Edwin A. Helwig - Page 10

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          respondent points out that only petitioner and no other                      
          shareholder signed the notes, and no efforts were made to collect            
          matured notes.  Petitioner counters that he was given authority              
          and consent by the other shareholders.  Petitioner also points               
          out that the fact that petitioner signed all the notes does not              
          link the advances to petitioner’s capital investment in Snacks.              
          Petitioner also explains that the failure to enforce collection              
          on mature notes was not due to a legal inability, but instead to             
          the knowledge that Snacks was not in a position to pay.  In                  
          addition, petitioner points out that Snacks repaid K&H $300,000              
          when funds became available because of a transaction with a                  
          foreign licensee.  That repayment, petitioner contends, is “clear            
          evidence” of debt and not equity.                                            
               Respondent also argues that the advances were used to pay               
          the day-to-day operating expenses in a setting where Snacks had              
          not been shown capable of generating profit.  This aspect,                   
          respondent contends, means that the repayment advances are placed            
          at the “risk of the business”, meaning, ostensibly, that the                 
          advances represent capital and not debt.  Petitioner has shown               
          otherwise.  At the time petitioner paid $120,000 for share                   
          holdings in Snacks, a prototype of the vending machine existed.              
          There was active development of the product and its marketplace              
          throughout the period under consideration.  After petitioner                 

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