Operating Leases

6 Months Ended

9 Months Ended

12 Months Ended

Jun. 30, 2023

Jun. 30, 2023

Dec. 31, 2022

Sep. 30, 2022

Operating Leases

Note 8 – Operating Leases

On January 1, 2019, the Company adopted ASC 842 using the modified retrospective method applied to leases that were in place at January 1, 2019. Results for operating periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC 840. The Company’s leases consist of operating leases that mostly relate to real estate rental agreements. Most of the value of the Company’s lease portfolio relates to real estate lease agreements that were entered into starting March 2017.

Discount Rate Applied to Operating Leases

To determine the present value of minimum future lease payments for operating leases at January 1, 2019, the Company was required to estimate a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the “incremental borrowing rate” or “IBR”).

The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate of leases added as of June 30, 2023 and December 31, 2022, the Company used a weighted average interest rate.

IMAC HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

Total operating lease cost

Individual components of the total lease cost incurred by the Company were as follows:

	Six Months Ended June 30, 2023		Six Months Ended June 30, 2022
		(Unaudited)		(Unaudited)
Operating lease expense	$	747,698	$	830,373

Minimum rental payments under operating leases are recognized on a straight light basis over the term of the lease.

Maturity of operating leases

The Company’s amount of future minimum lease payments under operating leases are as follows:

	Operating Leases
		(Unaudited)
Undiscounted future minimum lease payments:
2023 (six months)	$	538,112
2024		734,612
2025		468,745
2026		236,609
2027		73,823
Thereafter		81,691
Total		2,133,592
Amount representing imputed interest		(143,280	)
Total operating lease liability		1,990,312
Current portion of operating lease liability		(947,657	)
Operating lease liability, non-current	$	1,042,655

IMAC HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2023

(Unaudited)

Note 9 – Operating Leases

On January 1, 2019, the Company adopted Topic ASC 842 using the modified retrospective method applied to leases that were in place at January 1, 2019. The Company’s leases consist of operating leases that relate to real estate rental agreements. Most of the value of the Company’s lease portfolio upon adoption relates to real estate lease agreements that were entered into starting March 2017.

Discount Rate Applied to Property Operating Lease

To determine the present value of minimum future lease payments for operating leases at January 1, 2019, the Company was required to estimate a rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment (the “incremental borrowing rate” or “IBR”).

The Company determined the appropriate IBR by identifying a reference rate and making adjustments that take into consideration financing options and certain lease-specific circumstances. For the reference rate of leases added during the year ended December 31, 2022, the Company used a weighted average interest rate.

Right of Use Assets

Right of use assets are included in the consolidated Balance Sheet as follows:

	December 31, 2022		December 31, 2021
Non-current assets
Right of use assets, net of amortization	$	3,623,078	$	4,948,393

Total operating lease cost

Individual components of the total lease cost incurred by the Company is as follows:

	Year Ended December 31, 2022		Year Ended December 31, 2021
Operating lease expense	$	1,622,466	$	1,333,916

Minimum rental payments under operating leases are recognized on a straight light basis over the term of the lease.

Maturity of operating leases

The amount of future minimum lease payments under operating are as follows:

	Operating Leases
Undiscounted future minimum lease payments:
2023	$	1,545,103
2024		1,152,928
2025		887,061
2026		628,509
2027		137,383
Thereafter		81,691
Total		4,432,675
Amount representing imputed interest		(410,555	)
Total operating lease liability		4,022,120
Current portion of operating lease liability		(1,368,016	)
Operating lease liability, non-current	$	2,654,104

IMAC HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

Theralink Technologies Inc [Member]

Operating Leases

NOTE 7 –LEASE LIABILITIES

Financing Lease Right-of-Use (“ROU”) Assets and Financing Lease Liabilities

Effective November 2018, the Company entered into a financing agreement with the first lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $379 for a period of 60 months commencing in November 2018 through October 2023. On the effective date of the financing agreement, the Company recorded a financing lease payable of $16,065.

Effective November 2018, the Company entered into a financing agreement with a second lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,439 for a period of 60 months commencing in November 2018 through October 2023. On the effective date of the financing agreement, the Company recorded a financing lease payable of $62,394.

Effective March 2019, the Company entered into a financing agreement with a third lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,496 for a period of 60 months commencing in March 2019 through February 2024. On the effective date of the financing agreement, the Company recorded a financing lease payable of $64,940.

Effective August 2019, the Company entered into a financing agreement with a fourth lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $397 for a period of 60 months commencing in August 2019 through July 2024. On the effective date of the financing agreement, the Company recorded a financing lease payable of $19,622.

THERALINK TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2023

(UNAUDITED)

Effective January 2020, the Company entered into a financing agreement with a fifth lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,395 for a period of 60 months commencing in January 2020 through December 2025. On the effective date of the financing agreement, the Company recorded a financing lease payable of $68,821.

The significant assumption used to determine the present value of the financing lease payables was the discount rate which ranged from 8% and 15% based on the Company’s estimated effective rate pursuant to the financing agreements.

Financing lease right-of-use assets (“Financing ROU”) is summarized below:

	June 30, 2023			September 30, 2022
Financing ROU assets	$	231,841		$	231,841
Less accumulated depreciation		(201,663	)		(166,887	)
Balance of Financing ROU assets	$	30,178		$	64,954

For the three months ended June 30, 2023 and 2022, depreciation expense related to Financing ROU assets amounted to $11,592 and $11,593, respectively. For the nine months ended June 30, 2023 and 2022, depreciation expense related to Financing ROU assets amounted to $34,776 and $34,777, respectively.

Financing lease liability related to the Financing ROU assets is summarized below:

	June 30, 2023			September 30, 2022
Financing lease payables for equipment	$	231,841		$	231,841
Total financing lease payables		231,841			231,841
Payments of financing lease liabilities		(183,318	)		(143,456	)
Total		48,523			88,385
Less: short term portion		(39,565	)		(53,995	)
Long term portion	$	8,958		$	34,390

Future minimum lease payments under the financing lease agreements on June 30, 2023 are as follows:

Years ending June 30,	Amount
2024	$	42,237
2025		9,164
Total minimum financing lease payments		51,401
Less: discount to fair value		(2,878	)
Total financing lease payable on June 30, 2023	$	48,523

Operating Lease Right-of-Use (“ROU”) Asset and Operating Lease Liabilities

In December 2019, the Company entered into a lease agreement for its corporate and laboratory facility in Golden, Colorado. The lease is for a period of 61 months, with an option to extend, commencing in February 2020 and expiring in February 2025. Pursuant to the lease agreement, the lease requires the Company to pay a monthly base rent of; (i) $4,878 in the first year; (ii) $5,026 in the second year; (iii) $5,179 in the third year; (iv) $5,335 in the fourth year and; (v) $5,495 in the fifth year, plus a pro rata share of operating expenses beginning February 2020.

In February 2020, pursuant to ASC 842 – Leases, the Company calculated the present value of the total lease payments using a discount rate of 12% which was based on the Company’s estimated incremental borrowing rate. The Company recorded an operating right-of-use asset and lease liability of $231,337 in connection with the lease.

On June 10, 2021, the Company entered into an amendment to its existing Warehouse Lease (the “Lease Amendment”), effective October 3, 2021, for its laboratory facility in Golden, CO (see Note 10). The Lease Amendment provided for: (i) an extension to the term of the original lease to five years following the completion of the Company’s improvements to the Expansion Premises (defined below); (ii) an expansion of the premises to include the premises located at Unit 404, Building F, 15000 West 6th Avenue, Golden, Colorado 80401, consisting of approximately 4,734 rentable square feet (the “Expansion Premises”); (iii) an annual base rent modification; (iv) an increase to the security deposit; (v) tenant improvement allowance; (vi) additional parking and; (vii) two renewal options, each for five year terms, for a total of ten years.

Pursuant to the Lease Amendment, the Company must pay a total annual base rent of; (1) $115,823 for year one; (2) $119,310 for year two; (3) $122,893 for year three; (4) $126,580 for year four; (5) $130,377 for year five; (6) $135,163 for year six; (7) $139,218 for year seven; (8) $143,394 for year eight; (9) $147,696 for year nine; (10) $152,127 for year ten; (11) $156,331 for year eleven; (12) $161,391 for year twelve; (13) $166,233 for year thirteen; (14) $171,220 for year fourteen and; (15) $176,357 for year fifteen.

THERALINK TECHNOLOGIES, INC.

CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2023

(UNAUDITED)

In October 2021, pursuant to ASC 842 – Leases, the Company wrote off the balances of the operating asset of $168,664 and operating liability of $176,893 related to the original lease and recognized a gain on lease modification in the amount of $8,229, which was included in general and administrative expense in the accompanying statement of operation. The Company calculated the present value of the total lease payments in the Lease Amendment using a discount rate of 8% which was based on the Company’s incremental borrowing rate at the effective date and recorded an operating right-of-use asset and an operating lease liability of $1,212,708.

For the nine months ended June 30, 2023, lease costs related to operating lease ROU asset and operating lease liabilities amounted to $157,762 which included base lease costs of $108,206 and other expenses such as common area maintenance and taxes of $49,556, all of which were expensed during the period and included in general and administrative expenses on the accompanying unaudited statements of operations. For the nine months ended June 30, 2022, lease costs amounted to $151,180 which included base lease costs of $86,677 and other expenses of $64,503, all of which were expensed during the period and included in general and administrative expenses on the accompanying unaudited statements of operations.

Operating Right-of-use asset (“ROU”) is summarized below:

	June 30, 2023			September 30, 2022
Operating office lease	$	1,212,708		$	1,212,708
Less accumulated reduction		(95,539	)		(57,847	)
Balance of Operating ROU asset	$	1,117,169		$	1,154,861

Operating lease liability related to the ROU asset is summarized below:

	June 30, 2023			September 30, 2022
Operating office lease	$	1,212,708		$	1,212,708
Total operating lease liability		1,212,708			1,212,708
Reduction of operating lease liability		(48,170	)		(29,396	)
Total		1,164,538			1,183,312
Less: short term portion		(29,880	)		(25,551	)
Long term portion	$	1,134,658		$	1,157,761

Future base lease payments under the non-cancellable operating lease on June 30, 2023 are as follows:

Years ending June 30,	Amount
2024	$	121,993
2025		125,652
2026		129,422
2027		134,179
2028		138,204
Thereafter		1,309,553
Total minimum non-cancellable operating lease payments		1,959,003
Less: discount to fair value		(794,465	)
Total operating lease liability on June 30, 2023	$	1,164,538

NOTE 8 –LEASE LIABILITIES

Financing Lease Right-of-Use (“ROU”) Assets and Financing Lease Liabilities

Effective November 2018, the Company entered into a financing agreement with the first lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $379 for a period of 60 months commencing in November 2018 through October 2023. At the effective date of the financing agreement, the Company recorded a financing lease payable of $16,065.

Effective November 2018, the Company entered into a financing agreement with a second lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,439 for a period of 60 months commencing in November 2018 through October 2023. At the effective date of the financing agreement, the Company recorded a financing lease payable of $62,394.

Effective March 2019, the Company entered into a financing agreement with a third lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,496 for a period of 60 months commencing in March 2019 through February 2024. At the effective date of the financing agreement, the Company recorded a financing lease payable of $64,940.

Effective August 2019, the Company entered into a financing agreement with a fourth lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $397 for a period of 60 months commencing in August 2019 through July 2024. At the effective date of the financing agreement, the Company recorded a financing lease payable of $19,622.

Effective January 2020, the Company entered into a financing agreement with a fifth lessor to finance the purchase of equipment. Pursuant to the financing agreement, the Company shall make a monthly payment of $1,395 for a period of 60 months commencing in January 2020 through December 2025. At the effective date of the financing agreement, the Company recorded a financing lease payable of $68,821.

The significant assumption used to determine the present value of the financing lease payables was the discount rate which ranged from 8% and 15% based on the Company’s estimated effective rate pursuant to the financing agreements.

Financing lease right-of-use assets (“Financing ROU”) is summarized below:

	September 30, 2022			September 30, 2021
Financing ROU assets	$	231,841		$	231,841
Less accumulated depreciation		(166,887	)		(120,518	)
Balance of Financing ROU assets	$	64,954		$	111,323

For the years ended September 30, 2022 and 2021, depreciation expense related to Financing ROU assets amounted to $46,369 and $46,368, respectively.

THERALINK TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2022 AND 2021

Financing lease liability related to the Financing ROU assets is summarized below:

	September 30, 2022			September 30, 2021
Financing lease payables for equipment	$	231,841		$	231,841
Total financing lease payables		231,841			231,841
Payments of financing lease liabilities		(143,456	)		(95,726	)
Total		88,385			136,115
Less: short term portion		(53,995	)		(47,730	)
Long term portion	$	34,390		$	88,385

Future minimum lease payments under the financing lease agreements on September 30, 2022 are as follows:

Years ending September 30,	Amount
2023	$	62,762
2024		31,900
2025		4,185
Total minimum financing lease payments		98,846
Less: discount to fair value		(10,461	)
Total financing lease payable on September 30, 2022	$	88,385

Operating Lease Right-of-Use (“ROU”) Asset and Operating Lease Liabilities

In December 2019, the Company entered into a lease agreement for its corporate and laboratory facility in Golden, Colorado. The lease is for a period of 61 months, with an option to extend, commencing in February 2020 and expiring in February 2025. Pursuant to the lease agreement, the lease requires the Company to pay a monthly base rent of; (i) $4,878 in the first year; (ii) $5,026 in the second year; (iii) $5,179 in the third year; (iv) $5,335 in the fourth year and; (v) $5,495 in the fifth year, plus a pro rata share of operating expenses beginning February 2020.

In February 2020, pursuant to ASC 842 – Leases, the Company calculated the present value of the total lease payments using a discount rate of 12% which was based on the Company’s estimated incremental borrowing rate. The Company recorded an operating right-of-use asset and lease liability of $231,337 in connection with the lease.

On June 10, 2021, the Company entered into an amendment to its existing Warehouse Lease (the “Lease Amendment”), effective October 3, 2021, for its laboratory facility in Golden, CO (see Note 11). The Lease Amendment provided for: (i) an extension to the term of the original lease to five years following the completion of the Company’s improvements to the Expansion Premises (defined below); (ii) an expansion of the premises to include the premises located at Unit 404, Building F, 15000 West 6th Avenue, Golden, Colorado 80401, consisting of approximately 4,734 rentable square feet (the “Expansion Premises”); (iii) an annual base rent modification; (iv) an increase to the security deposit; (v) tenant improvement allowance; (vi) additional parking and; (vii) two renewal options, each for five year terms, for a total of ten years.

Pursuant to the Lease Amendment, the Company must pay a total annual base rent of; (1) $115,823 for year one; (2) $119,310 for year two; (3) $122,893 for year three; (4) $126,580 for year four; (5) $130,377 for year five; (6) $135,163 for year six; (7) $139,218 for year seven; (8) $143,394 for year eight; (9) $147,696 for year nine; (10) $152,127 for year ten; (11) $156,331 for year eleven; (12) $161,391 for year twelve; (13) $166,233 for year thirteen; (14) $171,220 for year fourteen and; (15) $176,357 for year fifteen.

In October 2021, pursuant to ASC 842 – Leases, the Company wrote off the balances of the operating asset of $168,664 and operating liability of $176,893 related to the original lease and recognized a gain on lease modification in the amount of $8,229 which was included in general and administrative expense in the accompanying statement of operation. The Company calculated the present value of the total lease payments in the Lease Amendment using a discount rate of 8% which was based on the Company’s incremental borrowing rate at the effective date and recorded an operating right-of-use asset and an operating lease liability of $1,212,708.

THERALINK TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2022 AND 2021

For the year ended September 30, 2022, lease costs related to operating lease ROU asset and operating lease liabilities amounted to $155,184 which included base lease costs of $115,823 and other expenses such as common area maintenance and taxes of $39,361, all of which were expensed during the period and included in general and administrative expenses on the accompanying statements of operations. For the year ended September 30, 2021, lease costs amounted to $66,268 which included base lease costs of $64,454 and other expenses of $1,814, all of which were expensed during the period and included in general and administrative expenses on the accompanying statements of operations.

Operating Right-of-use asset (“ROU”) is summarized below:

	September 30, 2022			September 30, 2021
Operating office lease	$	1,212,708		$	231,337
Less accumulated reduction		(57,847	)		(62,673	)
Balance of Operating ROU asset	$	1,154,861		$	168,664

Operating lease liability related to the ROU asset is summarized below:

	September 30, 2022			September 30, 2021
Operating office lease	$	1,212,708		$	231,337
Total operating lease liability		1,212,708			231,337
Reduction of operating lease liability		(29,396	)		(54,444	)
Total		1,183,312			176,893
Less: short term portion		(25,551	)		(42,411	)
Long term portion	$	1,157,761		$	134,482

Future base lease payments under the non-cancellable operating lease on September 30, 2022 are as follows:

Years ending September 30,	Amount
2023	$	119,310
2024		122,893
2025		126,580
2026		130,377
2027 and thereafter		1,549,130
Total minimum non-cancellable operating lease payments		2,048,290
Less: discount to fair value		(864,978	)
Total operating lease liability on September 30, 2022	$	1,183,312