REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
merican depositary shares |
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* |
Not for trading, but only in connection with the listing of American depositary shares on the NASDAQ Global Market. |
Large accelerated filer ☐ | Non-accelerated filer ☐ |
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Emerging growth company |
† | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
International Financial Reporting Standards as issued | Other ☐ | |||||
by the International Accounting Standards Board ☐ |
1 |
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3 |
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PART I |
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5 |
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5 |
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5 |
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61 |
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99 |
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99 |
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128 |
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137 |
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138 |
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139 |
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139 |
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154 |
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155 |
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PART II |
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158 |
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158 |
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158 |
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160 |
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160 |
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160 |
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160 |
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161 |
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161 |
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162 |
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162 |
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PART III |
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163 |
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163 |
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163 |
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166 |
• | “ADSs” refers to our American depositary shares, each of which represents 30 Class A ordinary shares; |
• | “apartments contracted” or “rental units contracted” refer to apartments or rental units that we have leased in from landlords, as applicable; |
• | “available apartments” or “available rental units” refer to the apartments or rental units in operation, as applicable, which have been renovated and ventilated and are ready to rent to tenants; |
• | “average month-end occupancy rate” refers to the aggregate number of leased-out rental unit nights of the last day of each month in the relevant period as a percentage of the aggregate number of available rental unit nights of the last day of each month in the same period; |
• | “average monthly rental after discount for rental prepayment” refers to the total rental received by a rental operator from tenants for the relevant period the tenants stay in the rental operator’s apartments, net of value-added tax, divided by the number of leased-out rental unit nights for the same period times 30.5 (which represents the average number of days in a month); for avoidance of doubt, the total rental does not include any utility fees a rental operator charges tenants for the relevant period; |
• | “average monthly rental before discount for rental prepayment” refers to the total rental received by a rental operator from tenants for the relevant period the tenants stay in the rental operator’s apartments, net of value-added tax, adding back any discount the rental operator offers for rental prepayment, divided by the number of leased-out rental unit nights for the same period times 30.5 (which represents the average number of days in a month); for avoidance of doubt, the total rental does not include any utility fees a rental operator charges tenants for the relevant period; |
• | “China” or the “PRC” refers to the People’s Republic of China, excluding, for the purposes of this annual report only, Hong Kong, Macau and Taiwan; |
• | “leased-out rental unit nights” refer to the number of nights that the rental units of a rental apartment were leased out for a relevant period; |
• | “long-term apartment rental” refers to apartment rental business in which the rents are normally collected on a monthly or quarterly basis, and the lease terms are normally over six months; |
• | “long-term apartment operator” refers to a company which operates long-term apartment rental business, collects vacant apartment resources and rents those apartments directly to tenants; |
• | “ordinary shares” refers to our Class A ordinary shares and Class B ordinary shares, par value US$0.00001 per share; |
• | “period-average occupancy rate” refers to the aggregate number of leased-out rental unit nights as a percentage of the aggregate number of available rental unit nights during the relevant period; |
• | “tenant renewal rate” refers to the percentage of tenants who choose to rent from the same operator after the end of the applicable lock-in period in the lease; |
• | “rental spread after discount for rental prepayment” refers to the difference between the average monthly rental after discount for rental prepayment on a lease to a tenant, and the monthly straight-lined rental that the rental operator pays to the landlord for the same space; |
• | “rental spread before discount for rental prepayment” refers to the difference between the average monthly rental before discount for rental prepayment on a lease to a tenant, and the monthly straight-lined rental that the rental operator pays to the landlord for the same space; |
• | “rental spread margin after discount for rental prepayment” refers to the rental spread after discount for rental prepayment as a percentage of the average monthly rental after discount for rental prepayment on a lease to a tenant on the same space; |
• | “rental spread margin before discount for rental prepayment” refers to the rental spread before discount for rental prepayment as a percentage of the average monthly rental before discount for rental prepayment on a lease to a tenant on the same space; |
• | “rental unit” refers to each bedroom in a rental apartment; we typically convert a leased-in apartment to add an additional bedroom, or the N+1 model, and rent each bedroom separately to individual tenants after standardized decoration and furnishing; |
• | “RMB” and “Renminbi” refer to the legal currency of China; |
• | “straight-lined rental” refer to the rental a rental operator pays to a landlord after adjustment to record rent holidays/rent-free period and rent escalation clauses on a straight-line basis over the term of the lease with the landlord; |
• | “tier 1 cities” refer to Beijing, Shanghai, Guangzhou and Shenzhen; |
• | “US$,” “U.S. dollars,” “$,” and “dollars” refer to the legal currency of the United States; and |
• | “we,” “us,” “our company,” “our” and “Qingke” refer to Q&K International Group Limited, its subsidiaries, variable interest entity and its subsidiaries. |
• | our mission and strategies; |
• | our ability to continue as a going concern; |
• | our ability to achieve or maintain profitability; |
• | general economic and business condition in China and elsewhere, particularly the long-term apartment rental market and government measures aimed at China’s real estate industry and apartment rental industry; |
• | health epidemics, pandemics and similar outbreaks, including COVID-19; |
• | competition in the apartment rental industry; |
• | our future business development, financial condition and results of operations; |
• | our expectations regarding demand for and market acceptance of our apartments and services; |
• | our ability to attract and retain tenants and landlords, including tenants and landlords from our acquired lease contracts; |
• | our ability to control the quality of operations, including the operation of our rental apartments managed by our own apartment managers or by third-party contractors; |
• | our ability to integrate strategic investments, acquisitions and new business initiatives; and |
• | our relationship with financial institution partners and third-party product and service providers. |
FY 2017 |
FY 2018 |
FY 2019 |
FY 2020 |
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RMB |
RMB |
RMB |
RMB |
US$ |
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(in thousands, except for share, per share and per ADS data) |
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Selected Consolidated Statements of Comprehensive Loss Data: |
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Net revenues: |
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Rental service revenue |
508,910 | 796,940 | 1,089,164 | 1,105,172 | 162,774 | ||||||||||||||||
Value-added services and others |
13,827 | 92,997 | 144,606 | 102,791 | 15,139 | ||||||||||||||||
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Total net revenues |
522,737 | 889,937 | 1,233,770 | 1,207,963 | 177,913 | ||||||||||||||||
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Operating costs and expenses: |
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Operating cost |
(547,618 | ) | (897,959 | ) | (1,304,992 | ) | (1,203,415 | ) | (177,245 | ) | |||||||||||
Selling and marketing expenses |
(42,008 | ) | (117,826 | ) | (135,413 | ) | (63,512 | ) | (9,354 | ) | |||||||||||
General and administrative expenses |
(34,353 | ) | (84,953 | ) | (108,196 | ) | (102,769 | ) | (15,136 | ) | |||||||||||
Research and development expenses |
(44,160 | ) | (51,947 | ) | (47,029 | ) | (24,934 | ) | (3,672 | ) | |||||||||||
Pre-operation expenses |
(19,934 | ) | (117,107 | ) | (42,661 | ) | (14,245 | ) | (2,098 | ) | |||||||||||
Impairment loss |
(22,750 | ) | (50,614 | ) | (46,213 | ) | (846,766 | ) | (124,715 | ) | |||||||||||
Loss from disposal of property and equipment |
— | — | — | (468,980 | ) | (69,073 | ) | ||||||||||||||
Other (expense) income, net |
(1,460 | ) | 4,034 | 2,427 | 15,881 | 2,339 | |||||||||||||||
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Total operating costs and expenses |
(712,283 | ) | (1,316,372 | ) | (1,682,077 | ) | (2,708,740 | ) | (398,954 | ) | |||||||||||
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Loss from operations |
(189,546 | ) | (426,435 | ) | (448,307 | ) | (1,500,777 | ) | (221,041 | ) | |||||||||||
Interest expense, net |
(50,136 | ) | (77,167 | ) | (91,914 | ) | (130,206 | ) | (19,177 | ) | |||||||||||
Foreign exchange gain (loss), net |
3 | (91 | ) | (457 | ) | (62 | ) | (9 | ) | ||||||||||||
Fair value change of contingent earn-out liabilities |
(5,165 | ) | 6,164 | 42,404 | 97,417 | 14,348 | |||||||||||||||
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Loss before income taxes |
(244,844 | ) | (497,529 | ) | (498,274 | ) | (1,533,628 | ) | (225,879 | ) | |||||||||||
Income tax expense |
(596 | ) | (2,393 | ) | (63 | ) | (13 | ) | (2 | ) | |||||||||||
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Net loss |
(245,440 | ) | (499,922 | ) | (498,337 | ) | (1,533,641 | ) | (225,881 | ) | |||||||||||
Less: net income (loss) attributable to noncontrolling interests |
35 | (63 | ) | (95 | ) | (49 | ) | (7 | ) | ||||||||||||
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Net loss attributable to Q&K International Group Limited |
(245,475 | ) | (499,859 | ) | (498,242 | ) | (1,533,592 | ) | (225,874 | ) | |||||||||||
Deemed dividend |
(58,763 | ) | (135,545 | ) | (307,389 | ) | — | — | |||||||||||||
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Net loss attributable to ordinary shareholders |
(304,238 | ) | (635,404 | ) | (805,631 | ) | (1,533,592 | ) | (225,874 | ) | |||||||||||
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Net loss per share attributable to ordinary shareholders of Q&K International Group Limited—Basic and diluted |
(0.86 | ) | (1.55 | ) | (1.87 | ) | (1.14 | ) | (0.17 | ) | |||||||||||
Weighted average number of ordinary shares used in computing net loss per share—Basic and diluted |
354,861,449 | 409,403,915 | 430,450,490 | 1,351,127,462 | 1,351,127,462 |
As of September 30, |
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Selected Consolidated Balance Sheets Data: |
2017 |
2018 |
2019 |
2020 |
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RMB |
RMB |
RMB |
RMB |
US$ |
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(in thousands) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
365,115 | 103,752 | 159,799 | 22,879 | 3,370 | |||||||||||||||
Restricted cash |
2,000 | 15,000 | 91,015 | 8,887 | 1,309 | |||||||||||||||
Accounts receivable |
314 | 475 | 1,306 | 1,943 | 286 | |||||||||||||||
Amounts due from related parties |
12,541 | 22,505 | 5,587 | 168 | 25 | |||||||||||||||
Prepaid rents and deposit |
92,687 | 170,683 | 128,213 | 51,281 | 7,553 | |||||||||||||||
Advance to suppliers |
27,270 | 17,079 | 64,028 | 16,043 | 2,363 | |||||||||||||||
Other current assets |
42,118 | 118,445 | 146,559 | 101,803 | 14,994 | |||||||||||||||
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Total current assets |
542,045 | 447,939 | 596,507 | 203,004 | 29,900 | |||||||||||||||
Non-current assets: |
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Property and equipment—net |
578,331 | 1,320,822 | 1,185,311 | 358,022 | 52,731 | |||||||||||||||
Intangible assets—net |
1,714 | 1,232 | 1,248 | 222,123 | 32,715 | |||||||||||||||
Land use rights |
11,307 | 11,021 | 10,734 | 10,448 | 1,539 | |||||||||||||||
Other assets |
201 | 389 | 5,946 | 57,133 | 8,415 | |||||||||||||||
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Total assets |
1,133,598 | 1,781,403 | 1,799,746 | 850,730 | 125,300 | |||||||||||||||
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Liabilities and equity: |
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Total current liabilities |
1,173,179 | 1,969,883 | 1,697,111 | 1,961,740 | 288,935 | |||||||||||||||
Total non-current liabilities |
386,389 | 590,654 | 913,501 | 883,440 | 130,115 | |||||||||||||||
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Total liabilities |
1,559,568 | 2,560,537 | 2,610,612 | 2,845,180 | 419,050 | |||||||||||||||
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Total mezzanine equity |
368,546 | 644,043 | 1,425,485 | — | — | |||||||||||||||
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Total Q&K International Group Limited shareholders’ deficit |
(812,351 | ) | (1,440,949 | ) | (2,246,028 | ) | (2,004,078 | ) | (295,168 | ) | ||||||||||
Noncontrolling interest |
17,835 | 17,772 | 9,677 | 9,628 | 1,418 | |||||||||||||||
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Total shareholders’ deficit |
(794,516 | ) | (1,423,177 | ) | (2,236,351 | ) | (1,994,450 | ) | (293,750 | ) | ||||||||||
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Total liabilities, mezzanine equity and shareholders’ deficit |
1,133,598 | 1,781,403 | 1,799,746 | 850,730 | 125,300 | |||||||||||||||
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FY 2017 |
FY 2018 |
FY 2019 |
FY 2020 |
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RMB |
RMB |
RMB |
RMB |
US$ |
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(in thousands) |
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Selected Consolidated Cash Flow Data: |
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Net cash used in operating activities |
(43,589 | ) | (117,048 | ) | (88,189 | ) | 54,841 | 8,078 | ||||||||||||
Net cash used in investing activities |
(285,518 | ) | (674,298 | ) | (351,450 | ) | (138,670 | ) | (20,406 | ) | ||||||||||
Net cash provided by (used in) financing activities |
649,451 | 539,528 | 569,569 | (134,924 | ) | (17,979 | ) | |||||||||||||
Effect of foreign exchange rate changes |
(238 | ) | 3,455 | 2,132 | (295 | ) | (104 | ) | ||||||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
320,106 | (248,363 | ) | 132,062 | (219,048 | ) | (30,411 | ) | ||||||||||||
Cash, cash equivalents and restricted cash at the beginning of the period |
47,009 | 367,115 | 118,752 | 250,814 | 35,090 | |||||||||||||||
Cash, cash equivalents and restricted cash at the end of the period |
367,115 | 118,752 | 250,814 | 31,766 | 4,679 |
• | We have a limited operating history in an emerging and rapidly evolving market, which makes it difficult to evaluate our future prospects and results of operations and may increase the risk that we will not be successful. In addition, our historical growth and financial condition may not be indicative of our future growth, profitability, and financial condition. |
• | The report of our independent registered public accounting firm on our consolidated financial statements includes an explanatory paragraph questioning our ability to continue as a going concern. We recorded net losses in the past and may not be able to continue as a going concern or achieve or maintain profitability in the future. |
• | Our business requires significant capital expenditure for sourcing, renovation and maintenance of rental apartments. Inability to access financing on favorable terms in a timely manner or at all would materially and adversely affect our business, results of operations, financial condition and growth prospects. |
• | The COVID-19 outbreak has adversely affected, and may continue to adversely affect, our business, results of operations and financial condition. We also face risks related to other health epidemics, natural disasters, civil and social disruptions and other outbreaks and catastrophes, which could materially and adversely affect our results of operations and financial condition. |
• | Tenants may terminate their leases during lease terms, exposing us to the risk of re-leasing our rental apartments, which we may be unable to do on a timely basis, on favorable terms or at all. |
• | We have relied on our tenants’ rental prepayments to finance our growth. To the extent a lease agreement is terminated during the rental period covered by the prepayment, we need to return the unused prepaid rentals. If a significant number of the lease agreements are terminated early, our liquidity and financial condition may be materially and adversely affected. |
• | We rely on our cooperation with a limited number of financial institutions. |
• | Capital and credit market conditions may adversely affect our access to capital and/or the cost of capital, which could impact our future prospects, results of operations and growth prospects. |
• | Our business is susceptible to China’s macro-economic conditions, particularly the long-term apartment rental market and government measures aimed at China’s real estate industry and apartment rental industry. |
• | Our expansion into new markets may present increased risk. |
• | Strategic investments, acquisitions or new business initiatives may disrupt our ability to effectively manage our business and adversely affect our operating results. In addition, to the extent we fund these business initiatives through the issuance of equity or convertible debt securities, the ownership interests of our shareholders could be significantly diluted. |
• | We have started and may continue to expand our business by acquiring lease contracts and related fixtures and equipment of rental units from other rental service companies, and have engaged and may engage more third-party contractors to manage these rental units. We may not be able to control the quality of sourcing, renovation, marketing, maintenance and other rental unit management activities or participate in the tenant screening process. The third-party contractors may not manage the rental units according to the terms of our contracts or otherwise below standard, or do not continue to maintain or expand their relationship with us. These may materially and adversely affect our business, results of operation, financial condition and reputation. |
• | We have been, and may from time to time be, subject to claims, controversies, lawsuits and other legal and administrative proceedings, which could have a material adverse effect on our business, results of operations, financial condition and reputation. |
• | If the PRC government deems that the contractual arrangements in relation to our variable interest entity do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. |
• | We rely on contractual arrangements with our variable interest entity and its shareholders for a significant portion of our business operations, which may not be as effective as direct ownership in providing operational control. |
• | Any failure by our variable interest entity or its shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect on our business. |
• | Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and results of operations. |
• | Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to us. |
• | We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations. |
• | We rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material adverse effect on our ability to conduct our business. |
• | The market price for the ADSs may be volatile. |
• | An active market for the ADSs may not be maintained. |
• | If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for the ADSs and trading volume could decline. |
• | Conversion of the convertible notes and exercise of the warrants we issued may dilute the ownership interest of existing shareholders, including holders who had previously converted their convertible notes. |
• | changes in national, regional or local economic, demographic or real estate market conditions; |
• | changes in laws and policies on rental housing, including but not limited to rent control laws or tenant protection laws; |
• | changes in job markets and employment levels on a national, regional and local basis; |
• | health epidemics, pandemics and similar outbreaks, including COVID-19; |
• | overall conditions in the rental market, including: |
• | macroeconomic shifts in demand for rental homes; |
• | inability to lease or re-lease homes to tenants on a timely basis, on attractive terms or at all; and |
• | development of branded apartment rental industry in China; |
• | failure of tenants to pay rent when due or otherwise perform their obligations in connection with the lease; |
• | significant number of early terminations of leases; |
• | level of competition for suitable rental homes; |
• | our ability to expand and manage our apartment network and maintain rapid business growth; |
• | our ability to manage our procedures, control and systems under different business models, including for rental apartments managed by our apartment managers or by third-party contractors; |
• | our ability to maintain high occupancy rate and target rent levels; |
• | our ability to raise rents; |
• | costs and time period required to renovate rental homes; |
• | unanticipated repairs, capital expenditures or other costs; |
• | our ability to maintain or renew favorable terms with financing partners and other strategic partners; |
• | our ability to maintain, deepen and broaden cooperation with financial institutions, service providers and other third parties; |
• | our ability to develop more value-added products and services; |
• | our ability to effectively control our operating costs and expenses; |
• | our ability to maintain the proper functioning of our technology systems and infrastructure; |
• | disputes and potential negative publicity in connection with early termination of leases with landlords, rental collection, eviction proceedings, quality control and other aspects of our business; |
• | costs resulting from the clean-up of, and liability to third parties for damages resulting from, environmental or safety problems; |
• | decoration and supply capabilities; |
• | our ability to increase our brand awareness; |
• | our ability to attract and retain employees; and |
• | changes in U.S. accounting standards regarding operating leases. |
• | upfront capital outlay for apartment sourcing and renovation; |
• | ongoing capital needs to maintain and operate apartments; and |
• | mismatch between our lease term with landlords, which generally provides a lease-in contract lock-in period of five to six years, subject to the extension for another two to three years at the option of landlords, and our lease term with tenants, which generally has a contracted term of 12 to 26 months and an average lock-in period of 9.3 months in FY 2020. |
• | soaring prices of residential real estates and extremely stringent home-buying requirements in top tier cities in China that have made it more difficult to purchase apartments, particularly for our target customers; |
• | favorable rental-related policies and other government support for increased rental options; |
• | increased number of “non-resident” population in top tier cities in China; |
• | favorable interest rates for financing and a strong and healthy credit market; and |
• | mismatch of supply and demand in China’s long-term apartment rental market. |
• | ability to source suitable and sufficient apartments across multiple regions with favorable terms including contract length, rental-free period, rent-in costs, etc.; |
• | ability to use big data analytics to establish competitive lease terms with both landlords and tenants; |
• | ability to establish sustainable unit economic model; |
• | ability to renovate and operate rental apartments in an efficient and cost-effective manner; |
• | ability to achieve high standardization and manage a complex supply network; |
• | ability to maintain financial flexibility; |
• | geographic coverage and customer reach; |
• | ability to set up IT and internet infrastructure; and |
• | brand awareness and customer satisfaction, including the availability and range of value-added services to help foster a sense of community and loyalty among tenants. |
• | maintain the reliability of our system; |
• | provide well maintained apartments to tenants; |
• | provide appropriate and explicit terms, including rental, to landlords and tenants; |
• | timely and effectively manage and resolve tenants and landlords inquiries, requests and complaints, such as returning the deposit and unused rental in a timely manner after the lease with tenant is terminated; and |
• | effectively protect personal information and privacy of our tenants, landlords, employees and third party contractors and service providers. |
• | revoking our business and operating licenses; |
• | levying fines on us; |
• | confiscating any of our income that they deem to be obtained through illegal operations; |
• | shutting down our services; |
• | discontinuing or restricting our operations in China; |
• | imposing conditions or requirements with which we may not be able to comply; |
• | requiring us to change our corporate structure and contractual arrangements; |
• | restricting or prohibiting our use of the proceeds from overseas offering to finance our variable interest entity’s business and operations; and |
• | taking other regulatory or enforcement actions that could be harmful to our business. |
(i) | continue our business in China through our contractual arrangements with the VIE and shareholders of the VIE, |
(ii) | exert control over the VIE, |
(iii) | receive the economic benefits of the VIE under such contractual arrangements, or |
(iv) | consolidate the financial results of the VIE. |