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

Company: Incannex Healthcare Inc.
Filing Date: 2025-02-14
Form: 10-Q
Item: Part I, Item 1
Chunk 14
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 a resale Registration Statement on Form S-1/A with the SEC, registering
for resale up to 61,389,758 shares of Common Stock, including up to 10,101,009 shares of Common Stock issuable upon conversion of the
First Tranche Debenture and up to 453,749 shares of Common Stock issuable upon the exercise of the First Tranche Warrant. This registration
statement was declared effective on December 6, 2024.

The Company evaluates its convertible instruments
and warrants to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted
for under ASC 815, Derivatives and Hedging. The classification of derivative instruments, including whether such instruments should be
recorded as assets, liabilities, or equity, is reassessed at the end of each reporting period. For equity-linked financial instruments,
the Company must determine whether the underlying instrument is indexed to its own Common Stock in order to classify the derivative instrument
as equity. Otherwise, the derivative asset or liability, including embedded derivatives, is recognized at fair value with subsequent changes
in fair value recognized in the consolidated statements of operations and comprehensive income (loss).

For hybrid instruments, ASC 815-15 requires bifurcation
of embedded features if (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related
to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument
and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes
in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument
would be considered a derivative instrument. The nature of the host instrument is therefore evaluated to determine if it is more akin
to a debt-like or equity-like host. In this assessment, the Company considers the stated and implied substantive features of the contract
as well as the economic characteristics and risks of the hybrid instrument. Each term and feature are then weighed based on the relevant
facts and circumstances to determine the nature of the host contract. Terms and features of the hybrid

Refer to Note 12 and Note 13 for the accounting
of the Convertible Debenture.

Fair Value of Financial Instruments

The Company measures certain financial assets and
liabilities at fair value in accordance with ASC 820, Fair Value Measurement and Disclosures (“ASC 820”). ASC 820 establishes
a hierarchy of