In 2006, 23andMe, Inc. established its 2006 Equity Incentive Plan, as amended (the “2006 Plan”), which provides for the grant of stock options and restricted stock to its employees, directors, officers, and consultants. The 2006 Plan allows for time-based or performance-based vesting for the awards. The 2006 Plan has been amended and restated at various times since its adoption. As of June 30, 2022, there have been no performance-based awards granted under the 2006 Plan.

On June 10, 2021, at an extraordinary general meeting of shareholders of VGAC (the “VGAC Shareholder Meeting”), the shareholders of VGAC approved the 23andMe Holding Co. 2021 Incentive Equity Plan (the “2021 Plan”) and reserved 136,000,000 authorized shares of the Company’s Class A common stock. In addition, all equity awards of 23andMe, Inc. that were issued under the 2006 Plan were converted into comparable equity awards that are settled or exercisable for shares of the Company’s Class A common stock. As a result, each 23andMe, Inc. stock option was converted into an option to purchase shares of the Company’s Class A common stock based on an exchange ratio of 2.293698169. As of the effective date of the 2021 Plan, no further stock awards have been or will be granted under the 2006 Plan.

The 2021 Plan authorizes the issuance or transfer of up to 136,000,000 shares of Class A common stock. The number of shares of Class A common stock reserved for issuance under the 2021 Plan will automatically increase on January 1 of each calendar year, starting in 2022, in an amount equal to (i) 22,839,019 shares of Class A common stock, (ii) 3.0% of the aggregate number of shares of Class A common stock and Class B common stock outstanding, or (iii) a lesser number of shares determined by the Company’s Board of Directors prior to the applicable January 1 (the “Evergreen Provision”). In November 2021, in connection with the Lemonaid Acquisition, the Company registered an additional 2,990,386 shares of Class A common stock issuable under the 2021 Plan, which represent shares of Class A common stock issuable in exchange for outstanding options initially granted under Lemonaid Health’s 2014 Equity Incentive Plan, as amended. On June 15, 2022, in accordance with and pursuant to the Evergreen Provision, the Company registered an additional 13,384,415 shares of Class A common stock issuable under the 2021 Plan.

Options under the 2021 Plan have a contractual life of up to ten years. The exercise price of a stock option shall not be less than 100% of the estimated fair value of the shares on the date of grant, as determined by the Board of Directors. For Incentive Stock Options (“ISO”) as defined in the Internal Revenue Code of 1986, as amended (the “Code”), the exercise price of an ISO granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the underlying stock on the date of grant as determined by the Board of Directors. The Company’s options generally vest over four years. Under the 2021 Plan, stock option awards entitle the holder to receive one share of Class A common stock for every option exercised.

In connection with the Merger, all of the 23andMe, Inc. option holders received an equivalent award at an exchange ratio of 2.293698169 that vest in accordance with the original terms of the award. The Company determined this to be a Type I modification but did not record any incremental stock-based compensation expense since the fair value of the modified awards immediately after the modification was not greater than the fair value of the original awards immediately before the modification.

In February 2022, the Compensation Committee of the Company’s Board of Directors adopted a restricted stock unit (“RSU”) conversion and deferral program for non-employee directors. The purpose of the program is to provide directors with the option to convert all or a portion of their cash compensation into an RSU award under the 2021 Plan and the opportunity to defer settlement of all or a portion of their RSU awards. As of June 30, 2022, no directors have elected to convert any of their cash compensation or defer settlement of any of their RSU awards under the program.

On June 9, 2022, the Compensation Committee of the Company’s Board of Directors adopted an annual incentive plan under the 2021 Plan (the “2022 AIP”) effective April 1, 2022. The purpose of the 2022 AIP is to provide employees and other service providers of 23andMe, Inc. and its affiliates selected by the Compensation Committee with the opportunity to earn annual incentive compensation based upon the achievement of certain pre-determined performance measures during the applicable performance period. All incentive awards payable under the 2022 AIP will be paid in cash or in the form of RSUs issued by the Company under the 2021 Plan. During the three months ended June 30, 2022, the Company did not issue any shares under the 2022 AIP. The Company recorded stock-based compensation costs of $5.0 million in accrued expenses and other current liabilities as of June 30, 2022 to reflect the current quarter portion based on the estimated stock-based compensation costs to be incurred under the 2022 AIP for the fiscal year ending March 31, 2023.

Stock option activity and activity regarding shares available for grant under the 2021 Plan is as follows:


	Options Outstanding
	Outstanding Stock Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
	(in thousands, except share, years, and per share data)
Balance as of March 31, 2022		73,609,565		$	4.21	6.9		$	35,979
Granted		1,700,512		$	3.56
Exercised		(1,065,784	)	$	1.44
Cancelled/Forfeited/Expired		(2,263,745	)	$	4.89
Balance as of June 30, 2022		71,980,548		$	4.21		6.6	$	14,170
Vested and exercisable as of June 30, 2022		44,547,740		$	3.96		5.4	$	9,774

The weighted average grant-date fair value of options granted for the three months ended June 30, 2022 was $2.44. There were no options granted during the three months ended June 30, 2021. The intrinsic value of vested options exercised for the three months ended June 30, 2022 and 2021 was $1.5 million and $5.7 million, respectively. As of June 30, 2022, unrecognized stock-based compensation cost related to unvested stock options was $93.8 million, which is expected to be recognized over a weighted-average period of 2.8 years. Due to a valuation allowance on deferred tax assets, the Company did not recognize any tax benefit from stock option exercises for the three months ended June 30, 2022 and 2021.

The Company estimated the fair value of options granted using the Black-Scholes option-pricing model. The fair value of stock options is being amortized on a straight-line basis over the requisite service period of the awards.

The Black-Scholes assumptions used to value stock options at the grant dates are as follows:


	Three Months Ended June 30,
	2022						2021
	Min			Max			Min			Max
Expected term (years)		6.0			6.8			6.0			6.1
Expected volatility		76	%		77	%		67	%		68	%
Risk-free interest rate		2.8	%		2.8	%		0.4	%		0.5	%
Expected dividend yield	—				—			—			—

Under the 2006 Plan and 2021 Plan, RSUs may be granted to employees, non-employee directors, and consultants. The RSUs vest ratably over a period ranging from one to four years and are subject to the participant’s continuing service to the Company over that period. Until vested, RSUs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.

The following table summarizes the RSU activity under the equity incentive plans and related information:


	Unvested RSUs			Weighted-Average Grant Date Fair Value Per Share
Balance as of March 31, 2022		10,676,378		$	9.70
Granted		14,655,582		$	3.48
Vested		(1,461,448	)	$	6.73
Cancelled/forfeited		(793,942	)	$	6.92
Balance as of June 30, 2022		23,076,570		$	6.03

As of June 30, 2022, unrecognized stock-based compensation expense related to outstanding unvested RSUs was $131.0 million, which is expected to be recognized over a weighted-average period of 3.5 years.

In November 2021, the Company granted 3,747,027 shares of Class A common stock subject to vesting with an aggregate grant date fair value of $43.9 million in connection with the Lemonaid Acquisition. Vesting of the shares is contingent on each recipient’s continued employment, both of whom are part of the management team within the General and Administrative department. Accordingly, the Company has recognized stock-based compensation expense related to these awards of $2.7 million for the three months ended June 30, 2022 within general and administrative expenses. The expense will be recognized over a four-year vesting period with quarterly vesting and no cliff. Unrecognized stock-based compensation expense of $36.7 million will be recognized over a weighted average period of 3.3 years.

On June 10, 2021, at the VGAC Shareholder Meeting, the shareholders of VGAC approved the 23andMe Holding Co. Employee Stock Purchase Plan (the “ESPP”). A total of 11,420,000 shares of the Company’s Class A common stock were initially reserved for issuance under the ESPP. The number of shares of the Company’s Class A common stock reserved for issuance will automatically increase on January 1 of each calendar year, beginning on January 1, 2023, by the lesser of (i) an amount equal to one percent (1.0%) of the total number of shares of Class A and Class B common stock outstanding as of the last day of the immediately preceding December 31st, (ii) 5,000,000 shares, or (iii) a lesser number of shares as determined by the Board of Directors in its discretion.

The ESPP provides for concurrent 12-month offerings with purchases each six months commencing on March 1 and September 1 of each year with purchases on August 31 and February 28 of each year. As of June 30, 2022, no shares of the Company’s Class A common stock have been purchased under the ESPP. Employees participating in the ESPP commence payroll withholdings that accumulate through the end of the respective offering period. As of June 30, 2022, $2.3 million has been withheld via employee payroll deductions for employees who have opted to participate in the purchase period ending August 31, 2022.

The total stock-based compensation expense related to stock options and RSUs by line item in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss is summarized as follows:


	Three Months Ended June 30,
	2022		2021
	(in thousands)
Cost of revenue	$	3,327	$	798
Research and development		12,076		5,607
Sales and marketing		2,889		903
General and administrative		12,170		2,329
Total stock-based compensation expense	$	30,462	$	9,637