Incannex Healthcare Inc

Note 1 – Re-domiciliation and Business

Incannex Healthcare Inc. (the “Company”) is a corporation formed under the laws of Delaware in July 2023. In November 2023, Incannex Healthcare Inc. acquired all the outstanding ordinary shares of Incannex Healthcare Limited, an Australian corporation (“Incannex Australia”), pursuant to a scheme of arrangement under Australian law (the “Re-domiciliation”). As a result of the Re-domiciliation, Incannex Australia became a wholly-owned subsidiary of Incannex Healthcare Inc., which is the new ultimate parent company.

Until the Re-domiciliation, Incannex Australia’s ordinary shares were listed on the Australian Securities Exchange (“ASX”) and American Depositary Shares (“ADSs”), each representing 25 ordinary shares of Incannex Australia, traded on Nasdaq. Following completion of the Re-domiciliation, Incannex Australia’s ordinary shares were delisted from the ASX and Incannex Healthcare Inc. assumed Incannex Australia’s listing on Nasdaq.

Pursuant to the Re-domiciliation, holders of Incannex Australia’s ordinary shares receivedone share of common stock in Incannex Healthcare Inc. for every 100 ordinary shares held in Incannex Australia and holders of ADSs in Incannex Australia receivedone share of common stock of Incannex Healthcare Inc. for every 4 ADSs held in Incannex Australia.

The issued and outstanding shares of the Company’s common stock as shown in this report have been adjusted in the consolidated financial statements to reflect the 100:1 exchange ratio as if it had occurred on July 1, 2022.

Incannex Healthcare Inc. and its subsidiaries are referred to as “the Company” unless the text otherwise requires.

The Company’s fiscal year end is June 30. References to a particular “fiscal year” are to the Company’s fiscal year ended June 30 of that calendar year.

The unaudited condensed consolidated financial statements of the Company are presented in United States dollars and consist of Incannex Healthcare Inc. and the following wholly-owned subsidiaries:

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

On November 28, 2023, the Company implemented the transaction to redomicile from Australia to United States and became the parent of Incannex Australia and the wholly owned subsidiaries listed in Note 1. The historical financial statements of Incannex Australia became the historical financial statements of the combined company upon consummation of the Re-domiciliation. As a result, the financial statements included in this report reflect (i) the historical operating results of Incannex Australia and subsidiaries prior to the Re-domiciliation; (ii) the combined results of the Company, Incannex Australia, and subsidiaries following the completion of the Re-domiciliation; and (iii) the Company’s equity structure for all periods presented, including adjusting the issued and outstanding shares of common stock to reflect the 100:1 exchange ratio as if it had occurred on July 1, 2022.

The Company’s unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and pursuant to the rules and regulations of the SEC. Prior to the Re-domiciliation, Incannex Australia reported its consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”). Following the Re-domiciliation, the Company transitioned to US GAAP and applied US GAAP retrospectively for all prior periods presented.

Reference is frequently made herein to the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”). This is the source of authoritative US GAAP recognized by the FASB to be applied to non-governmental entities.

Unaudited Interim Financial Information

In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of March 31, 2025, and its results of operations for the three and nine months ended March 31, 2025, and 2024, and cash flows for the nine months ended March 31, 2025, and 2024. The Company has condensed or omitted certain information and note disclosures normally included in financial statements prepared in accordance with GAAP pursuant to the applicable required disclosures and regulations of the SEC. As such, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2024.

Going Concern Basis

The Company believes there is substantial doubt about its ability to obtain additional capital when and as needed to continue as a going concern as previously disclosed in the 2024 Annual Report. The Company has not yet established an ongoing source of revenue sufficient to cover its operating and capital expenditure requirements and to cover any potential payments that may become due and payable pursuant to any debentures to provide sufficient certainty that the Company will continue as a going concern. Historically, the Company has financed its operations to date primarily through partnerships, funds received from public offerings of Common Stock, a debt financing facility, as well as funding from governmental bodies. The Company plan to address this condition through the sale of Common Stock in public offerings and/or private placements, debt financings, or through other capital sources, including collaborations with other companies or other strategic transactions, but there is no assurance these plans will be completed successfully or at all. Pursuant to the requirements of ASC 205-40, Presentation of Financial Statements - Going Concern, and as a result of the financial condition and other factors described herein, there is substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months from the date of this Quarterly Report.

The Company’s independent auditor included a going concern opinion in its audit report, which is part of the 2024 Annual Report, raising substantial doubt about the Company’s ability to continue as a going concern. This doubt may adversely impact the Company’s ability to secure additional financing necessary for its business operations and could materially affect its ability to enter into contractual relationships with third parties. Uncertainty about the Company’s ability to continue as a going concern could materially and adversely affect its liquidity, financial condition, and business prospects.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Details of all controlled entities are set out in Note 1. All intercompany balances and transactions have been eliminated on consolidation.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s unaudited condensed consolidated financial statements and accompanying notes.

The most significant estimates and assumptions in the Company’s unaudited condensed consolidated financial statements include the valuation of equity-based instruments issued, accrued research and development expense, and the research and development tax credit. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates.

Risks and Uncertainties

The Company is subject to risks and uncertainties common to companies in the biopharmaceutical industry. The Company believes that changes in any of the following areas could have a material adverse effect on future financial position or results of operations: ability to obtain future financing; regulatory approval and market acceptance of, and reimbursement for, product candidates; performance of third-party clinical research organizations and manufacturers upon which the Company relies; protection of the Company’s intellectual property; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; the Company’s ability to attract and retain employees.

There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained or maintained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid technological change and substantial competition from other pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees, consultants and other third parties.

Significant Accounting Policies

The following is provided to update the Company’s significant accounting policies previously disclosed in Note 2 to the Consolidated Financial Statements described in the Company’s 2024 Annual Report.

Equity-Line of Credit Purchase Agreement

On September 6, 2024, the Company entered into an equity line of credit Purchase Agreement (the “ELOC Purchase Agreement”) with Arena Business Solutions Global SPC II, Ltd (“Arena Global”). Under the ELOC Purchase Agreement, Arena Global has committed to purchase up to $50 million of the Company’s Common Stock par value $0.0001 per share (the “Common Stock”), at the Company’s direction from time to time, subject to the satisfaction of the conditions in the ELOC Purchase Agreement.

The purchase price per share of Common Stock is obtained by multiplying by 96% the daily volume weighted average price (“VWAP”) on The Nasdaq Global Market (“Nasdaq”) for the trading day specified in the sale notice (same trading day or one trading day following such notice) delivered to Arena Global. The ELOC Purchase Agreement will terminate automatically upon the earliest to occur of (i) the first day of the month next following the 36-month anniversary of the date of the ELOC Purchase Agreement; or (ii) the date on which Arena Global shall have purchased shares of Common Stock under the ELOC Purchase Agreement for an aggregate gross purchase price equal to the Commitment Amount (as defined in the ELOC Purchase Agreement). We have also agreed to pay a financial advisor up to 7% of the gross proceeds raised under the ELOC Agreement.

On December 9, 2024, in connection with the ELOC Purchase Agreement, the Company issued 142,403 shares of Common Stock as a commitment fee to Arena Global. On January 16, 2025 the Company issued 10,346 true-up shares of Common Stock to Arena Global. The Company evaluated that the costs incurred in connection with the commitment fee and the true-up shares do not meet the definition of an asset and, therefore, are expensed as incurred.

As additional consideration for Arena Global’s execution and delivery of the ELOC Purchase Agreement, the Company issued a five-year warrant (the “ELOC Warrant”) on October 31, 2024, exercisable for 585,000 shares of Common Stock with an exercise price equal to $1.66 per share.

We determine whether to classify contracts, such as warrants, that may be settled in our own stock as equity of the entity or as a liability. An equity-linked financial instrument must be considered indexed to the Company’s own stock to qualify for equity classification. The Company classifies warrants as liabilities for any contracts that may require a transfer of assets. Warrants classified as liabilities are accounted for at fair value and remeasured at each reporting date until exercise, expiration or modification that results in equity classification. Any change in the fair value of the warrants is recognized in the Consolidated Statements of Operations and Comprehensive Loss.

Refer to Note 12 for the accounting of the ELOC Purchase Agreement.

Convertible Debenture Financing

On September 6, 2024, the Company entered into a Securities Purchase Agreement (the “September 2024 Purchase Agreement”) with Arena Investors, LP (“Arena Investors”), which provides for the issuance of secured convertible debentures in an aggregate principal amount of up to $10 million at an aggregate purchase price of up to $9 million (a 10% original issue discount), divided into three separate tranches, each subject to closing conditions. Under the September 2024 Purchase Agreement, the conversion price of each secured convertible debenture will equal 115% of the closing price of the Common Stock on the trading day preceding the date of the issuance of the respective secured convertible debenture, subject to subsequent adjustments and alternative conversion prices based on the then-current trading price of the Common Stock on Nasdaq, as further detailed in the September 2024 Purchase Agreement. For each secured convertible debenture purchased under the September 2024 Purchase Agreement, the Company will also issue a warrant to the purchaser, exercisable to purchase up to the number of shares of Common Stock equal to 25% of the total principal amount of the related secured convertible debenture, divided by 115% of the closing price of the Company’s Common Stock on the trading day immediately preceding the applicable closing date. The Company is not obligated to issue warrants for any tranche that does not close. The exercise price of each warrant will be 115% of the closing price of the Common Stock on the issuance date, and the warrants will have afive-year term. Additionally, the Company has agreed to pay a financial advisor up to 7% of the gross proceeds raised under the September 2024 Purchase Agreement.

The Company completed the closing of the first tranche under the September 2024 Purchase Agreement for the issuance of a 10% original issue discount secured convertible debenture (the “First Tranche Debenture”) in the principal amount of $3,333,333 at an aggregate purchase price of $3 million (a 10% original issue discount) to Arena Special Opportunities (Offshore) Master II LP (“Arena Opportunities”). The First Tranche Debenture provides for a payment-in-kind interest rate at 5% and matures on April 14, 2026. In addition, the Company issued a warrant to Arena Investors exercisable for up to 453,749 shares of Common Stock (the “First Tranche Warrant”), at an exercise price of $1.89 per share.

The net proceeds received from the issuance of the First Tranche Debenture, after deduction of expenses reimbursable to the Arena Investors, was $2,877,588.

The Company did not meet the closing conditions for the second and third tranche closings set forth in the September 2024 Purchase Agreement; however, the Company and Arena Investors may conduct additional closings under the September 2024 Purchase Agreement, subject to mutual agreement and the closing conditions described therein. There can be no assurance that the parties will reach such an agreement for additional tranche closings.

On November 6, 2024, and as required by our agreements in connection with the First Tranche Debenture, the Company filed a resale Registration Statement on Form S-1/A with the SEC, registering for resale up to 61,389,758 shares of Common Stock, including up to 10,101,009 shares of Common Stock issuable upon conversion of the First Tranche Debenture and up to 453,749 shares of Common Stock issuable upon the exercise of the First Tranche Warrant. This registration statement was declared effective on December 6, 2024.

The Company evaluates its convertible instruments and warrants to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC 815, Derivatives and Hedging. The classification of derivative instruments, including whether such instruments should be recorded as assets, liabilities, or equity, is reassessed at the end of each reporting period. For equity-linked financial instruments, the Company must determine whether the underlying instrument is indexed to its own Common Stock in order to classify the derivative instrument as equity. Otherwise, the derivative asset or liability, including embedded derivatives, is recognized at fair value with subsequent changes in fair value recognized in the consolidated statements of operations and comprehensive income (loss).

For hybrid instruments, ASC 815-15 requires bifurcation of embedded features if (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. The nature of the host instrument is therefore evaluated to determine if it is more akin to a debt-like or equity-like host. In this assessment, the Company considers the stated and implied substantive features of the contract as well as the economic characteristics and risks of the hybrid instrument. Each term and feature are then weighed based on the relevant facts and circumstances to determine the nature of the host contract. Terms and features of the hybrid.

On 5 February, 2025, Arena Investors converted a total of $100,000 debt into common shares.

On March 13, 2025 the Company repaid in full that certain outstanding Convertible Debenture, previously issued pursuant to that certain Securities Purchase Agreement dated as of September 6, 2024, by and between the Company and the Arena Investors, by making a cash payment of $3,851,111.00, representing the outstanding principal, interest, amounts and redemption premiums due as of February 28, 2025. In connection with the repayment of the Debenture, the Debenture Purchase Agreement, the Security Documents and that certain Equity Line Purchase Agreement, dated September 6, 2024, by and between the Company and Arena Investors were terminated except with respect to the indemnification and registration rights set forth therein. The (i) warrant to purchase up to 453,749 shares of the Company’s common stock, par value $0.0001 per share, previously issued to Arena Investords, (ii) Registration Rights Agreement, dated as of October 14, 2025, by and between the Company and Arena Investors and (iii) warrant to purchase up to 585,000 shares of common stock, previously issued to Arena Global pursuant to the Equity Line Purchase Agreement (the “ELOC Warrant”) remain in effect.

Refer to Note 12 for the accounting of the Convertible Debenture.

Private placement arrangement

On March 7, 2025, the Company entered into a private placement (the “Private Placement”) pursuant to a securities purchase agreement with certain institutional investors (the “Purchasers”) for the purchase and sale of approximately $12.5 million in gross proceeds of 9,687,045 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) for a purchase price of $1.08 per share of Common Stock (and, in lieu thereof, pre-funded warrant (the “Pre-Funded Warrants”) to purchase up to 1,887,045 shares (the “Pre-Funded Warrant Shares”) of Common Stock at a price of $1.0799 per Pre-Funded Warrant and Series A common stock warrants (the “Series A Warrants”) to purchase up to 11,574,090 shares of Common Stock at an initial exercise price of $2.16 per share.

The pre-funded warrants are exercisable for the same number of shares of common stock and may be exercised at any time until exercised in full at an exercise price of $0.0001. On March 10, 2025, the Company received substantially all the Pre-Funded Warrants proceeds upfront as part of the Pre-Funded Warrants’ purchase price and in return the Company is obligated to issue fixed number of 11,574,090 shares of Common Stock to the investors. Thus, Pre-Funded Warrants were accounted for and were classified as additional paid-in capital as part of the Company’s equity. Total incremental and direct issuance costs were deducted from additional paid-in-capital as they were allocated to shares of Common Stock and Pre-Funded Warrants.

The Series A Warrants are classified as liabilities are accounted for at fair value and remeasured at each reporting date until exercise, expiration or modification that results in equity classification. Any change in the fair value of the warrants is recognized in the Consolidated Statements of Operations and Comprehensive Loss.

The issuance of Common stock is recognized on its settlement date. Upon issuance, the common stock is recorded at its fair value.

Refer to Note 12 for the accounting of the Series A Warrants.

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 inputs or significant value drivers are unobservable.

Note 3 – Prepaid expenses and other current assets

Note 4 –Assets pledged as security for short-term debt

The amount consists of R&D tax incentive receivables, as detailed under Note 5, which have been pledged to FC Credit as part of the facility agreement detailed under Note 12.

Note 5 – R&D tax incentive receivable

Due to multiple years of tax incentives being granted and successful lodgment of overseas findings on the Company’s lead assets, the Company changed its estimates for the R&D tax incentive receivable, primarily based on historical experience of claims. These amounts exclude the portion of R&D tax incentive receivable pledged as security for the facility agreement as detailed in Note 4.

Note 6 – Property, Plant and Equipment, net

Depreciation expense is recorded within general and administrative in the unaudited condensed consolidated statements of operations and comprehensive loss and amounted to $207 and $25 for the nine months ended March 31, 2025 and 2024, respectively.

Note 7 – Trade and other payables, accrued expenses and other current liabilities

Trade and other payables are unsecured, non-interest bearing and are normally settled within 30 days. The carrying amounts are a reasonable approximation of fair value.

Note 8 – Leases

During fiscal year 2023, the Company entered into three new lease agreements for its corporate head office in Sydney, Melbourne office and Clarion Clinic site. The leases have four, five and three-year terms respectively. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for an additional three to five years. These optional periods have not been considered in the determination of the right-of-use assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options.

The following table summarizes the weighted-average remaining lease term and discount rates for the Company’s operating leases:

The following table summarizes the lease costs pertaining to the Company’s operating leases:

Cash paid for amounts included in the measurement of operating lease liabilities during the three months ended March 31, 2025 and fiscal year June 30, 2024 was $146 and $172 respectively, and was included within net cash used in operating activities in the cash flows.

The following table summarizes the future minimum lease payments due under operating leases as of March 31, 2025, (in thousands):

As of March 31, 2025, the Company’s operating lease has a weighted-average remaining lease term of 1.57 years and a discount rate of 9.18%.

Note 9 – Commitments and contingencies

The Company records a loss contingency when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company also discloses material contingencies when it believes a loss is not probable but reasonably possible. Accounting for contingencies requires the Company to use judgment related to both the likelihood of a loss and the estimate of the amount or range of loss. Although the Company cannot predict with assurance the outcome of any litigation or tax matters, it does not believe there are currently any such actions that, if resolved unfavorably, would have a material impact on the Company’s operating results, financial position or cash flows.

Note 10 – Stockholder’s equity/Issued capital

Common Stock

The Company has one class of common stock. In connection with the re-domiciliation, the Company’s amended and restated certificate of incorporation became effective, which provides for authorized the issuance of 100,000,000 authorized shares of common stock with a par value of $0.0001 per share, withone vote per share. Holders of common stock are entitled to receive any dividends as may be declared from time to time by the Company’s board of directors.

On November 28, 2023, the Company effected the Re-domiciliation. All references in these unaudited condensed consolidated financial statements to the Company’s outstanding common stock, including per share information, have been retrospectively adjusted to reflect this Re-domiciliation.

Note 11 – Stock-based payments

Note 11 – Stock-based payments (continued)

Restricted stock units

A summary of the changes in the Company’s restricted stock activity for the period ended March 31, 2025, are as follows:

Note 11 – Stock-based payments (continued)

Stock options

A summary of the changes in the Company’s stock options activity for the period ended March 31, 2025, are as follows:

The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company’s shares of common stock for those share options that had exercise prices lower than the fair value of the Company’s shares of common stock.

As of March 31, 2025, there was $57 of unrecognized compensation cost related to unvested share options, which is expected to be recognized over a weighted-average period of 0.3 years.

Note 12 – Fair value of Financial Instruments

Cash and cash equivalents, accounts receivable (including assets pledged as security for short-term debt and R&D tax incentive receivable), prepaid expenses and other current assets, accounts payable, accrued expenses and current liabilities are reflected on the consolidated balance sheets at amounts that approximate fair value because of the short-term nature of these financial assets and liabilities.

The fair value of the Company’s debt approximates its carrying value and is classified as Level 3 within the fair value hierarchy as it is based on discounted cash flows using a current borrowing rate.

ELOC Purchase Agreement

The Company evaluated the ELOC Purchase Agreement to determine whether it should be accounted for considering the guidance 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 at March 13, 2025.

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 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 Warrants display the three characteristics of a derivative under ASC 815, and concluded that the ELOC Warrants meet the definition of a derivative. However, the ELOC 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 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, and therefore the instrument is not considered indexed to the reporting entity’s own stock. The Company measures the ELOC 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 ELOC Warrants were classified as a level 3 financial instrument in the fair value hierarchy and were valued using the Black-Scholes option pricing model (BSOPM). The following table presents the fair value of the ELOC Warrants and the valuation assumptions under the BSOPM as of March 31, 2025 and at inception.

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

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 815-10-15-74(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.

The proceeds of the transaction were initially allocated as follows:

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.

The convertible debt was repaid in full on March 13, 2025, including the outstanding principal, interest, amounts and redemption premiums due as of February 28, 2025. The conversion rights is derecognized along with the debt repayment. The Company recognised a $994 loss on extinguishment of the debt host contract and the bifurcated derivative.

The First Tranche 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 First Tranche Warrants and the valuation assumptions under the BSOPM as of March 31, 2025 and at inception.

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

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.

The changes in the fair value of the Series A Warrant liability were a decrease of $781 k for the nine months ended March 31, 2025.

Note 13 – Debt

The table below presents details of the Company’s debt as of the following periods:

Note 13 – Debt (continued)

FC Credit –14.5% Facility agreement due 2025

On October 9, 2024, the Company entered into a Facility Agreement with FC Credit Pty Ltd, pursuant to which, on October 10, 2024, the Company received approximately A$6.9 million as the initial drawdown amount.

This facility provides Incannex with immediate access to funds based on R&D expenses incurred during the 2023 and 2024 financial years, aligning with the end of the Australian financial year. The Research and Development Tax Incentive (“RDTI”) program is a key program under the Australian government's innovation framework, designed to encourage companies to undertake R&D activities that benefit Australia. It offers a tax rebate, currently at 48.5%, for eligible R&D expenses, allowing companies to recoup almost half of their R&D spending.

Note 14 – Income Tax

For the nine months ended March 31, 2025, and March 31, 2024, respectively, the Company did not recognize a provision or benefit for income taxes as it incurred net losses. In addition, the net deferred tax assets generated from net operating losses were fully offset by a valuation allowance as the Company believes it is not more likely than not that the benefit will be realized.

Note 15 – Loss per share

Basic and diluted net loss per share attributable to stockholders was calculated as follows (in thousands, except share and per share amounts):

The Company notes that the diluted loss per share is the same as basic loss per share.

Note 16 – Related Party Transactions

Transactions between related parties are on commercial terms and conditions, no more favorable than those available to other parties unless otherwise stated.

There wereno amounts payable to any related parties as of March 31, 2025 and June 30, 2024.