Company: IXHL
Filing Date: 2025-09-29
Form Type: 10-K
Source: 0001213900-25-092837
Chunk: 953

Company: Incannex Healthcare Inc.
Filing Date: 2025-09-29
Form: 10-K
Item: Item 8
Chunk 953
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”).
ASC 815 generally requires the analysis of embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation
and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of
the host contract.

The Company evaluated that the convertible right
met the definition of a derivative under ASC 815-10-15-83. Further the Company evaluated that the convertible right requires bifurcation
from the debt host on the basis that it fails to meet the equity scope exception in ASC 815-10-15-74(a) and thus are classified as a liability
measured at fair value, subject to remeasurement at each reporting period.

F-19

The Company evaluated that the Debenture Warrant
was a detachable freestanding instrument. The Debenture Warrant included certain cash-settlement features in the event of a tender offer,
which is outside the control of the Company, and that the exercise price was denominated in a currency (USD) other than the reporting
entity’s functional currency (AUD), and thus failed to meet the equity scope exception in ASC 815-10-15-74(a). Therefore, the instrument
was not considered indexed to the reporting entity’s own stock. As such the Debenture Warrant were classified as a liability and
measured at fair value, with changes in fair value each period reported in earnings.

The proceeds from issuing the Debenture were allocated
first to the Debenture Warrant based on its fair value. The proceeds allocated to the debt instrument was then further allocated between
the debt host contract and the bifurcated derivative based on the fair value of that derivative as prescribed by ASC 815-15-30-2.

The proceeds of the transaction were initially
allocated as follows:

    Amount 

    (in thousands) 
  
    10% Original issue discount 
     333 
  
    Convertible rights (liability) at fair value 
     302 
  
    Debenture Warrant (liability) at fair value 
     365 
  
    Debt issuance costs 
     122 
  
    Debt liability host 
     2,211 
  
    Face value 
     3,333 

Debt discount and the debt issuance costs were
capitalized to the carrying amount of the debt. Such costs are presented on the balance sheet as a direct deduction from that debt liability
host.

The convertible debt was repaid