# ETFMG FINANCIAL LLC X-17A-5 (2023-03-29) — Broker-dealer annual report - Company: ETFMG FINANCIAL LLC - Form: X-17A-5 - Filed: 2023-03-29 - Period: 2022-12-31 - Accession: 0001675798-23-000001 - CIK: 1675798 - File #: 8-69792 - Type: Broker-dealer - Material weakness: No - Auditor: WithumSmith&Brown, PC - Auditor location: Princeton, NJ - Contact: Sam Masucci - Phone: 908-897-0510 - Email: sam@etfmg.com - Website: etfmg.com - Signed by: Sam Masucci (CEO) Original filing: https://www.sec.gov/Archives/edgar/data/1675798/000167579823000001/ETFMGPublic22.pdf --- {0}------------------------------------------------ ## STATEMENT OF FINANCIAL CONDITION AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM December 31, 2022 {1}------------------------------------------------ **UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORTS FORM X-17A-S PART Ill FACING PAGE** 0MB APPROVAL 0MB Number; 3235-0123 Expires; Oct. 31, 2023 Estimated average burden hours per response; 12 SEC FILE NUMBER 8-69792 **Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934** FILING FOR THE PERIOD BEGINNING \_\_ 0l\_/\_0l\_/2\_2 \_\_\_\_ AND ENDING 12/31/22 • MM/DD/YY MM/DD/VY **A. REGISTRANT IDENTIFICATION** NAME OF FIRM: ETFMG Financial LLC -------------------------------- TYPE OF REGISTRANT (check all applicable boxes): IXl Broker-dealer D Security-based swap dealer D Major security-based swap participant □ Check here if respondent is also an OTC derivatives dealer ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.) 30 Maple Street, #2 (No. and Street) Summit NJ (City) (State) PERSON TO CONTACT WITH REGARD TO THIS FILING 07901 (Zip Code) Sam Masucci 908-897-0510 sam@etfmg.com {Name) (Area Code-Telephone Number) {Email Address) **B. ACCOUNTANT IDENTIFICATION** INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing\* WithumSmith+Brown, PC (Name - If Individual, state last, first, and middle name) 506 Carnegie Center, Suite 400 Princeton NJ {Address) {City) (State) 08540 (Zip Code) rte of Reglstratlo, with PCAOB)Of appllca~,, **FOR** OFFICIAL USE ONLY (PCAOB R,glstratlo, ""mbec, ;r appllSam Masucci
I
, | swear (or affirm) that, to the best of my knowledge and belief, the | |-------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------| | financial report pertaining to the firm of | ETFMG Financial LLC
as of | | December 31 | 2022 . is true and correct. I further swear (or affirm) that neither the company nor any | | | partner, officer, director, or equivalent person, as the case may be, has any proprietary interest in any account classified solely | | as that of a customer. | | #### **This filing\*\* contains (check all applicable boxes):** - 00 (a) Statement of financial condition. - l!9 (b) Notes to consolidated statement of financial condition. - D (c) Statement of income (loss) or, if there is other comprehensive income in the period(s) presented, a statement of comprehensive income (as defined in§ 210.1-02 of Regulation S-X). - D (d) Statement of cash flows. - D (e) Statement of changes in stockholders' or partners' or sole proprietor's equity. - D (f) Statement of changes in liabilities subordinated to claims of creditors. - D (g) Notes to consolidated financial statements. - D (h) Computation of net capital under 17 CFR 240.1Sc3-1 or 17 CFR 240.18a-1, as applicable. - D (i) Computation of tangible net worth under 17 CFR 240.lSa-2. - D (j) Computation for determination of customer reserve requirements pursuant to Exhibit A to 17 CFR 240.1Sc3-3. - D (k) Computation for determination of security-based swap reserve requirements pursuant to Exhibit B to 17 CFR 240.1Sc3-3 or Exhibit A to 17 CFR 240.lSa-4, as applicable. - D (I) Computation for Determination of PAB Requirements under Exhibit A to§ 240.1Sc3-3. - D (m) Information relating to possession or control requirements for customers under 17 CFR 240.15c3-3. - D (n) Information relating to possession or control requirements for security-based swap customers under 17 CFR 240.15c3-3(p)(2) or 17 CFR 240.lSa-4, as applicable. - D (o) Reconciliations, including appropriate explanations, of the FOCUS Report with computation of net capital or tangible net worth under 17 CFR 240.15c3-l, 17 CFR 240.lSa-1, or 17 CFR 240.lSa-2, as applicable, and the reserve requirements under 17 CFR 240.1Sc3-3 or 17 CFR 240.18a-4, as applicable, if material differences exist, or a statement that no material differences exist. - D (p) Summary of financial data for subsidiaries not consolidated in the statement of financial condition. - ~ (q) Oath or affirmation in accordance with 17 CFR 240.17a-5, 17 CFR 240.17a-12, or 17 CFR 240.lSa-7, as applicable. - D (r) Compliance report in accordance with 17 CFR 240.17a-S or 17 CFR 240.18a-7, as applicable. - D (s) Exemption report in accordance with 17 CFR 240.17a-S or 17 CFR 240.18a-7, as applicable. - (t) Independent public accountant's report based on an examination of the statement of financial condition. - D (u) Independent public accountant's report based on an examination of the financial report or financial statements under 17 CFR 240.17a-S, 17 CFR 240.lSa-7, or 17 CFR 240.17a-12, as applicable. - D (v) Independent public accountant's report based on an examination of certain statements in the compliance report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - D (w) Independent public accountant's report based on a review of the exemption report under 17 CFR 240.17a-5 or 17 CFR 240.l Sa-7, as applicable. - D (x) Supplemental reports on applying agreed-upon procedures, in accordance with 17 CFR 240.1Sc3-le or 17 CFR 240.17a-12, as applicable. - D (y) Report describing any material inadequacies found to exist or found to have existed since the date of the previous audit, or a statement that no material inadequacies exist, under 17 CFR 240.17a-12(k). D(z) Other:------------------------------------- - - \*"To request confidential treatment of certain portions of this filing, see 17 CFR 240.17a-5(e){3) or 17 CFR 240.18o-7(d)(2), os opplicoble. {3}------------------------------------------------ ## TABLE OF CONTENTS | | Page No. | |---------------------------------------------------------|----------| | REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | | | FINANCIAL STATEMENT | | | Statement of Financial Condition | 2 | | Notes to Financial Statement | 3 - 7 | | | | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) ## **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** To the Management and Member of ETFMG Financial LLC: #### **Opinion on the Financial Statement** We have audited the accompanying statement of financial condition of ETFMG Financial LLC (the "Company") as of December 31, 2022, and the related notes (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. #### **Going Concern** The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company relies on related parties for substantially all of its revenue. To the extent that these related parties cannot provide support to the Company, the Company may be unable to meet its obligations as they become due. Management plans to search for additional sources of financing, however there is no assurance this can be obtained. The Company's liquidity condition gives rise to substantial doubt about the Company's ability to continue as a going concern. #### **Legal Matters** As described in Note 1, the Parent of the Company is a party to a legal matter, the outcome 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** This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") 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 and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is 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 statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. 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 statement. We believe that our audit provides a reasonable basis for our opinion. statement. We believe that our audit provid We have served as the Company's auditor since 2017. auditor New York, New York March 29, 2023 **WithumSmith+Brown, PC** 1411 Broadway, 9th Floor, New York, New York 10018-3496 **T** 1212) 751 9100 **F** 1212) 750 3262 **withum.com** {5}------------------------------------------------ ## STATEMENT OF FINANCIAL CONDITION December 31, 2022 ### ASSETS | Cash | S | 30,043 | |---------------------------------------|---|---------| | Accounts receivable - related parties | | 55,339 | | Prepaid expenses | | 24,972 | | | S | 110,354 | | LIABILITIES AND MEMBER'S EQUITY | | | | Accounts payable and accrued expenses | S | 4,090 | | Member's equity | | 106,264 | | | S | 110,354 | {6}------------------------------------------------ ## NOTES TO FINANCIAL STATEMENT December 31, 2022 (See Report of Independent Registered Public Accounting Firm) #### Note 1 Organization and nature of business ETFMG Financial LLC (the "Company") was formed on June 11, 2015 and is a Delaware limited liability company. The Company is a wholly-owned subsidiary of Exchange Traded Managers Group LLC (the "Parent"). The Company provides statutory distribution services for exchange traded funds sponsored by the Parent, in accordance with the membership agreement with the Financial Industry Regulatory Authority ("FINRA"). The Company is a registered broker under the Securities Exchange Act of 1934 as of February 27, 2017 and is a member of FINRA and the Securities Investor Protection Corporation ("SIPC"). ## Legal matters The Parent, and certain other affiliates of the Company, including, the ETF Managers Trust (the "Trust") and ETF Managers Group, LLC (the "Adviser" and together with the other defendants, the "Adviser Defendants") were named as defendants in an action filed December 21, 2021, in the Superior Court of New Jersey, Union County, captioned PureShares, LLC, d/b/a PureFunds et al. v. ETF Managers Group, LLC et al., Docket No. UNN-C-152-21 (the "NJ Action"). The NJ Action asserted breach of contract and other tort claims and sought damages in unspecified amounts and injunctive relief. On May 25, 2022, the court in the NJ Action dismissed with prejudice all claims asserted against the Trust, as well as all contract claims and all except one tort claim asserted against the Adviser Defendants. #### Note 2 Summary of significant accounting policies ### Basis of presentation The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). ## Cash and cash equivalents The Company considers all money market accounts, time deposits and certificates of deposit purchased with original maturities of three months or less to be cash equivalents. At December 31, 2022, there were no cash equivalents. ### Property and equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Asset lives range from three to five years for office automation equipment and fixture and fixtures. Leaseholds are amortized over the shorter of the asset life or the life of the lease. The Company follows the policy of capitalizing all major additions, renewals and betterments. Minor replacements, maintenance, and repairs are expensed currently. {7}------------------------------------------------ ## NOTES TO FINANCIAL STATEMENT (CONTINUED) December 31, 2022 (See Report of Independent Registered Public Accounting Firm) #### Summary of significant accounting policies (continued) Note 2 #### Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. ### Income tax positions The Financial Accounting Standards Board ("FASB") has issued a standard that clarifies the accounting and recognition of income tax positions taken or expected to be taken in the Company's income tax returns. The Company has analyzed tax positions taken for filing with the IRS and all state jurisdictions where it operates. The Company believes that income tax positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse affect on the Company's financial condition, results of operations or cash flows. Accordingly, the Company has not recorded any reserves or related accruals for interest and penalties for uncertain income tax positions. If the Company incurs interest or penalties as a result of unrecognized tax positions the policy is to classify interest accrued with interest expense and penalties thereon with operating expenses. The Company is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. ### Income taxes The members of the Company have elected to have the Company taxed as a partnership for income tax purposes. Accordingly, the Company is not subject to federal or state income taxes. All taxable income/loss and tax credits are reflected on the income tax returns of the members. ### Allowance for credit losses ASC Topic 326, Financial Instruments - Credit Losses ("ASC 326") impacts the impairment model for certain financial assets by requiring a current expected credit loss ("CECL") methodology to estimate expected credit losses over the entire life of the financial asset. Under ASC 326, the Company could determine there are no expected credit losses in certain circumstances (e.g., based on the credit quality of the client). The allowance for credit losses is based on the Company's expectation of the collectability of financial instruments, including fees and other receivables utilizing the CECL framework. The Company considers factors such as historical experience, credit quality, age of balances and current and future economic conditions that may affect the Company's expectation of the collectability in determining the allowance for credit losses. Under the standard, the allowance for credit losses must be deducted from the amortized cost of the financial asset to present the net amount expected to be collected. {8}------------------------------------------------ ### NOTES TO FINANCIAL STATEMENT (CONTINUED) December 31, 2022 ## (See Report of Independent Registered Public Accounting Firm) ### Note 2 ### Allowance for credit losses (continued) The statement of operations would reflect the measurement of credit losses for newly recognized financial assets as well as the expected increases of expected credit losses that might have taken place during the period. The Company has not provided an allowance for credit losses at December 31, 2022. ### Going concern The Company incurred a net loss for the year ended December 31, 2022 of \$198,044 and had negative cash flows from operations of \$159,826. The Company relies on related parties for substantially all of its revenue. To the extent that these related parties cannot provide support to the Company, the Company may be unable to meet its obligations as they become due. Management plans to search for additional sources of financing, however there is no assurance this can be obtained. The Company's liquidity condition gives rise to substantial doubt about the Company's ability to continue as a going concern. #### Note 3 Revenue recognition The Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires an entity to follow a five-step model to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, (c) determine the transaction price, (d) allocate the transaction price to the performance obligations in the contract, and (e) recognize revenue when (or as) the entity satisfies a performance obligation. In determining the transaction price, an entity may include variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration is resolved. Revenue from contracts with customers includes distribution fees, which is the Company's only stream of revenue. The recognition and measurement of revenue is based on the assessment of individual contract terms. Significant judgment is required to determine whether performance obligations are satisfied at a point in time or over time; how to allocate transaction prices where multiple performance obligations are identified; when to recognize revenue based on the appropriate measure of the Company's progress under the contract; and whether constraints on variable consideration should be applied due to uncertain future events. The Company enters into arrangements with exchange traded funds (funds) to distribute shares to investors, including passing on related regulatory expenditures on the funds. The Company believes that its performance obligation is the sale of securities to investors and as such this is fulfilled on the trade date. 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"/"(&34"1\*5"-"/% "/"(&343061"''\*-\*"5&%&/5\*5\*&4 {10}------------------------------------------------ # NOTES TO FINANCIAL STATEMENT (CONTINUED) December 31, 2022 ### (See Report of Independent Registered Public Accounting Firm) #### Note 6 Exemption from Rule 15c3-3 The Company does not claim exemption from the provisions of Rule 15c3-3 of the SEC, in reliance on footnote 74 to SEC Release 34-70073. #### Note 7 Related party transactions The Company's financial statements contain a substantial number of related party transactions with the Parent and affiliates. Therefore, the Company's financial statements may not be representative of the conditions that would have existed or the results of operations if the Company had been operated as an unaffiliated entity. The Company entered into an expense sharing agreement with the Parent, in which the Parent provides office, compensation and additional services in exchange for reimbursement of a specified percentage of such expenses. For the year ended December 31, 2022, the Company incurred expenses of \$842,021 related to this agreement, which includes employee compensation, legal fees, rent and other office expenses paid on the Company's behalf. At December 31, 2022, the Company owed its Parent \$0 for services related to this expense sharing agreement. The Company has distribution agreements with ETF Managers Capital and ETF Managers Group, affiliate entities. For the year ended December 31, 2022, the Company earned revenues of \$15,319 from ETF Managers Capital and \$788,681 from ETF Managers Group. As of December 31, 2022, \$54,065 was due from ETF Managers Group and \$1,274 was due from ETF Managers Capital which are included in accounts receivable - related parties on the statement of financial condition. #### Note 8 Commitments and contingencies The Company does not have any commitments, guarantees or contingencies including arbitration or other litigation claims that may result in a loss or future obligation. The Company is not aware of any threats or other circumstances that may lead to the assertion of a claim at a future date. #### Note 9 Risks and uncertainties The Company has evaluated subsequent events through the date at which these financial statements were available to be issued and determined there have not been any events that have occurred that would require adjustments to or disclosure in the financial statements. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.