BDRY 8-K
Amplify Commodity Trust (BDRY)
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT
REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): April 30, 2021
ETF Managers Group Commodity Trust I
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
| 001-36851 | 36-4793446 | |
| (Commission File Number) | (IRS Employer Identification No.) | |
30 Maple Street - Suite 2 Summit, New Jersey |
07901 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(844) 383-6477
(Registrant’s Telephone Number, Including Area Code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Shares of Breakwave Dry Bulk Shipping ETF | BDRY | NYSE Arca, Inc. |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 8.01. Other Events.
Attached as Exhibit 99.1 to this Current Report and incorporated herein by reference are the audited (i) Statements of Financial Condition of the Sponsor, the commodity pool operator the Trust, as of December 31, 2020 and 2019, (ii) Statements of Operations and Comprehensive Income for the years ended December 31, 2020 and 2019, (iii) Statements of Changes in Member’s Capital for the years ended December 31, 2020 and 2019, and (iv) Statements of Cash Flows for the years ended December 31, 2020 and 2019, and the related notes to such financial statements.
Item 9.01. Financial Statements and Exhibits.
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ETF Managers Group Commodity Trust I | ||
| By: | /s/ John A. Flanagan | |
| Name: | John A. Flanagan | |
| Title: | ETF Managers Capital LLC, sponsor of | |
| ETF Managers Commodity Trust I | ||
| Chief Financial Officer | ||
Dated: April 30, 2021
2
Exhibit 99.1
ETF MANAGERS CAPITAL, LLC
FINANCIAL STATEMENTS
DECEMBER 31, 2020 and 2019
ETF MANAGERS CAPITAL, LLC
Table of Contents
December 31, 2020
Index
1
To the Management
and Member of
ETFMG Financial LLC
Opinion on the Financial Statements
We have audited the accompanying statement of financial condition of ETF Managers Capital, LLC (the “Company”), as of December 31, 2020 and 2019, the related statements of income and comprehensive income, changes in member’s capital and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.
Legal Matters
As described in Note 1, the Parent of the Company is a party to two legal matters, the outcomes of which may have an adverse effect on the Company’s ability to continue as a going concern. Our opinion is not modified with respect to this matter.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission.
We conducted our audit in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures including examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
We have served as the Company’s auditor since 2015.
/s/ Connolly & Company, P.C.
Warren, New Jersey
April 27, 2021
2
Statements of Financial Condition
| December 31, | ||||||||
| 2020 | 2019 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 28,923 | $ | 4,317 | ||||
| Investment in Sit Rising Rate ETF | - | 919 | ||||||
| Investment in Breakwave Dry Bulk Shipping ETF | 308 | 618 | ||||||
| Due from Exchange Traded Managers Group LLC | 645,748 | 696,942 | ||||||
| Due from Breakwave Advisors LLC | - | 18,169 | ||||||
| Due from SIT Rising Rate ETF | - | 94,204 | ||||||
| Due from Breakwave Dry Bulk Shipping ETF | 125,454 | 65,308 | ||||||
| Total Current Assets | $ | 800,433 | $ | 880,477 | ||||
| LIABILITIES AND MEMBER’S CAPITAL | ||||||||
| Current Liabilities | ||||||||
| Service Fee Payable to Exchange Traded Managers Group LLC | $ | 550,000 | $ | 430,000 | ||||
| Accounts Payable on behalf of Sit Rising Rate ETF and Breakwave Dry Bulk Shipping ETF | 4,509 | 82,767 | ||||||
| Due to ETFMG Financial LLC | 1,274 | 2,824 | ||||||
| Due to Breakwave Advisors LLC | 20,380 | - | ||||||
| Due to ETF Managers Group LLC | 40,808 | - | ||||||
| Accrued Expenses | 136,906 | 66,603 | ||||||
| Total Current Liabilities | 753,877 | 582,194 | ||||||
| Member’s Capital | 46,556 | 298,283 | ||||||
| Total Liabilities and Members’ Capital | $ | 800,433 | $ | 880,477 | ||||
The accompanying notes are an integral part of these financial statements.
3
Statements of Operations
| For
the Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| REVENUES | ||||||||
| Management fees | $ | 536,556 | $ | 576,593 | ||||
| EXPENSES | ||||||||
| Parent Company Service Fee | 120,000 | 120,000 | ||||||
| Expenses paid on behalf on Sit Rising Rate ETF and Breakwave Dry Bulk Shipping ETF | 291,545 | 70,977 | ||||||
| Sit Rising Rate ETF Operating Loss | 362,696 | 298,003 | ||||||
| Professional Fees | 10,000 | 2,500 | ||||||
| Other Expenses | 3,610 | 2,294 | ||||||
| Total expenses | 787,851 | 493,774 | ||||||
| NET INCOME/ (LOSS) | $ | (251,295 | ) | $ | 82,819 | |||
| COMPREHENSIVE INCOME /(LOSS): | ||||||||
| Net income/ (loss) | (251,295 | ) | 82,819 | |||||
| Other Comprehensive Gain (Loss) | ||||||||
| Unrealized Loss on Investment in Breakwave Dry Bulk Shipping ETF | (310 | ) | (44 | ) | ||||
| Unrealized Loss on Investment in Sit Rising Rate ETF | - | (117 | ) | |||||
| Realized Loss on Investment in Sit Rising Rate ETF | (122 | ) | - | |||||
| Other comprehensive income/(loss) | $ | (251,727 | ) | $ | 82,658 | |||
The accompanying notes are an integral part of these financial statements.
4
Statements of Changes in Members’ Equity/(Deficit)
For the Year Ended December 31, 2020 and 2019
| Member’s Capital | Accumulated
Other Comprehensive Income (Loss) | Total
Member’s Capital | ||||||||||
| BALANCE DECEMBER 31, 2018 | $ | 215,889 | $ | (264 | ) | $ | 215,625 | |||||
| Net Income (Loss) | 82,819 | - | 82,819 | |||||||||
| Other Comprehensive Income: | ||||||||||||
| Unrealized Holding Loss Arising During the Period | - | (161 | ) | (161 | ) | |||||||
| MEMBER’S CAPITAL, DECEMBER 31, 2019 | $ | 298,708 | $ | (425 | ) | $ | 298,283 | |||||
| Net Income (Loss) | (251,295 | ) | - | (251,295 | ) | |||||||
| Other Comprehensive Income: | ||||||||||||
| Unrealized Holding Loss Arising During the Period: | - | (310 | ) | (310 | ) | |||||||
| Realized Holding Loss Arising During the Period: | - | (122 | ) | (122 | ) | |||||||
| MEMBER’S CAPITAL, DECEMBER 31, 2020 | $ | 47,413 | $ | (857 | ) | $ | 46,556 | |||||
The accompanying notes are an integral part of these financial statements.
5
Statements of Cash Flows
| For
the Year Ended December 31, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS PROVIDE BY/ USED IN OPERATING ACTIVITIES | ||||||||
| Net income/(loss) | $ | (251,295 | ) | $ | 82,819 | |||
| Adjustments to reconcile net income/(loss) to net cash provided by/used in operating activities: | ||||||||
| Due from Exchange Traded Managers Group LLC | 51,194 | (141,524 | ) | |||||
| Due from SIT Rising Rate ETF | 94,204 | (33,680 | ) | |||||
| Due from Breakwave Advisors LLC | 18,169 | (18,169 | ) | |||||
| Due from Breakwave Dry Bulk Shipping ETF | (60,146 | ) | (56,517 | ) | ||||
| Service Fee payable to Exchange Traded Managers Group LLC | 120,000 | 120,000 | ||||||
| Due to ETFMG Financial LLC | (1,550 | ) | 262 | |||||
| Accounts Payable on behalf of Sit Rising Rate ETF and Breakwave Dry Bulk Shipping ETF | (78,258 | ) | (924 | ) | ||||
| Deposit - Breakwave Advisors LLC | - | (5,680 | ) | |||||
| Due to Breakwave Advisors LLC | 20,380 | - | ||||||
| Accrued Expenses | 70,303 | 18,825 | ||||||
| Due to ETF Managers Group, LLC | 40,808 | - | ||||||
| Net cash provided by (used in) operating activities | 23,809 | (34,588 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Investment in Breakwave Dry Bulk Shipping ETF | 310 | 117 | ||||||
| Investment in Sit Rising Rate ETF | 919 | 44 | ||||||
| Net cash provided by (used in) investment activities | 1,229 | 161 | ||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 25,038 | (34,427 | ) | |||||
| Effect of unrealized gain (loss) on Investment in Sit Rising Rate ETF | - | (117 | ) | |||||
| Effect of unrealized gain (loss) on Investment in Breakwave Dry Bulk Shipping ETF | (310 | ) | (44 | ) | ||||
| Realized gain (loss) on investment in Sit Rising Rate ETF | (122 | ) | ||||||
| CASH BEGINNING | 4,317 | 38,905 | ||||||
| CASH ENDING DECEMBER 31 | $ | 28,923 | $ | 4,317 | ||||
The accompanying notes are an integral part of these financial statements.
6
December 31, 2020 and 2019
(See Independent Auditor’s Report)
Note 1 – Organization and nature of business
ETF Managers Capital, LLC (the “Company”), a Delaware limited liability company, was formed June 14, 2014 and is a wholly-owned subsidiary of Exchange Traded Managers Group LLC (“ETFMG”). The Company is registered with the Commodity Futures Trading Commission as a commodity pool operator (“CPO”) and is a member of the National Futures Association (“NFA”). The Company serves as the Sponsor and managing Owner of ETF Managers Group Commodity Trust I (the “Trust”), a Delaware series trust, of which “BDRY” or the “Fund” is currently the sole series of the Trust. BDRY commenced operations with the listing and commencement of trading of BDRY shares on the NYSE Arca on March 22, 2018.
Breakwave Advisors LLC (“Breakwave”) is registered as a “commodity trading advisor” (“CTA” and acts as such for BDRY.
The operations of the Company began on February 19, 2015.
RISE Closure
On October 16, 2020, the Sponsor announced that it would close and liquidate the SIT RISING RATE ETF (“RISE”) because of current market conditions and the Fund’s asset size. The last day the liquidated fund accepted creation orders was on October 30, 2020. Trading in RISE was suspended after the close of the NYSE Arca on October 30, 2020. Proceeds of the liquidation were sent to shareholders on November 18, 2020 (the “Distribution Date”). From October 30, 2020 through the distribution date, shares of RISE did not trade on the NYSE Arca nor was there a secondary market for the shares. Any shareholders that remained in RISE on the Distribution Date automatically had their shares redeemed for cash at the current net asset value on November 18, 2020.
Legal Matters
The Parent, and certain other affiliates of the Company, including ETF Managers Group, LLC (the “Adviser”) were defendants in an action filed May 2, 2017 in the Superior Court of New Jersey captioned PureShares, LLC d/b/a PureFunds et al. v. ETF Managers Group, LLC et al., Docket No. C-63-17 (the “NJ Litigation”). The PureShares action alleged claims based on disputes arising out of contractual relationships with the Adviser. The action sought damages in unspecified amounts and injunctive relief based on breach of contract, wrongful termination, and several other claims.
7
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2020 and 2019
(See Independent Auditor’s Report)
Note 1 – Organization and nature of business (continued)
Legal Matters (continued)
The Adviser and Parent, were also defendants in a case filed on October 26, 2017 in the United States District Court for the Southern District of New York by NASDAQ, Inc. (“Nasdaq”) captioned Nasdaq, Inc. v. Exchange Traded Managers Group, LLC et al., Case 1:17-cv-08252. This action arose out of the same facts and circumstances, as the NJ litigation and asserted claims for breach of contract, conversion and certain other claims. The matter was the subject of a bench trial in May 2019, and on December 20, 2019, the Court issued an Opinion and Order awarding compensatory damages to Plaintiff in the amount of $78,403,172.36, plus prejudgment interest. The Court also denied Plaintiff’s requests for punitive damages and equitable relief.
On May 1, 2020, Nasdaq, PureShares LLC (“PureShares”), and Parent announced a global settlement that resolves all claims in both the PureShares action and the Nasdaq action. The settlement is subject to ongoing negotiations and approvals among independent third parties. As part of the settlement, Nasdaq and Parent have agreed to certain cash payments from Parent to Nasdaq and PureShares, and have executed an asset purchase agreement to transfer certain Parent intellectual property and related assets, to a Nasdaq affiliate. The transaction is expected to close in the third quarter of 2021. If the events set forth in the settlement agreement do not occur, and a subsequent settlement is not reached, the resulting conditions may adversely affect the Parent’s future operations.
Note 2 – Summary of Significant Accounting Policies
| (a) | Basis of Accounting |
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.
| (b) | Use of Estimates |
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses and disclosure of contingent assets and liabilities during the reporting periods of the financial statements. Actual results could differ from those estimates.
| (c) | Cash and Cash Equivalents |
The Company defines cash and cash equivalents to be highly liquid investments, with original maturities of three months or less.
8
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2020 and 2019
(See Independent Auditor’s Report)
Note 2 – Summary of Significant Accounting Policies (continued)
| d) | Income Taxes |
ETF Managers Capital, LLC is not a tax paying entity for federal income tax purposes, and thus no income tax expense has been recorded in the financial statements. The Company is a single member limited liability company.
Note 3 – Related Party Transactions
BDRY pays the Company an annual Sponsor Fee, monthly in arrears, in an amount calculated as the greater of 0.15% of its average daily net assets, or $125,000. BDRY also paid an annual fee to Breakwave, monthly in arrears, in an amount equal to 1.45% of BDRY’s average daily net assets. Breakwave has agreed to waive its CTA fee to the extent necessary, and the Company has voluntarily agreed to correspondingly assume the remaining expenses of BDRY such that Fund expenses do not exceed an annual rate of 3.50%, excluding brokerage commissions and interest expense, of the value of BDRY’s average daily net assets (the “BDRY Expense Cap”). The assumption of expenses by the Sponsor and waiver of BDRY’s CTA fee are contractual on the part of the Sponsor and Breakwave, respectively through February 28, 2022.
In addition to the Sponsor fee, the Company receives additional fees from the Fund for providing necessary services for its operations. For the years ended December 31, 2020 and December 31, 2019, the Company received the following fees:
| 2020 | 2019 | |||||||
| Sponsor Fees | $ | 187,536 | $ | 200,214 | ||||
| Legal Fees | 70,000 | 70,000 | ||||||
| Tax return and Form K-1 preparation | - | 49,692 | ||||||
| Regulatory Reporting Fees | 45,822 | 49,931 | ||||||
| Chief Compliance Officer Fees | 45,822 | 49,931 | ||||||
| Principal Officer Fees | 45,822 | 49,931 | ||||||
| Insurance Fees | 30,000 | 30,000 | ||||||
| Website and Marketing Fees | 27,500 | - | ||||||
| Wholesale Support Fees | 84,054 | 76,894 | ||||||
| Total Fee Income | $ | 536,556 | $ | 576,593 | ||||
9
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2020 and 2019
(See Independent Auditors’ Report)
Note 3 – Related Party Transactions (continued)
Breakwave had agreed to deposit with the Company such amounts as are necessary to enable the Company to assume the expenses of the Fund pursuant to the Expense Cap. At December 31, 2020 and 2019, the Company held $-0- and $-0- respectively, in an expense reimbursement account representing the balance of such deposit account for the payment of assumed expenses of the Fund. In addition, the Company waived reimbursement of assumed expenses by Breakwave in the amount of $73,301 and $69,192 for the years ended December 31, 2020 and 2019, respectively.
The waiver of BDRY’s CTA fees, pursuant to the undertaking, amounted to $62,988 and $38,174 for the year ended December 31, 2020 and 2019, respectively.
BDRY currently accrues its daily expenses up to the Expense Cap. At the end of each month, the accrued amount is remitted to the Company as the Company has assumed, and is responsible for the payment of, the routine operational, administrative and other ordinary expenses of the Fund in excess of the Fund’s Expense Cap, which in the case of RISE through November 18, 2020, the date of liquidation, aggregated $328,467 and $333,758 for the year ended December 31, 2020 and 2019, respectively, and in the case of BDRY, aggregated $67,532 and $438,364 for the year ended December 31, 2020 and 2019, respectively.
The routine operational, administrative and other ordinary expenses of RISE, through November 18, 2020, the date of liquidation, aggregated $414,131 and $529,332 for the year ended December 31, 2020 and 2019, respectively, of which $205,693 and $234,684, respectively, were for services provided by the Company and its affiliate.
The routine operational, administrative and other ordinary expenses of BDRY aggregated $1,217,380 and $603,699 for the year ended December 31, 2020 and 2019, respectively, of which $329,029 and $293,908, respectively, were for services provided by the Company and its affiliate.
The Fund pays ETFMG Financial LLC. (“Distributor”), an affiliate of the Company, an annual fee for statutory and wholesaling distribution services and related administrative services equal to the greater of $15,000 or 0.02% of the Fund’s average daily net assets, payable monthly. Pursuant to the Marketing Agent Agreement between the Company, the Fund and the Distributor, the Distributor assists the Company and the Fund with certain functions and duties relating to distribution and marketing services to the Fund, including reviewing and approving marketing materials and certain regulatory compliance matters. The Distributor also assists with the processing of creation and redemption orders.
10
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2020 and 2019
(See Independent Auditors’ Report)
Note 3 – Related Party Transactions (continued)
For the years ended December 31, 2020 and 2019, the Company paid the Distributor, on behalf of the Fund and RISE, through November 18, 2020, the date of liquidation, $28,628 and $32,623, respectively, in distribution and related administrative services.
BDRY pays the Sponsor an annual fee for wholesale support services of $25,000 plus 0.12% of BDRY’s average daily net assets, payable monthly.
RISE paid the Company $4,162 through November 18, 2020, the date of liquidation, and $17,629 in wholesale support fees for the years ended December 31, 2020 and 2019, respectively. BDRY paid $23,234 and $28,125 in wholesale support fees for the year ended December 31, 2020 and 2019, respectively.
The Company paid ETFMG a parent company service fee at the rate of $10,000 per month effective January 1, 2019 per month for providing it with the office space and personnel necessary to fulfill its responsibilities as Sponsor of the Fund. For the years ended December 31, 2020 and 2019, the parent service fee aggregated $120,000 and $120,000, respectively.
The Company owns 40 Shares of BDRY.
These Shares were issued to the Company in exchange for its initial capital contribution to the Fund and represent units of beneficial interest in and ownership of the Fund.
Expenses incurred in connection with organizing the Fund and the offering of the Shares upon the commencement of its operations were paid by ETFMG, the parent and sole owner of the Company.
Expenses incurred in connection with the continuous offering of Shares of the Fund are the responsibility of the Fund.
Note 4 – Subsequent Events
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. See Note 1 – Legal matters.
11
Exhibit 99.2
CONSENT OF INDEPENDENT AUDITOR
We have issued our report dated April 27, 2021, with respect to the financial statements of ETF Managers Capital, LLC (a Delaware limited liability company) included in the Current Report of ETF Managers Group Commodity Trust I on Form 8-K filed with the U.S. Securities and Exchange Commission on April 30, 2021. We consent to the incorporation by reference in the Registration Statement on Form S-1 of Breakwave Dry Bulk Shipping ETF (a series of ETF Managers Group Commodity Trust I) of the aforementioned report, and to the use of our name as it appears under the caption “Experts”.
/s/ Connolly & Company, P.C.__
Connolly & Company, P.C.
Warren, New Jersey
April 30, 2021