Company: IXHL
Filing Date: 2025-05-15
Form Type: 10-Q
Source: 0001213900-25-043682
Chunk: 24

Company: Incannex Healthcare Inc.
Filing Date: 2025-05-15
Form: 10-Q
Item: Part I, Item 1
Chunk 24
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-74(a). Therefore the instrument is not considered
indexed to the reporting entity’s own stock. As such the First Tranche Warrants are classified as a liability and measured at fair
value, with changes in fair value each period reported in earnings.

The proceeds from issuing the Convertible Debentures were allocated
first to the First Tranche Warrants 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 
  
    Conversion rights (liability) at fair value 
     302 
  
    First Tranche Warrants (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 in full on March 13, 2025, including
the outstanding principal, interest, amounts and redemption premiums due as of February 28, 2025. The conversion rights is derecognized
along with the debt repayment. The Company recognised a $994 loss on extinguishment of the debt host contract and the bifurcated derivative.

The First Tranche Warrants were classified as a level 3 financial instrument
in the fair value hierarchy and were valued using the BSOPM. The following table presents the fair value of the First Tranche Warrants
and the valuation assumptions under the BSOPM as of March 31, 2025 and at inception.

    March 31, 2025  
    At inception 
  
    Fair value 
    $132  
    $365 
  
    Exercise price 
    $1.89  
    $1.89 
  
    Common stock price 
    $0.68  
    $1.60 
  
    Expected option term (years) 
     4.53  
     4.9 
  
    Expected volatility 
     80% 
     60.0%