Company: IXHL
Filing Date: 2025-02-14
Form Type: 10-Q
Source: 0001213900-25-013783
Chunk: 41

Company: Incannex Healthcare Inc.
Filing Date: 2025-02-14
Form: 10-Q
Item: Part I, Item 1
Chunk 41
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, we believe the following accounting
policies are those most critical to the judgments and estimates used in the preparation of our financial statements.

22

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

We accrue these costs based on factors such as
estimates of the work completed and in accordance with agreements established with our third-party service providers. We make significant
judgments and estimates when determining the accrued liabilities balance at the end of each reporting period. As actual costs become known,
we adjust our accrued liabilities accordingly. To date