8. Stockholders’ Equity and Stock-Based Compensation

Common Stock

During the three months ended September 30, 2011, the Company repurchased 8,753 shares to satisfy tax withholding obligations that arose on the vesting of shares of restricted stock.

Stock plans

In December 2007, the Company’s stockholders approved the 2007 Equity Incentive Plan (“2007 Plan”). The 2007 Plan replaced the Company’s 1998 Stock Plan (the “1998 Plan”) and the 1999 Director Option Plan (the “Directors’ Plan”), which are collectively referred to as the “Equity Plans”. The Equity Plans will continue to govern awards previously granted under each respective plan. There were initially 525,000 shares of common stock reserved for issuance under the 2007 Plan, subject to increase for stock options or awards previously issued under the Equity Plans which expire or are cancelled. On June 29, 2011 a registration statement was filed for the purpose of registering an additional 200,000 shares of Common Stock to be issued as a result of an increase in the number of shares issuable under the 2007 Plan. At September 30, 2011, a total of 278,460 shares were available for issuance. The 2007 Plan provides that each share award granted with an exercise price less than the fair market value on the date of grant will be counted as two shares towards the shares reserved and each such share award forfeited or repurchased by the Company will increase the shares reserved by two shares.

Under the 2007 Plan, the Board of Directors may grant to employees, consultants and directors an option to purchase shares of the Company’s Common Stock and/or awards of the Company’s common stock.

The 2007 Plan will terminate in 2017. Options granted under the 2007 Plan must be issued at a price equal to at least the fair market value of the Company’s common stock at the date of grant. All vested options granted under the 2007 Plan may be exercised at any time within 10 years of the date of grant or within 90 days of termination of employment, or such other time as may be provided in the stock option agreement, and vest over a vesting schedule determined by the Board of Directors. The Company’s policy is to issue new shares upon exercise of options, granting of Restricted Stock Awards ("RSA") or vesting of Restricted Stock Units ("RSU") under the 2007 Plan. The following table summarizes option and restricted stock purchase rights activities from December 31, 2009 through September 30, 2011:

							Stock Options Outstanding
	Available for Grant			Restricted Stock Outstanding			Number Outstanding			Weighted- Average Exercise Price per Share		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value ($ 000's)
Balance at December 31, 2009		310,964			41,249			725,721		$	20.88		7.58	$	1,291
Granted		(632,769	)		163,650			305,469		$	15.32
Exercised		-			-			(230,723	)	$	8.51
Restricted stock released		-			(33,428	)		-		$	-
Restricted stock repurchased		14,084			(7,042	)		-		$	-
Cancelled		322,967			-			(325,809	)	$	24.05

Balance at December 31, 2010		15,246			164,429			474,658		$	20.72		7.15	$	3,573
Authorized		200,000
Granted		(365,402	)		101,826			161,750		$	24.67
Granted Outside of the Plan					312,500
Exercised		-			-			(56,087	)	$	16.95
Restricted stock released		-			(55,503	)		-		$	-
Restricted stock repurchased		-			-			-		$	-
Cancelled		428,616			(140,208	)		(148,200	)	$	27.75

Balance at September 30, 2011		278,460			383,044			432,121		$	20.27		7.64	$	1,362
Exercisable at September 30, 2011								162,086		$	19.92		5.20	$	728

Stock Based Compensation Expense

The following table summarizes employee stock-based compensation expense resulting from stock options and stock purchase rights (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011		2010
Included in cost of revenue:
ThinkGeek cost of revenue	$	54		$	(1	)	$	134	$	98
Media cost of revenue		(7	)		15			36		73
Total included in cost of revenue		47			14			170		171
Included in operating expenses:
Sales and marketing		90			46			172		396
Research and development		47			61			94		246
General and administrative		987			400			2,649		1,138
Total included in operating expenses		1,124			507			2,915		1,780

Total stock-based compensation expense	$	1,171		$	521		$	3,085	$	1,951

The fair value of the option grants has been calculated on the date of grant using the Black-Scholes option pricing model. The expected life for the three and nine months ended September 30, 2011 and September 30, 2010 was based on historical settlement patterns. Expected volatility was based on historical implied volatility in the Company’s stock. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The following table summarizes the weighted-average assumptions for stock options granted:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Expected life (years)		4.5			5.55			4.41			5.8
Risk-free interest rate		0.67	%		1.84	%		1.19	%		2.51	%
Volatility		88.4	%		62.9	%		74.4	%		62.8	%
Dividend yield	None			None			None			None
Weighted-average fair value at grant date	$	14.25		$	7.60		$	14.00		$	8.60

As stock-based compensation expense recognized in the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2011 and September 30, 2010 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures based on historical experience.