Company: IXHL
Filing Date: 2025-05-15
Form Type: 10-Q
Source: 0001213900-25-043682
Chunk: 23

Company: Incannex Healthcare Inc.
Filing Date: 2025-05-15
Form: 10-Q
Item: Part I, Item 1
Chunk 23
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 the valuation assumptions under the BSOPM as of March 31, 2025 and at inception.

    March 31, 2025  
    At inception 
  
    Fair value 
    $178  
     820 
  
    Exercise price 
    $1.66  
     1.66 
  
    Common stock price 
    $0.68  
     2.27 
  
    Expected option term (years) 
     4.43  
     5 
  
    Expected volatility 
     80% 
     60.0%
  
    Risk free rate of return 
     3.86% 
     4.06%
  
    Expected annual dividend yield 
     Nil  
     Nil 

The changes in the fair value of the ELOC Warrant liability were a
decrease of $642k for the nine months ended March 31, 2025.

16

Note 12 – Fair value of Financial Instruments (continued)

Convertible Debentures

The Company has accounted for the First Tranche 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 derivatives to be evaluated for bifurcation and separate
accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract.

The Company evaluated that the Conversion right meets the definition
of 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