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invested in Snacks, foreign businesses became interested in the
vending machine, and during 1990 other investors acquired several
hundred thousand dollars of Snacks’ stock representing
substantially smaller percentages of the Snacks shares than those
acquired by petitioner. In addition, Southeast Asian
manufacturing companies entered into a joint venture agreement in
connection with the vending machines’ manufacture and sales in
their geographical area. Those facts represent independent
evidence of perceived potential for Snacks to be profitable.
Accordingly, petitioner’s belief as to the potential
profitability of Snacks is confirmed by the actions of other
lenders and business interests who became involved with Snacks on
the same or similar terms as K&H and petitioner. These factors
also bolster the estimates that there was potential for K&H to
earn substantial profits (projected at 100,000 machines and
profit of $500 per machine or $50 million).
The facts and circumstances in this case reflect that Snacks
was not thinly capitalized and that the advances were in form and
substance debt with a reasonable expectation of repayment.
Accordingly, we hold respondent’s determination, that the
advances were equity, to be in error.
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