China Auto Logistics, Inc. (NASDAQ:CALI) revealed on Tuesday that Wuxi Huitong Automobile Sales and Services Co. Ltd. has fully acquired its Zhonghe subsidiary in a $62.30 million deal effective June 1.

Zhonghe owns and operate the Airport International Auto Mall in Tianjin and owns 40% of Tianjin Car King.

According to the filing with the Securities and Exchange Commission (SEC), the net proceeds will amount up to $21 million assuming the equity and debt transfer completion on March 31. This will result to a gain of nearly $6 million in the company’s total equity.

Cutting Losses

Tong Shiping, CALI CEO and Chairman, explained that the company’s acquisition of the Airport International Auto Mall came in at a very bad time given the unexpected turmoil in the Chinese economy. As a result, it led to significant losses. Depreciation expense in 2015 alone was seen at $2.20 million.

Meanwhile, the Zhonghe acquisition’s interest expense in 2015 was seen at nearly $3 million, which comes with a $523,000 related tax effect.

With the selling of the subsidiary, Tong noted that the losses will slowly disappear from CALI’s balance sheets in the long term. Consequently, the company expects a reduced operating loss while making operating profit. Furthermore, the increased capital will allow CALI to tap on potential growth opportunities following the transaction.

Q1 Financial Results

During the first quarter, CALI had a net revenue of $137.39 million, which shows a gain of $57.29% year-over-year. Nearly 99% of the revenue can be attributed to strong automobile sales during the period.

CALI’s gross profit during the first quarter also jumped 165.25% to $1.28 million from last year’s $481,842. Meanwhile, profit margins climbed to 0.93% from the profit margin of 0.55% during the same quarter in 2015.

The net loss attributed to shareholders for the period, on the other hand, was seen at $0.26 per share. This is slightly better than the net loss of $0.66 a share during the same period last year.

CALI’s working capital deficit was seen at $31.85 million at the end of the quarter. This includes current liabilities payable to Hezhong related to the Zhonghe acquisition and for short term borrowings of $36.68 million and $62.66 million respectively.