Company: IXHL
Filing Date: 2025-02-14
Form Type: 10-Q
Source: 0001213900-25-013783
Chunk: 22

Company: Incannex Healthcare Inc.
Filing Date: 2025-02-14
Form: 10-Q
Item: Part I, Item 1
Chunk 22
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27% 
     4.06%
  
    Expected annual dividend yield 
     Nil  
     Nil 

The changes in the fair value of the ELOC Warrant
liability resulted in a decrease of $80,328 for the six months ended December 31, 2024.

Convertible Debentures

The Company has accounted for the First Tranche Debenture as a financing
transaction, with the net proceeds allocated to the financial instruments issued. Prior to making this allocation, the Company evaluated
the First Tranche Debenture under ASC 815, Derivatives and Hedging (“ASC 815”). ASC 815 generally requires an analysis
of embedded terms and features that may exhibit characteristics of derivatives, to determine if bifurcation and separate accounting are
necessary when their economic risks and characteristics are not clearly and closely related to the risks of the host contract. 

The Company evaluated that the conversion right
of the First Tranche Debenture meets the definition of a derivative under ASC 815-10-15-83. Furthermore, the Company determined that the
conversion right of the First Tranche Debenture requires bifurcation from the debt host, as it fails to meet the equity scope exception
in ASC 815-10-15-74(a) and thus is classified as a liability, measured at fair value, and subject to remeasurement at each reporting period.

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

The proceeds from issuing the First Tranche Debenture
were allocated first to the First Tranche Warrant based on its fair value. The remaining proceeds allocated to the debt instrument were
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