China SXT Pharmaceuticals

Kurta Law is investigating potentially unsuitable recommendations of China SXT Pharmaceuticals stock to investors. When companies conduct a stock offering, they must file a prospectus with the SEC. This document explains the company’s business strategy and the risks that investors should consider before purchasing shares. 

Investors seeking damage may be required by their brokerage firm to pursue FINRA arbitration instead of litigation in civil court. If you have concerns about your investment in China SXT Pharmaceuticals, contact (877) 600-0098 or email info@kurtalawfirm.com for a no-cost case consultation.

What is China SXT Pharmaceuticals?

According to the prospectus, China SXT Pharmaceuticals (SXTC) is a holding company that conducts its business through subsidiaries and its variable interests entity, Jiangsu Taizhou Suxuantang Pharmaceutical Co., Ltd. (abbreviated as “Taizhou Suxuantang”). China SXT Pharmaceuticals is incorporated in the British Virgin Islands, but Taizhou Suxuantang is based in China.

Through contractual agreements, China SXT Pharmaceuticals’ subsidiary Taizhou Suxantang Biotechnology Co. Ltd. (a wholly foreign-owned enterprise) holds “effective control over Taizhou Suxuantang” and receives “substantially all of [its] economic benefits.”

Collectively, China SXT Pharmaceuticals purportedly engages in the research, development, production, and commercialization of traditional Chinese medicine. Investors should be aware that, as the company explains in its prospectus, traditional Chinese medicine and pharmacology (TCMP) products are not required to undergo the same clinical trials as other pharmaceuticals under Chinese law.

What are the Risks Associated with China SXT Pharmaceuticals?

China SXT Pharmaceuticals discloses substantial risks in its prospectus. For example, the company does not expect to pay dividends to investors, instead expecting “to retain most, if not all, of [its] available funds and any future earnings” for business purposes.

Changes in PRC Regulations

As a Chinese company, China SXT Pharmaceuticals is subject to significant government oversight and influence. Its prospectus states that compliance with changes in central or local regulations could be costly, especially if the company is penalized for noncompliance.

The prospectus specifically identifies changes in cybersecurity regulations and the potential need to obtain permission from the PRC government to apply for listing on U.S. securities exchanges in the future as potential risks.

Potential Nasdaq Delisting

In 2021 and 2023, China SXT Pharmaceuticals received notifications that it had violated the Nasdaq Capital Market’s listing requirements by failing to maintain a closing price of $1.00 per share for 30 consecutive days. On October 4, 2023, the company initiated a one-for-twenty-five reverse stock split in an attempt to raise its stock price.

If the company’s stock is delisted from the Nasdaq, it could still be traded on over-the-counter markets like the OTC Bulletin Board. The prospectus notes that the share price could also be “depressed by the relative illiquidity” caused by this limitation.

Potential Short Selling Allegations

Notably, the prospectus states that “public companies listed in the United States that have a substantial majority of their operations in China have been the subject of short selling.”

If China SXT Pharmaceuticals is subject to short-selling allegations, the potential litigation or SEC investigations could have severe consequences for its business operations and stock price.

Risks of Pre-funded Warrants

The prospectus warns that the Pre-funded Warrants being offered are “speculative in nature” and have “no established public trading market.” The company also does not expect to list them on any national securities exchange.

The lack of an active market limits the liquidity of these warrants. Additionally, since the profitability of exercising these warrants depends on the price of the company’s ordinary shares, investors may not ever profit from them.

Aegis Capital Corp. Underwriting  

Investors should know that Aegis Capital Corp. served as the underwriter for this offering. Underwriters take on risk in exchange for a fee, which could motivate certain investment banks to underwrite investments that pose too much risk for the average retail investor. Additionally, brokers may have conflicts of interest when they recommend shares that are underwritten by an affiliate of their brokerage firm. 

What Can I Do If I Suffered Losses?

If you lost money on your investment in China SXT Pharmaceuticals, reach out to our experienced securities attorneys. Kurta Law attorneys have 5-star reviews on Google and a proven track record of earning fair settlements for our clients. Call (877) 600-0098 or email info@kurtalawfirm.com.