Edwin A. Helwig - Page 11

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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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Last modified: May 25, 2011