UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-SA
SEMIANNUAL REPORT PURSANT TO REGULATION A
For the Fiscal Semiannual Period Ended June 30, 2022
McGinley Orthopaedic Innovations, Inc.
A Wyoming Corporation
234 E. 1st St. Suite 242
Casper, WY 82601
(307) 315-6403
IRS EIN: 45-545199
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (?SEC?)
DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY
SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT
PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR
OR OTHER SELLING LITERATURE. THESE SECURITIES ARE OFFERED
PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION;
HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT
DETERMINATION THAT THIS INVESTMENT INVOLVES A DEGREE OF RISK
THAT MAY NOT BE SUITABLE FOR ALL PERSONS. ONLY THOSE INVESTORS
WHO CAN BEAR THE LOSS OF A SIGNIFICANT PORTION OF THEIR
INVESTMENT SHOULD PARTICIPATE IN THE INVESTMENT. (SEE ?RISK
FACTORS? IN OUR MOST RECENT OFFERING CIRCULAR FILED WITH THE
SEC).
AN OFFERING STATEMENT PURSUANT TO REGULATION A RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. INFORMATION CONTAINED IN THIS SEMIANNUAL REPORT IS
SUBJECT TO COMPLETION OR AMENDMENT. THE COMPANY MAY ELECT TO
SATISFY ITS OBLIGATION TO DELIVER A FINAL OFFERING CIRCULAR BY
SENDING YOU A NOTICE WITHIN TWO BUSINESS DAYS AFTER THE
COMPLETION OF THE SALE THAT CONTAINS THE URL WHERE THE FINAL
OFFERING CIRCULAR OR THE OFFERING STATEMENT IN WHICH SUCH FINAL
OFFERING CIRCULAR WAS FILED MAY BE OBTAINED.
THE SECURITIES OFFERED HAVE NOT BEEN APPROVED OR DISAPPROVED BY
ANY STATE REGULATORY AUTHORITY NOR HAS ANY STATE REGULATORY
AUTHORITY PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OR
THE ACCURACY OR ADEQUACY OF THIS OFFERING CIRCULAR. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Generally, no sale may be made to you in this Offering if the
aggregate purchase price you pay is more than ten (10%) percent
of the greater of your annual income or net worth. Different
rules apply to accredited investors and non-natural persons.
Before making any representation that your investment does not
exceed applicable thresholds, Investors are encouraged to review
rule 251(d)(2)(i)(C) of Regulation A. For general information on
investing, Investors are encouraged to refer to www.investor.gov
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Semiannual Report contains certain forward-looking
statements that are subject to various risks and uncertainties.
Forward-looking statements are generally identifiable by use of
forward-looking terminology such as ?may,? ?will,? ?should,?
?potential,? ?plan,? ?intend,? ?expect,? ?outlook,? ?seek,?
?anticipate,? ?estimate,? ?approximately,? ?believe,? ?could,?
?project,? ?predict,? or other similar words or expressions.
Forward-looking statements are based on certain assumptions,
discuss future expectations, describe future plans and
strategies, or state other forward-looking information. Our
ability to predict future events, actions, plans or strategies
is inherently uncertain. Although we believe that the
expectations reflected in our forward-looking statements are
based on reasonable assumptions, actual outcomes could differ
materially from those set forth or anticipated in our forward-
looking statements. Factors that could cause our forward-looking
statements to differ from actual outcomes include, but are not
limited to, those described under the heading ?Risk Factors? in
our most recent Offering Circular filed with the Securities and
Exchange Commission (?SEC?), as such factors may be updated from
time to time in our periodic filings and offering circular
supplements filed with the SEC, which are accessible on the
SEC?s website at www.sec.gov. Readers are cautioned not to place
undue reliance on any of these forward-looking statements, which
reflect our views as of the date of this Semiannual Report.
Furthermore, except as required by law, we are under no duty to,
and do not intend to, update any of our forward-looking
statements after the date of this Semiannual Report, whether as
a result of new information, future events or otherwise.
Item 1. Management?s Discussion and Analysis of Financial
Condition and Results of Operations
The following is a discussion of the financial condition of the
Company for the six months ended June 30, 2022 and 2021. On May
13, 2022 the Company executed a conversion from McGinley
Orthopaedic Innovations, LLC, a Wyoming limited liability
company, to McGinley Orthopaedic Innovations, Inc., a Wyoming
corporation. This conversion occurred after the end of FY2021 on
December 31, 2021. Therefore, all figures and disclosures in
this section will be those of McGinley Orthopaedic Innovations,
LLC as at June 30, 2021, and those of McGinley Orthopaedic
Innovations, Inc. as at June 30, 2022. For this reason,
references to the ?Company? will include McGinley Orthopaedic
Innovations, LLC and McGinley Orthopaedic Innovations, Inc.
throughout this section.
Components of Results of Operations
The following discussion of the Company?s financial conditions
and results of operations should be read in conjunction with the
financial statements and the related notes included elsewhere in
this filing. The following discussion contains forward-looking
statements that reflect the Company?s plans, estimates and
beliefs. The Company?s actual results could differ significantly
from those discussed in the forward-looking statements. Unless
otherwise indicated, the latest results discussed below are for
the fiscal year first-half that ended June 30, 2022.
Revenue/Net Loss from Operating Activities
The Company is, and has been, solely focused on development and
commercialization of its Products and development of new related
products. As of the date of this filing, the Company has never
been profitable.
As of June 30, 2022 the Company?s revenues were $702,963, an
increase of $7,555 (1%) over revenues of $695,408 for the same
period in 2021. Medical sales were down by $201k (75%) due to a
restructuring of the Sales department in March of 2022. Mining
sales increased by $208k (49%) due to increased demand for metal
ore in the hard rock mining sector.
As of June 30, 2022 the Company had a net operating loss of
($826,881) compared to a net operating loss of ($1,233,020) for
the same period in 2021. This improvement is due to a small
increase in Gross Profit ($35,725) and a reduction in operating
and non-cash expenses of $281,079 and $121,222 respectively.
Operating Expenses
The $406,139 decrease in Operating Loss in the first six months
of 2022 over the same period in 2021 was driven primarily by a
decrease of $281,079 in Selling, General and Administrative
expenses (?SG&A?) in 2022 over 2021. The Company classifies its
SG&A expenses as wages and benefits, general office, research
and development, professional fees, rent, insurance,
advertising, other expenses, dues and subscriptions,
depreciation and amortization, taxes and licenses, computer and
internet, and postage and shipping. Over 80% of SG&A in 2021 was
accounted for by wages and benefits, general office, Research &
Development, professional (legal and accounting) fees, and
travel and entertainment.
The reason for this decrease in SG&A expenses was due to a
restructuring of the in house sales team and lower Research and
Development and Prototype expense compared to the same period in
2021.
Wages and Benefits
In the first six months of 2022, the Company spent $827,324 on
wages, benefits, contractor and other compensation expenses. For
the same period in 2021, the Company spent $1,183,769 on wages,
benefits, contractor and other compensation. The decrease of
$356,445 (30%) in 2022 over 2021 was driven primarily by a
restructuring of the sales force from a traditional model to a
more technically oriented, in house, Product Specialist model,
which the Company believes will both be cheaper and ultimately
result in increased sales. Another factor in the operating
expense reduction was a decrease of $121,333 in stock incentive
compensation.
General Office Expenses
In the first six months of 2022, the Company spent $223,926 on
general office expenses. For the same period in 2021, the
Company spent $181,213 on general office expenses. The increase
of $42,713 (24%) in 2022 over 2021 was driven primarily by
general increases in most categories, including taxes and
licenses, insurance, postage, advertising, printing and
utilities.
Research and Development Expense
The Company?s research and development efforts are focused on
the continued development of new products related to the
Company?s IntelliSense Technology and LAPS Products. Research
and development expenses consist primarily of materials,
equipment, and manufacturing/prototyping costs to design,
prototype, develop, and test the Company?s new products, and to
acquire the parts, tools and equipment needed to do so.
In the first six months of 2022, the Company spent $7,398 on
research and development expenses, compared to $141,657 for the
same period in 2021. The decrease of $134,259 (95%) was due to
the successful launch of the LAPS product line in 2021 and
current projects being earlier in the development process.
The Company anticipates that annual increases in R&D expenses
will resume upon a successful share offering by the Company that
is currently underway as discussed in Use of Proceeds discussed
elsewhere in this Offering Circular.
Professional fees
In the first six months of 2022, the Company spent $184,943 on
professional fees compared to $106,976 for the same period in
2021. The increase of $77,967 (73%) in 2022 over 2021 was driven
primarily by an increase in spending for services related to the
offering of shares that is currently underway, and for
engineering/quality assurance programs.
Travel and Entertainment
In the first six months of 2022, the Company spent $68,732 on
travel and entertainment, compared to $61,238 for the same
period in 2021. The increase of $7,494 (12 %) in 2022 over 2021
was due to increased sales travel for McGinley Manufacturing and
sales travel from the Casper, Wyoming office being more
expensive than the previous regional sales force travel was.
Shares
In the first six months of 2022, the Company
issued 838,207 shares for net proceeds of $1,625,305, under the
terms of SEC Regulation D. The company also issued 35,000 shares
worth $68,250 for Stock Compensation expense. The Regulation D
offering of shares concluded in May 2022.
Liquidity and Capital Resources
As of June 30, 2022, the Company had cash of $2,306,231, working
capital of $2,533,203, and total assets of $6,027,513. On June
30, 2021, the Company had cash of $2,367,397, working capital of
$1,843,359 and total assets of $8,174,126. From June 30, 2021 to
June 30, 2022, cash increased by $174,446 (8%), working capital
increased by $689,844 (37 %), and total assets decreased by
$2,146,614 (26%). This decrease was mainly due to a $1,326,607
inventory reserve and $590,100 deferred tax adjustment from the
December 31, 2021 audit.
The Company has a $1,000,000 line of credit with a bank which
matures February 8, 2024. Interest is subject to change on a
monthly basis, calculated at the prime plus a variable rate
(4.0% as of June 30, 2022). The outstanding balance on the line
of credit as of June 30, 2022 was $228,000 and the proceeds are
being used for the costs of the current Regulation A + offering.
The Company has additional capital requirements during the
current fiscal year 2022 to be used in expanding its marketing
and sales team and program, adding additional skills to its
management team, and undertaking other growth initiatives. The
Company is seeking additional capital via the sale of its
securities. The Company?s current share offering is for a
maximum of 7,619,047.62 Shares (not including Bonus Shares) at
price of $5.25 per Share, with potential aggregate gross
Proceeds of $40,000,000.
There can be no assurance that the Company will be successful in
acquiring additional funding at levels sufficient to fund its
future capital requirements. If the Company is unable to raise
additional capital in sufficient amounts or on terms acceptable
to it, the Company may have to significantly reduce, delay,
scale back or discontinue the development of its technologies
and patents or discontinue operations completely.
Item 2. Other Information
None.
Item 3. Consolidated Financial Statements For the Six Months
Ending June 30, 2022 and June 30, 20
CURRENT MONTH AND YEAR TO DATE CONSOLIDATED INCOME STATEMENTS
FOR THE YEAR-TO-DATE ENDED JUNE 30, 2022 AND JUNE 30, 2021
(ALL FIGURES IN DOLLARS)
For the Fiscal Year-to-Date
6/30/22 6/30/21 Variance to
Actual Actual Prior YR
Revenue and Sales And Rental
MOI $68,409 $269,582 $(201,173)
McGinley MFG 634,554 425,826 208,728
Returns and Allowances ___ ___ ___
Total Revenue $702,963 $695,408 $7,555
Less: Cost of Goods Sold
MOI $14,738 $64,533 $49,796
McGinley MFG 445,163 423,537 (21,626)
Total COGS 459,901 488,071 28,170
Gross Profit $243,063 $207,337 $35,725
Less: Operating Expenses
Marketing/Selling $227,818 $446,595 $218,777
Engineering/R&D/Quality 258,084 392,086 134,002
Finance/Accounting 154,919 102,312 (52,607)
Admin/Executive 376,111 357,017 (19,094)
Total Operating Expenses $1,016,932 $1,298,011 $281,079
EBITDA $(773,869) $(1,090,673) $316,804
Other Cash Income & Expenses
Interest Income $689 $2,744 ($2,055)
Interest Expense 2,445 ___ (2,445)
Other Income 48,161 81,345 (33,184)
Total Other Cash Inc. & Exp. $46,405 $84,089 ($35,239)
Other Non-Cash Inc. & Exp.
Depreciation & Amortization $31,167 $36,853 $5,686
Non-Cash Compensation 68,250 189,583 121,333
Total Other Non-cash Inc. & Exp. $99,417 $226,436 $127,019
Net Profit Before Taxes $(826,881) $(1,223,020) $406,139
Net Income (Loss) $(826,881) $(1,233,020) $406,139
CONSOLIDATED BALANCE SHEET
FOR THE YEAR-TO-DATE ENDED JUNE 30, 2022 AND JUNE 30, 2021
ASSETS 6/30/2022 6/30/2021
Current Assets
Cash Accounts $2,306,231 $2,131,785
Accounts Receivable 179,457 131,984
Allowance for Doubtful Accounts (4,338) (5,238)
Intercompany Receivable ___ ___
Due from Related Companies 160,143 24,486
Prepaid Expenses 292,269 84,919
Total Current $2,933,763 $2,367,937
Assets
Inventory
Raw $98,180 $64,239
Work In Process 1,004,381 1,092,384
Expendable supplies 112,574 107,818
Finished Goods 1,537,496 1,448,039
Less: Inventory Reserve (1,326,607) ___
Total Inventory $1,426,024 $2,712,480
Property, Plant & Equipment
Property & Equipment $1,925,715 $1,708,845
Less: Accumulated (785,586) (610,522)
Depreciation
Net Property & Equipment $1,140,129 $1,098,323
Other Assets
Patents Pending $135,604 $151,576
Patents 268,168 675,149
Less Acum. Amortization Patents (141,159) (159,707)
DS MFG Stock 0 450,010
Plate Patents 450,000 450,000
Less: Accumulated Amortization Plate Patents (185,017) (161,742)
Deferred Tax Asset 1,847,933 1,847,933
Deferred Tax valuation Allowance (1,847,933) (1,257,833)
Total Other assets $527,597 $1,995,387
Total Assets $6,027,513 $8,174,126
LIABILITIES & EQUITY
Current Liabilities
Accounts Payable $119,102 $141,015
Line of Credit 228,000 ___
Accrued Interest ___ ___
Other Accrued Expenses 23,523 37,102
Intercompany Payable ___ ___
Accrued Payroll 30,035 29,960
Current Portion of LT Debt ___ ___
SBA PPP funds ___ 316,500
Total Current Liabilities $400,660 $524,578
Long Term Liabilities
Note Payable ? Deferred DS MFG ___ ___
Total Long Term Liabilities $___ $___
Total Liabilities $400,660 $524,578
Equity
Retained Earnings ($18,995,195) ($13,754,056)
Owners? Equity 25,448,928 22,636,624
Current Year Earnings (826,881) (1,233,020)
Total Equity $5,626,853 $7,649,548
Total Liabilities & Equity $6,027513 $8,174,126
STATEMENT OF CASH FLOWS (COMBINED)
FOR THE YEAR-TO-DATE ENDED JUNE 30, 2022 AND JUNE 30, 2021
Y-T-D Y-T-D
Ending Ending
6/30/2022 6/30/2021
(Unaudited)
Cash Flows From Operating Activities
Net Income $(826,881) $(1,233,020)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation & Amortization 113,409 107,209
Changes in Operating Assets & Liabilities:
Accounts Receivable (125,507) (68,967)
Prepaid Expenses (190,859) (4,542)
Inventory (71,013) (22,412)
Patent Costs (51,192) (52,843)
Line of Credit 228,000 316,500
Accounts Payable & Accrued Expenses (50,104) 125,669
Accrued Wages, Bonuses & Benefit Costs (307) (604)
Stock Issued As Compensation 68,250 189,583
Total Adjustments (79,324) 589,594
Net Cash Provided by Operating (906,205) (643,426)
Cash Flows From Investing Activities
Purchase of Property & Equipment (37,143) (101,761)
Sale of Property & Equipment ___ ___
Net Cash Used in Investing Activities (37,143) (101,761)
Cash Flows From Financing Activities
Proceeds from sales of Shares 1,634,504 875,000
Cost of raising capital (9,198) (24,961)
Net Cash provided/used in financing 1,625,306 850,039
Activities
Net Increase in Cash & Cash Equivalents 681,958 104,852
Cash & Cash Equivalents, Beginning of Month/Year 1,624,273 2,026,933
Cash & Cash Equivalents, End of Month/Year $2,306,231 $2,131,785
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS? EQUITY
FOR THE YEAR-TO-DATE ENDING JUNE 30, 2022
Shares Shares Shares Accumulated Total
Amount to be Issued Deficit
Balance at 12/31/20 43,475,686 21,082,704 ___ (16,137,389) 4,945,315
Issuance of 903,846 1,720,049 ___ ___ 1,720,049
Membership units,
net of issuance
costs
Issuance of 39,440 64,287 ___ ___ 64,287
Membership units
for loan repayment
Stock-based ___ ___ 888,333 ___ 888,333
compensation
expense
Net Loss ___ ___ ___ (2,857,195) (2,857,806)
Balance at 12/31/21 44,418,972 $22,867,040 888,333 (18,995,195) $4,760,178
Issuance of shares, 838,207 1,625,305 ___ ___ 1,625,306
net of issuance
costs
Issuance of shares ___ ___ ___ ___ ___
for loan repayment
Stock-based 35,000 68,250 ___ ___ 68,250
compensation
expense
Net Loss ___ ___ ___ (826,881) (826,881)
Balance at 6/30/22 45,292,179 24,560,595 888,333 (19,822,076) 5,626,853
McGinley Orthopaedic Innovations, Inc.
NOTES TO THE CONSOLIDATED SIXMONTH FINANCIAL STATEMENTS
September 28, 2022
Note A ? Nature of Business
McGinley Orthopaedic Innovations, Inc (?MOI?) is a Wyoming
corporation. MOI was established in 2012 as McGinley Orthopaedic
Innovations, LLC, a Wyoming limited liability company. On May
13, 2022, MOI executed a conversion to McGinley Orthopaedic
Innovations, Inc., a Wyoming corporation. Therefore, all
figures and disclosures in this section will be those of
McGinley Orthopaedic Innovations, LLC as at June 30, 2021, and
those of McGinley Orthopaedic Innovations, Inc. as at June 30,
2022. For this reason, references to ?MOI? and the ?Company?
will include McGinley Orthopaedic Innovations, LLC and McGinley
Orthopaedic Innovations, Inc. throughout these Notes.
MOI was established with the goal of increasing patient safety
and physician confidence through technological advances in the
orthopedic field. MOI has developed and is marketing patented,
FDA-approved Intellisense Drill Technology?, an orthopedic power
tool, and the Lever Action Plate System? bone fixation implant
system.
DS Manufacturing LLC, known commonly as McGinley Manufacturing,
is a wholly-owned subsidiary of MOI, and operates a custom
machine and fabrication shop with a fully integrated engineering
team. Capabilities include custom engineering and design, high
precision turning, milling, welding, machining, replacement part
fabrication, CNC plasma cutting, powder coating, as well as 5-
axis capability. McGinley Manufacturing also manufactures parts
of varying sizes, including small scale pieces for precision
hand tools to medium-sized pieces for hard rock mining projects
for the mining and oil services industries.
McGinley Engineered Solutions, LLC is a wholly-owned subsidiary
of MOI, and holds title to all of the patents assigned to MOI.
Note B ? Summary of Significant Accounting Policies
Interim Financial Statements are Unaudited
Interim Financial Statements of the Company, such as the
accompanying Financial Statements for the six-month periods
ending June 30, 2022 and 2021, are unaudited.
Principles of Consolidation
The accompanying consolidated financial statements and related
notes include MOI and its wholly-owned subsidiaries described in
Note A. Hereinafter, they are collectively referred to as ?the
Company.? All significant inter-company accounts and
transactions have been eliminated in consolidation.
Basis of Accounting
The Company prepares its consolidated financial statements using
the accrual methods of accounting in conformity with accounting
principles generally accepted in the United States of America
(?U.S. GAAP?).
Use of Estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial
statements and accompanying notes. Such estimates include
inventory reserves for obsolescence, allowance for uncollectible
receivables, depreciable lives of property and equipment and
costs of patents applied for. Actual results could differ from
those estimates.
Recent Accounting Pronouncements
The Company periodically reviews new accounting standards that
issued as Accounting Standards Updates (?ASU?) by the Financial
Accounting Standards Board (?FASB?). The Company carefully
considers all new pronouncements that alter previous U.S. GAAP,
and has identified the following new accounting standards that
it believes merits further discussion. Other accounting
standards that have been issued or proposed by FASB that do not
require adoption until a future date are not expected to have a
material impact on the consolidated financial statements upon
adoption.
The Company adopted Accounting Standards Codification (?ASC?)
606 Revenue from Contracts with Customers as of January 1, 2020
using the modified retrospective method for all contracts with
customers. The Adoption did not result in an impact on operating
retained earnings. No significant judgements were made in the
application of the guidance in ASC 606.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic
842). This guidance amends the existing accounting standards for
lease accounting, including requiring lessees to recognize most
leases on their balance sheet. Under ASU 2020-05, ASU 2016-02 is
effective for years beginning on or after December 15, 2021.
Management is evaluating the impact of this ASU on the Company?s
financial reporting.
Cash
The Company deposits cash with financial institutions which
management believes are of high credit quality. The Company does
not believe it is exposed to significant risk. At June 30, 2022
and 2021, there were no cash equivalents.
Accounts Receivable
Accounts receivable are stated at the amount management expects
to collect for outstanding balances. Management provides for
probable uncollectible accounts through an allowance for
doubtful accounts. The allowance is estimated based on
historical performance and management?s assessment of the
current status of individual accounts. Management estimated an
allowance of approximately $4,000 and $5,000 at June 30, 2022
and 2021, respectively, which is based on an analysis of
individual trade accounts, historical experience with customers
and general economic conditions.
Inventory
Inventories are valued on the lower of cost or market. Inventory
is valued at the lower of first-in, first-out cost or net
realizable value, which is the estimated selling prices in the
ordinary course of business, less reasonably predictable costs
of completion, disposal, and transportation. The Company has
established the policy of capitalizing manufacturing materials
and supplies, labor, overhead, and expenses allocable to
finished goods and assemblies for the inventory valuation. The
Company also carries expendable supplies inventory. This
includes expendable items that are consumed in the manufacturing
process.
As of June 30, 2022 and 2021, management has recorded a reserve
of approximately $1,327,000 for both years. Inventories
consisted of the following at December 31:
2022 2021
Materials and supplies $210,753 $172,057
Work in process and finished goods 2,541,877 2,540,423
Inventory reserve 1,326,607) 1,326,607)
Total inventories $1,426,024 $1,385,873
Property and Equipment
Property and equipment are recorded at cost. Depreciation is
calculated using the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charged
to expense as incurred. Betterments and renewals are
capitalized. When property and equipment are sold or otherwise
disposed of, the asset account and related accumulated
depreciation account are relieved, and any gain or loss is
included in operations. The straight-line method of depreciation
is used over the following estimated useful lives:
Years
Machinery 5-15
Leasehold improvements 5-15
Computers and software 5
Furniture and equipment 5-15
Buildings 39
Vehicles 5
Land 10
Additions and improvements are capitalized, while replacements,
maintenance, and repairs, which do not improve or extend the
life of the respective assets, are expensed as incurred. Gains
and losses from the disposition of assets are recorded in the
year of disposition.
Intangible Assets
Intangible assets consist of patents and patents pending.
Patents and patents pending are being amortized on the straight-
line method over twenty years, but not exceeding the initial
expiration date of the patent.
Impairment of Long-Lived Assets
Long-lived assets such as property and equipment, and intangible
assets subject to amortization are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If this
review reveals an indicator of impairment, as determined based
on estimated undiscounted cash flows, the carrying amounts of
the related long-lived assets are adjusted to fair value.
Management has determined that there has been no impairment in
the carrying value of its long-lived assets as of June 30, 2022
and 2021.
Revenue Recognition
All revenues from exchange transactions are recorded in
accordance with ASC 606, which is recognized when: (i) a
contract with a customer has been identified, (ii) the
performance obligation(s) in the contract have been identified,
(iii) the transaction price has been determined, (iv) the
transaction price has been allocated to each performance
obligation in the contract, and (v) the Company has satisfied
the applicable performance obligation at a point in time or over
time.
The Company?s revenues are primarily generated from the sale of
products, and represent a single performance obligation and are
earned at a point in time when the goods have been shipped.
Payment for the remaining customer?s is due between 15-30 days.
The Company?s revenues also contain drill system rentals to
customers and are recognized on a per use and/or monthly basis.
All revenue is earned in the United States.
The Company?s revenue by type are summarized as follows for the
six-month periods ending June 30, 2022 and 2021:
2022 2021
Product sales $678,928 $610,458
Drill system rentals 24,035 84,950
Total revenues $702,963 $695,408
Research and Development
Research and development costs that do not meet the criteria for
capitalization are expensed as incurred. Research and
development expenses include compensation, employee benefits,
and incentive-unit-based compensation for employees, as well as
fees paid to outside consultants. Nonrefundable advanced
payments, for goods and services that will be used in future
research development activities are expensed when the activity
is performed or when the goods have been received, rather than
when payment is made, in accordance with ASC 730, Research and
Development.
Stock-based Compensation
For stock-based compensation awards, the Company measures
compensation costs for these awards to employees and non-
employees based upon the fair value of the award on the date of
grant.
Income Taxes
Effective January 1, 2016, the Company elected to be taxed as a
C corporation. The Company files a consolidated income tax
return with its subsidiaries in the U.S. Federal jurisdiction.
Generally, the Company?s tax returns remain open for three years
for Federal income tax examination. At June 30, 2022, the
Company believes there are no significant uncertain tax
positions or liabilities, or interest and penalties associated
with uncertain tax positions.
The Company?s income tax expenses consist of the following
components: current and deferred. Current income tax expense
reflects taxes to be paid or refunded for the current period by
applying the provisions of the enacted tax law to the taxable
income or excess of deductions over revenues. The Company
determines deferred income taxes using the liability (or balance
sheet) method. Under this method, the net deferred tax asset or
liability is based on the tax effects of the differences between
the book and tax bases of assets and liabilities, and enacted
changes in tax rates and laws are recognized in the period in
which they occur.
Deferred income tax expenses result from changes in deferred tax
assets and liabilities between periods. Deferred tax assets are
recognized if it is more likely than not, based on the technical
merits, that the tax position will be realized or sustained upon
examination. The term more likely than not means a likelihood of
more than 50 percent; the terms examined and upon examination
also include resolution of the related appeals or litigation
processes, if any. A tax position that meets the more-likely-
than-not recognition threshold is initially and subsequently
measured as the largest amount of tax benefit that has a greater
than 50 percent likelihood of being realized upon settlement
with a taxing authority that has full knowledge of all relevant
information. The determination of whether or not a tax position
has met the more-likely-than-not recognition threshold considers
the facts, circumstances, and information available at the
reporting date and is subject to management?s judgement.
Deferred tax assets are reduced by a valuation allowance if,
based on the weight of evidence available, it is more likely
than not that some portion or all of a deferred tax asset will
not be realized.
Note C ? Going Concern
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
For the six-month periods ending June 30, 2022 and 2021, the
Company incurred net losses of approximately $826,881 and
$1,233,020, respectively, and had negative cash flows from
operations in the amount of approximately $906,205 and $643,426,
respectively. As of June 30, 2022 and 2021, the Company had an
accumulated deficit of approximately $19,822,075 and $16,313,683
respectively. These matters raise substantial doubt about the
Company?s ability to continue as a going concern.
The ability of the Company to continue as a going concern is
dependent upon increasing sales and obtaining additional capital
and financing. Management is attempting to raise funds by way of
private offerings of its securities. While the Company believes
in the viability of its strategy to increase sales and in its
ability to raise additional funds, there can be no assurances to
that effect. The financial statements do not include adjustments
to reflect the possible effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result from the outcome of this
uncertainty.
Note D ? Property and Equipment
Property and equipment consisted of the following as of June 30,
2022 and 2021:
2022 2021
Machinery $1,570,335 $1,448,200
Leasehold improvements 152,752 140,963
Computers and software 97,755 68,603
Furniture and equipment 46,341 30,834
Buildings 27,482 ___
Vehicles 20,244 20,244
Land 10,806 ___
1,925,715 1,708,845
Less: accumulated (785,586) (610,522)
depreciation
Property and equipment, net $1,140,129 $1,098,323
For the six-month periods ended June 30, 2022 and 2021, the
depreciation expense was approximately $87,860 and $76,757
respectively. The expense is split between cost of goods sold
and selling, general and administrative expenses. Depreciation
expense included in costs of goods sold was approximately
$82,242 and $70,356 respectively.
Note E ? Intangible Assets
Intangible assets consisted of the following as of June 30,
2022:
2022 2021 Useful Life (years)
Intellectual Property $853,772 $1,276,725 20
Less: accumulated (326,176) (321,449)
amortization
Intangible assets, net $527,596 $955,276
Amortization expense charged to operations for the years ended
June 30, 2022 and 2021 was approximately $25,549 and $30,452,
respectively. The following is a schedule of the estimated
amortization expense for intangible assets over the remaining
useful life:
2022 35,908
2023 35,908
2024 35,908
2025 35,908
2026 35,515
Thereafter 322,806
$501, 953
Note F ? Line of Credit
The Company has a $1,000,000 line of credit with a bank which
matures February 8, 2024. Interest is subject to change on a
monthly basis, calculated at the prime plus a variable rate
(4.00% as of June 30, 2022). The outstanding balances on the
line of credit as of June 30, 2022 and 2021 were $228,000 and $0
respectively.
Note G ? Income Taxes
No provision or benefit for federal or state income taxes has
been reflected for the six-month periods ended June 30, 2022 and
2021 since the Company reported losses and has established a
valuation allowance against the total net deferred tax asset.
Note H ? Related Party Transactions
Related Party Receivables
The Company has receivables due from various related parties of
approximately $160,143 and $24,486 as of June 30, 2022 and 2021,
respectively. These are included in accounts receivable on the
accompanying consolidated balance sheets.
Related Party Payables
The Company has no payables due to related parties as of June
30, 2022 and 2021, respectively.
Note I ? Concentrations and Commitments
Operating Leases
The Company leases office space under operating leases
agreements that expire at various dates through July 2027. Rent
expense is recognized on a straight-line basis over the term of
the lease. Total combined rent expense associated with the
operating leases amounted to approximately $57,987 and $77,574
for the six-month periods ended June 30, 2022 and 2021,
respectively.
COVID-19
Due to the COVID-19 outbreak in 2020, the Company was not closed
at any point. Additionally, there were no staff furloughed or
terminated due to COVID-19. Overall, the Company was not
significantly affected by COVID-19.
Due to the level of risk that this virus and its variants may
have on the global economy, it is at least reasonably possible
that it could have an impact on the operations of the Company in
the near term that could materially impact the Company?s
consolidated financial statements, however, management does not
believe there will be any future impact. In addition, with
vacancies and therapeutics coming to market, these will also
help to mitigate any potential future losses.
Note L ? Subsequent Event
On May 13, 2022, the Company filed an Offering Circular with the
U.S. Securities Exchange Commission (?the SEC?) for a public
offering of shares of up to $40 million under the terms of SEC
Regulation A+ (?the Offering?) for purposes of accelerating the
Company?s growth. The Offering was accepted by the SEC on
September 8, 2022, and the Company commenced offering shares to
the public on September 19, 2022.
Item 4. Exhibits
INDEX OF EXHIBITS
Ex. 2.1 ? Certificate of Incorporation and Other Documents
(incorporated by reference to the copy thereof submitted as
Exhibit 2 to the Company?s Form 1-A filed on August 11, 2022) *
Ex. 2.2 ? Bylaws (incorporated by reference to the copy thereof
submitted as Exhibit 2 to the Company?s Form 1-A filed on August
11, 2022) *
Ex. 4.1 ? Subscription Agreement (incorporated by reference to
the copy thereof submitted as Exhibit 2 to the Company?s Form 1-
A filed on August 11, 2022) *
Ex. 8.1 ?Escrow Agreement (incorporated by reference to the copy
thereof submitted as Exhibit 2 to the Company?s Form 1-A filed
on August 11, 2022) *
Ex. 11.1 ?Written Expert Consent Letter of Assurance Dimensions
(incorporated by reference to the copy thereof submitted as
Exhibit 2 to the Company?s Form 1-A filed on August 11, 2022) *
* Filed Previously
SIGNATURE PAGE
Pursuant to the requirements of Regulation A, the issuer has
duly caused this Semiannual Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
McGinley Orthopaedic Innovations, Inc.
234 E. 1st St. Suite 242
Casper, WY 82601
(307) 315-6403
s/Dr. Joseph McGinley
Dr. Joseph McGinley
Director, CEO, President, Treasurer, Secretary of McGinley
Orthopaedic Innovations, Inc.
(Date): September 27, 2022
Pursuant to the requirements of Regulation A, this Semiannual
Report has been signed below by the following persons on behalf
of the issuer and in the capacities and on the dates indicated.
s/Dr. Joseph McGinley
Dr. Joseph McGinley
CEO, President, Treasurer, Secretary of McGinley Orthopaedic
Innovations, Inc.
(Date): September 27, 2022
s/Dr. Joseph McGinley
Dr. Joseph McGinley
Director of McGinley Orthopaedic Innovations, Inc.
(Date): September 27, 2022