Company: IXHL
Filing Date: 2025-09-29
Form Type: 10-K
Source: 0001213900-25-092837
Chunk: 381

Company: Incannex Healthcare Inc.
Filing Date: 2025-09-29
Form: 10-K
Item: Item 1A
Chunk 381
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 currency
other than the reporting entity’s functional currency, and therefore the instrument is not considered indexed to the reporting entity’s
own stock. The Company measures the ELOC Warrant as a liability at fair value as at each reporting period with changes in fair value recognized
as other (income) expense, net in the consolidated statements of operations and comprehensive income (loss).

The ELOC Warrant was classified as a level
3 financial instrument in the fair value hierarchy and were valued using the BSOPM. 

The changes in the fair value of the ELOC Warrant
liability were a decrease of $0.6 million for the fiscal year ended June 30, 2025.

Convertible Debentures

The Company has accounted for the Debenture as
a financing transaction, wherein the net proceeds that were received were allocated to the financial instruments issued. Prior to making
the accounting allocation, the Company evaluated the Convertible Debentures under ASC 815 Derivatives and Hedging (“ASC 815”).
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