Company: IXHL
Filing Date: 2025-02-14
Form Type: 10-Q
Source: 0001213900-25-013783
Chunk: 42

Company: Incannex Healthcare Inc.
Filing Date: 2025-02-14
Form: 10-Q
Item: Part I, Item 1
Chunk 42
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, we have not experienced any material differences between the accrued costs and
actual costs incurred.

Benefit from R&D Tax Incentive

Benefit from the R&D tax credit consists of
the R&D tax credit received in Australia, which is recorded within other income (expense), net. The Company recognizes grants once
both of the following conditions are met: (i) the Company is able to comply with the relevant conditions of the grant and (ii) the grant
is received. 

Warrants

We determine whether to classify contracts, such
as warrants, that may be settled in our own stock as equity of the entity or as a liability. An equity-linked financial instrument must
be considered indexed to the Company’s own stock to qualify for equity classification. The Company classifies warrants as liabilities
for any contracts that may require a transfer of assets. Warrants classified as liabilities are accounted for at fair value and remeasured
at each reporting date until exercise, expiration or modification that results in equity classification. Any change in the fair value
of the warrants is recognized in the Consolidated Statements of Operations and Comprehensive Loss.

Derivative Financial Instruments

The Company evaluates its convertible instruments
and warrants to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted
for under ASC 815, Derivatives and Hedging. The classification of derivative instruments, including whether such instruments should be
recorded as assets, liabilities, or equity, is reassessed at the end of each reporting period. For equity-linked financial instruments,
the Company must determine whether the underlying instrument is indexed to its own Common Stock in order to classify the derivative instrument
as equity. Otherwise, the derivative asset or liability, including embedded derivatives, is recognized at fair value with subsequent changes
in fair value recognized in the consolidated statements of operations and comprehensive income (loss).

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For hybrid instruments, ASC 815-15 requires bifurcation
of embedded features if (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related
to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument
and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes
in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument
would be considered a derivative instrument. The nature of the host instrument is therefore evaluated to determine if it