Company: IXHL
Filing Date: 2025-11-14
Form Type: 10-Q
Source: 0001213900-25-110299
Chunk: 57

Company: Incannex Healthcare Inc.
Filing Date: 2025-11-14
Form: 10-Q
Item: Part I, Item 8
Chunk 57
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 most critical to the judgments and estimates used in the preparation of our financial
statements.

21

Stock Based Compensation 

We account for stock-based compensation arrangements
with employees and non-employees using a fair value method which requires the recognition of compensation expense for costs related to
all stock-based payments including share options. The fair value method requires us to estimate the fair value of stock-based payment
awards on the date of grant using an option-pricing model. We use either the trinomial pricing or Black-Scholes option-pricing model
to estimate the fair value of options granted. Stock-based compensation awards are expensed using the graded vesting method over the
requisite service period, which is generally the vesting period, for each separately vesting tranche. We have elected a policy of estimating
forfeitures at grant date. Option valuation models, including the trinomial pricing and Black-Scholes option-pricing model, require the
input of several assumptions. These inputs are subjective and generally require significant analysis and judgment to develop.

Research and development Costs

Research and development costs are expensed as
incurred. Research and development costs consist of salaries, benefits and other personnel related costs including equity-based compensation
expense, laboratory supplies, preclinical studies, clinical trials and related clinical manufacturing costs, costs related to manufacturing
preparations, fees paid to other entities to conduct certain research and development activities on our behalf and allocated facility
and other related costs.

Nonrefundable advance payments for goods or services
that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses until the
related goods are delivered or services are performed.

We record accrued liabilities for estimated costs
of research and development activities conducted by third-party service providers, which include the conduct of preclinical studies and
clinical trials, and contract manufacturing activities. We record the estimated costs of research and development activities based upon
the estimated amount of services provided but not yet invoiced and includes these costs in trade and other payables on the consolidated
balance sheets and within research and development expenses on the consolidated statements of operations and comprehensive loss.

We accrue for these costs based on factors such
as estimates of the work completed and in accordance with agreements established with its third-party service providers. We make significant
judgments and estimates in determining the accrued liabilities balance at the end of each reporting period. As actual costs become known,
we adjust our accrued liabilities. We have not experienced any material differences between accrued costs and actual costs incurred