The pharmaceutical e-commerce listed company, Sichuan Hezong Medicine Easy-To-Buy Pharmaceutical Co.,Ltd. (ASX: 300937), announced three equity acquisitions with a nominal price of 1 yuan each on July 13th. The market interpreted this as a strategic move to extend downstream and complete its SBbC full-industry-chain layout. However, stripping away the low-price gimmick, all three target companies are insolvent, with a combined net debt of nearly 15 million yuan. Coupled with the company's own fundamentals of continuous losses, internal control failures, and stalled capital operations, this acquisition spree is far from a bargain-hunting opportunity. Instead, it starkly exposes concentrated risks related to debt, profitability, and compliance.

Acquisitions Conceal Massive Hidden Costs, Concentrating Debt and Capital Commitment

The nominal consideration for the three deals totals just 3 yuan, but the real costs are hidden in unpaid capital contributions and existing liabilities, forcing the listed company to passively assume massive financial obligations.

Firstly, the responsibility for fully paying up the registered capital of the targets has been entirely transferred to the acquirer. For the 65% stake acquired in Flash Delivery Easy-To-Buy, a related party of the chairman, the corresponding 3.25 million yuan in subscribed capital must be fully paid by the listed company. For Easy-To-Buy For The People and Yuxin Traditional Chinese Medicine Family, there are contingent capital contribution responsibilities of 8.1 million yuan and 4.48 million yuan respectively. Should the original shareholders fail to fulfill their contributions, the acquirer would be obligated to cover the shortfall, resulting in a total potential capital commitment exceeding 15.8 million yuan.

Secondly, all existing liabilities of the three companies will be consolidated into the group's financial statements. As of the end of March 2026, Yuxin Traditional Chinese Medicine Family had liabilities of 24.271 million yuan, with an asset-liability ratio exceeding 180%. Easy-To-Buy For The People had liabilities of 5.348 million yuan. Both retail entities have been operating at long-term losses, continuously generating operational funding gaps. Although Flash Delivery Easy-To-Buy is smaller in scale, its supporting supply chain business is unlikely to be profitable in the short term. The combined net asset deficit of the three companies is nearly 15 million yuan, meaning all historical losses, accounts payable, and operational expenses will be borne by the listed company post-acquisition.

Thirdly, post-merger integration will continuously consume cash flow. Adding three new business lines—offline chain pharmacies, TCM e-commerce, and smart warehousing—will increase management expenses due to store renovations, system integrations, and personnel management. The targets themselves have weak self-sustaining capabilities. Easy-To-Buy For The People is continuously unprofitable, while Yuxin Traditional Chinese Medicine Family only achieved a small profit in the first quarter, casting doubt on its full-year profitability. In the short term, these entities are unlikely to support the parent company financially and will instead persistently drain its capital.

Core Business Losses Strain Cash Flow, Acquisitions Further Weaken Profitability

This industrial acquisition spree occurs against a backdrop of deteriorating operations for the company, with the triple pressures of losses, receivables collection, and funding chain risks compounding. The acquisitions may amplify these performance risks. In 2025, the company reported its first annual loss since listing. While revenue grew slightly by 1.35%, it incurred a net profit attributable to shareholders of -12.8515 million yuan. The results were a significant downward revision from a previously forecasted profit of 2.8 to 4.2 million yuan, prompting a regulatory inquiry from the stock exchange. The company acknowledged major internal control deficiencies in its financial accounting, with errors in accounting estimates and projections for its equity-invested companies.

Operations showed no improvement in 2026. First-quarter revenue declined 2.08% year-over-year, with a net loss attributable to shareholders of 2.7202 million yuan, marking the fourth consecutive quarter of losses. Accounts receivable surged 130% to 382 million yuan, collection cycles lengthened, and operating cash flow remained under pressure. Consolidating three loss-making entities on this shaky foundation will directly drag down the group's consolidated profits. Adding mandatory expenditures such as capital contributions, repayment of target company debts, and store operational investments will further strain the company's already tight cash flow, significantly increasing the difficulty of returning to profitability in the near term.

Internal Control and Governance Deficiencies, Highlighting Risks in Related-Party Transactions and Audit Compliance

These acquisitions simultaneously expose two major compliance risks: corporate governance and audit rectification. Internal control weaknesses remain unaddressed while new business management challenges emerge. Firstly, the acquisition of Flash Delivery Easy-To-Buy constitutes a related-party transaction, as the target is a company controlled by Chairman Chen Shunjun. Although the stated intent is to streamline internal operations and reduce related-party dealings, the transaction pricing and assumption of capital contribution obligations are borne solely by the listed company. The lack of performance guarantees or compensation clauses for minority shareholders has raised market suspicions of potential benefit transfer.

Secondly, the two retail acquisitions directly serve to eliminate the qualified opinion on the 2025 annual report. The previous annual report received a qualified audit opinion due to restrictions on the audit scope of an equity-invested company. The company aims to rectify this by acquiring full ownership and consolidating the entities. However, this indirectly confirms its insufficient financial control over these invested enterprises. Adding three new wholly-owned subsidiaries at once and consolidating multiple business formats—offline pharmacies, e-commerce, and warehousing—will drastically increase the workload for financial accounting, inventory counting, and revenue recognition. It is questionable whether the existing internal control system can adequately cover these new operations, potentially leading to further audit issues.

Overall, the 1-yuan acquisitions may be merely a short-term speculative gimmick in the capital markets. Behind them lies a desperate, passive self-rescue attempt by the company to resolve audit problems and complete its industry chain layout. However, the ultimate effectiveness of these acquisitions remains highly uncertain.