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

Company: Incannex Healthcare Inc.
Filing Date: 2025-05-15
Form: 10-Q
Item: Part I, Item 1
Chunk 25
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    Risk free rate of return 
     3.87% 
     4.06%
  
    Expected annual dividend yield 
     Nil  
     Nil 

The changes in the fair value of the First Tranche Warrants liability
were a decrease of $233k for the nine months ended March 31, 2025.

17

Note 12 – Fair value of Financial Instruments (continued) 

Series A Warrants

Classification of the Series A 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 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 Series
A Warrants display the three characteristics of a derivative under ASC 815, and concluded that the Series A Warrants meet the definition
of a derivative. However, the Series A Warrants fail 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. This is on the basis that the exercise price
of the Series A Warrants is 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 Series A Warrants 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 Series A Warrants were classified as
a level 3 financial instrument in the fair value hierarchy and were valued using the BSOPM. The following table presents the fair value
of the Series A Warrants and the valuation assumptions under the BSOPM as of March 31, 2025 and at inception.

    March 31, 2025  
    At inception 
  
    Fair value 
    $1,793  
     1,012 
  
    Exercise price 
    $2.16  
     2.16 
  
    Common stock price 
    $0.68  
     0.93 
  
    Expected option term (years) 
     3  
     3 
  
    Expected volatility 
     80.0%