Company: IXHL
Filing Date: 2025-02-14
Form Type: 10-Q
Source: 0001213900-25-013783
Chunk: 75

Company: Incannex Healthcare Inc.
Filing Date: 2025-02-14
Form: 10-Q
Item: Part I, Item 8
Chunk 75
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 derivative under ASC 815 and concluded that the ELOC Warrant meets the definition of a derivative.
However, the ELOC Warrant failed to meet the equity scope exception in ASC 815-10-15-74(a) and thus is classified as a liability measured
at fair value, subject to remeasurement at each reporting period. This conclusion is based on the fact 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. As a result, the instrument is not considered
to be indexed to the reporting entity’s own stock. The Company measured 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 was valued using the Black-Scholes option pricing model (“BSOPM”). The following
table presents the fair value of the ELOC Warrant and the valuation assumptions under the BSOPM as of December 31, 2024 and at inception.

    December 31,  2024  
    At inception 
  
    Fair value 
    $739  
     820 
  
    Exercise price 
    $1.66  
     1.66 
  
    Common stock price 
    $2.12  
     2.27 
  
    Expected option term (years) 
     4.8  
     5 
  
    Expected volatility 
     60.0% 
     60.0%
  
    Risk free rate of return 
     4.27% 
     4.06%
  
    Expected annual dividend yield 
     Nil  
     Nil 

The changes in the fair value of the ELOC Warrant
liability resulted in a decrease of $80,328 for the six months ended December 31, 2024.

Convertible Debentures

The Company has accounted for the First Tranche Debenture as a financing
transaction, with the net proceeds allocated to the financial instruments issued. Prior to making this allocation, the Company evaluated
the First Tranche Debenture under ASC 815, Derivatives and Hedging