Technology Solutions Liquidation - Update

Today, Technology Solutions Company (TICKER: TSCC) filed its preliminary proxy materials related to the Plan of Complete Liquidation and Dissolution of the Company. According to the plan (and consistent with my prior post and original Plan), the Company expects to make an initial liquidating distribution of at least $2/share immediately following shareholder approval of the Plan. In addition, the Company stated that the initial liquidating distribution could be higher, depending on when the non-cash assets are monetized. Also, as indicated in the Plan the Company intends to make additional liquidating distributions to the shareholders. Total distributions are expected to range from $2.39 to $2.69 per share in cash, which is inclusive of the initial liquidating distribution of $2/share. The stock closed up to $2.30 today, or 8.49% above the $2.12 price mentioned in my original post last week.

The company anticipates that a majority of the remaining distributions will be made by the end of 2009.

Summary of Liquidation Estimets (Preliminary Proxy pg. 23)



The table above demonstrates that a considerable portion of the expected liquidation distributions will come from assets with highly ascertainable values. Over 78.8% of the total estimated assets (based upon the low estimate) is cash deposited at the Harris Bank in Chicago. The expected cash collections are primarily trade receivables due from various hospitals, which should be collected with virtually little problems.

The primary note collections are related entirely to two outstanding notes from the sale of the Company's subsidiary companies. The first note is payable by EnteGreat Solutions, LLC for the sale of the Company's SAP Practice. The total amount due under the note is $380,271, and is due April 29, 2009. The second note is payable by Valkre Solutions, Inc. for the sale of the Company's CVC Practice, and is due in two equal installments on March, 31st and June 30th 2009 for $135,918 (I suspect that these values, when added together, are slightly higher than the value indicated in the table because the Company discounted them). Moreover, the interest earned relates to interest payable on the cash balances on the Company's bank account. Collectively, these assets equal over 95.66% of the estimated realizable value of the Company's assets under the low estimate; these value should not change going forward, and if they do their effect on the ultimate distribution will be de minimis.

While the prelimary proxy materials do not provide detailed infomation on the assets underlying the "estimated sale of assets" category of their liquidation distribution estimates, the amount is most likely related to approximately $768,000 in capitalized software and development costs for the Company's Blue Ocean medical software, which reached technological feasibility during the 2nd quarter of FY 2008. I suspect that these assets will be sold relatively quickly due to a one line sentence in the Background portion of the preliminary proxy materials that states: "Since the announcement of the approval of the Plan of Dissolution by the Board, Mr. Silva-Craig has been approached by numerous parties with respect to the possible purchase of various assets of the Company." Also, as aside another party who is interested in effecting a reverse merger with the Company has contacted Mr. Silvia, a transaction which, if structured correctly, could lead to additional value for TSCC shareholders.

The only real uncertainty is related to the total estimated liabilities. I must admit that estimating the total amount of such expenses is totally beyond my level of competence. However, I believe a reasonable margin of safety is to increase the high estimate by 10-15%. Under such an assumption total estimated liabilities would range between $2,756,122.6 and $2,881,400.9. Thus, if the non-cash assets are sold for the average of the low and high estimate, or approximately $687,500, then the "likely" distribution could range between $2.36-$2.41/share, which is near the Company's low estimate. The 10-15% increase in high expenses, however, may be entirely unreasonable given that most of the estimated expenses are fixed. Therefore, if we simply use the Company's high estimate as a proxy for total expenses, then the "likely" estimated distribution is approximately $2.51/share, which represents a decent premium to my acquistion price of $2.12/share (approximately 18.39%, or 24.52% on an annualized basis if we assume distriubtions are made on or before December 31st, 2009).