The Company provided 3M with financial estimates through 2013. The most noteworthy item was the drastic cut in gross margins beginning in 2011. The Company projects 66 percent gross margins in 2010, in-line with management's historical projections of 60 to 65 percent. However, 2011 estimates show a reduction to 57 percent gross margins. During the second quarter earnings call, the Company continued to reiterate that 2011 looks promising and was excited about business prospects.How does this compare to the fact that management is now projecting a 900 basis point decline in gross margins year over year? Should the gross margins remain at historical levels, we believe the Company would produce in excess of $60 million of EBITDA in 2011. Are these estimates that management provided to 3M too conservative or has there been a material adverse change to the outlook by Cogent's management?
It appears to us that December 30, 2010 is an arbitrary date with one caveat: the proposed tax changes to long-term capital gains. At $10.50 per share, it is unlikely that many shareholders have long-term gains at this price so the proposed tax change may be a moot point. The only shareholder with a significant long-term capital gain to speak of is the Company’s CEO. While we understand his position, the lack of fiduciary responsibility to shareholders is very evident.