Company: IXHL
Filing Date: 2025-02-14
Form Type: 10-Q
Source: 0001213900-25-013783
Chunk: 21

Company: Incannex Healthcare Inc.
Filing Date: 2025-02-14
Form: 10-Q
Item: Part I, Item 1
Chunk 21
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purchased put right and has concluded that it had insignificant value as of December 31, 2024.

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 entitled “Staff Statement on Accounting and Reporting Considerations
for Warrants Issued by Special Purpose Acquisition Companies.”

12

Note 12 – Fair value of Financial Instruments (continued)

Management considered whether the ELOC Warrant
displayed the three characteristics of a 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.