Winland Holdings: OTC Crypto Mining Stock With Mt. Gox Claims

WELX could serve as a vehicle for crypto exposure, and a "hidden asset" and other factors provide further reason to own Winland Holdings.

Winland Holdings Corporation (WELX)

Winland Holdings (OTCMKTS:WELX) is an OTC-listed nanocap, that while perhaps obscure to most broad market participants, could be considered fairly well-known in the microcap/nanocap space.

Mainly, for the company’s relationship with FRMO (OTCMKTS:FRMO) and Horizon Kinetics, as well as for Winland transformation into a crypto-focused entity, sort of like I micro-cap/OTC version of Microstrategy (NASDAQ:MSTR).

However, while many may be familiar with Winland, and the fact that, similar to Microstrategy, the company trades at a big premium to its cryptocurrency holdings, at the same time you may also be curious to know how one less-talked about factor plays into WELX’s valuation and long-term prospect: the potential upside from a key “hidden asset.”

With this, let’s dive in, investigate this “hidden asset” and its possible ultimate value, and see how this factor, along with additional factors, may result in further gains ahead for WELX.

Winland Holdings: Background

Headquartered in Mankato, Minnesota, Winland Holdings was formed as Winland Electronics in 1972. The company went public in 1984, at an IPO price of $2.50 per share. While this article from 1999 suggests Winland, a manufacturer of industrial control and monitoring products and related software, was a thriving business at the turn of the 21st century, by the 2010s, that was no longer the case.

With the operating business struggling, WELX had fallen not just from past highs, but to prices well below its IPO price more than 25 years prior.

It was at this time that Winland began its journey from sleepy industrial manufacturer to crypto investing vehicle. Buying it at prices in the 60 to 70 cent per share range, investors Thomas Braziel and Matthew Houk gradually gained control of Winland. Shortly after that, this group of outside investors was successful in returning the company to profitability. FRMO, a publicly-traded holding company associated with investment firm Horizon Kinetics, who is also Houk’s full-time employer, began accumulating a WELX stock position.

Seeking to capitalize on Winland’s cash position, as well as millions in unused NOL carryforwards, the company’s management began diversifying, investing excess capital into some truly alternative investments. How alternative? How about a preferred stock/revenue share investment in a for-profit museum exhibition, for one?

Oddball side investments aside, WELX did make an alternative investment that could prove to be extremely profitable in hindsight. As some may recall, during the late 2010s, Thomas Braziel invested in trade claims from the Mt. Gox crypto brokerage collapse. Winland invested alongside Braziel, investing $350,000 into such claims.

As the years progressed, Braziel’s involvement with Winland diminished, and from there, Houk/FRMO took the reins. While retaining the legacy electronic controls business, Winland shifted its primary focus to that of a crypto mining and holding company.

Alongside shifting focus to crypto, FRMO began in what has become a continued gradual accumulation of a greater economic interest in WELX. Either through open market purchases, or from swapping crypto mining equipment in exchange for stock, FRMO has significantly increased its WELX position.

The holding company now holds a 40.1% stake. Houk owns or controls shares representing 13.8% ownership.

Valuation

To determine the underlying value of WELX stock, we’ll assess the value of each component of Winland Holdings. First, we’ll look at Winland Electronics. WELX’s legacy business continues to chug along. During the nine-month period ending Sep. 30, 2024, Winland Electronics generated around $2.9 million in revenue.

Annualized, this comes to around $3.8 million. For the nine months ending Sep. 30, 2024, Winland also reported $199,000 in pre-tax income for the business, along with $18,000 grand in depreciation. This suggests EBITDA of around $217,000 for the period, or around $289,000 on an annualized basis.

Given its small size, I would argue that, if acquired by a strategic buyer, Winland Electronics’ product lines could be integrated into a strategic buyer’s existing operations, eliminating the need for most, if not all, of Winland’s G&A expenses as an independent entity.

Hence, it may be best to value this business at a multiple of sales rather than applying an EBITDA multiple. A look at similar names on Seeking Alpha suggests that applying a 2x sales multiple to this business is reasonable. This gives us a valuation of around $7.6 million.

Now, onto Winland Capital. This subsidiary’s primary asset is the aforementioned Mt. Gox claims. Winland continues to value Mt. Gox claims at their acquisition cost ($350,000), but even a cursory look online will tell you that the likely true value of these claims far exceeds this amount.

The question is “how much” do the value of these claims exceed book value? In a 2020 FRMO shareholder letter, FRMO Chairman and CEO Murray Stahl valued these claims at $600,000. As a site known as RetailEdge.com noted in a 2022 blog post, based on BTC prices at the time Winland purchased the claims, once the Mt. Gox liquidation is completed (expected to occur later this year), the company could receive between 70 and 350 Bitcoins.

Hence, at current prices, the Mt. Gox claims could be worth between $6.35 million and $31.7 million. However, before you run out and buy WELX, on the view that a $30 million+ windfall is on the horizon, consider the following. First, as noted in the 2022 blog post on WELX’s Mt. Gox catalysts, the company will have to remit some of the proceeds, both to the original claimant, as well as to Braziel’s investment firm, 507 Capital.

Second, more recent discussion further narrows the amount of BTC WELX will receive, to a range of between 60 and 100 BTC, worth between $5.43 million and $9.06 million. For the purposes of our analysis, let’s use this valuation range to calculate the potential value of these claims.

Finally, taking a look at Winland Mining, we see that this entity is sitting on 77 Bitcoin, as well as 309 cryptocurrencies units classified as “Other coins,” presumably a combination of Litecoin and Bitcoin Cash (BCH). At current prices, Winland Mining’s BTC reserves are worth around $7 million, while the “Other coins” were on the books at a valuation of $26,000 as of Sep. 30, 2024.

Source: Winland Holdings 2024 Q3 Quarterly OTC Filing

Putting it all together, we get the following:

• Winland Electronics: $7.6 million

• Winland Capital (Mt. Gox claims): $5.43 million-$9.06 million

• Winland Mining :$7 million

Add in a total of $1.18 million in cash on hand, and with zero debt, my valuation estimate for WELX comes to between $20 million and $23.7 million, or between $4.07 and $4.82 per share. With the stock selling for $5.05 per share, at current prices Winland Holdings is selling for around 1.05x-1.24x its underlying value.

Despite Fully-Valued Status, There’s a Path to Even Higher Prices

Winland Holdings may sell at a premium to its current underlying value, but don’t assume this means there’s zero value in buying this stock. For one, as fellow Substack publisher Small-Cap Value Degen noted back in November, owning WELX could serve as a solid vehicle for cryptocurrency exposure.

Why? Per Value Degen, not only is most of its value represented from ownership of Bitcoin and other cryptocurrencies, but through its mining operations, the company has continued to increased its crypto exposure over time.

Value Degen is of course not the only commentator to hold this view. In fact, FRMO Chairman and CEO Murray Stahl practically laid out a similar bull case for WELX, on a recent FRMO Corporation conference call.

On the call, Stahl provided a moderate about of commentary and color on Winland. For instance, Stahl noted that, once FRMO crosses the 50% ownership mark, and Winland becomes a reporting subsidiary of FRMO, the company will reveal more information about Winland’s mining strategy, and how it differs greatly from the competition.

It should be noted that while Winland provides quarter and annual financials, as a Pink Sheet-listed company it’s not required to file 10-Qs and 10-K. Hence, the amount of information out there about Winland Holdings is limited.

However, in the event FRMO gains majority ownership, proving greater detail about its Winland subsidiary in subsequent financial disclosures, this could benefit the stock in a big way, as an increased number of investors become more aware with WELX and its crypto strategy.pto strategy.

Along with this, there are some other possible catalysts. When Winland finally releases financials for the quarter ending Dec. 31, 2024, chances are the company will report a massive accounting gain, thanks to the late-year run-up in BTC prices. This news could elicit a positive reaction among investors.

Later this year, the Mt. Gox liquidation could complete. If Winland ends up getting a far larger amount for its claims than the aforementioned $5.43 million-$9.06 million range, this too could lead to another surge for shares.

Atop all of this, is the possibility that FRMO simply buys out minority shareholders, and makes Winland a wholly-owned subsidiary. This could in theory happen at any time, but keep in mind that Winland is sitting on millions in NOLs, and its possible that FRMO is slowly increasing its stake, in order to avoid triggering Section 382 limitations.

Risks to Consider

Key risks for Winland include low liquidity and relatively limited information compared to a stock listed on a major exchange. WELX does publish financials for public viewing, which are available to view on OTCMarkets.com’s ticker page for WELX, but these are not widely disseminated.

Yes, given this is an OTC Pink Sheets stock, some may be concerned how OTCMarket’s replacing of the Pink Current Market with OTCID will impact valuations. More stringent and standardized reporting practices could in theory disquality WELX from moving to the OTCID index.

If WELX were to fall down to the OTC Pink Limited or Expert markets, this would lock out non-accredited retail investors, and could have a severely negative effect on price performance.

If WELX were to become an Expert Market stock, non-accredited retail investors would by-and-large be shut out of purchasing shares. While they would be likely able to sell these shares, based upon experience with stocks that went from being fully available to becoming Expert Market listed, shares will likely decline in value.

That said, I’m not fully concerned that WELX runs the risk of moving to an even less liquid OTC market. At least, based on Murray Stahl’s Winland commentary on the FRMO conference call discussion.

That would be FRMO’s continued swapping of crypto mining equipment for newly-issued shares. As Stahl himself put it on the call:

“The shares which used to buy equipment -- the shares are issued on day one. The equipment takes some number of months to breakeven. In our specific case, we're buying, we're going to break even in -- depending on the breaks eight or nine months. So the dilution is immediate because the shares are there. It takes eight or nine months to make up for it, and then we progress.”

Yet while FRMO’s “mining rigs for shares” strategy could drive short-term dilution, this could possibly work in your favor, if it results in weakness for FRMO, enabling one to accumulate a meaningful position in this less-liquid stock.

Bottom Line on WELX Stock

Braziel, Houk, and FRMO may have been able to buy into WELX at deep value prices, but none of us have that luxury anymore. Barring a situation where the Mt. Gox claims end up being worth $30m+, chances are WELX trades at a valuation reflective of its underlying assets, and then some.

However, if you buy into the bull case laid out by Murray Stahl and others, that owning a Bitcoin mining company whose BTC/crypto exposure steadily increases over time, is a superior vehicle than a Bitcoin ETF or other investing vehicle, WELX could prove worthwhile.

Furthermore, if you are bullish that increased information about this company, and/or positive surprises regarding either the Mt. Gox claims or Winland Mining’s quarterly crypto production, there may be merit in entering a position as well.

DISCLOSURE: As of Publication, The author (Thomas Niel) held a position in BTC.

DISCLAIMER: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation from WELX or any other entity for writing this article. I have no business relationship with WELX, or any other company referenced.This article is for informational purposes only, and should not be construed as investment advice. Please consult your financial advisor before making any investment decision. WELX is an illiquid stock with low trading volume. Please be aware of the risks associated with this stock. Do your own due diligence, and caveat emptor.