What happened to Aulon Arch?
Five years ago in 2018, Aulon appeared doing well. Aulon owned three multi-unit rental properties, a large stake in a successful ice cream company, an auto repair business, and a healthy stock portfolio. But trouble was brewing in the ice cream business. For the first time in its 15 year history, the ice cream business did not make a profit in the summer (its strongest season) and faced bankruptcy. Two years earlier in 2016, the ice cream business built a factory with excess capacity, anticipating future growth. That caused the ice cream company to lose money in 2016, more in 2017, and even more in 2018. The expansion of ice cream stores, and the growth in sales and margins that were anticipated, did not materialize. This is all obvious now. At the time, based on the long-term growth and success of the business, the problems appeared to be temporary.
Trouble was also brewing in our real estate business. We planned to build two new apartments on the ground floor of an historical building we owned. But getting permits took far longer than planned and the construction was protracted.
In 2018, we made the difficult decision to try to save the ice cream business by putting more capital into it. This would prove to be our undoing. We made additional investments in the ice cream business with "strings attached." By contract, Aulon was supposed to be in charge of the company's finances going forward. But we soon learned that not being in control of operations and growth (where money gets spent) and lacking a voting majority to over-ride management, meant that our nominal control of the finances was illusory. At this point, the losses from that business became overwhelming. Our other resources — our stock portfolio and the equity we had in real estate — were tapped to prop up the ice cream business until it failed in January 2023.
Another question, naturally arises... What role did the COVID pandemic play in these events? While hard to quantify, there is no doubt that, at a minimum, COVID stressed the business. We took advantage of loan programs offered by the federal government, but as you will remember, the rules for closing and re-opening restaurants constantly changed, and this deeply affected the ice cream business. The pandemic also led to increasing construction costs in our real estate development. For example, building planners were unavailable and inspectors could not visit a construction site in person, which caused delays. The cost of construction materials increased and their availability also declined. In short, uncertainty, rising costs, and delays resulting from the pandemic took a toll.
Is Aulon Arch still running?
As of December 2023, Aulon is still running, but it is winding down. At this point, Aulon's liabilities are greater than its assets. Given the adversarial approach some of Aulon's partners and creditors are taking, it seems futile to continue pouring more energy and capital into Aulon. Therefore, while Aulon is not closed yet, the outlook is not favorable.
Can I sell my stock in Aulon in 2023 (to get the tax benefit of a long-term capital loss)?
Please consult your CPA to find out if this benefit you. To sell your stock in Aulon, either before the end of the year or next year, click here for instructions on how to sell your stock and to download the necessary form(s).
If I have an IRA, how do I close it to avoid paying unnecessary fees?
The annual cost of maintaining your IRA is approximately $500 per year. (The precise answer depends on whether your IRA is held by Provident or Strata, along with other factors.) Until now, some of these fees have been paid by Aulon and others have been paid by shareholders. Going forward, Aulon cannot afford to pay any of these fees, and if the IRA is maintained, the full burden will fall on shareholders. Given the low likelihood that Aulon's stock will recover, it no longer makes sense to keep paying these fees. It is recommended that you take your stock out of your IRA and re-register it in your own name. Click here for instructions on closing your IRA.
My IRA has a small cash balance held by the custodian [Provident or Strata]. Should I withdraw the cash when I close the account?
You can either take a distribution of the cash (with possible tax due) or roll it over to another IRA account. You may want to consult your CPA or other financial advisor on this question.