**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**









**FORM
      10-QSB**












(MARK
                ONE)**x**
            **QUARTERLY REPORT UNDER
                SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934****For
                the quarterly period ended June 30,
                2007****OR****o**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT****For
                the transition period from  ______________ to
                ______________**




***Commission
      File Number: 033-07075-LA***




**THE
      FASHION HOUSE HOLDINGS, INC.**


(Exact
      name of small business issuer as specified in its charter)




**Colorado**
            **33-1079781**(State
                or other jurisdiction of   incorporation or
                organization)
            (IRS
                Employer Identification No.)




**6310 San Vicente Blvd., #275**


**Los
      Angeles, California 90048-5499**


(Address of principal executive offices)  (Zip Code)




**(323) 939-3031**


(Issuer’s
      telephone number including area code)








Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.   Yes þ No o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).    Yes o No þ




State
      the
      number of shares outstanding of each of the issuer’s classes of common stock, as
      of the latest practicable date.




Common
      Stock Outstanding as of August 14, 2007: 24,887,063 shares




Transitional
      Small Business Disclosure Format: Yes o   No þ




Table
          of Contents




**The
      Fashion House Holdings, Inc**


**Index
      to Form 10-QSB**




**Part
              I Financial Information**Item 1.
            Financial
                StatementsCondensed
                Consolidated Balance Sheet as of June 30, 2007
                (Unaudited)
            3Condensed
                Consolidated Statements of Operations for the six month periods ended
                June
                30, 2007 and 2006 (Unaudited)
            4Condensed
                Consolidated Statements of Operations for the three month periods
                ended
                June 30, 2007 and 2006 (Unaudited)
            5Condensed
                Consolidated Statements of Cash flows for the six month periods ended
                June
                30, 2007 and 2006 (Unaudited)
            6Notes
                to Unaudited
                Condensed Consolidated Financial Statements
            7Item 2.
            Management’s
                Discussion and Analysis or Plan of Operation
            18Item 3.
            Controls
                and
                Procedures
            23**Part
                II Other Information**Item 1.
            Legal
                Proceedings
            24Item 2.
            Unregistered
                Sales
                of Equity Securities and Use of Proceeds
            24Item 3.
            Defaults
                Upon
                Senior Securities
            24Item 4.
            Submission
                of
                Matters to a Vote of Security Holders
            24Item 5.
            Other
                Information
            24Item 6.
            Exhibits
            24SIGNATURES
            25Exhibit
              31.1Exhibit
              31.2Exhibit
                32.1







Table
          of Contents


**PART
      I — FINANCIAL INFORMATION**




**Item 1.
      Financial Statements**


**THE
      FASHIONHOUSE HOLDINGS, INC. AND
      SUBSIDIARY**


**CONDENSED
      CONSOLIDATED BALANCE SHEET**


**June
      30, 2007**


**(UNAUDITED)**





**ASSETS****Current
                assets:**Cash
            
            $
            139,176Accounts
                receivable, net of allowance of $59,451
            
            
            816,837Inventories
            
            
            1,976,817Prepaid
                expenses
            
            
            186,788**Total
                current assets**
            
            
            3,119,618Property
                and equipment, net
            
            
            393,994Deposits
            
            
            28,021**TOTAL
                ASSETS**
            
            $
            3,541,633**LIABILITIES
                AND STOCKHOLDERS’ DEFICIT****Current
                liabilities:**Line
                of credit borrowings
            
            $
            8,427,918Accounts
                payable and accrued expenses
            
            
            3,217,732Accrued
                payroll and related
            
            
            200,356Due
                to factor
            
            
            609,932Accrued
                interest
            
            
            534,645Note
                payable
            
            
            280,293Current
                portion of capital lease obligations
            
            
            1,301**Total
                current liabilities**
            
            
            13,272,177Long-term
                liabilities:Notes
                payable to stockholders
            
            
            1,090,100Capital
                lease obligation, net of current portion
            
            
            8,280**Total
                liabilities**
            
            
            14,370,557Commitments
                and contingenciesStockholders’
                deficit:Common
                stock, no par value;100,000,000
                shares authorized;24,887,063
                shares issued and outstanding
            
            
            19,158,701Accumulated
                deficit
            
            
            (29,987,625
            )**Total
                stockholders’ deficit**
            
            
            (10,828,924
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS’ DEFICIT**
            
            $
            3,541,633






See
      accompanying notes to unaudited condensed consolidated financial
      statements.


3
 Table
          of Contents


**THE
      FASHIONHOUSE HOLDINGS, INC. AND
      SUBSIDIARY**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006**


**(UNAUDITED)**




**Six
                Months Ended June 30,****2007**
            
            
            **2006**Net
                sales
            
            $
            3,326,464
            
            
            $
            2,683,424Cost
                of Sales
            
            
            3,393,393
            
            
            
            2,252.386Gross
                (loss) profit
            
            
            (66,929
            )
            
            
            431,038Operating
                expenses:Selling,
                general and administrative
            
            
            2,199,532
            
            
            
            2,612,452Payroll
                and related
            
            
            1,430,116
            
            
            
            1,062,955Royalties
            
            
            640,715
            
            
            
            354,185**Total
                operating expenses**
            
            
            4,270,363
            
            
            
            4,029,592Loss
                from operations
            
            
            (4,337,292
            )
            
            
            (3,598,554
            )Other
                income (expense):Interest
                expense, net of interest income
            
            
            (2,901,866
            )
            
            
            (2,850,612
            )Gain
                on settlement of penalty warrants
            
            
            -
            
            
            
            276,000Change
                in fair value of derivative liabilities
            
            
            -
            
            
            
            964,000Total
                other expense, net
            
            
            (2,901,866
            )
            
            
            (1,610,612
            )Loss
                before income taxes
            
            
            (7,239,158
            )
            
            
            (5,209,166
            )Income
                taxes
            
            
            800
            
            
            
            800Net
                loss
            
            $
            (7,239,958
            )
            
            $
            (5,209,966
            )Basic
                and diluted net loss per share
            
            $
            (0.29
            )
            
            $
            (0.23
            )Weighted
                average shares outstanding — basic and diluted
            
            
            24,887,063
            
            
            
            22,612,733




See
      accompanying notes to unaudited condensed consolidated financial
      statements.


4
 Table
          of Contents




**THE
      FASHIONHOUSE HOLDINGS, INC. AND
      SUBSIDIARY**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**FOR
      THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006**


**(UNAUDITED)**




**Three
                Months Ended June 30,****2007**
            
            
            **2006**Net
                sales
            
            $
            1,112,295
            
            
            $
            1,682,565Cost
                of Sales
            
            
            1,051,099
            
            
            
            1,477,686Gross
                (loss) profit
            
            
            61,196
            
            
            
            204,879Operating
                expenses:Selling,
                general and administrative
            
            
            903,693
            
            
            
            1,682,236Payroll
                and related
            
            
            713,153
            
            
            
            533,609Royalties
            
            
            279,732
            
            
            
            161,097**Total
                operating expenses**
            
            
            1,896,578
            
            
            
            2,376,942Loss
                from operations
            
            
            (1,835,382
            )
            
            
            (2,172,063
            )Other
                expense:Interest
                expense, net of interest income
            
            
            (760,870
            )
            
            
            (829,726
            )Gain
                on settlement of penalty warrants
            
            
            -
            
            
            
            276,000Change
                in fair value of derivative liabilities
            
            
            -
            
            
            
            2,308,000Total
                other income (expense)
            
            
            (760,870
            )
            
            
            1,754,274Loss
                before income taxes
            
            
            (2,596,252
            )
            
            
            (417,789
            )Income
                taxes
            
            
            -
            
            
            
            -Net
                loss
            
            $
            (2,596,252
            )
            
            $
            (417,789
            )Basic
                and diluted net loss per share
            
            $
            (0.10
            )
            
            $
            (0.02
            )Weighted
                average shares outstanding — basic and diluted
            
            
            24,887,063
            
            
            
            24,639,480




See
      accompanying notes to unaudited condensed consolidated financial
      statements.




5
 Table
          of Contents


**THE
      FASHIONHOUSE HOLDINGS, INC. AND
      SUBSIDIARY**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**SIX
      MONTHS ENDED JUNE 30, 2007 AND 2006**


**(UNAUDITED)**





**June
                30, 2007**
            
            
            **June
                30, 2006****CASH
                FLOWS FROM OPERATING ACTIVITIES:**Net
                loss
            
            $
            (7,239,958
            )
            
            $
            (5,209,966
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            77,504
            
            
            
            66,986Bad
                debt expense
            
            
            49,999
            
            
            
            5,000Estimated
                fair value of stock issued for services
            
            
            -
            
            
            
            60,500Amortization
                of estimated fair value of BCF
            
            
            -
            
            
            
            22,417Amortization
                of estimated fair value of warrants
            
            
            -
            
            
            
            580,916Estimated
                fair value of warrants
            
            
            2,088,000
            
            
            
            2,198,000Change
                in fair value of warrant liabilities
            
            
            -
            
            
            
            (964,000
            )Gain
                on settlement warrants
            
            
            -
            
            
            
            (276,000
            )Change
                in operating assets and liabilities:Accounts
                receivable
            
            
            1,549,996
            
            
            
            (342,676
            )Inventories
            
            
            (391,615
            )
            
            
            (475,038
            )Prepaid
                expenses
            
            
            37,513
            
            
            
            (37,414
            )Deposits
            
            
            -
            
            
            
            4,067Accounts
                payable and accrued expenses
            
            
            100,902
            
            
            
            1,585,723Accrued
                interest
            
            
            266,266
            
            
            
            (12,238
            )Net
                cash used in operating activities
            
            
            (3,461,393
            )
            
            
            (2,793,723
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Purchases
                of property and equipment
            
            
            (8,138
            )
            
            
            (246,224
            )Net
                cash used in investing activities
            
            
            (8,138
            )
            
            
            (246,224
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Repayments
                of notes payable to stockholder
            
            
            (4,000
            )
            
            
            (25,000
            )Proceeds
                from issuance of common stock, net of issuance costs
            
            
            -
            
            
            
            4,187,762Proceeds
                from line of credit, net
            
            
            4,454,494
            
            
            
            -Proceeds
                from notes payable
            
            
            -
            
            
            
            925,000Repayments
                of capital lease
            
            
            (1,349
            )
            
            
            -Repayments
                of notes payable
            
            
            (15,000
            )
            
            
            (1,050,000
            )Repayments
                of convertible notes payable
            
            
            -
            
            
            
            (550,000
            )Advances
                from factor
            
            
            3,823,631
            
            
            
            1,401,517Payments
                to factor
            
            
            (4,780,976
            )
            
            
            (1,723,005
            )Net
                cash provided by financing activities
            
            
            3,476,800
            
            
            
            3,166,274**Net
                change in cash**
            
            
            7,269
            
            
            
            126,327**Cash,
                beginning of the period**
            
            
            131,907
            
            
            
            76,680**Cash,
                end of the period**
            
            $
            139,176
            
            
            $
            203,007




**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                paid during the period for interest
            
            $
            548,794
            
            
            $
            28,520Cash
                paid during the period for income taxes
            
            $
            800
            
            
            $
            800**SUPPLEMENTAL
                SCHEDULE OF NONCASH INVESTING AND FINANCING
                ACTIVITIES:**Estimated
                fair value of warrants issued in connection with certain notes
                payable
            
            $
            -
            
            
            $
            413,000Estimated
                fair value of common stock issued for prepaid services
            
            $
            -
            
            
            $
            36,750Accrued
                liabilities converted to notes payable
            
            $
            191,393
            
            
            $
            -Reclassification
                of derivative liabilities
            
            $
            -
            
            
            $
            1,016,000




See
      accompanying notes to unaudited condensed consolidated financial
      statements.




6
 Table
          of Contents


**THE
      FASHIONHOUSE HOLDINGS, INC. AND
      SUBSIDIARY**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


For
      the
      Three and Six Months ended June 30, 2007 and 2006


(UNAUDITED)




**NOTE
      1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**




**Interim
      Unaudited Condensed Financial Statements**




The
      accompanying unaudited condensed consolidated financial statements have been
      prepared by The Fashion House Holdings, Inc. (the “Company”) in accordance with
      accounting principles generally accepted in the United States of America for
      interim financial information. These principles are consistent in all material
      respects with those applied in the Company’s financial statements contained in
      the Company’s annual report on Form 10-KSB for the fiscal year ended December
      31, 2006, and pursuant to the instructions to Form 10-QSB and Item 310(b) of
      Regulation S-B promulgated by the Securities and Exchange Commission (“SEC”).
      Interim financial statements do not include all of the information and footnotes
      required by accounting principles generally accepted in the United States of
      America for complete financial statements. In the opinion of management, the
      accompanying unaudited condensed consolidated financial statements contain
      all
      adjustments (all of which are of a normal recurring nature, including the
      elimination of intercompany accounts) necessary to present fairly the financial
      position, results of operations and cash flows of the Company for the periods
      indicated. Interim results of operations are not necessarily indicative of
      the
      results to be expected for the full year or any other interim periods. These
      unaudited condensed consolidated financial statements should be read in
      conjunction with the financial statements and footnotes thereto contained in
      the
      Company’s annual report on Form 10-KSB for the year ended December 31,
      2006.




**Organization
      and Nature of Operations**





On
      August
      19, 2005, TDI Holding Corporation (“TDI”) entered into an agreement of Plan of
      Reorganization (“Merger”) with The Fashion House, Inc. (“TFH”) in a tax free
      share exchange under Section 368(a)(1)(B) of the Internal Revenue Code of 1986,
      as amended. Immediately after the Merger, the officers and directors of TDI
      resigned and the management of TFH controlled such positions; therefore,
      effecting a change of control. As a result, the transaction was recorded as
      a
“reverse merger” whereby TFH was considered to be the accounting acquirer as it
      retained control of TDI after the Merger. Simultaneously with the Merger, TDI
      changed its name to The Fashion House Holdings, Inc.




TFH
      was
      incorporated under the laws of the State of Delaware on April 11, 2002 and
      commenced operations on January 1, 2003. TFH designs, develops and markets
      women’s dress footwear with an emphasis on celebrity appeal, style, quality and
      fit. The Company targets the moderate to premium-priced categories of the
      women’s footwear industry and implements its business model by licensing
      recognized brand names.




**Principles
      of Consolidation**




These
      condensed consolidated financial statements include the accounts of the Company
      and its wholly owned subsidiary. All material intercompany accounts have been
      eliminated in consolidation.




**Use
      of Estimates**




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and judgments that affect the reported amounts of assets, liabilities
      and disclosure of contingent assets and liabilities at the date of the financial
      statements and reported amounts of revenues and expenses during the reporting
      periods. Significant estimates made by management include, among others, the
      realizability of receivables and inventories, recoverability of long-lived
      assets, valuation of common stock and warrants to purchase common stock and
      deferred tax assets. Actual results may differ from these estimates under
      different assumptions or conditions.




**Going
      Concern**




The
      condensed consolidated financial statements have been prepared on a going
      concern basis which contemplates the realization of assets and the satisfaction
      of liabilities in the normal course of business. The Company incurred net
      operating losses for the six months ended June 30, 2007 and the years ended
      December 31, 2006, 2005, and 2004, and has a working capital deficit of
      $10,152,559 and a stockholders’ deficit of $10,828,924 at June 30,
      2007.




The
      Company’s success is dependent upon numerous items, among which are the
      Company’s successful growth of revenues from its products, its ability to obtain
      new customers in order to achieve levels of revenues adequate to support the
      Company’s current and future cost structure, and its ability to obtain financing
      for operations, for which there is no assurance. Unanticipated problems,
      expenses and delays are frequently encountered in establishing and maintaining
      profitable operations. These include, but are not limited to, competition,
      the
      need to develop customer support capabilities and market expertise, setbacks
      in
      product development, technical difficulties, market acceptance and sales and
      marketing. The failure of the Company to meet any of these conditions could
      have
      a materially adverse effect on the Company and may force the Company to reduce
      or curtail operations. No assurance can be given that the Company can achieve
      or
      maintain profitable operations.




7
 Table
          of Contents




**THE
      FASHION HOUSE HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


June
      30,
      2007


(UNAUDITED)




**NOTE
      1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,****continued**




The
      Company believes it will have adequate cash to sustain operations until it
      achieves sustained profitability. However, until the Company has a history
      of
      maintaining revenue levels sufficient to support its operations and repay its
      current liabilities, the Company may require additional financing. There can
      be
      no assurance that additional funding will be adequate or will enable the Company
      to achieve or sustain profitable operations.




These
      factors raise substantial doubt about the Company’s ability to continue as a
      going concern. These consolidated financial statements do not include any
      adjustments that might be necessary if the Company is unable to continue as
      a
      going concern.




**Risks
      and Uncertainties**




*Credit
      Risk*




The
      Company maintains its cash accounts in financial institutions. Accounts at
      these
      institutions are insured by the Federal Deposit Insurance Corporation up to
      $100,000. At June 30, 2007, uninsured balances approximated
      $98,000.




Two
      customers accounted for 44% and 40% of sales during the six months ended June
      30, 2007 and 2006, respectively, and four and two customers accounted for 62%
      and 53% of sales during the three months ended June 30, 2007 and 2006,
      respectively.




The
      Company assigns the majority of its trade accounts receivable to a factor (see
      Note 2). The Company also makes sales to customers not approved by its factor
      at
      its own risk and monitors the outstanding receivable balance. At June 30, 2007,
      the Company established an allowance for doubtful accounts of
      $59,451.





Two
      customers accounted for 77% of accounts receivable as of June 30,
      2007.




The
      Company operates in an industry that is subject to intense competition. The
      Company’s operations are subject to significant risks and uncertainties
      including financial, operational, technological, regulatory and other risks
      associated with an operating business, including the potential risk of business
      failure.




**Merchandise
      Risk**




The
      Company’s success is largely dependent upon its ability to gauge the market
      trends and the tastes of its targeted consumers and provide merchandise that
      satisfies consumer demand. Any inability to provide appropriate merchandise
      in
      sufficient quantities in a timely manner could have a material adverse effect
      on
      the Company’s business, operating results and financial condition.




The
      Company purchases substantially its entire inventory from three vendors. The
      loss of one of these vendors could have a material adverse effect on the
      Company’s cash flow and financial position.




**Inventories**





Inventories
      consist almost entirely of footwear and are valued at the lower of cost or
      market. Cost is determined on a first-in, first-out basis. The Company
      periodically reviews its inventory quantities on hand and adjusts for excess
      and
      obsolete inventory based primarily on its estimated forecast of product demand.
      Actual demand may differ from the Company's estimates. Once established,
      write-downs of inventory are considered permanent adjustments to the basis
      of
      the excess or obsolete inventory.




8
 Table
          of Contents




**THE
      FASHION HOUSE HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


June
      30,
      2007


(UNAUDITED)




**NOTE
      1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,****continued**




**Property
      and Equipment**




Property
      and equipment are stated at cost. Depreciation of equipment is provided for
      by
      using the straight-line method over the estimated useful lives of the related
      assets, which are five years for machinery and equipment, seven years for
      furniture and fixtures, and the shorter of lease terms or estimated useful
      lives
      for leasehold improvements. Expenditures for maintenance and repairs are charged
      to expense as incurred; additions, renewals and betterments are capitalized.
      When property and equipment are retired or otherwise disposed of, the related
      cost and accumulated depreciation are removed from the respective accounts,
      and
      any gain or loss is included in operations.




**Long-Lived
      Assets**




In
      accordance with Statement of Financial Accounting Standards (“SFAS”)
      No. 144, *Accounting for the Impairment or Disposal of Long-Lived
      Assets,* the Company evaluates the carrying value of long-lived assets for
      impairment whenever events or change in circumstances indicate that such
      carrying values may not be recoverable. The Company estimates the future
      undiscounted cash flows derived from an asset to assess whether or not a
      potential impairment exists when events or circumstances indicate the carrying
      value of a long-lived asset may not be recoverable. An impairment loss is
      recognized when the discounted future cash flows are less than its carrying
      amount. If assets are considered to be impaired, the impairment to be recognized
      is measured by the amount by which the carrying amount exceeds the fair value
      of
      the assets. At June 30, 2007, the Company’s management believes there is no
      impairment of its long-lived assets. There can be no assurance, however, that
      market conditions will not change or demand for the Company’s products or
      services will continue, which could result in future impairment of long-lived
      assets.




**Fair
      Value of Financial Instruments**




The
      Company’s financial instruments consist of cash, accounts receivable, accounts
      payable and accrued expenses, accrued payroll and related, due to factor,
      accrued interest and notes payable. The carrying value for all such instruments
      approximates fair value at June 30, 2007 due to their short
      maturities.




**Revenue
      Recognition**




SEC
      Staff
      Accounting Bulletin (“SAB”) 101, *Revenue Recognition* , as amended by
      SAB 104, outlines the basic criteria that must be met to recognize revenue
      and
      provide guidance for presentation of revenue and for disclosure related to
      revenue recognition policies in financial statements filed with the Securities
      and Exchange Commission. Management believes that the Company’s revenue
      recognition policy conforms to SAB 104.




The
      Company evaluates the criteria of Financial Accounting Standards Board (“FASB”)
      Emerging Issues Task Force (“EITF”) Issue No. 99-19, *Reporting Revenue
      Gross as a Principal Versus Net as an Agent,* in determining whether it is
      appropriate to record the gross amount of revenue and related costs or the
      net
      amount earned as commissions. The Company is the primary obligor, is subject
      to
      inventory risk, has latitude in establishing prices and selecting suppliers,
      establishes product specifications, and has the risk of loss as it relates
      to
      cargo losses. Accordingly, the Company’s revenue is recorded on a gross
      basis.




The
      Company issues letters of credit in favor of the manufacturers in accordance
      with the information provided by the Company and the manufacturer. The Company
      imports the goods and pays the import and delivery costs and forwards the goods
      to a public warehouse. The goods are held by the Company at a public warehouse
      until the customers requested ship date. The Company arranges and maintains
      the
      goods while in its warehouse at its expense. The Company has title to the goods
      when shipped from the manufacturer and in the public warehouse.




Revenue
        is recognized upon shipment of goods from the public warehouse to the customers,
        which is when title transfers to the customers. The trading company approves
        credit to the customers and factors the sale. The trading company charges
        the
        Company 1% of the sales which are factored. For sales that are not factor
        approved, the Company will ask the customer to prepay before shipment. In
        some
        instances, the Company will retain the accounts receivable.
  Shipping
        and handling costs billed to the customers are recorded in sales. Shipping
        and
        handling costs as incurred by the Company are recorded in cost of
        sales.




9
 Table
          of Contents




**THE
      FASHION HOUSE HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


June
      30,
      2007


(UNAUDITED)




**NOTE
      1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,****continued**




**Loss
      Per Share**





Basic
      loss per share is computed by dividing loss available to common stockholders
      by
      the weighted average number of common shares assumed to be outstanding during
      the period of computation. Diluted loss per share is computed similar to basic
      loss per share except that the denominator is increased to include the number
      of
      additional common shares that would have been outstanding if the potential
      shares had been issued and if the additional common shares were dilutive. All
      potentially dilutive shares, zero and approximately 2,044,000 at June 30, 2007
      and 2006, respectively, have been excluded from diluted loss per share, as
      their
      effect would be anti-dilutive for the periods then ended.




Basic
      and
      diluted loss per common share is computed as follows:





**Three
                Months Ended June 30,****2007**
            
            
            **2006****Loss**
            
            
            **Shares**
            
            
            **Per-Share**
            
            
            **Loss**
            
            
            **Shares**
            
            
            **Per-Share****(Numerator)**
            
            
            **(Denominator)**
            
            
            **Amount**
            
            
            **(Numerator)**
            
            
            **(Denominator)**
            
            
            **Amount****Basic
                EPS**Loss
                available to common stockholders
            
            $
            (2,596,252
            )
            
            
            24,887,063
            
            
            $
            (0.10
            )
            
            $
            (417,789
            )
            
            
            24,639,480
            
            
            $
            (0.02
            )Effect
                of Dilutive SecuritiesNone**Diluted
                EPS**Loss
                available to common stockholders
            
            $
            (2,596,252
            )
            
            
            24,887,063
            
            
            $
            (0.10
            )
            
            $
            (417,789
            )
            
            
            24,639,480
            
            
            $
            (0.02
            )







**Six
                Months Ended June 30,****2007**
            
            
            **2006****Loss**
            
            
            **Shares**
            
            
            **Per-Share**
            
            
            **Loss**
            
            
            **Shares**
            
            
            **Per-Share****(Numerator)**
            
            
            **(Denominator)**
            
            
            **Amount**
            
            
            **(Numerator)**
            
            
            **(Denominator)**
            
            
            **Amount****Basic
                EPS**Loss
                available to common stockholders
            
            $
            (7,239,958
            )
            
            
            24,887,063
            
            
            $
            (0.29
            )
            
            $
            (5,209,966
            )
            
            
            22,612,733
            
            
            $
            (0.23
            )Effect
                of Dilutive SecuritiesNone**Diluted
                EPS**Loss
                available to common stockholders
            
            $
            (7,239,958
            )
            
            
            24,887,063
            
            
            $
            (0.29
            )
            
            $
            (5,209,966
            )
            
            
            22,612,733
            
            
            $
            (0.23
            )




10
 Table
          of Contents


**THE
        FASHION HOUSE HOLDINGS, INC. AND SUBSIDIARY**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 June
        30,
        2007
 (UNAUDITED)
  **NOTE
        1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,****continued**




**Stock-Based
      Compensation**




As
      of
      June 30, 2007, the Company had no stock-based compensation plans and has not
      issued any share-based payments to its employees.





The
      Company adopted SFAS No. 123(R), *Share-Based Payment,* on January 1,
      2006 using the modified prospective method. SFAS No. 123(R) requires companies
      to recognize in the statement of operations the grant-date fair value of stock
      options and other equity-based compensation issued to employees. SFAS No. 123(R)
      also establishes accounting requirements for measuring, recognizing and
      reporting share-based compensation, including income tax considerations. Under
      the modified prospective application, the cost of new awards and awards
      modified, repurchased or cancelled after the required effective date and the
      portion of awards for which the requisite service has not been rendered
      (unvested awards) that are outstanding as of the required effective date are
      recognized as the requisite service is rendered on or after the required
      effective date. The compensation cost for that portion of awards is based on
      the
      grant-date fair value of those awards as calculated for either recognition
      or
      pro forma disclosures under SFAS No. 123.




The
      adoption of SFAS No. 123(R)’s fair value method will have a negative impact on
      the Company’s results of operations if the Company grants share-based payments
      to its employees in the future, although it will have no impact on its overall
      financial position. The impact of adopting SFAS No. 123(R) cannot be predicted
      at this time because it will depend on levels of share-based payments granted
      in
      the future. SFAS No. 123(R) also requires the benefits of tax deductions in
      excess of recognized compensation cost to be reported as a financing cash flow,
      rather than as an operating cash flow as required under current accounting
      literature. The requirement could reduce net operating cash flows and increase
      net financing cash flows in periods of adoption.




**Issuance
      of Stock for Non-cash Consideration**





All
      issuances of the Company’s common stock for non-cash consideration have been
      assigned a dollar amount equaling either the market value of the shares issued
      or the value of consideration received whichever is more readily determinable.
      The majority of the non-cash consideration received pertains to services
      rendered by consultants and others and has been valued at the market value
      of
      the shares issued. In certain issuances, the Company may discount the value
      assigned to the stock issued for illiquidity and restrictions on
      resale.





The
      Company’s accounting policy for equity instruments issued to consultants and
      vendors in exchange for goods and services follows the provisions of EITF Issue
      No. 96-18, *Accounting for Equity Instruments That are Issued to
      Other*  *Than Employees for Acquiring, or in Conjunction with
      Selling, Goods or Services* and EITF Issue No. 00-18, *Accounting
      Recognition for Certain Transactions*  *Involving Equity Instruments
      Granted to Other Than Employees.* The measurement date for the fair value of
      the equity instruments issued is determined at the earlier of (i) the date
      at
      which a commitment for performance by the consultant or vendor is reached or
      (ii) the date at which the consultant or vendor’s performance is complete. In
      the case of equity instruments issued to consultants, the fair value of the
      equity instrument is recognized over the term of the consulting
      agreement.




**Derivative
      Financial Instruments**





In
      connection with the issuance of warrants with certain notes payable (see Note
      5)
      the Company was required to file a registration statement in November 2005
      and
      have such registration statement declared effective no later than 180 days
      following the Merger (the “Effectiveness Deadline”) and to maintain the
      effectiveness of such registration. In addition, the Company was required to
      issue certain holders of convertible warrants for each subsequent 30-day period
      that such registration statement had not been filed and additional warrants
      for
      each 30-day period following the Effectiveness Deadline, in which the
      registration statement was not declared effective. On July 26, 2006, the Company
      filed the required registration statement. The Company’s registration statement
      became effective on January 23, 2007. The Company determined that the
      registration rights are an embedded derivative instrument pursuant to SFAS
      No.
      133, *Accounting for Derivative*  *Instruments and Hedging
      Activities* , as amended. Under the provisions of Emerging Issues Task Force
      (“ EITF ”) Issue No. 00-19, *Accounting for Derivative Financial Instruments
      Indexed to and Potentially Settled in a Company’s Own Stock* and View A of
      EITF No. 05-4, *The Effect of a Liquidated Damages Clause on a
      Freestanding Financial Instrument Subject to EITF Issue No. 00-19, Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock**,* the accounting treatment of these derivative
      financial instruments required that the Company record the derivatives at their
      fair values as of the inception date of the note agreements and at fair value
      as
      of each subsequent balance sheet date. Any change in fair value was recorded
      as
      non-operating, non-cash income or expense at each balance sheet date. If the
      fair value of the derivatives was higher at the subsequent balance sheet date,
      the Company recorded a non-operating, non-cash charge. If the fair value of
      the
      derivatives was lower at the subsequent balance sheet date, the Company recorded
      non-operating, non-cash income.


11
 Table
            of Contents




**THE
      FASHION HOUSE HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


June
      30,
      2007


(UNAUDITED)




**NOTE
      1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,****continued**




In
      December 2006, the FASB issued Staff Position EITF
      00-19-2, Accounting for Registration Payment Arrangements (“ FSP EITF 00-19-2”
). FSP EITF 00-19-2 specifies that the contingent obligation to make future
      payments or otherwise transfer consideration under a registration payment
      arrangement, whether issued as a separate agreement or included as a provision
      of a financial instrument or other agreement, should be separately recognized
      and measured in accordance with FASB Statement No. 5, *Accounting for
      Contingencies* . FSP EITF 00-19-2 further clarifies that a financial
      instrument subject to a registration payment arrangement should be accounted
      for
      in accordance with applicable generally accepted accounting principles without
      regard to the contingent obligation to transfer consideration pursuant to the
      registration payment arrangement.





In
      accordance with the provisions of FSP EITF 00-19-2, the Company elected early
      adoption of this statement. As of January 1, 2006, the Company recorded the
      warrant liability of $904,000 to equity since the only provision which caused
      the warrants issued to be accounted for as a derivative liability was the
      liquidated damages provision in the registration rights agreement. In recording
      the entry, the Company credited $688,000 to common stock which represents the
      estimated fair value of these warrants on the date of issuance and a credit
      to
      accumulated deficit of $216,000 which represents the difference between the
      estimated fair value of these warrants at the date of issuance and the estimated
      fair value as of December 31, 2005. However, as retrospective application of
      FSP
      EITF 00-19-2 is prohibited, the Company has not restated the amounts presented
      as of June 30, 2006.





**Recent
      Accounting Standards**





In
      February 2007, the FASB issued SFAS No. 159, *The Fair Value Option
      for Financial Assets and Financial Liabilities — Including an Amendment of FASB
      Statement No. 115.* SFAS No. 159 permits entities to choose to
      measure many financial instruments and certain other items at fair value. The
      objective is to improve financial reporting by providing entities with the
      opportunity to mitigate volatility in reported earnings caused by measuring
      related assets and liabilities differently without having to apply complex
      hedge
      accounting provisions. SFAS No. 159 also establishes presentation and
      disclosure requirements designed to facilitate comparison between entities
      that
      choose different measurement attributes for similar types of assets and
      liabilities. The Company will adopt SFAS No. 159 in the first quarter of
      2008, is still evaluating the effect, if any, on its consolidated financial
      position and consolidated results of operations and has not yet determined
      its
      impact.





In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting for Uncertainty
      in Income Taxes--an interpretation of FASB Statement No. 109* (“FIN 48”),
      which clarifies the accounting and disclosure for uncertainty in tax positions,
      as defined. FIN 48 seeks to reduce the diversity in practice associated with
      certain aspects of the recognition and measurement related to accounting for
      income taxes. The Company is subject to the provisions of FIN 48 as of January
      1, 2007. The Company believes that its income tax filing positions and
      deductions will be sustained on audit and does not anticipate any adjustments
      that will result in a material change to its financial position. Therefore,
      no
      reserves for uncertain income tax positions have been recorded pursuant to
      FIN
      48. The cumulative effect, if any, of applying FIN 48 is to be reported as
      an
      adjustment to the opening balance of retained earnings in the year of adoption.
      The Company did not record a cumulative effect adjustment related to the
      adoption of FIN 48. Tax years since 1992 remain subject to examination by the
      major tax jurisdictions in which the Company is subject to tax. The Company's
      policy for recording interest and penalties associated with income-based tax
      audits is to record such items as a component of income taxes.




**NOTE
      2 — ACCOUNTS RECEIVABLE FACTORING**




On
      May 3,
      2006, the Company entered into a factoring agreement with CIT Commercial
      Services (“CIT”), as amended, which was terminated in July 2007 (see Note 8).
      The Company was charged a factoring fee of 1% on gross invoice amounts. The
      Company agreed to sell and assign to CIT all accounts arising from the sale
      of
      inventory, including those under any trade name, through any divisions, and
      through any selling agent.




At
      the
      Company’s request, and at CIT’s sole discretion, CIT may advance funds to the
      Company at up to 80% of the factor risk accounts. The advance request form
      must
      be fully executed by the Company and Westrec Capital Partners, LLC (see Note
      8).
      Interest is charged based on the daily debit balances in the funds in use
      account for the month, at a rate equal to the greater of the sum of 2% plus
      the
      J P Morgan Rate, or 6% per annum.






12
 Table
          of Contents




**THE
      FASHION HOUSE HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


June
      30,
      2007


(UNAUDITED)




**NOTE
      2 — ACCOUNTS RECEIVABLE FACTORING, continued**





During
      the six months ended June 30, 2007 and 2006, factoring fees incurred totaled
      $40,029 and $55,095 respectively.




At
      June
      30, 2007, the following summarizes the Company’s accounts receivable and related
      balances:





Receivables
                assigned to factor
            
            $
            829,816Advances
                from factor
            
            
            (609,932
            )Amounts
                due from factor
            
            
            219,884Unfactored
                accounts receivable
            
            
            46,472Allowance
                for returns
            
            
            (59,451
            )$
            206,905





**NOTE
      3 — NOTES PAYABLE TO STOCKHOLDERS**




From
      time
      to time, the Company borrows funds from two founding stockholders for working
      capital purposes, which bear interest at 8% per annum and are due 13 months
      from the date of demand. As of June 30, 2007, outstanding borrowings totaled
      $1,090,100, and accrued interest totaled $249,006. As of August 14, 2007, no
      demand for repayment has been made. Interest expense on the notes totaled
      $43,297 and $38,917 for the six months ended June 30, 2007 and 2006,
      respectively.  The balance above includes a note payable issued during the
      six months ended June 30, 2007 totaling $121,100 in connection with amounts
      previously accrued.




**NOTE
      4 — COMMITMENTS AND CONTINGENCIES**




**Licensing
      Agreements**





For
      the
      rights to use trademarks, the Company has entered into licensing agreements
      with
      various licensors.





The
      agreements enable the Company to sell products using the name of the licensors
      in return for a licensing fee based upon sales of the products using the
      licensors’ names.





As
      of
      June 30, 2007, the Company has rights to use ten trademarks as evidenced by
      licensing agreements entered into with Richard Tyler, Tyler, Oscar by Oscar
      de
      la Renta, O Oscar by Oscar de la Renta, Blass by Bill Blass, Bill Blass Couture,
      Blassport and Bill Blass Collection, Isaac Isaac Mizrahi and a new couture
      brand
      which expire through March 2011. Under these licensing agreements, the
      Company agreed to pay the greater of between 3% and 8% of net sales of the
      licensed products or guaranteed minimums ranging from $70,000 to $1,000,000
      per
      annum, per contract. The licensors may terminate the licensing agreements upon
      events of default, as defined.





Minimum
      annual guaranteed royalty payments on the above licenses are as
      follows:





**Years
                ending December 31,**2007
                (6 months)
            
            $
            650,0002008
            
            
            1,510,0002009
            
            
            1,935,0002010
            
            
            1,625,0002011
            
            
            1,748,000$
            7,468,000


13
 Table
          of Contents




**THE
      FASHION HOUSE HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


June
      30,
      2007


(UNAUDITED)




**NOTE
      4 — COMMITMENTS AND CONTINGENCIES, continued**




**Indemnities
      and Guarantees**




The
      Company has made certain indemnities and guarantees, under which it may be
      required to make payments to a guaranteed or indemnified party, in relation
      to
      certain actions or transactions. The Company indemnifies its directors,
      officers, employees and agents, as permitted under the laws of the State of
      Delaware. In connection with its facility lease, the Company has indemnified
      its
      lessors for certain claims arising from the use of the facilities. Additionally,
      the Company indemnifies its factor and licensors under the factoring and license
      agreements, respectively, against certain claims as a result of the violation
      of
      any law. The duration of the guarantees and indemnities varies, and is generally
      tied to the life of the agreement. These guarantees and indemnities do not
      provide for any limitation of the maximum potential future payments the Company
      could be obligated to make. Historically, the Company has not been obligated
      nor
      incurred any payments for these obligations and, therefore, no liabilities
      have
      been recorded for these indemnities and guarantees in the accompanying condensed
      consolidated balance sheet.




**Litigation**




The
      Company is, from time to time, involved in various legal and other proceedings
      which arise in the ordinary course of operating its business. In the opinion
      of
      management, the amount of ultimate liability, if any, with respect to these
      actions will not materially affect the consolidated financial position or
      consolidated results of operations of the Company except as disclosed
      below.





William
      Bradhan and Richard Traweek v. The Fashion House, Inc., John Hanna





This
      matter was filed October 26, 2005, seeking damages for breach of contract and
      fraud regarding oral arrangements with the Company’s subsidiary. On April 10,
      2007, a Notice of Entry of Judgment was filed with the court for the amount
      of
      $460,000, which includes interest at 10% per year.  No appeal was
      filed and the Company intends to negotiate a reduced settlement and expects
      that
      the matter can be resolved. In connection with this judgment, the Company has
      accrued $300,000 in accounts payable and accrued expenses in the accompanying
      condensed consolidated balance sheet based on management’s best estimate of the
      ultimate settlement of this matter.





Artful
      Mind





On
      March
      6, 2007, the Company was served with a complaint, which Artful Mind Industrial
      Ltd. (“Artful Mind”) filed on March 1, 2007 alleging that the Company failed to
      make payments owed under a Settlement Agreement (the “Agreement”) entered into
      between Artful Mind, Go Moda Limited and the Company in September 27, 2006.
      Artful Mind seeks judgment for the full amount of all payments due, which
      approximates $295,000, together with interest at a rate of 9% per annum
      beginning on January 14, 2007 and costs of collection, including reasonable
      attorneys’ fees incurred. Based on the event of a default, of not timely paying
      the final two payments, the entire balance of all payments due were accelerated
      and became immediately due and interest on all unpaid amounts accrued at a
      rate
      of 9% per annum. The complaint states that the Company is currently in default
      on the final two payments. The Company has included the $295,000 due as accounts
      payable and accrued expenses in the accompanying condensed consolidated balance
      sheet.






**Employment
      Agreements**




The
      Company has entered into employment agreements with certain of its management
      for services to be provided in the normal course of business. These agreements
      call for minimum salary levels and various payments upon termination of
      employment, as defined. In the event of termination for any reason, the Company
      is required to pay its CEO one year salary and bonus. The CEO’s salary for the
      year ending December 31, 2007 is $180,000 and the bonus was waived for
      2006.




**NOTE
      5 — NOTES PAYABLE**





In
      July 2005, the Company issued a note payable totaling $550,000, bearing
      interest at 11 percent per annum (the “July 11% Note”). The
      July 11% Note and accrued interest were due in April 2006, as amended. In
      connection with the issuance of the July 11% Note, the Company issued a
      warrant to purchase an aggregate of 1,100,000 shares of the Company’s common
      stock. The warrants vested upon grant, have an exercise price of $1.00 per
      share
      and expire in August 2008. In connection with the registration rights
      issued with the July 11% Notes and related warrants (see Note 1), the Company
      issued warrants to purchase an aggregate of 110,000 and 770,000 shares of the
      Company’s common stock during the six months ended June 30, 2007 and 2006,
      respectively, as penalties for not registering the underlying shares timely,
      as
      defined (see Note 7). The penalty warrants ceased in January 2007, as the
      related registration statement was declared effective. The warrants issued
      during the six months ended June 30, 2007 and 2006, for penalties, had fair
      values totaling $58,000 and $1,099,000, respectively, as determined under SFAS
      No. 123 and recorded such as interest expense upon grant. The warrants
      vested upon grant, had an exercise price of $1.00 per share and expire in
      August 2015. The July 11% Note and accrued interest were repaid in
      March 2006.


14
 Table
            of Contents
  **THE
        FASHION HOUSE HOLDINGS, INC. AND SUBSIDIARY**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 June
        30,
        2007
 (UNAUDITED)
  NOTE
          5 —
NOTES PAYABLE,
          continued





On
      July
      6, 2006, the Company issued a note payable totaling $300,000 with a maturity
      date of August 20, 2006, and bearing interest at the prime rate plus 5% (the
      “July Note”). In connection with the issuance of the July Note, the Company
      issued a warrant to purchase 60,000 shares of the Company’s common stock. The
      warrant is immediately exercisable, has an exercise price of $1.00 and expires
      in July 2016. The warrant had a relative fair value of $33,000, as determined
      under SFAS No. 123 and the Company recorded such as debt discount. The Company
      amortized the debt discount to interest expense during 2006. The Company repaid
      $75,000 on the note and the maturity date was extended to August 20,
      2007.





On
      February 8, 2007, the Company issued a note payable totaling $70,293 in
      connection with services rendered, which bears interest at 1.5% per month.
      The
      Company is required to make monthly principal payments of $15,000 through
      maturity in July 2007. Only one monthly payment has been made on this note
      since
      its inception. As a result, the note is currently in default. At June 30, 2007,
      the outstanding balance was $55,293.




**NOTE
      6 - LINE OF CREDIT**





On
      July
      27, 2006, the Company and Westrec Capital Partners, LLC (“Westrec”) entered into
      an agreement (the “Credit Enhancement Agreement”) whereby Westrec and its
      managing partner (“Guarantors”) have provided credit guarantees to a bank
      sufficient to enable the bank to make advances to the Company (see below).
      In
      connection with each advance, the Company paid a fee of 5.0% of each draw to
      Westrec.




On
      September 18, 2006, the Company entered into a Master Revolving Note (the
“Note”) with a Bank to borrow funds from time to time, at the lender’s
      discretion, up to an aggregate of $5.0 million, payable in whole or in part
      upon
      demand, at a per annum rate equal to the lender’s prime rate plus 1% per annum
      secured by deposits with the Lender. The note replaces previously issued notes
      by the bank. Upon default, the Company is required to pay an additional 3%
      interest per annum (the “Default Increase”). In connection with entering into
      the Note, the Company entered into a Credit Enhancement Agreement with Westrec
      pursuant to which each of the Guarantors agreed to guarantee the Company’s
      obligations existing on or before the date that is the earliest of (i) 180
      days
      following the closing of the Note with the Lender, (ii) the termination of
      Guarantor’s obligations, or (iii) the Borrower’s repayment in full of the
      amounts outstanding under Note, as defined. Additionally, pursuant to the terms
      of the Credit Enhancement Agreement, the Company has agreed to pay the following
      fees: upon any issuance of a letter of credit by the Lender that is guaranteed
      by a Guarantor, the Company will pay Westrec 2% of the face amount of the letter
      of credit; as long as any amount is outstanding on the Note that is guaranteed
      by a Guarantor, revolving line-of-credit based fees equal to the difference
      between (a) the sum of 20%, *plus* (if applicable) the Default Increase
      (as noted above), or (b) the sum of the Lender’s prime rate plus11.75% per annum
      , *plus* (if applicable) the Default Increase (as noted above). In
      addition, the Company pays a monthly credit monitoring fee of $5,000 for each
      calendar month up to and including the month of termination. Effective June
      1,
      2007, the monthly monitoring fee was increased to $9,000 per month. The increase
      of $4,000 is being accrued and not paid at this time.  Any payments
      that are deemed late are subject to an additional fee of 5% of each such late
      payment.




The
      Company also granted the Guarantors a security interest in all of the Company’s
      tangible and intangible property and assets, for the duration of the Credit
      Enhancement Agreement. In addition, the Chief Executive Officer of the Company
      granted a security interest and pledge of all shares of the Company’s common
      stock, options, warrants and other equity securities held by him. Furthermore,
      each draw under the Note with the Lender is subject to the prior approval of
      the
      Guarantors at their discretion. The Credit Enhancement Agreement terminates
      upon
      repayment in cash of all amounts payable and the delivery of certain written
      releases by the Lender and the Company.





During
      the year ended December 31, 2006, in connection with the Credit Enhancement
      Agreement, the Company granted a seven-year warrant to purchase a total of
      9,000,000 shares of common stock at a purchase price of $0.40 per share and
      expires in September 2013, as amended - see below. The warrant vested as
      follows: (i) 20% immediately, (ii) an additional 20% vests, as amended, 60
      days
      after the date of the warrant, and on each succeeding 30 th day thereafter
      such
      that the entire warrant will vest on the 151 st day after the date of the
      warrant. The estimated fair value of the original warrant was $2,550,000, as
      determined under SFAS 123 and the Company was amortizing such amount to interest
      expense on a straight line basis over the life of the guarantee. However, the
      amount of interest expense recognized at any date will be at least equal to
      the
      portion of the grant date fair value of the vested amount.




Effective
      December 20, 2006, the Company entered into an amended credit enhancement
      agreement with Westrec, in which, among other things, Westrec agreed to extend
      its guarantee on behalf of the Company to amounts owed to a bank and include
      its
      guarantee on amounts owed to CIT, the Company’s factor (see Note 2). In exchange
      for the additional concessions, the Company modified the warrants originally
      granted to Westrec to increase the number of warrants granted from 5,000,000
      to
      9,000,000 and decrease the exercise price from $0.65 to $0.40 and extended
      the
      maturity date of the guarantee to September 2007. During the three month period
      ended March 31, 2007, the Company amortized $1,710,000 to interest expense
      in
      the accompanying statements of operations related to this warrant, which was
      fully vested at March 31, 2007.


15
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            of Contents
 **THE
          FASHION HOUSE HOLDINGS, INC. AND SUBSIDIARY**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 June
          30,
          2007
 (UNAUDITED)
  **NOTE
          6 - LINE OF CREDIT, continued**
  In
        addition, if the termination of the Credit Enhancement Agreement does not
        occur
        on the dates below, then the number of shares underlying the Warrant will
        be
        increased in the following amounts, which shares will be immediately vested:
        (i)
        an additional number of shares equal to 3% of the shares vested on the 180
        th
        day following the closing of the Note, plus (ii) an additional number of
        shares
        equal to 5% of the shares vested on the 210 th day following the closing
        of the
        Note is not terminated, plus (iii) an additional number of shares equal to
        10%
        of the shares vested under the on the 270 th day following the closing of
        the
        Note plus on each 30 days thereafter until the termination of the Credit
        Enhancement Agreement occurs. If Company issues equity securities with a
        purchase price less than the current exercise price of the Warrant, then
        the
        exercise price of the Warrant will be reduced to such amount and the number
        of
        shares underlying the Warrant will be increased accordingly. However, Westrec
        cannot earn warrants to purchase more than an aggregate of 9,000,000 shares
        in
        connection with the agreement, including all additional warrants earned under
        the aforementioned provisions.
 
 On
        February 27, 2007, the Company amended its Note to increase the borrowing
        base
        from an aggregate of $5.0 million to $6.5 million.





On
      April
      10, 2007, the Company amended its Note (the “April Amendment”) to increase the
      borrowing base from an aggregate of $6.5 million to $8.5 million.  In
      connection with the April Amendment, the Company entered into an amendment
      of
      the Credit Enhancement Agreement with Westrec pursuant to which each of the
      Guarantors agreed to guarantee additional advances under the Comerica Loan
      of up
      to an aggregate of $2,000,000, which advances are drawn no later than August
      3,
      2007, provided that at the time of each advance certain representations,
      warranties, and conditions are all satisfied.




In
      consideration for this agreement, the Company issued to Westrec an amended
      Warrant Agreement dated April 10, 2007, to purchase a total of 11,000,000 shares
      of common stock at an exercise price of $0.40 per share. The Warrant vested
      upon
      grant and expires on September 15, 2013. In connection with the warrant
      modification, the Company amortized $320,000 to interest expense during the
      three months ended June 30, 2007.




During
      the six months ended June 30, 2007, the Company incurred total fees to Westrec
      of approximately $456,796, paid $367,686 and owes $89,110, which is included
      in
      accounts payable and accrued expenses in the accompanying condensed consolidated
      balance sheet.




**NOTE
      7 — EQUITY TRANSACTIONS**




*Warrants*




During
      the six months ended June 30, 2007, the Company issued warrants to purchase
      approximately 110,000 shares of the Company’s common stock (see Note 5) in
      connection with liquidated damages clauses of certain registration rights
      agreements.




16
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            of Contents
  **THE
        FASHION HOUSE HOLDINGS, INC. AND SUBSIDIARY**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 June
        30,
        2007
 (UNAUDITED)




**NOTE
      8 — SUBSEQUENT EVENTS**





The
      Company failed to raise $4,000,000 of net proceeds from the sale of equity
      securities by August 3, 2007, as required by the amended Westrec warrant
      agreement. Accordingly, the exercise price of the warrant was reduced to $0.05
      per share and the number of shares of common stock to be purchased was increased
      to 80,276,960. In connection with the warrant modification, the Company will
      recognize as expense approximately $4,000,000 in August 2007. Based on the
      number of shares of common stock issuable upon exercise of the warrant and
      other
      potentially issuable shares, the Company determined that it could potentially
      not have enough authorized shares to settle all such obligations and that
      feature was an embedded derivative instrument pursuant to SFAS No. 133. In
      addition, under the provisions of EITF Issue No. 00-19, the Company will be
      required to classify all other non-employee warrants as derivative liabilities
      and record them at their fair values at each balance sheet date until such
      time
      as the Company increased its authorized shares or it has enough authorized
      shares to settle the issuance of its convertible debt, options and
      warrants.





In
      July
      2007, the Company was verbally informed by its accounts receivable factor,
      CIT,
      that it was placing a limit of $1,000,000 on funds in use for that
      facility.  CIT placed this limit on borrowings due to the Company’s
      uncertain financial condition and inability to raise additional capital to
      continue operations.




On
      July
      25, 2007, the Company entered into a new accounts receivable factoring agreement
      with Ultimate Financial Solutions, LLC (“Ultimate”). The Company agreed to sell
      and assign to Ultimate all accounts arising from the sale of inventory. At
      the
      Company’s request, Ultimate may advance funds to the Company at up to 80% of the
      factor risk accounts. The Company is charged a factoring fee of .85% on gross
      invoice amounts. Interest is charged based on the daily debit balances in the
      funds in use account for the month, at a rate equal to 1.5% above the Prime
      Rate
      as published from time to time in the Wall Street Journal. In connection with
      this agreement, on July 30, 2007, Ultimate paid CIT for the outstanding balance
      of funds in use by the Company on that day. As a result, the Company’s liability
      for this amount was effectively transferred from CIT to Ultimate and the CIT
      agreement was terminated.  The obligations under this agreement are secured
      by substantially all of the Company’s assets. The loans are personally
      guaranteed by the principal member of Westrec and a director and shareholder
      of
      the Company.




On
            July
            17, 2007, the Company entered into an agreement with Ashford Finance,
            LLC
            (“Ashford”), whereby Ashford will provide up to $5,000,000 of purchase order
            financing relating to the Company’s purchases of its products from foreign
            manufacturers. Ashford will finance an amount up to 90% of the Company’s end
            buyers’ purchase orders relating to the Company’s purchase order placed with the
            foreign manufacturer. The Company is charged an account management fee
            equal to
            1.5% per month for letters of credit opened by Ashford on behalf of the
            Company
            when the amount equals up to 75% of the Company’s related customer purchase
            orders. The account management fee will increase to 2.5% for letters
            of credit
            when the amount is in excess of 75% of the related customer purchase
            order, but
            in no event will the letter of credit amount be greater than 90% of the
            related
            customer purchase orders. All loans will also bear interest at the rate
            of 2%
            per annum above the prime rate. The agreement requires minimum usage
            during the
            first twelve months of $3,000,000. If the Company cancels the agreement
            or fails
            to open letters of credit that equal the minimum usage, the Company is
            required
            to pay all fees under the agreement for the full minimum amount. The
            loans are
            secured by virtually all of the Company’s assets. Transactions financed under
            this agreement are guaranteed by two of the Company’s directors and
            shareholders, but only in the event that fraud may have
            occurred.





In
      connection with the July 20, 2007 agreement with Ultimate and the July 17,
      2007
      agreement with Ashford, Intercreditor Agreements were also entered into, or
      are
      currently being negotiated, by and between Westrec, Comerica, Ultimate and
      Ashford to establish a priority for security interests in the Company’s assets.
      In these agreements, Comerica subordinated its security interest to Ultimate
      in
      accounts factored by Ultimate. Comerica also subordinated its security interest
      in all assets to Ashford. Ultimate subordinated its security interest in
      purchase orders financed by Ashford. Westrec subordinated its security interest
      to Ultimate in accounts factored by Ultimate.  Westrec and Ashford are
      currently negotiating the terms of their Intercreditor Agreement regarding
      security interests in the Company’s assets.





On
      July
      9, 2007, Westrec and The Company entered into an amendment to the Amended and
      Restated Credit Enhancement Agreement dated as of December 20, 2006, as
      amended (the “Agreement”). The purpose of the Letter Agreement was to
      amend the Agreement to allow for direct loans to the Company in addition to
      the
      credit enchantment facility with Comerica Bank. Each Direct Loan shall be shall
      be due and payable on demand and shall bear interest at a rate equal to the
*greater of* (i) twenty percent (20%) per annum, or (ii) the sum of (A)
      the prime rate, plus (B) 11.75% per annum.****While there is
      no obligation to continue these loans, as of August 10, 2007, $1,020,000 of
      advances had been made under this amended Agreement.




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**Item 2.Management’s
      Discussion and Analysis or Plan of
      Operation**




Some
      of
      the statements made by us in this Quarterly Report on Form 10-QSB are
      forward-looking in nature, including but not limited to, statements relating
      to
      our future revenue and expenses, licensing agreements, product development,
      market acceptance, and our management’s plans and objectives for our current and
      future operations, and other statements that are not historical facts.
      Forward-looking statements include, but are not limited to, statements that
      are
      not historical facts, and statements including forms of the words “intend”,
“believe”, “will”, “may”, “could”, “expect”, “anticipate”, “plan”, “possible”,
      and similar terms. Actual results could differ materially from the results
      implied by the forward looking statements due to a variety of factors, many
      of
      which are discussed throughout this Quarterly Report and in our SEC filings.
      Readers are cautioned not to place undue reliance on these forward-looking
      statements, which speak only as of the date hereof. We undertake no obligation
      to publicly release any revisions to these forward-looking statements that
      may
      reflect events or circumstances after the date hereof or to reflect the
      occurrence of unanticipated events, unless required by law. Factors that could
      cause actual results to differ materially from those expressed in any
      forward-looking statement made by us include, but are not limited
      to:





**•**
            
            our
                ability to finance our activities and maintain our financial
                liquidity;**•**
            
            our
                ability to enter into new licensing agreements and to maintain and
                renew
                existing licensing agreements;**•**
            
            changes
                in consumer preferences or fashion trends;**•**
            
            disruption
                in product shipment;**•**
            
            changes
                in import regulations;**•**
            
            our
                dependence on a small number of large customers;**•**
            
            changes
                in our relationships with vendors and other resources;
                and**•**
            
            intensely
                competitive industry conditions.




In
      this
      document, the words “we,” “our,” “ours,” and “us” refers to The Fashion House
      Holdings, Inc. and our wholly owned subsidiary The Fashion House, Inc., a
      Delaware corporation.





On
      August
      19, 2005, TDI Holding Corporation (“TDI”) entered into an agreement of Plan of
      Reorganization (“Merger”) with The Fashion House, Inc. (“TFH”) in a tax free
      share exchange under Section 368(a)(1)(B) of the Internal Revenue Code of 1986,
      as amended. Immediately after the Merger, the officers and directors of TDI
      resigned and the management of TFH controlled such positions; therefore,
      effecting a change of control. As a result, the transaction was recorded as
      a
“reverse merger” whereby TFH was considered to be the accounting acquirer as it
      retained control of TDI after the Merger. Simultaneously with the Merger, TDI
      changed its name to The Fashion House Holdings, Inc.





TFH
      was
      incorporated under the laws of the State of Delaware on April 11, 2002 and
      commenced operations on January 1, 2003. TFH designs, develops and markets
      women’s dress footwear with an emphasis on celebrity appeal, style, quality and
      fit. The Company targets the moderate to premium-priced categories of the
      women’s footwear industry and implements its business model by licensing
      recognized brand names.




As
      reported in the Report of Independent Registered
      Public Accounting Firm on our December 31, 2006 financial statements, the
      Company had suffered recurring losses from operations, and had a working capital
      deficit that raises substantial doubt about our ability to continue as a going
      concern.




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          of Contents




**Overview**




We
      design, develop, and market a diversified selection of women’s dress and casual
      fashion footwear with an emphasis on celebrity appeal, style, quality, and
      fit.
      We target moderate to premium priced categories of the women’s fashion footwear
      market. Our business centers on the licensing of recognized brand names. The
      practice of licensing, or the leasing of trademarked or copyrighted entity,
      including name, likeness, logo, graphic, saying, signature or character, has
      become an increasingly common practice among apparel and footwear companies,
      and
      the licensee typically pays royalties based upon product sales. Our licensed
      brands include Richard Tyler Couture, tyler Richard Tyler, Oscar by Oscar de
      la
      Renta and O Oscar by Oscar de la Renta.   In 2006, the Company
      acquired rights to use four trademarks as evidenced by a licensing agreement
      entered into with Bill Blass Limited to design, manufacture and distribute
      women’s footwear under the brand names Blass by Bill Blass, Bill Blass Couture,
      Blassport and Bill Blass Collection. Both the Bill Blass Couture and the Blass
      by Bill Blass brands were launched in February 2006 at the World Shoe
      Association show in Las Vegas. The agreements expire in March 2011, with an
      automatic extension through 2016.




In
      March 2006, the Company acquired rights to use two trademarks as evidenced
      by a licensing agreement entered into with Isaac Mizrahi to design, manufacture
      and distribute women’s footwear under the brand names Isaac Isaac Mizrahi and a
      new couture brand. We will take over the license for the existing Isaac Isaac
      Mizrahi bridge collection. The line is currently available at specialty
      retailers, major department stores and on the internet. The agreement expires
      in
      March 2011, with an automatic extension through 2016.




**Results
      of Operations for the Three Months Ended June 30, 2007 and June 30,
      2006.**




Net
      sales
      for the three months ended June 30, 2007 were $1,112,295, a decrease of $570,270
      or 34% over net sales for the prior year quarter of $1,682,565. The net sales
      decrease of $570,270 was primarily attributable to late product deliveries
      from
      the Company’s overseas factories. These late deliveries resulted in the
      cancellation of some of the Company’s sales.  The late deliveries were
      caused by late payments to the factories due to the Company’s continuing cash
      flow issues.




Gross
      profit for the three months ended June 30, 2007 was $61,196 or 5.5% of net
      sales. This low gross margin was partially caused by late deliveries from our
      suppliers, which was caused by the Company’s inability to open Letters of Credit
      to the factories on a timely basis due to lack of availability in our line
      of
      credit, which forced the Company to significantly discount wholesale prices
      to
      our customers.  We also have agreed to guarantee certain customers a
      specific gross profit margin on their sales of our products. The gross profit
      for the three months ending June 30, 2007 includes a negotiated sales allowance
      of $120,100 to one of our customers. In addition, gross profit for the quarter
      also includes a charge of $118,349 as an additional inventory reserve for slow
      moving inventory. Gross profit for the three months ended June 30, 2006 was
      $204,879 or 12.2% of net sales and was also impacted by late deliveries from
      our
      Chinese suppliers, forcing us to discount wholesale prices to our customers,
      but
      not as deep of a discount as in the second quarter 2007.




Operating
      expenses include all costs associated with design, development, sales,
      marketing, distribution, purchasing, and corporate functions. Operating expenses
      decreased to $1,896,578 in the three months ended June 30, 2007 from $2,376,942
      in 2006, for a decrease of $480,364. The decrease in operating expenses is
      attributable primarily to a decrease in selling, general and administrative
      costs. This decrease in selling, general and administrative was generally due
      to
      cost cutting measures put into place to conserve the Company’s cash resources.
      Cost of samples used by our designers decreased $177,152. Factor fees decreased
      $64,963 as a result of the lower sales. In additions, travel expense decreased
      $86,767, investor relations expense decreased by $93,966, professional fees
      decreased $250,977. Payroll increased $179,544 as we added additional staff
      to manage the additional brands licensed by the Company. Royalties increased
      $118,635 as our minimum payments under the certain of the license agreements
      increased.




In
      December 2006, the FASB issued Staff Position EITF 00-19-2, *Accounting for
      Registration Payment Arrangements* (“FSP EITF 00-19-2”). FSP EITF 00-19-2
      specifies that the contingent obligation to make future payments or otherwise
      transfer consideration under a registration payment arrangement, whether issued
      as a separate agreement or included as a provision of a financial instrument
      or
      other agreement, should be separately recognized and measured in accordance
      with
      FASB Statement No. 5, *Accounting for Contingencies* . FSP EITF 00-19-2
      further clarifies that a financial instrument subject to a registration payment
      arrangement should be accounted for in accordance with applicable generally
      accepted accounting principles without regard to the contingent obligation
      to
      transfer consideration pursuant to the registration payment arrangement. In
      accordance with the provisions of FSP EITF 00-19-2, we have elected early
      adoption and, effective January 1, 2006, reclassified our warrant liability
      to
      equity. Accordingly, there was no current year income/expense associated with
      such warrants. In accordance with FSP EITF 00-19-2, retrospective application
      is
      prohibited and therefore all amounts recorded during the period ended June
      30,
      2006 have not been restated.




The
      net
      loss for the three months ended June 30, 2007 is $2,596,252 compared to a net
      loss of $417,789 for the same period in 2006 for an increased loss of $2,178,463
      primarily as a result of prior year accounting for derivatives. The loss from
      operations was $1,835,382 during the three months ended June 30, 2007 compared
      to a loss from operations of $2,172,063 for the three months ended June 30,
      2006. The decrease in the loss from operations was primarily due to the decrease
      in operating expenses, as described above, for the three months ended June
      30,
      2007 of $480,364, compared to the same period in 2006. The Company recorded
      in
      other expenses for the three months ended June 30, 2007 charges totaling
      $760,870. These charges included $320,000 to record the fair value of warrants
      issued as guarantees and interest expense of $440,354. In the three month period
      ended June 30, 2006, the Company recorded in other expenses amortization of
      $1,334,533 for the estimated fair value of stock warrants. These charges
      included $1,220,000 to record the fair value of warrants issued as damages
      for
      the late filing and late effectiveness of the Registration Statements on Form
      SB-2 with the SEC and $114,533 related to the amortization of warrants issued
      with certain convertible notes.




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**Results
      of Operations for the Six Months Ended June 30, 2007 and June 30,
      2006.**




Net
      sales
      for the six three months ended June 30, 2007 were $3,326,464, an increase of
      $643,040 or 23.9% over net sales for the prior year of $2,683,424. The net
      sales
      increase of $643,040 was attributable to the 5 new brands launched in the third
      quarter of 2006.




Gross
      loss for the six months ended June 30, 2007 was $66,929 or (2.0%) of net sales.
      This loss in gross margin was caused primarily by late deliveries from our
      suppliers, which was caused by the Company’s inability to open letters of credit
      to the factories on a timely basis due to lack of availability in our line
      of
      credit, which forced the Company to significantly discount wholesale prices
      to
      our customers. We also have agreed to guarantee certain customers a specific
      gross profit margin on their sales of our products. The gross profit for the
      six
      months ended June 30, 2007 includes a negotiated sales allowance of $120,100
      to
      one of our customers. In addition, gross profit for the period also includes
      a
      charge of $118,349 as an additional inventory reserve for slow moving inventory.
      Also contributing to the negative gross margin in the 2007 period, the Tyler
      brand sold prior season’s inventory at sales prices that were below cost. Gross
      profit for the six months ended June 30, 2006 was $431,038 or 16.1% of net
      sales
      and was also impacted by late deliveries from our Chinese suppliers forcing
      us
      to discount wholesale prices.




Operating
      expenses include all costs associated with design, development, sales,
      marketing, distribution, purchasing, and corporate functions. Operating expenses
      increased to $4,270,363 in the six months ended June 30, 2007 from $4,029,592
      in
      2006, for an increase of $240,771. The increase in operating expenses is
      attributable primarily to an increase in payroll costs of $367,161 as the result
      of building a sales and administrative staff in support of the additional
      brands. Royalties increased $286,530 due to increases in our minimum payments.
      Selling, general and administrative expenses decreased $412,920. Professional
      fees decreased $321,697 due to reduced utilization of investor relations and
      legal fees. Factor fees decreased $51,190 as a result of lower sales.
      Advertising expense decreased $43,845. Travel expense decreased $75,964 and
      cost
      of samples decreased $126,734.





The
      net
      loss for the six months ended June 30, 2007 is $7,239,958 compared to a net
      loss
      of $5,209,966 for the same period in 2006 for an increased loss of $2,026,992
      primarily as a result of prior year accounting for derivatives. The loss from
      operations was $4,337,292 during the six months ended June 30, 2007 compared
      to
      a loss from operations of $3,598,554 for the six months ended June 30, 2006.
      The
      increase in the loss from operations was primarily due to the increase in
      operating expenses of $240,771 and the negative gross profit of $66,929 for
      the
      six months ended June 30, 2007 compared to the same period in 2006. The Company
      recorded in other expenses for the six months ended June 30, 2007 charges
      totaling $2,901,866. These charges included $2,088,000 to record the fair value
      of warrants issued as guarantees and interest expense of $813,350. In the six
      month period ended June 30, 2006, the Company recorded in other expenses net
      charges totaling $1,574,916 associated with the issuance of stock warrants.
      Theses charges included a gain of $964,000 to record the fair value of the
      derivative warrant liabilities, a net gain of $276,000 related to the settlement
      of penalty warrants, expense of $2,234,000 for stock warrants issued as
      penalties for the late filing and late effectiveness of the Registration
      Statement on Form SB-2with the SEC and $580,916 for amortization of the
      estimated fair value of stock warrants and beneficial conversion
      feature.




**Liquidity
      and Capital Resources**




During
      the six months ended June 30, 2007, Company’s net cash position increased by
      $7,269 to $139,176. The Company’s financing activity provided net cash of
      $3,476,800 for the six months ended June 30, 2007, primarily through borrowings
      on the line of credit of $4,454,494. Advances from the factor in the six month
      period were $3,823,631 and payments to the factor were $4,780,976.




Net
      cash
      used in operating activities for the six months ended June 30, 2007 was
      $3,461,393, an increase of $667,670 from the $2,793,723 used in operating
      activities in the prior year period. The net loss of $7,239,958 was the major
      contributor to the use of cash in the six month period ended June 30,
      2007.




The
      Company had investing activities relating to the purchase of property and
      equipment for the six months ended June 30, 2007 of $8,138. In the 2006 period,
      the net cash used was $246,224.




**Financing
      Activities**




We
      are
      financing our operations primarily with the proceeds from our line of credit.
      With the exception of 2004, when we sold the Nicole Miller License resulting
      in
      a gain for the year, we have incurred net losses as a result of sales, design,
      and administrative staffing expenses in support of our operations.





On
      February 27, 2007, we amended our Master Revolving Note (the “Note”) dated
      September 18, 2006, to increase the borrowing base from an aggregate of $5.0
      million to $6.5 million, payable in whole or in part upon demand at a per annum
      rate equal to the Lender’s prime rate plus 1% per annum secured by deposits with
      the Lender. The note replaces previously issued notes by the bank. Upon default,
      we are required to pay an additional 3% interest per annum.





On
      April
      10, 2007, the Company amended its Note (the “April Amendment”) to increase the
      borrowing base from an aggregate of $6.5 million to $8.5 million.  In
      connection with the April Amendment, the Company entered into an amendment
      of
      the Credit Enhancement Agreement with Westrec pursuant to which each of the
      Guarantors agreed to guarantee additional advances under the Comerica Loan
      of up
      to an aggregate of $2,000,000, which advances are drawn no later than August
      3,
      2007, provided that at the time of each advance certain representations,
      warranties, and conditions are all satisfied.




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Based
      on
      our current operating plan and our available cash and cash equivalents, we
      expect that we will need to obtain additional financing in the very near future
      through the sale of equity securities, private placements, and loans to fund
      our
      cash needs and continue our presently planned operations. Additional financing,
      whether through public or private equity or debt financing, arrangements with
      stockholders or other sources to fund operations, may not be available, or
      if
      available, may be on terms unacceptable to us. Our ability to maintain
      sufficient liquidity is dependent on our ability to raise additional capital.
      If
      we issue additional equity securities to raise funds, the ownership percentage
      of our existing stockholders would be reduced. New investors may demand rights,
      preferences or privileges senior to those of existing holders of our common
      stock. Debt incurred by us would be senior to equity in the ability of debt
      holders to make claims on our assets. The terms of any debt issued could impose
      restrictions on our operations. If adequate funds are not available to satisfy
      either short or long-term capital requirements, our operations and liquidity
      could be materially adversely affected and we could be forced to cease
      operations.





In
      July
      2007, the Company was verbally informed by its accounts receivable factor,
      CIT,
      that it was placing a limit of $1,000,000 on funds in use for that
      facility.  CIT placed this limit on borrowings due to the Company’s
      uncertain financial condition and ability to raise additional capital to
      continue operations.




On
      July
      25, 2007, the Company entered into a new accounts receivable factoring agreement
      with Ultimate Financial Solutions, LLC (“Ultimate”). The Company agreed to sell
      and assign to Ultimate all accounts arising from the sale of inventory. At
      the
      Company’s request, Ultimate may advance funds to the Company at up to 80% of the
      factor risk accounts. The Company is charged a factoring fee of .85% on gross
      invoice amounts. Interest is charged based on the daily debit balances in the
      funds in use account for the month, at a rate equal to 1.5% above the Prime
      Rate
      as published from time to time in the Wall Street Journal. In connection with
      this agreement, on July 30, 2007, Ultimate paid CIT for the outstanding balance
      of funds in use by the Company on that day. As a result, the Company’s liability
      for this amount was effectively transferred from CIT to Ultimate and the CIT
      agreement was terminated.  The loans under this agreement are secured by
      substantially all of the Company’s assets. The loans are personally guaranteed
      by the principal member of Westrec and a director and shareholder of the
      Company.




On
      July
      17, 2007, the Company entered into an agreement with Ashford Finance, LLC
      (“Ashford”), whereby Ashford will provide up to $5,000,000 of purchase order
      financing relating to the Company’s purchases of its products from foreign
      manufacturers. Ashford will finance an amount up to 90% of the Company’s end
      buyer’s purchase orders relating to the Company’s purchase order place with the
      foreign manufacturer. The Company is charged an Account Management Fee equal
      to
      1.5% per month for Letters of Credit opened by Ashford on behalf of the Company
      when the amount equals up to 75% of the Company’s related customer purchase
      orders. The Account Management Fee will increase to 2.5% for Letters of Credit
      when the amount is in excess of 75% of the related customer purchase order,
      but
      in no event will the Letter of Credit amount be greater than 90% of the related
      customer purchase orders. All loans will also bear interest at the rate of
      2%
      per annum above the Prime Rate as published time to time by the Wall Street
      Journal. The agreement requires minimum usage during the first twelve months
      of
      $3,000,000. If the Company cancels the agreement or fails to open letter of
      credit that equal the minimum usage, the Company is required to pay all fees
      under the agreement for the full minimum amount. The loans are secured by
      virtually all of the Company’s assets. Transactions financed under this
      agreement are guaranteed by two of the company’s directors and shareholders, but
      only in the event that fraud may have occurred.





In
      connection with the July 20, 2007 agreement with Ultimate and the July 17,
      2007
      agreement with Ashford, Intercreditor Agreements were also entered into, or
      are
      currently being negotiated, by and between Westrec, Comerica, Ultimate and
      Ashford to establish a priority for security interests in the Company’s assets.
      In these agreements, Comerica subordinated its security interest to Ultimate
      in
      accounts factored by Ultimate. Comerica also subordinated its security interest
      in all assets to Ashford. Ultimate subordinated its security interest in
      purchase orders financed by Ashford. Westrec subordinated its security interest
      to Ultimate in accounts factored by Ultimate.  Westrec and Ashford are
      currently negotiating the terms of their Intercreditor Agreement regarding
      security interests in the Company’s assets.





On
      July
      9, 2007, Westrec and The Company entered into an amendment to the Amended and
      Restated Credit Enhancement Agreement dated as of December 20, 2006, as
      amended (the “Agreement”). The purpose of the Letter Agreement was to
      amend the Agreement to allow for direct loans to the Company in addition to
      the
      credit enchantment facility with Comerica Bank. Each Direct Loan shall be shall
      be due and payable on demand and shall bear interest at a rate equal to the
*greater of* (i) twenty percent (20%) per annum, or (ii) the sum of (A)
      the prime rate, plus (B) 11.75% per annum.****While there is
      no obligation to continue these loans, as of August 10, 2007, $1,020,000 of
      advances had been made under this amended Agreement.




**Licenses**
  For
        the
        rights to use trademarks, the Company has entered into licensing agreements
        with
        various licensors. The agreements enable the Company to sell products using
        the
        name of the licensors in return for a licensing fee based upon sales of the
        products using the licensors’ names.




As
      of
      June 30, 2007, the Company has rights to use ten trademarks as evidenced by
      licensing agreements entered into with Richard Tyler, Tyler, Oscar by Oscar
      de
      la Renta, O Oscar by Oscar de la Renta, Blass by Bill Blass, Bill Blass Couture,
      Blassport and Bill Blass Collection, Isaac Isaac Mizrahi and a new couture
      brand
      which expire through March 2011. Under these licensing agreements, the
      Company agreed to pay the greater of between 3% and 8% of net sales of the
      licensed products or guaranteed minimums ranging from $70,000 to $1,000,000
      per
      annum, per contract. The licensors may terminate the licensing agreements in
      the
      event of default, as defined.


Minimum
      annual guaranteed royalty payments are as follows:




**Years
                ending December 31,**2007
                (6 months remaining)
            
            $
            650,0002008
            
            
            1,510,0002009
            
            
            1,935,0002010
            
            
            1,625,0002011
            
            
            1,748,000$
            7,468,000




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**Future
      Liquidity**




Our
      principal sources of liquidity consist of existing cash balances and funds
      expected to be generated from future operations. We believe the key factors
      to
      our liquidity in 2007 will be our ability to successfully execute on our plans
      to increase sales levels. There is no assurance that the Company will be able
      to
      increase sales levels. Our cash requirements will also depend on numerous other
      variable factors, including the rate of growth of sales, the timing and levels
      of products purchased, payment terms and credit limits from manufacturers,
      and
      the timing and level of accounts receivable collections.




We
      will
      require additional financing in the next twelve months. We cannot assure you
      that additional financing (public or private) will be available on acceptable
      terms or at all. If we issue additional equity securities to raise funds, the
      ownership percentage of our existing stockholders would be reduced. New
      investors may demand rights, preferences or privileges senior to those of
      existing holders of common stock. If we cannot raise any needed funds, we might
      be forced to make further substantial reductions in our operating expenses,
      which could adversely affect our ability to implement our current business
      plan
      and ultimately our viability as a company.




**CRITICAL
      ACCOUNTING POLICIES**




In
      preparing our financial statements, we make estimates, assumptions and judgments
      that can have a significant effect on our revenues, income/loss from operations,
      and net income/loss, as well as on the value of certain assets on our
      consolidated balance sheet. We believe that there are several accounting
      policies that are critical to an understanding of our historical and future
      performance as these policies affect the reported amounts of revenues, expenses,
      and significant estimates and judgments applied by management. While there
      are a
      number of accounting policies, methods and estimates affecting our consolidated
      financial statements, areas that are particularly significant include revenue
      recognition and stock-based compensation. In addition, please refer to Note
      1 to
      the accompanying consolidated financial statements for further discussion of
      our
      significant accounting policies.




**Revenue
      Recognition**




Securities
      and Exchange Commission Staff Accounting Bulletin (“SAB”) 101,
*Revenue*  *Recognition* , as amended by SAB 104, outlines
      the basic criteria that must be met to recognize revenue and provide guidance
      for presentation of revenue and for disclosure related to revenue recognition
      policies in financial statements filed with the Securities and Exchange
      Commission. Management believes that our revenue recognition policy conforms
      to
      SAB 104.




We
      evaluate the criteria of the FASB Emerging Issues Task Force (“EITF”) 99-19,
*Reporting Revenue Gross as a Principal Versus Net as an Agent,* in
      determining whether it is appropriate to record the gross amount of revenue
      and
      related costs or the net amount earned as commissions. We are is the primary
      obligor, is subject to inventory risk, has latitude in establishing prices
      and
      selecting suppliers, establishes product specifications, and has the risk of
      loss as it relates to cargo losses. Accordingly, our revenue is recorded on
      a
      gross basis.




We
      issue
      letters of credit in favor of the manufacturers in accordance with the
      information provided by us and the manufacturer. We import the goods and pay
      the
      import and delivery costs and forwards the goods to a public warehouse. Goods
      are held by us at a public warehouse until the customers requested ship date.
      We
      arrange and maintain the goods while in our warehouse at our expense. The
      Company has title to the goods when shipped from the manufacturer and in the
      public warehouse.





Revenue
      is recognized upon shipment of goods from the public warehouse to the customers,
      which is when title transfers to the customers. The Factor approves credit
      to
      the customers on the factored sales and charges us 1% of sales.





Shipping
      and handling costs billed to the customers are recorded in sales. Shipping
      and
      handling costs as incurred by us for the imported goods are recorded in cost
      of
      sales.




**Stock
      Based Compensation**




At
      June
      30, 2007, the Company had no stock-based compensation plans and has not issued
      any share-based payments to its employees.




Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of SFAS No. 123(R), *Share Based Payment* , using the
      modified-prospective transition method. Under this transition method,
      compensation cost required to be recognized in the periods ended subsequent
      to
      January 1, 2006 will include: (a) compensation cost for all
      share-based payments granted subsequent to December 31, 2005 based on the
      grant-date fair value estimated in accordance with the provisions of SFAS
      No. 123(R).




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The
      Company will calculate stock-based compensation by estimating the fair value
      of
      each option using the Black-Scholes option pricing model. The Company’s
      determination of fair value of share-based payment awards will be made as of
      their respective dates of grant using that option pricing model and is affected
      by the Company’s stock price as well as assumptions regarding a number of
      subjective variables. These variables include, but are not limited to the
      Company’s expected stock price volatility over the term of the awards and actual
      and projected employee stock option exercise behavior. The Black-Scholes option
      pricing model was developed for use in estimating the value of traded options
      that have no vesting or hedging restrictions and are fully transferable. Because
      the Company’s employee stock options will have certain characteristics that are
      significantly different from traded options, the existing valuation models
      may
      not provide an accurate measure of the fair value of the Company’s employee
      stock options. Although the fair value of employee stock options will be
      determined in accordance with SFAS No. 123(R) using an option-pricing
      model, that value may not be indicative of the fair value observed in a willing
      buyer/willing seller market transaction. The calculated compensation cost will
      be recognized on a straight-line basis over the vesting period of the
      option.




**Going
      Concern**




The
      financial statements have been prepared on a going concern basis which
      contemplates the realization of assets and the satisfaction of liabilities
      in
      the normal course of business. The Company incurred a net loss of $7,239,958
      for
      the six months ended June 30, 2007, and has a working capital deficit of
      $10,152,559 and a stockholders’ deficit of $10,828,924 at June 30, 2007. These
      factors raise substantial doubt about the Company’s ability to continue as a
      going concern where it raises capital in very near future. The ability of the
      Company to continue as a going concern is dependent on achieving profitable
      operations and obtaining sufficient debt or equity financing in the future.
      These financial statements do not include any adjustments that might be
      necessary if the Company is unable to continue as a going concern.




Our
      business and results of operations are affected by a wide variety of factors,
      as
      we discuss in Item 1A. “Risk Factors” of our Annual Report on Form 10-KSB filed
      with the U.S. Securities and Exchange Commission, which could materially and
      adversely affect us and our actual results. As a result of these factors, we
      may
      experience material fluctuations in future operating results on a quarterly
      or
      annual basis, which could materially and adversely affect our business,
      financial condition, operating results and stock price.




**Item 3.Controls
      and Procedures**




The
      following material weaknesses in our internal control over financial reporting
      were reported in our 2006 Annual Report on Form 10-K filed with the United
      States Securities and Exchange Commission on March 16, 2007:





·
            The
                lack of adequate controls over the financial closing and reporting
                process, including controls over disclosures, non-routine transactions
                and
                significant estimates. Specifically, these deficiencies were primarily
                attributable to (1) inability to ensure that the accounting for our
                debt
                and equity-based transactions is accurate and complete. In recent
                years,
                we have consummated a series of complex debt and equity transactions
                involving the application of highly specialized accounting principles,
                and
                (2) lack of comprehensive documentation of accounting policies and
                procedures.




The
      material weakness described above could result in a misstatement of the
      aforementioned accounts or disclosures that would result in a material
      misstatement to the annual or interim consolidated financial statements that
      would not be prevented or detected.





We
      are
      evaluating certain corrective measures we may take including the possibility
      of
      hiring an outside consultant to provide us with the guidance we need at such
      times that we may engage in these complex transactions at such time as our
      working capital permits.





The
      Company, under the supervision and with the participation of the Company's
      management, including the Company's principal executive officer and principal
      financial officer, has evaluated the effectiveness of the design and operation
      of the Company's "disclosure controls and procedures," as such term is defined
      in Rules 13a-15e promulgated under the Exchange Act as of this report. Based
      upon that evaluation, the principal executive officer and principal financial
      officer have concluded that the Company's disclosure controls and procedures
      were not effective as of the end of the period covered by this report to provide
      reasonable assurance that information required to be disclosed by the Company
      in
      reports that it files or submits under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in SEC rules and
      forms.




Given
      these reportable conditions and material weaknesses, management devoted
      additional resources to resolving questions that arose during the period covered
      by this report. As a result we are confident our condensed consolidated
      financial statements as of June 30, 2007 and for the each of the six month
      periods ended June 30, 2007 and 2006 fairly present in all material respects
      our
      financial condition and results of operations.




There
      were no other changes to the internal controls during the quarter ended June
      30,
      2007 that have materially affected or that are reasonably likely to affect
      the
      internal controls.




Limitations
      on the Effectiveness of Controls




The
      Company's management, including the CEO and Interim CFO, does not expect that
      our disclosure controls and procedures or our internal control over financial
      reporting will necessarily prevent all fraud and material error. An internal
      control system, no matter how well conceived and operated, can provide only
      reasonable, not absolute, assurance that the objectives of the control system
      are met. Further, the design of the control system must reflect the fact that
      there are resource constraints, and the benefits of controls must be considered
      relative to their costs. Because of the inherent limitations in all control
      systems, no evaluation of controls can provide absolute assurance that all
      control issues and instances of fraud, if any, within the Company have been
      detected. These inherent limitations include the realities that judgments in
      decision-making can be faulty, and that breakdowns can occur because of simple
      error or mistake. Additionally, controls can be circumvented by the individual
      acts of some persons, by collusion of two or more people, or by management
      override of the internal control. The design of any system of controls also
      is
      based in part upon certain assumptions about the likelihood of future events,
      and there can be no assurance that any design will succeed in achieving its
      stated goals under all potential future conditions. Over time, control may
      become inadequate because of changes in conditions, and/or the degree of
      compliance with the policies or procedures may deteriorate.




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**PART
      II — OTHER INFORMATION**




**Item 1.Legal
      Proceedings**




William
      Bradhan and Richard Traweek v. The Fashion House, Inc., John Hanna





This
      matter was filed October 26, 2005, seeking damages for breach of contract and
      fraud regarding oral arrangements with the Company’s subsidiary. On April 10,
      2007, a Notice of Entry of Judgment was filed with the court for the amount
      of
      $460,000, which includes interest at 10% per year.  No appeal was
      filed and the Company intends to negotiate a reduced settlement and expects
      that
      the matter can be resolved. In connection with this judgment, the Company has
      accrued $300,000 in accounts payable and accrued expenses in the accompanying
      condensed consolidated balance sheet based on management’s best estimate of the
      ultimate settlement of this matter.





Artful
      Mind





On
      March
      6, 2007, the Company was served with a complaint, which Artful Mind Industrial
      Ltd. (“Artful Mind”) filed on March 1, 2007 alleging that the Company failed to
      make payments owed under a Settlement Agreement (the “Agreement”) entered into
      between Artful Mind, Go Moda Limited and the Company in September 27, 2006.
      Artful Mind seeks judgment for the full amount of all payments due, which
      approximates $295,000, together with interest at a rate of 9% per annum
      beginning on January 14, 2007 and costs of collection, including reasonable
      attorneys’ fees incurred. Based on the event of a default, of not timely paying
      the final two payments, the entire balance of all payments due were accelerated
      and became immediately due and interest on all unpaid amounts accrued at a
      rate
      of 9% per annum. The complaint states that the Company is currently in default
      on the final two payments. The Company has included the $295,000 due as accounts
      payable and accrued expenses in the accompanying condensed consolidated balance
      sheet.





**Item 2.
      UnregisteredSales of Equity Securities and Use of
      Proceeds**




On
      April
      10, 2007, the Company issued Westrec an amended warrant to purchase 11,000,000
      shares of the Company’s common stock at an exercise price of $0.40. The warrant
      vested upon grant and is exercisable through September 2013.




The
      issuances of securities described above were deemed to be exempt from
      registration under the Securities Act in reliance on Section 4(2) of the
      Securities Act as transactions by an issuer not involving any public offering.
      The recipients of securities in each such transaction represented their
      intention to acquire the securities for investment only and not with a view
      to
      or for sale in connection with any distribution thereof and appropriate legends
      were affixed to the share certificates and other instruments issued in such
      transactions. The sales of these securities were made without general
      solicitation or advertising.




**Item 3.
      DefaultsUpon Senior Securities**




Not
      Applicable




**Item 4.
      Submissionof Matters to a Vote of Security
      Holders**




Not
      Applicable




**Item 5.
      OtherInformation**




Not
      applicable




**Item 6.Exhibits**




The
      exhibits listed in the Exhibit Index are filed as part of this
      report.




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**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant
      caused this report to be signed on its behalf by the undersigned, thereunto
      duly
      authorized.




**The
                Fashion House Holdings, Inc.**Date: August
                14, 2007
            By:
            /s/ John
                HannaJohn
                HannaChief
                Executive Officer




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**EXHIBIT
      INDEX**




31.1
            
            Certification
                of Chief Executive Officer31.2
            
            Certification
                of Chief Financial Officer32.1
            
            Section
                1350 Certifications of Chief Executive Officer and Chief Financial
                Officer




26