Company: IXHL
Filing Date: 2025-05-15
Form Type: 10-Q
Source: 0001213900-25-043682
Chunk: 40

Company: Incannex Healthcare Inc.
Filing Date: 2025-05-15
Form: 10-Q
Item: Part I, Item 1
Chunk 40
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 other factors we believe are
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may
differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described
in more detail in Note 2 to our consolidated financial statements described in the Company’s Annual Report on Form 10-K, we believe
the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

28

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