Company: IXHL
Filing Date: 2025-05-15
Form Type: 10-Q
Source: 0001213900-25-043682
Chunk: 22

Company: Incannex Healthcare Inc.
Filing Date: 2025-05-15
Form: 10-Q
Item: Part I, Item 1
Chunk 22
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 assets, accounts payable, accrued
expenses and current liabilities are reflected on the consolidated balance sheets at amounts that approximate fair value because of the
short-term nature of these financial assets and liabilities.

The fair value of the Company’s debt approximates its carrying
value and is classified as Level 3 within the fair value hierarchy as it is based on discounted cash flows using a current borrowing rate.

ELOC Purchase Agreement

The Company evaluated the ELOC Purchase Agreement to determine whether
it should be accounted for considering the guidance in ASC 815-40, “Derivatives and Hedging - Contracts on an Entity’s Own
Equity” (“ASC 815-40”) and concluded that it is an equity-linked contract that does not qualify for equity classification,
and therefore requires fair value accounting as a derivative.

The ELOC Purchase Agreement was terminated at March 13, 2025.

ELOC Warrants

Classification of the ELOC 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 ELOC Warrants display the three characteristics
of a derivative under ASC 815, and concluded that the ELOC Warrants meet the definition of a derivative. However, the ELOC Warrants fail
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. This is on the basis that the ELOC Warrant includes certain cash-settlement features in the event of a tender
offer, which is outside the control of the company, and that the exercise price is denominated in a 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 Warrants 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 Warrants were classified as a level 3 financial instrument
in the fair value hierarchy and were valued using the Black-Scholes option pricing model (BSOPM). The following table presents the fair
value of the ELOC Warrants and