Company: IXHL
Filing Date: 2025-11-14
Form Type: 10-Q
Source: 0001213900-25-110299
Chunk: 13

Company: Incannex Healthcare Inc.
Filing Date: 2025-11-14
Form: 10-Q
Item: Part I, Item 1
Chunk 13
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 a derivative under ASC 815-10-15-83. Further the Company evaluated that the Conversion 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.

The Company evaluated that the First Tranche warrant
is a detachable freestanding instrument. The First Tranche 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 (USD) other than the reporting
entity’s functional currency (AUD), and thus fails to meet the equity scope exception in ASC 815-10-15-74(a). Therefore the instrument
is not considered indexed to the reporting entity’s own stock. As such the First Tranche Warrants are classified as a liability
and measured at fair value, with changes in fair value each period reported in earnings.

The proceeds from issuing the Convertible Debentures
were allocated first to the First Tranche Warrants based on its fair value. The proceeds allocated to the debt instrument was then further
allocated between the debt host contract and the bifurcated derivative based on the fair value of that derivative as prescribed by ASC
815-15-30-2.

Debt discount and the debt issuance costs were
capitalized to the carrying amount of the debt. Such costs are presented on the balance sheet as a direct deduction from that debt liability
host.

Fair Value of Financial Instruments

The Company measures certain financial assets and
liabilities at fair value. ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), specifies a hierarchy of valuation
techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market
data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs
have created the following fair-value hierarchy:

Level 1: 	Quoted prices for identical instruments in active
markets;

Level 2: Quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all
significant inputs and significant value drivers are observable in active markets; and

Level 3: Valuations derived from valuation techniques in
which one or more significant