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was resolved. He, however, did not have the necessary resources
to exploit his rights in the patent. Petitioner was willing to
put money into Leland Prentice’s business in order to share in
the profits when it became successful.
During October or November 1987, Color Trick was organized
pursuant to Florida law. Leland Prentice and his wife, Faye
Prentice, were issued 700 shares of Color Trick’s stock, Leland
Prentice’s son, Stanley Prentice, and his wife were issued 100
shares, and petitioner was issued 200 shares, a 20-percent
interest in the corporation. Petitioner paid $5,000 for the
shares. The directors of the corporation were Leland Prentice,
Faye Prentice, and petitioner. Color Trick was an S corporation.
On January 28, 1988, Leland Prentice assigned the patent to Color
Trick.
From 1987 through 1989, petitioner advanced funds and made
and guaranteed loans to Color Trick. Petitioner continued to
make loans to Color Trick because he believed its business could
be profitable. Petitioner received promissory notes for some of
the advances and loans. Petitioner’s loans and advances to Color
Trick were used to finance its operations and to purchase
equipment. From 1987 through 1989, petitioner devoted time and
effort to Color Trick’s business but received no compensation
from Color Trick. During the period of its operation, Color
Trick experienced continuing difficulties due to lack of sales,
equipment problems, and an excessive number of employees.
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