Clifford L. Brody and Barbara J. Declerk - Page 5

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               KOA was a “close corporation”3 incorporated in Delaware on             
          January 16, 1996.  Petitioners started KOA with the concept that            
          it would become an Internet content provider, which would allow             
          customers to redeem frequent flier miles or loyalty points for              
          nontravel products or services, such as financial and educational           
          products that benefit children.  KOA, primarily through the work            
          of petitioner Brody, obtained exclusive contracts with several              
          entities including, but not limited to, Days Inn of America,                
          Inc., on March 18, 1999, and Netstock Direct Corp. on August 6,             
          1999.                                                                       
               On December 15, 1997, petitioners and KOA, as coborrowers,             
          obtained a $50,000 loan from Franklin National Bank.  This loan             
          was secured by petitioners’ personal residence.  While KOA was              
          listed as a “Co-borrower”, petitioners repaid the loan in full on           
          April 12, 2000.  The record does not contain information as to              
          the total amount of loan repayments made in 1999.                           
               During the year in issue, petitioners sought additional                
          funding for KOA.  A Confidential Private Placement Memorandum               
          dated April 1999, noted the following:                                      
               Clifford L. Brody, is Chairman and CEO of the Company.                 
               Prior to founding KidsOA, Mr. Brody established                        
               Clifford L. Brody Associates, Inc., a consulting firm                  
               that served major banks and international corporations                 
               in the development of new products and services.  He                   
               has provided strategic advisory services to introduce                  

               3  The term “close corporation” is defined under Delaware              
          law.  See Del. Code Ann. tit. 8, sec. 342(a) (2001).                        





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