Exhibit 8.1
[LETTERHEAD OF MALONE & BAILEY, PLLC]
February 24, 1999
To the Board of Directors and Shareholders
Houston Interweb Design, Inc.
Houston, Texas
You have requested our opinion on behalf of Houston Interweb Design, Inc. (a
Texas corporation) ("Company"), its shareholders, PinkMonkey.com, Inc.
("PinkMonkey"), and their shareholders regarding the material federal income tax
consequences resulting from the distribution of 750,000 shares of Company stock
("Distribution") through PinkMonkey as a conduit to PinkMonkey's shareholders.
The distribution to PinkMonkey occurred July 1998 by agreement, and PinkMonkey
has represented that such shares will be distributed to its shareholders soon.
The Distribution is about 4.7% of total outstanding Company stock as of July 31,
1998. At the time of the share issuance, PinkMonkey had contractually agreed to
distribute such shares ratably among its shareholders, although as of this date
it has not done so.
Opinions Requested
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Specifically, you have asked us to address the following issues:
1. Whether the Distribution qualifies as a tax-deductible expense to the
Company for U. S. tax purposes.
2. Whether gain or loss will be recognized by any current holders of Company
common stock.
3. Whether the Distribution will be taxable as ordinary income to PinkMonkey.
4. Whether the Distribution will be taxable as a capital gain to PinkMonkey
shareholders to the extent the fair market value of Company stock exceeds
the price PinkMonkey shareholders paid for their PinkMonkey stock.
Conclusions
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Our opinions are based solely upon:
a) The material facts as described in the amended Form SB-2 accompanying this
opinion and filed with the Securities and Exchange Commission on or about
March 4, 1999;
b) Management's representations as to:
i) The purpose of the distribution, as previously stated, and
ii) The valuation of the shares as of the distribution date; and
c) Relevant current provisions of the Internal Revenue Code of 1986, as
amended, Treasury Regulations thereunder (including proposed and temporary
Treasury Regulations), and interpretations of the foregoing as expressed in
court decisions, applicable legislative history, and the administrative
rulings and practices of the IRS.
It is our opinion, based upon the facts, assumptions, and representations
contained herein, that:
1. The Distribution qualifies as a deductible expense for U. S. tax purposes.
2. No gain or loss will be recognized by current holders of Company Common
Stock because they will receive none of the Distribution.
3. The Distribution will be taxable as ordinary income to PinkMonkey.
4. The Distribution will be taxable as a capital gain to PinkMonkey
shareholders to the extent the fair market value of Company stock exceeds
the price PinkMonkey shareholders paid for their PinkMonkey stock.
The Transaction
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The Company issued 750,000 shares in July 1998 to PinkMonkey with the agreement
that PinkMonkey would distribute such shares ratably to PinkMonkey shareholders
within a reasonable time.
Representations
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1. Company management have determined the valuation of such shares to be $1
per share, or $750,000, based on their review of limited contemporaneous
sales of their stock to insiders and third parties. The shares were issued
as compensation for services rendered. PinkMonkey has not yet reviewed
this valuation or made any determination on its own of valuation to report
to its shareholders. Such determination may be different and such
difference may be significant. PinkMonkey's separate valuation, if any,
may materially change the taxability of distributions to PinkMonkey
shareholders by altering the net taxable distribution amount.
2. The Distribution was intended to increase the ownership distribution of the
Company to active investors familiar with Internet commerce transactions.
3. The Company and PinkMonkey will each pay their own expenses, if any,
incurred in connection with the Distribution.
4. PinkMonkey has agreed to distribute the 750,000 shares ratably among its
shareholders in a taxable distribution.
5. No part of the Distribution will be distributed by PinkMonkey to current
Company shareholders, excepting about 3,000 shares to Company officer and
director Lee Magness, who owns 70,000 shares out of about 17,000,000 shares
of PinkMonkey currently outstanding.
6. PinkMonkey has paid about $150,000 in cash to date for services rendered
by the Company in setting up and maintaining PinkMonkey's web site. These
were and are arms-length transactions freely negotiated.
7. Company officer and director Harry White owns warrants to currently
purchase 100,000 shares of PinkMonkey stock at $.625 per share, although he
has not yet exercised these warrants. Mr. White received his warrants in
consideration for services as a director of PinkMonkey.
8. There are no other interested party transactions between the Company and
PinkMonkey.
9. The 750,000 shares represents about 4.7% of total Company stock then and
currently outstanding.
10. There is no plan to issue additional stock to PinkMonkey.
11. There is no plan by interested parties of either the Company or PinkMonkey
to purchase any part of the 750,000 shares.
12. Neither the Company nor PinkMonkey is an investment company as defined in
IRC section 368(a)(2)(F)(iii) and (iv).
Caveats and Limitations
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(1) These provisions and interpretations are subject to change, which may or
may not be retroactive in effect, that might result in material
modifications of our opinion. Our opinion does not foreclose the
possibility of a contrary determination by the IRS or a court of competent
jurisdiction, or of a contrary position taken by the IRS or the Treasury
Department in regulations or rulings issued in the future. In this regard,
our opinion or an opinion by counsel with respect to an outcome on the
merits with respect to such issue, is not binding on the IRS or the courts,
and is not a guarantee that the IRS will not assert a contrary position
with respect to such issue or that a court will not sustain such a position
asserted by the IRS.
(2) This opinion does not address any state, local or other tax consequences
that may result from the transaction set forth above.
(3) This opinion does not address any transactions other than the single
distribution described above, or any transactions whatsoever, if the
assumptions and representations set forth herein are not true and accurate
at all relevant times. In the event any one of the assumptions or
representations is incorrect, the conclusions reached in this opinion might
be adversely affected.
(4) This opinion is based on the transaction as described in the document we
reviewed (listed above). Should the actual document be revised again, the
conclusions in this opinion could be adversely affected.
(5) Malone & Bailey, PLLC consents to referencing this opinion in the Company's
Form SB-2 referred to above and to the filing of this opinion as an exhibit
to the Registration Statement.
(6) We have relied upon the representations set forth in the transaction
documents set forth in the transaction documents regarding matters of law
outside the tax area including, for example, the validity of (1) the
corporations involved in the proposed transactions, and (2) the
agreements including the appropriate filings of each with the federal and
state government agencies as appropriate.
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If you have any questions, please call John C. Malone at (713) 840-1210.
Sincerely,
/s/ Malone & Bailey, PLLC