Company: IXHL
Filing Date: 2025-11-14
Form Type: 10-Q
Source: 0001213900-25-110299
Chunk: 9

Company: Incannex Healthcare Inc.
Filing Date: 2025-11-14
Form: 10-Q
Item: Part I, Item 1
Chunk 9
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 meet the definition of an asset and, therefore, were expensed as incurred.

As additional consideration for Arena Global’s
execution and delivery of the ELOC Purchase Agreement, the Company issued a five-year warrant (the “ELOC Warrant”) on October
31, 2024, exercisable for 585,000 shares of Common Stock with an exercise price equal to $1.66 per share.

The Company determines whether to classify contracts,
such as warrants, that may be settled in the Company’s 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.

Classification of the ELOC Warrants as liability
instruments was based on management’s analysis of the guidance in ASC 815 and in a statement issued by the Staff of the SEC regarding
the accounting and reporting considerations for warrants issued entitled “Staff Statement on Accounting and Reporting Considerations
for Warrants Issued by Special Purpose Acquisition Companies.

Management considered whether the ELOC Warrant
displayed the three characteristics of a derivative under ASC 815 and concluded that the ELOC Warrant meets the definition of a derivative.
However, the ELOC Warrant failed to meet the equity scope exception in ASC 815-10-15-74(a) and thus is classified as a liability measured
at fair value, subject to remeasurement at each reporting period. This conclusion is based on the fact that the ELOC Warrant includes
certain cash-settlement features in the event of a tender offer, which is outside the control of the Company, and that the exercise price
is denominated in a currency other than the reporting entity’s functional currency. As a result, the instrument is not considered
to be indexed to the reporting entity’s own stock. The Company measured the ELOC Warrant as a liability at fair value as at each
reporting period with changes in fair value recognized as other (income) expense, net in the consolidated statements of operations and
comprehensive income (loss).

Convertible Debenture Financing

On September 6, 2024, the Company entered into