NCM Services Inc. (NCMV)

[zen222]

Yes, I'm quite sure:

PROPOSAL 3

AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO RESTRICT CERTAIN ACQUISITIONS
OF OUR SECURITIES IN ORDER TO HELP ASSURE THE PRESERVATION OF OUR TAX NET
OPERATING LOSS CARRYFORWARDS

INTRODUCTION

For the taxable year beginning April 1, 2003, the Company had available tax
operating loss carryforwards ("NOLs") of approximately $122.9 million to offset
taxable income recognized by the Company in the future. NOLs benefit the Company
by offsetting taxable income dollar-for-dollar by the amount of the NOLs,
thereby eliminating (subject to a relatively minor alternative minimum tax) the
federal corporate tax on such income. The benefit of the NOLs can be reduced or
eliminated if the Company undergoes an "ownership change" (as described below)
through transfers of stock by which stockholders or groups of stockholders, each
of whom owns at least 5% of the Company's stock, increase their ownership of the
Company's stock by more than 50 percentage points within a three year period.
The Board of Directors believes the best interests of the Company and its
stockholders will be served by adopting provisions (the "Transfer Restrictions")
in its Certificate of Incorporation that are designed to restrict direct and
indirect transfers of the Company's equity securities if the effect would be to
increase the ownership of stock by any person to 4.9% or more of the Company's
stock, would increase the percentage of stock owned by a person owning 4.9% or
more of the Company's stock or would create a new public group, whose ownership
of the Company's stock could give rise to an "ownership change". The Transfer
Restrictions will not, however, be applicable to the stock owned by any existing
5-percent stockholder (within the meaning of Section 382 of the Internal Revenue
Code of 1986, as amended (the "Code")), other than any direct public group, on
the date the Transfer Restrictions become effective, and do not apply to sales
of stock in the market by holders of less than 4.9% of the Company's stock to
persons who, taking the purchase into account, own less than 4.9% of the
Company's stock.

The affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote thereon is required for approval of an amendment to the
Company's Certificate of Incorporation. The Transfer Restrictions would be
adopted as an amendment to the Certificate of Incorporation of the Company as
Article Ninth. STOCKHOLDERS ARE URGED TO READ CAREFULLY THE ACCOMPANYING EXHIBIT
A WHICH SETS FORTH THE TRANSFER RESTRICTIONS. The Transfer Restrictions have
been approved by the Board. The discussion set forth below is qualified in its
entirety by reference to the accompanying Exhibit A.

PURPOSE OF THE TRANSFER RESTRICTIONS

The Transfer Restrictions are designed to restrict direct and indirect transfers
of the Company's stock that could result in the imposition of limitations on the
use by the Company, for federal income tax purposes, of the NOLs and other tax
attributes that are and will be available to the Company, as discussed more
fully below.

THE COMPANY'S NOLS AND SECTION 382

For the taxable year beginning April 1, 2003, the Company had available NOLs of
approximately $122.9 million to offset taxable income recognized by the Company
in the future. NOLs benefit the Company by offsetting taxable income
dollar-for-dollar by the amount of the NOLs, thereby eliminating (subject to a
relatively minor alternative minimum tax) the federal corporate tax on such
income. The maximum federal corporate tax rate is currently 35%.

The benefit of a corporation's NOLs can be reduced or eliminated under Section
382 of the Code if a corporation undergoes an "ownership change," as defined in
Section 382. Generally, an ownership change occurs if one or more stockholders,
each of whom owns 5% or more in value of a corporation's capital stock, increase
their aggregate percentage ownership by more than 50 percentage points over the
lowest percentage of stock owned by such stockholders at any time during the
preceding three-year period. For this purpose, all holders who each own less
than 5% of a corporation's capital stock are generally treated together as one
(or, in certain cases, more than one) 5-percent stockholder. Transactions in the
public markets among stockholders owning less than 5% of the equity securities
generally are not included in the calculation (but can be if a loss corporation
has more than one public group). In addition, certain constructive ownership
rules, which generally attribute ownership of stock owned by estates, trusts,
corporations, partnerships or other entities to the ultimate indirect individual
owner thereof, or to related individuals, are applied in determining the level
of stock ownership of a particular stockholder. Special rules, described below,
can result in the treatment of options (including warrants) or other similar
interests as having been exercised if such treatment would result in an
ownership change. All percentage determinations are based on the fair market
value of a corporation's capital stock, including any preferred stock that is
voting stock, is convertible stock or is stock which participates in corporate
growth.

If an ownership change of the Company were to occur, the amount of taxable
income in any year (or portion of a year) subsequent to the ownership change
that could be offset by NOLs or other carryovers prior to such ownership change
could not exceed the product obtained by multiplying (i) the aggregate value of
the Company's stock immediately prior to the ownership change (with certain
adjustments) by (ii) the then applicable federal long-term tax exempt rate (the
"Section 382 limitation"). In addition, to the extent the Company is determined
to have a net unrealized built-in loss (generally defined as the excess of the
tax basis of the Company's assets over their fair market value) which is greater
than the lesser of (i) 15 percent of the fair market value of the Company's
assets and (ii) $10 million, in the event of an ownership change, any net
unrealized built-in losses recognized within the five-year period beginning on
the date of the ownership change would be subject to the Section 382 limitation
(as if it were a pre-change NOL). The Company believes that it currently has a
substantial built-in loss with respect to its assets. Any portion of the annual
Section 382 limitation amount not utilized in any year may be carried forward
and increase the available Section 382 limitation amount for the succeeding tax
year. Thus, the effect of an ownership change could be to reduce significantly
the annual utilization of the Company's NOLs and to cause a very substantial
portion of the NOLs to expire prior to their use.

From the 14A filed OCTOBER 7, 2003

http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=2525490

Proposal 3 passed. And then:

if we underwent an ownership change, the NOL carryforward
limitations would impose an annual limit on the amount of the taxable income
that may be offset by our NOL generated prior to the ownership change. If an
ownership change were to occur, we would be unable to use a significant portion
of our NOL to offset taxable income. In general, an ownership change occurs
when, as of any testing date, the aggregate of the increase in percentage points
of the total amount of a corporation's stock owned by "5-percent shareholders"
(within the meaning of the NOL carryforward limitations) whose percentage
ownership of the stock has increased as of such date over the lowest percentage
of the stock owned by each such "5-percent shareholder" at any time during the
three-year period preceding such date, is more than 50 percentage points. In
general, persons who own 5% or more of a corporation's stock are "5-percent
shareholders," and all other persons who own less than 5% of a corporation's
stock are treated, together, as a single, public group "5-percent shareholder,"
regardless of whether they own an aggregate of 5% of a corporation's stock.

The Board of Directors adopted an amendment to the Companys' Shareholders Rights
Plan ("Rights Plan") which reduces the triggering of the Rights Plan from 15% of
the common stock to 5% of the common stock.

Any transfer restrictions will require any person attempting to acquire a
significant interest in the Company to seek the approval of our Board of
Directors. This may have an "anti-takeover" effect because our Board of
Directors may be able to prevent any future takeover. Similarly, any limits on
the amount of capital stock that a stockholder may own could have the effect of
making it more difficult for stockholders to replace current management.

PROVISION FOR INCOME TAXES

We account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Income tax expense consists of
foreign income tax withholding on foreign source royalties paid us. As of March
31, 2004, we had net operating loss carryforwards for U.S. federal income tax
purposes of approximately $123,000,000 and for U.K. income tax purposes of
approximately $3,860,000 and for state income tax purposes of approximately
$31,770,000. We also had research and development credit carryforwards for
federal income tax purposes of approximately $3,426,000 and for state income tax
purposes of approximately $1,506,000. Utilization of our U.S. net operating loss
and research credit carryforwards will be subject to annual limitations based on
the "change of ownership" provisions of the Tax Reform Act of 1986. These
limitations may result in the expiration of net operating loss and research
credit carryforwards before utilization.

From the 10K filed August 12, 2004

http://www.otcmarkets.com/edgar/GetFilingHtml?FilingID=3121797

NOL's still there and ready to be used.