China Ginseng Holdings Inc. is focusing on agreements with distributors to grow revenue after raising concerns about staying in business.

The Changchun City, China-based company is still hurting from the 2008 recession, when ginseng oversupply in China caused exports to slow, contributing to the company’s losses.

China Ginseng has since shifted focus from ginseng production to making ginseng beverages and wine, the company says in a filing with the U.S. Securities and Exchange Commission. Before the company switched gears, it farmed, processed and distributed fresh ginseng, which is used as a health supplement and in beauty products. The company still grows and produces some ginseng but also buys some from outside sources.

The company sells Asian and American versions of the ginseng beverage, Binqing Ice Wine and Pearl in the Snow brand wine.

In an Oct. 15 SEC filing, China Ginseng’s accountant, Cowan Gunteski & Co. PA, raised doubts about the company’s ability to continue as a going concern, or without the threat of liquidation, given the company’s deficit and negative working capital.

China Ginseng has an accumulated deficit of about $9.4 million, and a negative working capital deficit of about $1.2 million, according to SEC filings.

For the year ended June 30, the company’s revenue declined 17 percent to about $3.6 million, down from about $4.3 million. China Ginseng says that decrease was primarily due to fewer sales. The company’s net loss increased about 25 percent to about $3.6 million for the year ended June 30, from $2.9 million the year before. As of June 30, the company had about $19,454 in cash.

The company has an 8 million RMB bank loan (about $1.26 million) from Meihekou City Rural Credit Union that matures Aug. 29, 2014.

China Ginseng was also negatively affected by the August 2012 typhoon Bolaven, which hit a ginseng farm used by the company. The company does not expect to harvest ginseng from that farm until 2018. The company has stored ginseng and says it will still be able to make about 1 million cans of juice.

The company has not been able to turn a profit from the new business, but says it expects to, citing China’s recovering ginseng market and binding agreements with ten distributors.

China Ginseng also says that new ginseng beverage and wine businesses are still in the early stages, and it needs to spend money to promote new products and develop a marketing plan. The plan includes adding different package sizings to its beverages and setting up an online shopping platform, says Melissa Chen, the secretary of the company's board.

In order to handle the capital strain, the company has taken several steps, including raising about $50,000 through a private placement, SEC filings show.

The company is also recruiting distributors for ginseng beverages and wine products, and plans to recruit one general distributor for the juice and one for the wine in each city where the products are sold.

On June 30, the company sold subsidiary Tonghua Linyuan to Wenkai Wang. Wang assumed about $2 million in Tonghua’s liabilities, SEC filings show. The company grows and reserves grapes for wine production, but produces the wine through a third party, according to SEC filings. As of today, "the company has no plan to sell any other subsidiaries," Chen says.

China Ginseng is considering M&A as part of its strategy, according to Chen, who says that a new loan would be a good way for the company to acquire additional assets to increase its value.

There are about 10 other ginseng drinks in the market, China Ginseng says in SEC filings. However, the company says that it uses a different technology that it patented in 2008 that should allow it to compete.

For last week’s edition of Turnaround Tuesday, see “Struggling WPCS Sells Assets.” 

For more troubled companies, check out Mergers & Acquisitions’ Distressed Company Watch List. 

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