared to $3.1 million for the three months ended
      March 31, 2007, as a result of increasing investments in our information
      technology platforms and related information technology and project management
      staff. The increase is also the result of additions to our editorial staff.
      As a
      percentage of our net revenues, product and content development expenses
      increased to 21% for the three months ended March 31, 2008, from 15% for the
      three months ended March 31, 2007. Product and content expenses for
      WeddingChannel, as a percentage of revenue, are also generally higher in the
      first and fourth quarters of the year due to the seasonality of registry
      services revenue.


21


*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.





Sales
      and
      marketing expenses increased to $7.6 million for the three months ended March
      31, 2008, as compared to $5.9 million for the three months ended March 31,
      2007.
      Sales personnel and related costs increased by $1.0 million for the three months
      ended March 31, 2008, primarily as a result of further investments in marketing
      and national sales and sales support staff. We are also incurring additional
      marketing expenses in 2008 to support research programs, analytics and other
      promotional efforts to raise awareness of our brands and products within the
      local vendor community and national advertising marketplace. As a percentage
      of
      our net revenues, sales and marketing expenses increased to 32% for the three
      months ended March 31, 2008, from 28% for the three months ended March 31,
      2007.





*General
      and Administrative*




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





General
      and administrative expenses increased to $4.8 million for the three months
      ended
      March 31, 2008, as compared to $4.1 million for the three months ended March
      31,
      2007. The increase includes higher legal fees of $381,000 related, in part,
      to
      the putative class action complaint captioned *Haslam
      v. Macy’s, Inc.,*  *The
      Knot, Inc., WeddingChannel.com, Inc. and Does 1-100* which
      is
      described in Part II, Item 1 of this report. ** The
      remaining increase was primarily due to increases in personnel and related
      costs
      to support the growth of the Company. As a percentage of our net revenues,
      general and administrative expenses increased to 20% for the three months ended
      March 31, 2008, from 19% for the three months ended March 31, 2007.





*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 months ended
      March 31, 2008 and 2007, as follows:





**Three Months Ended****March 31, 2008**
            
            **March 31, 2007**Product
                and content development
            
            $
            177,000
            
            $
            117,000Sales
                and marketing
            
            
            190,000
            
            
            102,000General
                and administrative
            
            
            380,000
            
            
            253,000Total
                stock-based compensation expense
            
            $
            747,000
            
            $
            472,000




As
      of
      March 31, 2008, total unrecognized estimated compensation expense related to
      nonvested stock options, restricted shares and ESPP rights was $ 7.0
      million, which is expected to be recognized over a weighted average period
      of
      2.4 years.




*Depreciation
      and Amortization*




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





Depreciation
      and amortization increased to $2.2 million for the three months ended March
      31,
      2008, as compared to $2.1 million for the three months ended March 31, 2007
      as a
      result of our increasing investments in information technology
      platforms.


22




*Interest
      Income*




Interest
      income, net of interest expense, increased to $1.2 million for the three months
      ended March 31, 2008, as compared to $1.0 million for the three months ended
      March 31, 2007. The increase was primarily the result of higher funds available
      for investment, primarily from net cash provided by operating activities for
      the
      year ended December 31, 2007.




*Provision
      for Taxes on Income*




The
      effective tax rate for the three months ended March 31, 2008, approximated
      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.





**Recent
      Accounting Pronouncements**




On
      January 1, 2008, the Company adopted SFAS
      No.
      157, *Fair
      Value Measurements* (“SFAS
      157”), which defines fair value, establishes a framework for measuring fair
      value in accordance with generally accepted accounting principles, and expands
      disclosures about fair value measurements. SFAS 157 does not require any new
      fair value measurements, but provides guidance on how to measure fair value
      by
      providing a fair value hierarchy used to classify the source of the information.
      In February, 2008, the FASB issued FASB Staff Position 157-2 (“FSP 157-2”) which
      would delay the effective date of SFAS 157 for all assets and nonfinancial
      liabilities, except those that are recognized or disclosed at fair value in
      the
      financial statements on a recurring basis (at least annually) until January
      1,
      2009. We are currently evaluating the impact of SFAS 157 on our nonfinancial
      assets and liabilities. See Note 4 to the accompanying condensed consolidated
      financial statements for a discussion of the application of SFAS 157 to the
      valuation of our investments in auction rate securities as of March 31,
      2008.





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities — including an Amendment of FASB Statement No.
      115* (“SFAS
      159”), which allows an entity to choose to measure certain financial instruments
      and liabilities at fair value. Subsequent measurements for the financial
      instruments and liabilities an entity elects to fair value will be recognized
      in
      earnings. SFAS 159 also establishes additional disclosure requirements. Through
      March 31, 2008, we have elected not to extend the use of the fair value option
      to our assets and liabilities.




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




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


23





**Liquidity
      and Capital Resources**




As
      of
      March 31, 2008, our cash, cash equivalents and short-term investments amounted
      to $49.9 million. These investments primarily represent short-term debt
      instruments that are highly liquid, of high-quality investment grade, and have
      maturities of less than three months, with the intent to make such funds readily
      available for operating purposes.





Net
      cash
      provided by operating activities was $6.0 million for the three months ended
      March 31, 2008. This resulted primarily from the net income for the period
      of
      $579,000; depreciation, amortization, stock-based compensation and deferred
      income taxes of $3.2 million; and an increase in deferred revenue, net of
      accounts receivable, of $2.8 million due to relatively stronger collections
      from
      both national and local accounts during the period. These sources of cash were
      offset, in part, by an increase in inventory of $230,000 in anticipation of
      higher seasonal sales of wedding supplies in the second and third quarters
      and an increase in other current assets of $251,000. Net cash provided by
      operating activities was $7.5 million for the three months ended March 31,
      2007.
      This resulted primarily from the net income for the period of $1.6 million;
      depreciation, amortization, stock-based compensation and deferred income taxes
      of $3.6 million; and a decrease in accounts receivable, net of deferred revenue,
      of $3.6 million due to continuing strong collection efforts and pre-billing
      of
      certain services. These sources of cash were offset, in part, by an increase
      in
      inventory of $308,000 in anticipation of higher seasonal sales of wedding
      supplies in the second and third quarters, and a decrease in accounts payable
      and accrued expenses of $1.2 million.





Net
      cash
      provided by investing activities was $9.9 million for the three months ended
      March 31, 2008, primarily due to proceeds from sales of short-term investments,
      net of purchases, of $13.9 million offset, in part, by capital expenditures
      of
      $2.4 million and cash paid in connection with the acquisition of ** The
      Bump
      Media, Inc. of $1.4 million. Net cash used in investing activities was $33.0
      million for the three months ended March 31, 2007, due primarily to purchase
      of
      short-term investments, net of proceeds from sales, of $32.4 million, and
      purchase of property and equipment of $657,000.




Net
      cash
      provided by financing activities was $831,000 and $608,000 for the three months
      ended March 31, 2008 and 2007, respectively, primarily due to proceeds from
      the
      issuance of common stock in connection with the exercise of stock options and
      through our Employee Stock Purchase Plan. For the three months ended March
      31,
      2008, we also repurchased $54,000 of common stock in connection with the
      surrender of restricted shares by employees to satisfy tax withholding
      obligations related to the vesting of the stock awards.




As
      of
      March 31, 2008, our cash, cash equivalents and short-term investments amounted
      to $49.9 million. As of March 31, 2008, we have reclassified our investments
      in
      auction rate securities of $59.0 million as long-term assets and recorded a
      temporary impairment charge of $1.8 million with respect to these securities.
      These auction rate securities consisted of AAA/Aaa rated variable rate debt
      securities whose interest rates reset every 35 days. The securities are
      collateralized by student loans, with approximately 92% of such collateral
      in
      the aggregate guaranteed by the United States government under the Federal
      Family Education Loan Program. $3.0 million of these securities have an
      underlying maturity date of November 1, 2009 while the remaining securities
      have
      underlying maturity dates ranging from March 1, 2022 through December 1, 2041.
      From February 14, 2008 through March 31, 2008, all auctions for these securities
      failed. An auction fails when there is insufficient demand. However, this does
      not represent a default by the issuer of the auction rate security. Upon an
      auction failure, the interest rates reset based on a formula contained in the
      security, which rate is generally higher than the current market rate. The
      reset
      interest rates on the auction rate securities currently held by us range from
      a
      short-term debt index plus 150 to 250 basis points, to as high as 14%.




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


24





Based
      on
      expected future operating cash flows and our other sources of cash and cash
      equivalents, we do not currently anticipate that any potential lack of liquidity
      in these auction rate securities will affect our ability to execute our current
      business plan and that our current liquid cash and cash equivalents will be
      sufficient to fund our working capital and capital expenditure requirements
      for
      the foreseeable future. Our ability to meet our obligations in the ordinary
      course of business is dependent upon our ability to maintain profitable
      operations and/or raise additional financing through public or private debt
      or
      equity financings, or other arrangements with corporate sources, or other
      sources of financing to fund operations. However, there is no assurance that
      we
      will maintain profitable operations or that additional funding, if required,
      will be available to us in amounts or on terms acceptable to us.





**Contractual
      Obligations and Commitments**




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




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




As
      of
      March 31, 2008, we had no material commitments for capital expenditures.




As
      of
      March 31, 2008, we had commitments under non-cancelable operating leases
      amounting to approximately $3.7 million.




As
      of
      March 31, 2008, other long-term liabilities of $445,000 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 March 31, 2008 are summarized as follows:


**Payments due by Period****Contractual Obligations**
              
              Total
              
              Less than 1
                year
              
              1-3
                years
              
              3-5
                years
              
              **More than 5**
                **years****(in thousands)**Long term debt
              
              $
              55
              
              $
              55
              
              $
              —
              
              $
              —
              
              $
              —Operating
                  leases
              
              
              3,661
              
              
              1,211
              
              
              1,819
              
              
              631
              
              
              —Purchase
                  commitments
              
              
              2,005
              
              
              1,877
              
              
              128
              
              
              —
              
              
              —Total
              
              $
              5,721
              
              $
              3,143
              
              $
              1,947
              
              $
              631
              
              $
              —





**Seasonality**





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




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




Market
      risk represents the risk of loss that may impact the financial position, results
      of operations, or cash flows of the Company due to adverse changes in financial
      market prices, including interest rate risk, foreign currency exchange rate
      risk, commodity price risk, and other relevant market rate or price risks.
      We
      are exposed to some market risk through interest rates related to the investment
      of our current cash and cash equivalents of approximately $49.9 million as
      of
      March 31, 2008. These funds are generally invested in highly liquid debt
      instruments. As such instruments mature and the funds are re-invested, we are
      exposed to changes in market interest rates. This risk is not considered
      material, and we manage such risk by continuing to evaluate the best investment
      rates available for short-term, high quality investments. We have long-term
      investments totaling $59.0 million in auction rate securities as of March 31,
      2008, with respect to which we recorded a temporary impairment charge of $1.8
      million during the three months ended March 31, 2008. These securities consisted
      of AAA/Aaa rated variable rate debt securities whose interest rates reset every
      35 days. The securities are collateralized by student loans, with approximately
      92% of such collateral in the aggregate guaranteed by the United States
      government under the Federal Family Education Loan Program. $3.0 million of
      these securities have an underlying maturity date of November 1, 2009 while
      the
      remaining securities have underlying maturity dates ranging from March 1, 2022
      through December 1, 2041. From February 14, 2008 through March 31, 2008, all
      auctions for these securities failed. An auction fails when there is
      insufficient demand. However, this does not represent a default by the issuer
      of
      the auction rate security. Upon an auction failure, the interest rates reset
      based on a formula contained in the security, which rate is generally higher
      than the current market rate. The reset interest rates on the auction rate
      securities currently held by us range from a short-term debt index plus 150
      to
      250 basis points, to as high as 14%. We concluded that the impairment charge
      recorded was temporary because (i) we believe that the decline in market value
      is due to general market conditions; (ii) the auction-rate securities continue
      to be of a high credit quality and interest is paid when due; and (iii) we
      currently have the intent and ability to hold the auction-rate securities until
      a recovery in market value occurs. However, if the issuers of these securities
      continue to be unable to successfully close future auctions and their credit
      ratings deteriorate, or if they default with respect to such securities, we
      may
      be required to record additional temporary or other-than-temporary impairment
      charges if there are further reductions in fair value in future periods. It
      may
      also take until the final maturity of the underlying securities to realize
      our
      investments. In the event we need to access these funds, we could be required
      to
      sell these securities at an amount below our original purchase value. If we
      are
      unable to liquidate these investments as necessary to execute our current
      business plan, we may need to change or postpone such business plan or find
      alternative financing, if available, for such business plan. Any of these events
      could materially affect our results of operations and our financial
      condition.


25




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





***Item
      4.******Controls
      and Procedures***




The
      Company’s management, including the Chief Executive Officer and Chief Financial
      Officer, evaluated the effectiveness of the Company’s disclosure controls and
      procedures, as that term is defined in Rule 13a-15(e) promulgated under the
      Securities Exchange Act of 1934, as amended (the Exchange Act), as of March
      31,
      2008. Based on that evaluation, the Chief Executive Officer and Chief Financial
      Officer concluded that the disclosure controls and procedures are effective
      to
      ensure that information required to be disclosed by the Company in the reports
      that the Company files or submits under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the SEC’s rules
      and forms, and to ensure that such information is accumulated and communicated
      to the Company’s management, including the Chief Executive Officer and Chief
      Financial Officer, as appropriate to allow timely decisions regarding required
      disclosure.




There
      were no changes in the Company’s internal control over financial reporting
      during the quarter ended March 31, 2008 identified in connection with the
      evaluation thereof by the Company’s management, including the Chief Executive
      Officer and Chief Financial Officer, that has materially affected, or is
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




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


26


**PART
      II. OTHER INFORMATION**




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




A
      putative amended class action complaint captioned *Haslam
      v. Macy’s, Inc., The Knot, Inc., WeddingChannel.com, Inc. and Does
      1-100* was
      filed in the United States District Court for the Southern District of Florida
      on February 22, 2008. The complaint alleges that the defendants provided
      customers with electronically printed receipts for credit card and debit card
      point of sale transactions that contained more than the last five digits of
      the
      customer’s card number and/or the card’s expiration date in violation of the
      federal Fair and Accurate Credit Transactions Act (FACTA). The complaint does
      not specify any actual damages for any member of the purported class. However,
      the complaint does seek statutory damages, which are $100 to $1,000 for each
      proven alleged willful violation of the statute, if any, as well as attorneys’
fees and costs, unspecified compensatory and punitive damages, and a permanent
      injunction. We have filed a motion to dismiss the complaint. While we intend
      to
      vigorously defend against the claims asserted, this case is in the preliminary
      stages of litigation and, as a result, the ultimate outcome of this case and
      any
      potential financial impact on us are not reasonably determinable at this
      time.





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




***Item
      1A. Risk Factors***




Risks
      that could have a negative impact on our business, results of operations and
      financial condition include without limitation, (i) The Knot’s unproven business
      model, (ii) The Knot’s history of losses, (iii) the significant fluctuation to
      which The Knot’s quarterly revenues and operating results are subject, (iv) the
      seasonality of the wedding industry, (v) the dependence of our registry services
      business on the continued use of the WeddingChannel website by our retail
      partners, and (vi) other factors detailed in documents The Knot files from
      time
      to time with the Securities and Exchange Commission. A more detailed description
      of each of these and other risk factors can be found under the caption “Risk
      Factors” in our most recent Annual Report on Form 10-K, filed on March 13, 2008.
      Except as noted below, there have been no material changes to the risk factors
      described in the Form 10-K.




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




As
      of
      March 31, 2008, we have reclassified our investments in auction rate securities
      of $59.0 million as long-term assets and recorded a temporary impairment charge
      of $1.8 million with respect to these securities. These auction rate securities
      consisted of AAA/Aaa rated variable rate debt securities whose interest rates
      reset every 35 days. The securities are collateralized by student loans, with
      approximately 92% of such collateral in the aggregate guaranteed by the United
      States government under the Federal Family Education Loan Program. $3.0 million
      of these securities have an underlying maturity date of November 1, 2009 while
      the remaining securities have underlying maturity dates ranging from March
      1,
      2022 through December 1, 2041. From February 14, 2008 through March 31, 2008,
      all auctions for these securities failed. An auction fails when there is
      insufficient demand. However, this does not represent a default by the issuer
      of
      the auction rate security. Upon an auction failure, the interest rates reset
      based on a formula contained in the security, which rate is generally higher
      than the current market rate. The reset interest rates on the auction rate
      securities currently held by us range from a short-term debt index plus 150
      to
      250 basis points, to as high as 14%.




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


27




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




**Issuer
      Purchases of Equity Securities**


**Period**
              
              **(a) Total Number of**
                **Shares Purchased**
              
              **(b) Average Price**
                **Paid per Share**
              
              **(c) Total Number of**
                **Shares Purchased**
                **as Part of Publicly**
                **Announced Plans or**
                **Programs**
              
              **(d) Maximum**
                **Number of Shares**
                **that May Yet Be**
                **Purchased Under**
                **the Plans or**
                **Programs****January 1, 2008
                  to January 31, 2008**
              
              
              **1,502**
              
              **$**
              **14.64**
              
              
              **n/a**
              
              
              **n/a****February
                  1, 2008 to February 29, 2008**
              
              
              **1,501**
              
              **$**
              **11.55**
              
              
              **n/a**
              
              
              **n/a****March
                  1, 2008 to March 31, 2008**
              
              
              **1,264**
              
              **$**
              **11.75**
              
              
              **n/a**
              
              
              **n/a****Total**
              
              
              **4,267**
              
              **$**
              **12.70**
              
              
              **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***




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


28


**SIGNATURES**




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




Date:
                May 8, 2008
            THE
                KNOT, INC.By:
            /s/
                Richard SzefcRichard
                SzefcChief Financial Officer (Principal Financial Officerand
                Duly Authorized Officer)


29





**EXHIBIT
      INDEX**




**Number**
            ****
            **Description**10.18
            
            Letter
                Agreement between The Knot, Inc. and Nic Di Iorio dated January 11,
                200810.19
            
            Registration
                Rights Agreement dated as of April 30, 2008 between The Knot, Inc.
                and
                Macy’s, Inc. (Incorporated by reference to Exhibit 10.1 of the
                Registrant’s Current Report on Form 8-K filed May 2,
                2008)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.


30