Company: IXHL
Filing Date: 2025-09-29
Form Type: 10-K
Source: 0001213900-25-092837
Chunk: 687

Company: Incannex Healthcare Inc.
Filing Date: 2025-09-29
Form: 10-K
Item: Item 4
Chunk 687
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 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 in full on March
13, 2025, including the outstanding principal, interest, amounts and redemption premiums that was due as of February 28, 2025. The convertible
rights are derecognized along with the debt repayment. The Company recognized a $1.0 million loss on extinguishment of the debt host contract
and the bifurcated derivative.

The changes in the fair value of the Debenture
Warrants liability were a decrease of $0.2 million for the fiscal year ended June 30, 2025.

Series A Warrants

Classification of the Series A 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 by special purpose acquisition companies entitled “Staff Statement
on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies.”

Management considered whether the Series A Warrants
displayed the three characteristics of a derivative under ASC 815 and concluded that the Series A Warrants met the definition of a derivative.
However, the Series A Warrants failed to meet the equity scope exception in ASC 815-10-15-74(a) and thus were classified as a liability