Company: IXHL
Filing Date: 2025-09-29
Form Type: 10-K
Source: 0001213900-25-092837
Chunk: 862

Company: Incannex Healthcare Inc.
Filing Date: 2025-09-29
Form: 10-K
Item: Item 7
Chunk 862
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 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
on March 13, 2025.

ELOC Warrant

Classification of the ELOC Warrant as a liability
instrument 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 Warrant displayed the three
characteristics of a derivative under ASC 815, and concluded that the ELOC Warrant mets 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 is on the basis that the ELOC 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
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