Company: IXHL
Filing Date: 2025-09-29
Form Type: 10-K
Source: 0001213900-25-092837
Chunk: 209

Company: Incannex Healthcare Inc.
Filing Date: 2025-09-29
Form: 10-K
Item: Item 1
Chunk 209
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 under different assumptions or
conditions.

While our significant
accounting policies are described in more detail in Note 2 to our financial statements included elsewhere in this Annual Report, we believe
the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

Acquisitions

We evaluate acquisitions under the accounting
framework in ASC 805, Business Combinations, to determine whether the transaction is a business combination or an asset acquisition.
In determining whether an acquisition should be accounted for as a business combination or an asset acquisition, we first perform a screen
test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset
or a group of similar identifiable assets. If this is the case, the acquired set is not deemed to be a business and is instead accounted
for as an asset acquisition. If this is not the case, we further evaluate whether the acquired set includes, at a minimum, an input and
a substantive process that together significantly contribute to the ability to create outputs. If so, we conclude that the acquired set
is a business.

We measure and recognizes asset acquisitions that
are not deemed to be business combinations based on the cost to acquire the assets, which includes pre-acquisition direct costs recorded
in accrued professional and consulting fees. Goodwill is not recognized in asset acquisitions.

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
(“BSOPM”) 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 BSOPM, require the input
of several assumptions. These inputs are subjective and generally require significant analysis and judgment to develop.

R&D Costs

R&D costs are expensed as incurred. R&D
costs consist of salaries, benefits and other personnel related costs including equity-based compensation expense, laboratory supplies,
preclinical studies, clinical trials