UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549










FORM
10-Q










(MARK
      ONE)x
            QUARTERLY REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
  1934For
      the quarterly period ended September 30, 2008ORo
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACTFor
      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.)




16633 Ventura Blvd., 6th
Floor


Encino,CA91436


(Address of principal executive offices)  (Zip Code)




(818)907-0400


(Issuer’s
telephone number including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 xNo o.




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act:




Large
      Accelerated filer o
            Accelerated
      filer o
            Non-Accelerated
      filer o
            Smaller
      reporting company x




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





As of
November 12, 2008 there were 24,887,063 shares of the Company’s common stock
outstanding.








Table of Contents




TheFashion House Holdings, Inc


Index
to Form 10-Q




PagePart
      I   Financial InformationItem 1.
            Financial
      StatementsCondensed Consolidated Balance
      Sheets as of September 30, 2008 (Unaudited) and December 31,
      2007
            3Condensed Consolidated Statements of
      Operations for the nine month periods ended September 30, 2008 and 2007
      (Unaudited)
            4Condensed Consolidated Statements of
      Operations for the three month periods ended September 30, 2008 and 2007
      (Unaudited)
            5Condensed Consolidated Statements of
      Cash flows for the nine- month periods ended September , 2008 and 2007
      (Unaudited)
            6Notes to Unaudited Condensed
      Consolidated Financial Statements
            8Item 2.
            Management’s Discussion and
      Analysis of Financial Condition and Results
      of  Operations
            13Item 3.
            Quantitative and Qualitative Disclosure About Market
      Risk
            17Item
      4T
            Controls and Procedures
            18Part
      II   Other InformationItem 1.
            Legal
      Proceedings
            19Item 2.
            Unregistered Sales of Equity
      Securities and Use of Proceeds
            20Item 3.
            Defaults Upon Senior
      Securities
            20Item 4.
            Submission of Matters to a Vote of
      Security Holders
            20Item 5.
            Other
      Information
            20Item 6.
            Exhibits
            20SIGNATURES
            21




31.1 Certification of Chief Executive Officer
 31.2 Certification of Controller
 32.1 Section 1350 Certifications of Chief Executive Officer and
Controller





Table of Contents




PARTI — FINANCIAL INFORMATION




Item 1.
Financial Statements


THE
FASHION HOUSE HOLDINGS, INC. AND SUBSIDIARY


CONDENSED
CONSOLIDATED BALANCE SHEETS


SEPTEMBER
30, 2008 AND DECEMBER 31, 2007







September
      30,
            
            
            December
      31,2008
            
            
            2007(Unaudited)ASSETSCurrent
      Assets:Cash
            
            $
            41,744
            
            
            $
            6,390Accounts
      receivable, net of allowance at December 31, 2007 of
    $61,675
            
            
            0
            
            
            
            1,165,584Inventories,
      net of allowance at December 31, 2007 of $1,096,076
            
            
            31,387
            
            
            
            480,374Advances
      to officers
            
            
            74,433
            
            
            
            65,385Prepaid
      expenses
            
            
            50,020
            
            
            
            109,164Total
      current assets
            
            
            197,584
            
            
            
            1,826,897Property
      and equipment, net
            
            
            0
            
            
            
            262,574Restricted
      cash
            
            
            0
            
            
            
            136,847Deposits
            
            
            23,516
            
            
            
            68,021TOTAL
      ASSETS
            
            $
            221,100
            
            
            $
            2,294,339LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      Liabilities:Due
      to related parties
            
            $
            12,322,510
            
            
            $
            11,724,991Accounts
      payable and accrued expenses
            
            
            3,223,559
            
            
            
            3,153,672Accrued
      payroll and related expenses
            
            
            246,200
            
            
            
            239,377Due
      to factor
            
            
            0
            
            
            
            1,066,630Accrued
      interest
            
            
            2,166,289
            
            
            
            843,904Notes
      payable
            
            
            280,293
            
            
            
            280,293Total
      current liabilities
            
            
            18,238,851
            
            
            
            17,308,867Long-term
      liabilities:Notes
      payable to stockholders
            
            
            1,090,100
            
            
            
            1,090,100Total
      Liabilities
            
            
            19,328,951
            
            
            
            18,398,967Commitments
      and contingenciesStockholders'
      deficit:Common
      stock, no par value100,000,000
      shares authorized:24,887,063
      shares issued and outstanding
            
            
            17,847,701
            
            
            
            17,847,701Accumulated
      deficit
            
            
            (36,955,552
            )
            
            
            (33,952,329
            )Total
      stockholders' deficit
            
            
            (19,107,851
            )
            
            
            (16,104,628
            )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
            
            $
            221,100
            
            
            $
            2,294,339





See
accompanying notes





3
 Table of Contents




THEFASHION HOUSEHOLDINGS, INC. AND
SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


NINE
MONTHS ENDED SEPTEMBER 30, 2008 AND 2007


(UNAUDITED)




2008
            
            
            2007Net
      sales
            
            $
            254,311
            
            
            $
            5,093,725Cost
      of sales and returns
            
            
            576,076
            
            
            
            5,352,594Gross
      (loss) profit
            
            
            (321,765)
            
            
            
            (258,869)Operating
      expenses:Selling,
      general and administrative
            
            
            1,266,214
            
            
            
            3,018,343Payroll
      and related
            
            
            94,518
            
            
            
            2,027,722Royalties
            
            
            0
            
            
            
            915,134Total
      operating expenses
            
            
            1,360,732
            
            
            
            5,961,199Loss
      from operations
            
            
            (1,682,497)
            
            
            
            (6,220,068)Other
      income (expense):Interest
      expense, net of interest income
            
            
            (1,322,386)
            
            
            
            (11,298,029
            )Change
      in fair value of derivative liabilities
            
            
            0
            
            
            
            6,322,000Other
      income
            
            
            2,460
            
            
            
            0Total
      other income (expense)
            
            
            (1,319,926)
            
            
            
            (4,976,029
            )Loss
      before income taxes
            
            
            (3,002,423)
            
            
            
            (11,196,097
            )Income
      taxes
            
            
            800
            
            
            
            800Net
      loss
            
            $
            (3,003,223)
            
            
            $
            (11,196,897
            )Basic
      and diluted net loss per share
            
            $
            (0.12)
            
            
            $
            (0.45)Weighted
      average shares outstanding — basic and diluted
            
            
            24,887,063
            
            
            
            24,887,063




See
accompanying notes










4
 Table of Contents





THEFASHION HOUSEHOLDINGS, INC. AND
SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


THREE
MONTHS ENDED SEPTEMBER 30, 2008 AND 2007


(UNAUDITED)




2008
            
            
            2007Net
      sales
            
            $
            93,373
            
            
            $
            1,767,261Cost
      of sales and returns
            
            
            8,426
            
            
            
            1,959,201Gross
      (loss) profit
            
            
            84,947
            
            
            
            (191,940)Operating
      expenses:Selling,
      general and administrative
            
            
            260,502
            
            
            
            818,811Payroll
      and related
            
            
            18,194
            
            
            
            597,606Royalties
            
            
            0
            
            
            
            274,419Total
      operating expenses
            
            
            278,696
            
            
            
            1,690,836Loss
      from operations
            
            
            (193,749)
            
            
            
            (1,882,776)Other
      income (expense):Interest
      expense, net of interest income
            
            
            (449,220)
            
            
            
            (8,396,163)Change
      in fair value of derivative liabilities
            
            
            0
            
            
            
            6,322,000Other
      Income
            
            
            2,020Total
      other income (expense)
            
            
            (447,200)
            
            
            
            (2,074,163)Loss
      before income taxes
            
            
            (640,949)
            
            
            
            (3,956,939)Income
      taxes
            
            
            0
            
            
            
            0Net
      loss
            
            $
            (640,949)
            
            
            $
            (3,956,939)Basic
      and diluted net loss per share
            
            $
            (0.03)
            
            
            $
            (0.16)Weighted
      average shares outstanding — basic and diluted
            
            
            24,887,063
            
            
            
            24,887,063




See
accompanying notes




5
 Table of Contents





THEFASHION HOUSEHOLDINGS, INC. AND
SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


NINE
MONTHS ENDED SEPTEMBER 30, 2008 AND 2007


(UNAUDITED)





2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
            
            $
            (3,003,223)
            
            
            $
            (11,196,897)Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            264,155
            
            
            
            117,757Bad
      debt expense
            
            
            94,262
            
            
            
            66,637Estimated
      fair value of warrants
            
            
            0
            
            
            
            9,924,000Change
      in fair value of warrant liabilities
            
            
            0
            
            
            
            (6,322,000)Accounts
      receivable
            
            
            1,071,322
            
            
            
            1,000,531Inventories
            
            
            448,987
            
            
            
            415,142Prepaid
      expenses
            
            
            59,144
            
            
            
            (309,586)Deposits
            
            
            44,505
            
            
            
            0Accounts
      payable and accrued expenses
            
            
            69,887
            
            
            
            229,750Accrued
      payroll and related expenses
            
            
            6,823
            
            
            
            63,111Deferred
      revenue
            
            
            0
            
            
            
            28,684Accrued
      interest
            
            
            1,322,385
            
            
            
            348,474Net
      cash provided by (used in) operating activities
            
            
            378,247
            
            
            
            (5,634,397)CASH
      FLOWS FROM INVESTING ACTIVITIES:Recovery
      of restricted cash
            
            
            136,847
            
            
            
            0Advances
      to officers
            
            
            (9,048)
            
            
            
            0Purchases
      of property and equipment
            
            
            (1,581)
            
            
            
            (8,611)Net
      cash provided by (used in) investing activities
            
            
            126,218
            
            
            
            (8,611)CASH
      FLOWS FROM FINANCING ACTIVITIES:Repayments
      of notes payable to stockholder
            
            
            0
            
            
            
            (4,000)Advances
      from related parties
            
            
            597,519
            
            
            
            0Proceeds
      from notes payable
            
            
            0
            
            
            
            1,640,000Repayments
      of notes payable
            
            
            0
            
            
            
            (15,000)Advances
      from factor
            
            
            0
            
            
            
            5,737,949Payments
      to factor
            
            
            (1,066,630)
            
            
            
            (6,354,342)Proceeds
      from line of credit, net
            
            
            0
            
            
            
            4,526,576Repayments
      of capital lease
            
            
            0
            
            
            
            (2,352)Net
      cash provided by (used in) financing activities
            
            
            (469,111)
            
            
            
            5,528,831Net
      change in cash
            
            
            35,354
            
            
            
            (114,177)Cash,
      beginning of the period
            
            
            6,390
            
            
            
            131,907Cash,
      end of the period
            
            $
            41,744
            
            
            $
            17,730







6
 Table of Contents




THE
FASHION HOUSE HOLDINGS, INC. AND SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


NINE
MONTHS ENDED SEPTEMBER 30, 2008 AND 2007


(UNAUDITED)





SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for interest
            
            $
            -
            
            
            $
            1,028,911Cash
      paid during the period for income taxes
            
            $
            800
            
            
            $
            800SUPPLEMENTAL
      SCHEDULE OF NONCASH INVESTING AND FINANCING
    ACTIVITIES:Accrued
      liabilities converted to notes payable
            
            $
            -
            
            
            $
            191,393Reclassification
      of derivative liabilities
            
            $
            -
            
            
            $
            9,147,000






See
accompanying notes




7
 Table of Contents





THEFASHION HOUSE HOLDINGS, INC. AND SUBSIDIARY


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2008


(UNAUDITED)




NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Interim
Unaudited Condensed Financial Statements




The
accompanying 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,
2007, and pursuant to the instructions to Form 10-Q  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, 2007.




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.





On April
16, 2008, the Company and its wholly owned subsidiary filed voluntary
petitions under Chapter 11 of the US Bankruptcy Code with the United States
Bankruptcy Court, Central District of California.




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 inventories, and deferred tax assets. Actual results may differ
from these estimates under different assumptions or conditions.




Going
Concern and Chapter 11 Bankruptcy Filed on April 16, 2008




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 losses
for the nine months ended September 30, 2008 and each year from 2004 through
2007, and as of September 30, 2008 the Company has a working capital deficit of
$18,041,267 and a stockholders’ deficit of $19,107,851. 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.





The Company’s
ability to continue in existence and achieve success in operations is dependent
upon numerous items, among which include its emerging from bankruptcy with a
viable business plan, the 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 or others that may be encountered could have a materially
adverse effect on the Company.  No assurance can be given that the
Company will emerge from bankruptcy with a viable business plan, and if it does,
that it can and will achieve or maintain profitable operations.




8
 Table of Contents




The
Company will require financing to repay its existing obligations and resume
operating activities. There can be no assurance that additional funding will be
adequate or will enable the Company to achieve or sustain
profitability.





On
January 15, 2008, the Company terminated a substantial portion of its operations
because of its continuing cash flow deficits.  Prior to that date, on
December 15, 2007, in order to reduce its monthly rent obligation, the Company
established a new corporate office by leasing space on a month to month basis at
the office location of Westrec Capital Partners, LLC (“Westrec”). On January 15,
2008, concurrent with the reduction of its business operations, the Company
surrendered its San Vicente office space.  Westrec is considered a
controlling stockholder of the Company.





On April
16, 2008, the Company and its wholly owned subsidiary filed voluntary
petitions under Chapter 11 of the US Bankruptcy Code with the United States
Bankruptcy Court, Central District of California, file numbers
1:08-BK-12363-KT and 1:08-BK-12359-KT, respectively.







The
Company plans to emerge from Chapter 11 proceedings operating two divisions,
wholesale and retail.  The reorganization plan includes resuming
the Company’s historical wholesale business model of licensing, designing,
manufacturing and marketing designer brand women’s footwear.  The
Company is presently in discussions with several haute couture designers to
license their brands and plans to retain its strategy of building high end
footwear for these licensed brands and selling the product in domestic and
international markets.  The Company plans to also introduce diffusion lines
for the same brands at  price points of $79 to $ 150.  The Company
will continue to limit business to designer brands that highlight design
aspects in order to capitalize on brand recognition.




The
Company’s first retail outlet opened on March 31, 2008 and is located at 607
West Knoll, West Hollywood California. This store operates under the
name Shoe Bliss and occupies 1,500 square feet of retail
space.





On August
27, 2008 the Company signed a lease agreement with Gilmore Farmers Market, LLC
for its second retail outlet located at 6333 W. 3rd Street, Los
Angeles, California.  The Company opened the retail store on
September 7, 2008.  The lease term will end on January 15, 2009. The
Company plans to expand its retail division by opening Shoe Bliss
stores in the State of California and ultimately across the United
States.


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.




The
Company currently does not extend trade credit to its customers, therefore, at
September 30, 2008, no trade accounts receivable exist.




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.




Inventories





Inventories
consist 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.  Once established, write-downs of inventory are considered
permanent adjustments to the basis of the excess or obsolete
inventory.




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.





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.  As of September 30, 2008, all property and equipment was
considered to be fully impaired and all remaining carrying value was written off
to depreciation and amortization expense.




Revenue
Recognition




The
Company currently operates two retail outlets, and revenue is recognized at the
point of sale.





9
 Table of Contents




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, 251,077,748 and 62,959,613 at September 30, 2008
and 2007, respectively, have been excluded from diluted loss per share, as their
effect would be anti-dilutive for the periods then ended.




Stock-Based
Compensation




As of
September 30, 2008, the Company had no stock-based compensation plans and has
not issued any share-based payments to its employees.




Issuance
of Stock for Non-cash Consideration





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.




Recent
Accounting Standards





Accounting
standards that have been recently issued for which effective dates for
implementation are in future periods are not presented herein since they are not
applicable to the Company currently or are not likely to be applicable to the
Company upon their effective dates.




NOTE
2 — ACCOUNTS RECEIVABLE FACTORING AND PURCHASE ORDER FINANCING




On May 3,
2006, the Company entered into a factoring agreement with CIT Commercial
Services (“CIT”), as amended, which was terminated in July 2007.  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.




As of
September 30, 2008, all factoring debt has been satisfied and the factoring
agreement has been terminated.




NOTE
3 — NOTES PAYABLE TO STOCKHOLDERS




The
Company borrowed 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 September 30, 2008, outstanding borrowings totaled
$1,090,100 and accrued interest totaled $359,342. As of September 30, 2008, no
demand for repayment has been made. Interest expense on the notes totaled
$65,466 and $65,279for the nine months ended
September 30, 2008 and 2007, respectively.  The balance above includes a
note payable issued during the year ended December 31, 2007 totaling $121,100 in
connection with amounts previously accrued.




NOTE
4 — COMMITMENTS AND CONTINGENCIES




Licensing
Agreements





As a
result of the Company’s continued cash flow deficits, all of the license
agreements have either been terminated for non-payment of royalties (Isaac and
Oscar), or have expired on their original termination date and have not been
renewed (Tyler).  Due to a continuing decline in the demand for Blass
footwear, this license agreement was mutually terminated. At this time, the
Company does not have any active license agreements in place. The Company is
presently in discussion with several haute couture designers to license their
brands. However, there can be no assurances that it will be successful in
obtaining additional licenses.





Royalty
expense was $0 and $915,134 for the nine months ended September 30, 2008 and
2007, respectively.




Indemnities
and Guarantees




The
Company and its subsidiary have 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 and its subsidiary
indemnifies its directors, officers, employees and agents, as permitted under
the laws of the States of Colorado and 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.




10
 Table of Contents





Litigation





On April
16, 2008, the Company and its wholly owned subsidiary filed voluntary
petitions under Chapter 11 of the US Bankruptcy Code with the United States
Bankruptcy Court, Central District of California, file numbers
1:08-BK-12363-KT and 1:08-BK-12359-KT, respectively. Active litigation at the
time of this bankruptcy filing will be moved to the bankruptcy
court.







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
Bradham 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. 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 Industrial, Ltd.





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. On October 2, 2007, a default judgment was entered
for $315,055, including interest and court costs. The Company has included this
amount as accounts payable and accrued expenses in the accompanying condensed
consolidated balance sheet. A restraining order on $136,847 of the Company’s
cash balances at Comerica Bank was obtained and was classified as restricted
cash at December 31, 2007. The Company’s senior secured lender filed a lawsuit
subsequent to December 31, 2007 to block payment of these funds to Artful
Minds.  On September 3, 2008, the Company was able to recover the
restricted cash.





TCK
Designs, LTD.





On May
11, 2007, a complaint was filed in New York by TCK Designs, LTD alleging breach
of contract for terminating a purported one year agreement without making
payment to the Plaintiff. The plaintiff sought damages in the amount of $37,500,
plus legal fees and interest. A default judgment was entered on September 24,
2007. On October 31, 2007, an Order to Show Cause with Temporary Restraints was
filed in New Jersey, barring the Company’s public warehouse in New Jersey from
moving goods stored at that location. On November 5, 2007, at the Company’s
request, the Court granted a partial release on the restraining order allowing
the Company to continue shipping goods from the public warehouse.  The
Company was required by the court to maintain $100,000 of goods at the warehouse
and a cash deposit of $40,000 in its attorney’s trust account. The Company had
the option of placing an additional $20,000 in the attorney trust account to
fully release all goods in the warehouse.  The Company’s senior
secured lender filed a lawsuit subsequent to December 31, 2007 to block payment
of these funds to Artful Minds?.  The court denied this request and
the funds were remitted to the plaintiff.





Barry
K. Rothman





On
October 26, 2007, a complaint was filed in Los Angeles by Barry K. Rothman
against the Company, John Hanna, Westrec Capital Partners, LLC and a principal
of Westrec Capital Partners, LLC for breach of contract in the amount of
$141,733 and appointment of receiver.  The suit relates to failure to
pay for legal services. The matter is currently pending.





Bowne
of Los Angeles





On
December 21, 2007 a complaint was filed in Los Angeles by Bowne of Los Angeles,
Inc. for breach of contract in the approximate amount of $20,000. The matter is
currently pending.





6310
San Vicente Associate, LLC





On
February 15, 2008, a complaint was filed in Los Angeles against the Company by
6310 San Vicente Associates, Inc., the Company’s former landlord for breach of
contract for failure to pay rent in the approximate amount of $26,000. The
matter is currently pending.


.


Oscar
De La Renta, Ltd





On
February 19, 2008, a complaint was filed in New York by Oscar De La Renta Ltd.
against the Company for breach of contract, unfair competition, and trademark
infringement relating to failure to make royalty payments in connection with the
Company’s license agreement with Oscar De La Renta, Ltd. The plaintiff seeks
damages totaling $1,786,015. The matter is currently pending.




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Employment
Agreement




The
Company has entered into employment agreement with certain of its management for
services to be provided in the normal course of business. This agreement calls
for minimum salary level and payment 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, 2008 is $180,000 and the bonus was waived for 2007, 2006, and
2005.




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 shares of the Company’s
common stock during the nine months ended September 30, 2007 as a penalty 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 had a fair value totaling $58,000,
which was recorded 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.





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 was immediately exercisable, had an exercise price of $1.00 and expires
in July 2016. The warrant had a relative fair value of $33,000, 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 September 21, 2007, the
Company received a written demand for payment on this note. As of September 30,
2008, no payment has been made.





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 was 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 and a lawsuit was
filed to recover the amount from the Company, along with accrued interest. At
September 30, 2008, the outstanding principal balance was $55,293.




NOTE
6 – DUE TO RELATED PARTIES





In
November 2007, the Master Revolving Note amounting to $8,500,000 was assigned by
Comerica Bank to Michael M. Sachs, the principal owner of Westrec Capital
Partners, LLC.





In 2008
Westrec continued to finance the Company by advancing cash for the Company’s
operating expenses.  The Company continues to accrue 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, and a monthly monitoring fee of $5,000.As of September 30,
2008, a total of $3,701,091 advances had been made.





During
the nine months ended September 30, 2008, the Company incurred total fees to
Westrec of approximately $1,303,697, paid zero and owes $1,850,082, which is
included in accounts payable and accrued expenses in the accompanying condensed
consolidated balance sheet.




NOTE
7 — EQUITY TRANSACTIONS




Warrants




During
the nine  months ended September 30, 2008, the company issued an
additional 144,540,504 warrants to purchase common stock to Westrec under the
amended Westrec warrant agreement. The Company did not recognize any expense for
these warrants as they were deemed to have nominal or no value as a result of
the Chapter 11 filing on April 16, 2008.





As of
September 30, 2008, Westrec had been granted a total of 251,077,748
warrants.




NOTE
8 — SUBSEQUENT EVENTS





No
subsequent events.






12
 Table of Contents




Item2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations




Some of
the statements made by us in this Quarterly Report on Form 10-Q 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;•
            
            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, 2007 financial statements, the Company had suffered recurring
losses from operations, and had a working capital deficit that raises
substantial doubt about its ability to continue as a going concern.




Reduction
of Operations, Chapter 11 Filing and Planned Operations





On
January 15, 2008, the Company terminated a substantial portion of its operations
because of its continuing cash flow deficits.  Prior to that date, on
December 15, 2007, in order to reduce its monthly rent obligation, the Company
established a new corporate office by leasing space on a month to month basis at
the office location of Westrec Capital Partners, LLC (“Westrec”). On January 15,
2008, concurrent with the reduction of its business operations, the Company
surrendered its San Vicente office space.  Westrec is considered a
control stockholder of the Company.





On April
16, 2008, the Company and its wholly owned subsidiary filed voluntary
petitions under Chapter 11 of the US Bankruptcy Code with the United States
Bankruptcy Court, Central District of California, file numbers
1:08-BK-12363-KT and 1:08-BK-12359-KT, respectively.




Our
current operations include sales at our retail outlets opened on March 31,
2008, located at 607 West Knoll, West Hollywood California, and September 7,
2008 at 6333 W. 3rd Street,
Los Angeles, California. The stores operate under the name Shoe
Bliss and occupy 1,500 square feet and 1,200 square feet of
retail space respectively.   At Shoe Bliss, we sell
well known designer brands at a discount between 50% to 75% of the retail
prices. Our shoes sell in our retail stores for $39 to $120, while similar shoes
retail in the market place from $140 to $300.  This retail division allows
us to reduce warehousing expenses, produce current income,
and keep our brand names in the market, thus preserving our
goodwill.




We are
also currently identifying and negotiating new designer licenses to actively
resume our women’s wholesale business, which was curtailed in January 2008 as
part of our business reorganization plans.




13
 Table of Contents




We plan
to emerge from Chapter 11 proceedings operating two divisions, wholesale and
retail.  Our reorganization plan includes resuming our historical
wholesale business model of licensing, designing, manufacturing and
marketing designer brand women’s footwear.  We are presently in
discussions with several haute couture designers to license their brands.
We will retain our successful pattern of building high end
footwear for these licensed brands and selling the product in domestic and
international markets.  We will also introduce diffusion lines for the same
brands at more affordable price points of $79 to $ 150.  The Company
will continue to limit business to designer brands that highlight design
aspects in order to capitalize on brand recognition.




We plan
to expand our retail division by opening Shoe Bliss stores in the
State of California and ultimately across the United States.




Overview




We plan
to 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. We have sold
over 100 different styles of designer footwear through independent retailers,
specialty retailers and better department stores.





As a
result of our continued cash flow deficits, all of our license agreements have
either been terminated for non-payment of royalties (Isaac and Oscar), or have
expired on their original termination date and have not been renewed
(Tyler).  Due to a continuing decline in the demand for Blass
footwear, this license agreement was mutually terminated. At this time, we do
not have any active license agreements in place. We are presently in discussions
with several haute couture designers to license their brands. However, there can
be no assurances that we will be successful in obtaining additional
licenses.





The
footwear sales cycle is well entrenched and most of the industry’s
infrastructure centers around four distinct selling seasons: Spring 1, Spring 2,
Fall 1 and Fall 2. Spring 1 occurs in June and products are debuted at trade
shows—such as the Fashion Footwear Association of New York—for introduction to
retail stores in November. Spring 2 occurs in August and coincides with the
industry’s largest trade show event—the World Shoe Association show in Las
Vegas. Lines that debut in this venue appear on retail shelves and counters the
following February and March. Fall 1 is a December event and translates to
retail introductions in April and May. Fall 2 occurs in February and shoes
ordered by buyers in this period are introduced to retail stores in July and
August.




Results
of Operations for the Three Months Ended September 30, 2008 and September 30,
2007.




Net sales
for the three months ended September 30, 2008 were $93,373, a decrease of
$1,673,888 or 95% lower than the net sales for the prior year quarter of
$1,767,261. The net sales decrease of $1,673,888 was the result of the Company’s
decision to curtail operations as a result of continuing cash flow deficits and
plan to file for Chapter 11 reorganization proceedings.




Gross
income for the three months ended September 30, 2008 was $84,947 or 90.9% of net
sales. This gross margin was primarily attributable to the sale of the remaining
off-season inventories of the company at the retail store opened in March 2008
at the West Hollywood location and in September 2008 at the Farmers Market
location in Los Angeles.  Gross loss for the three months ended September
30, 2007 was $191,940 or (10.9%) of net sales.





Operating
expenses include all costs associated with design, development, sales,
marketing, distribution, purchasing, and corporate functions. Operating expenses
decreased to $278,696 in the three months ended September 30, 2008 from
$1,690,836 in 2007, for a decrease of $1,412,140. The decrease in operating
expenses is also attributable to the reduction in operations and filing of the
Chapter 11 reorganization on April 16, 2008.





The net
loss for the three months ended September 30, 2008 is $640,949 compared to a net
loss of $3,956,939 for the same period in 2007 for a decreased loss of
$3,315,990 primarily as a result of the termination of a substantial
portion of our operations because of continuing cash flow deficits. The loss
from operations was $193,749 during the three months ended September 30, 2008
compared to a loss from operations of $1,882,776 for the three months ended
September 30, 2007. The decrease in the loss from operations of $1,689,027 was
entirely due to the reduction of operations due to continuing cash flow
deficits. The Company recorded in other expenses for the three months ended
September 30, 2008 charges in the amount of $447,220.  These
charges include $449,220 in interest charges and other income of
$2,020.   The Company recorded in other expenses for the three
months ended September 30, 2007 charges totaling $2,074,163. These charges
include $9,147,000 expense to record the fair value of warrants issued as
guarantees, $6,322,000 income to record the change in fair value of derivative
liabilities, and interest expense of $554,163.




Results
of Operations for the Nine Months Ended September 30, 2008 and September 30,
2007.




Net sales
for the nine months ended September 30, 2008 were $254,311, a decrease of
$4,839,415 or 95% from the same period in the prior year. This decrease was the
result of the Company’s decision to curtail operations as a result of continuing
cash flow deficits and plan to file for Chapter 11 reorganization
proceedings.




Gross
loss for the nine months ended September 30, 2008 was $321,765 or (127%) of net
sales. This negative gross margin was primarily attributable to the inventory
reserve for obsolescence taken up as an adjustment to cost of sales, and
discounts and returns offered to customers as a result of the Chapter 11
reorganization filed on April 16, 2008.  Gross loss for the nine
months ended September 30, 2007 was $258,869 or (5.0%) of net
sales.  The loss in gross margin was the result of late product
deliveries due to our negative cash flow and inability to pay suppliers on
time.




Operating
expenses include all costs associated with design, development, sales,
marketing, distribution, purchasing, and corporate functions. Operating expenses
decreased to $1,360,732 in the nine months ended September 30, 2008 from
$5,961,199 in 2007, for a decrease of $4,600,467. The decrease in operating
expenses is also attributable to the reduction in operations and filing of the
Chapter 11 reorganization on April 16, 2008.





The net
loss for the nine months ended September  30, 2008 is $3,003,223
compared to a net loss of $11,196,897 for the same period in 2007 for a
decreased loss of $8,193,674, primarily as a result of the termination of a
substantial portion of our operations because of continuing cash flow deficits.
The loss from operations was $1,682,497 during the nine months ended September
30, 2008 compared to a loss from operations of $6,220,068 for the nine months
ended September 30, 2007. The decrease in the loss from operations of $4,537,571
was entirely due to the reduction of operations due to continuing cash flow
deficits. The Company recorded in other expenses for the nine months ended
September 30, 2008 $1,319,926 consisting of interest expense of $1,322,386 and
other income of $2,460.  The Company recorded in other expenses for
the nine months ended September 30, 2007 charges totaling $4,976,029. These
charges included $9,924,000 expense to record the fair value of warrants
issued as guarantees, $6,322,000 income to record the change in fair value of
derivative liabilities, and interest expense of $813,350.





14
 Table of Contents




Liquidity
and Capital Resources




As
reported in the Report of Independent Registered Public Accounting Firm on our
December 31, 2007 financial statements, the Company has suffered recurring
losses from operations, and has a working capital deficit that raises
substantial doubt about our ability to continue as a going concern.




During
the nine months ended September 30, 2008, Company’s net cash position increased
by $35,354 to $41,744. During 2007, as a result of the Artful Minds lawsuit, a
lien was placed on $136,847 of the Company’s cash and is classified as
restricted cash.  The Company’s senior secured lender has filed a
lawsuit to block the payment of these funds to Artful Minds.  On
September 3, 2008, the Company was able to recover the restricted
cash.





The
Company’s financing activity used net cash of $469,111 for the nine months ended
September 30, 2008, primarily due to the payment of $1,066,630 to our factor.
The funds to pay the factor came primarily from collections of accounts
receivable and also from borrowings from the Company’s senior secured lender of
$597,519.  These borrowing are classified as due to related parties at
September 30, 2008. There were no advances from the factor during the nine
months ended September 30, 2008.





Net cash
provided by operating activities for the nine months ended September 30, 2008
was $378,247, an increase of $6,012,644 from the $5,634,397 used in operating
activities in the prior year period. The increase in the cash provided by
operating activities resulted from the cost savings associated with the
reduction of operations and the collection of outstanding trade
receivables.




The
Company had cash used for investing activities of $126,218 relating to the
recovery of restricted cash of $136,847, advances to officers in the amount of
$9,048 and purchase of property and equipment amounting to $1,581 for the nine
months ended September 30, 2008.  In the 2007 period, the net cash
used for investing was $8,611 for the purchase of property and
equipment.




Financing
Activities




We have
historically financed our operations primarily with borrowings from our senior
secured lender.





On July
9, 2007, Westrec and The Company entered into a Letter Agreement to amend 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 September 30, 2008, $3,701,091
of advances had been made under this amended Agreement.




On July
17, 2007, the Company entered into an agreement with Ashford Finance, LLC
(“Ashford”), whereby Ashford provided up to $5,000,000 of purchase order
financing relating to the Company’s purchases of its products from foreign
manufacturers. Ashford  financed up to 90% of the Company’s end
buyer’s purchase orders relating to the Company’s purchase orders placed with
the foreign manufacturer. The Company was 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 equaled up to 75% of the Company’s related customer
purchase orders. The Account Management Fee increased to 2.5% for Letters of
Credit when the amount was in excess of 75% of the related customer purchase
order, but in no event was the Letter of Credit amount greater than 90% of the
related customer purchase orders. All loans accrued interest at the rate of 2%
per annum above the Prime Rate as published time to time by the Wall Street
Journal. The agreement required minimum usage during the first twelve months of
$3,000,000.  The company did not execute any purchase order financing
transactions during the nine months ended September 30, 2008 due to the
reduction in operations on January 15, 2008 and the Chapter 11 reorganization
filed on April 16, 2008.





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.  The Company did not factor any receivables during the nine
months ended September 30, 2008 due to the reduction in operations on January
15, 2008 and the Chapter 11 reorganization filed on April 16, 2008.




In
connection with the July 25, 2007 agreement with Ultimate and the July 17, 2007
agreement with Ashford, Intercreditor Agreements were also entered into 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 subordinated its security interest in
receivables, as defined, to Ashford. Westrec subordinated to Ashford its
security interest in inventory financed by Ashford. With regard to inventory
other than inventory financed by Ashford, security interests of Ashford and
Westrec rank pari passu with one another. Ashford’s lien and security interest
in all other assets and collateral is subordinate to Westrec’s security interest
(other than receivables or inventory).





In
November 2007, the Master Revolving Note was assigned by Comerica Bank to
Michael M. Sachs, the principal owner of Westrec Capital Partners,
LLC.





During
the nine months ended September 30, 2008, the Company incurred total fees to
Westrec of approximately $1,303,697,  paid zero and owes $1,850,082,
which is included in accounts payable and accrued expenses in the accompanying
condensed consolidated balance sheet.





15
 Table of Contents




Licenses




As a
result of our continued cash flow deficits, all of our license agreements have
either been terminated for non-payment of royalties (Isaac and Oscar), or have
expired on their original termination date and have not been renewed
(Tyler).  Due to a continuing decline in the demand for Blass
footwear, this license agreement was mutually terminated. At this time, we do
not have any active license agreements in place. We are presently in discussions
with several haute couture designers to license their brands. However, there can
be no assurances that we will be successful in obtaining additional
licenses.





On
November 26, 2007, the Tyler licenses ended in accordance with the contract
termination date. While a two year renewal was available in the agreement, the
renewal option was not exercised.





During
the year ended December 31, 2007, the Company had rights to use ten trademarks
as evidenced by licensing agreements entered into with 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.





The Company had
experienced a declining market for its Blass footwear. As a result, during the
fourth quarter of 2007,the Company and Bill Blass began negotiations to
terminate the Blass license. While the Company and Blass had mutually agreed
that the Company would discontinue the design, manufacture and sale of Blass
footwear, a payment of $90,000 by the Company to Blass was to be made to relieve
the Company’s obligations under the license agreement for all future minimum
payments. This payment has not been made as of the date of this
filing.





On
January 10, 2008, Oscar de la Renta issued a written notice of default for
failure to pay minimum royalties under the Company’s licensing agreement with
it.





On
January 27, 2008 Isaac Mizrahi requested termination of the Company’s licensing
agreement with it.





Royalty
expense was $0 and $915,134 for the nine months ended September 30, 2008 and
2007, respectively.




Future
Liquidity




Our
principal sources of liquidity consist of existing cash balances and proceeds
from retail sales of our products. We believe the key factors to our liquidity
in the remainder of 2008 and 2009 will be our ability to successfully emerge
from Chapter 11 proceedings and execute on our plans to reestablish our business
lines and ultimately become profitable. There is no assurance that the Company
will be able to accomplish these objectives. 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 or historically were
several accounting policies that are or were 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




In 2007
and prior, revenue was recognized upon shipment of goods from the public
warehouse to the customers, which is when title transfers to the customers. The
Factor approved credit to the customers on the factored sales and charges us
..85% of sales.  The Company is currently operating two retail outlets,
and revenue is recognized at the point of sale.




Derivative
Financial Instruments





In
connection with the issuance of warrants with certain notes payable 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 expense. If
the fair value of the derivatives was lower at the subsequent balance sheet
date, the Company recorded non-operating, non-cash income.





16
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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 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. However, as retrospective
application of FSP EITF 00-19-2 is prohibited, the Company has not restated the
amounts presented as of December 31, 2007.




As a
result of unsuccessful fund raising efforts, the Company modified an existing
warrant (the “Modification”) and therefore did not have a sufficient number of
authorized shares to settle outstanding and exercisable options, warrants and
convertible instruments. Therefore, 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, as a result of the Modification, the Company was required to
classify all warrants as derivative liabilities and apply the same accounting
treatment as noted above until the Company has a sufficient number of authorized
shares.




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 losses
for the nine months ended September 30, 2008 and each year from 2004 through
2007, and as of September 30, 2008 the Company has a working capital deficit of
$18,041,267 and a stockholders’ deficit of $19,107,851.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.





The
Company’s ability to continue in existence and achieve success in operations is
dependent upon numerous items, among which are the 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.  No assurance can be given that the Company can
achieve or maintain profitable operations.





The
Company will require financing to repay its existing obligations and resume
operating activities. There can be no assurance that additional funding will be
adequate or will enable the Company to achieve or sustain profitable
operations.





On
January 15, 2008, the Company terminated a substantial portion of its operations
because of its continuing cash flow deficits.  Prior to that date, on
December 15, 2007, in order to reduce its monthly rent obligation, the Company
established a new corporate office by leasing space on a month to month basis at
the office location of Westrec Capital Partners, LLC (“Westrec”). On January 15,
2008, concurrent with the reduction of its business operations, the Company
surrendered its San Vicente office space.  Westrec is considered a
control stockholder of the Company.




On April
16, 2008, the Company and its wholly owned subsidiary filed voluntary
petitions under Chapter 11 of the US Bankruptcy Code with the United States
Bankruptcy Court, Central District of California, file numbers
1:08-BK-12363-KT and 1:08-BK-12359-KT, respectively.




We plan
to emerge from Chapter 11 proceedings operating two divisions, wholesale and
retail.  Our reorganization plan includes resuming our historical
wholesale business model of licensing, designing, manufacturing and
marketing designer brand women’s footwear.  We are presently in
discussions with several haute couture designers to license their brands.
We will retain our successful pattern of building high end
footwear for these licensed brands and selling the product in domestic and
international markets.  We will also introduce diffusion lines for the same
brands at more affordable price points of $79 to $ 150.  The Company
will continue to limit business to designer brands that highlight design
aspects in order to capitalize on brand recognition.




We plan
to expand our retail division by opening Shoe Bliss stores in the
State of California and ultimately across the United





Item3. Quantitative and Qualitative Disclosure About Market
Risk





Not
Applicable





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Item4T. Controls and Procedures





Disclosure
Controls and Procedures




Our Chief
Executive Officer (“CEO”) and Principal Accounting Officer, are responsible for
establishing and maintaining adequate internal controls over financial
reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”).




Internal
controls over financial reporting is promulgated under the Exchange Act as a
process designed by, or under the supervision of, our CEO and CFO, and effected
by our board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures
that:




•
            
            Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of our
      assets;




•
            
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that our receipts and expenditures are being
      made only in accordance with authorizations of our management and
      directors; and




•
            
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition or disposition of our assets that could have a
      material effect on the financial
statements.




Readers
are cautioned that internal controls over financial reporting, no matter how
well designed, have inherent limitations and may not prevent or detect
misstatements. Therefore, even effective internal controls over financial
reporting can only provide reasonable assurance with respect to the financial
statement preparation and presentation.




Our
management, with the participation of the CEO and Principal Accounting
Officer, evaluated the effectiveness of the Company's internal controls over
financial reporting as of December 31, 2007. In making this assessment, our
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control —
Integrated Framework. Based on this evaluation, our management, with the
participation of the Chief Executive Officer and Chief Financial Officer,
concluded that, as of December 31, 2007, our internal controls over
financial reporting were not effective because a) certain of our financial
reporting functions lacked adequate segregation and oversight (due to
substantial reduction in the number of employees as a result of extreme
financial distress), and b) we were unable to prepare financial statements or
file all required  reports in a timely manner.




Changes in Internal Control over
Financial Reporting. Further, there were no changes in the
Company’s internal control over financial reporting identified in connection
with the evaluation required by paragraph (d) of Rule 13a-15 of the Exchange Act
that occurred during the Company’s third fiscal quarter of 2008 that materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.





Disclosure Controls and Procedures.Our management, under the supervision and with the participation of our
CEO and CFO, has evaluated the effectiveness of our disclosure controls and
procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the
end of the period covered by this Report.




Disclosure
controls and procedures reporting as promulgated under the Exchange Act is
defined as controls and procedures that are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Act are recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s (the “SEC”) rules
and forms. Disclosure controls and procedures include without limitation,
controls and procedures designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company’s management,
including its CEO and CFO, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. Based on
such evaluation, the CEO and CFO have concluded that these controls and
procedures were not effective in providing reasonable assurance that information
requiring disclosure is recorded, processed, summarized and reported within the
timeframe specified by the SEC’s rules and forms because we did not timely
report our findings with respect to our the internal controls over financial
reporting in our annual report, as such term is defined in Rule 13a-15(f). We
have since that time filed our findings with respect to our internal controls
over financial reporting.




This
Report does not include an attestation report of our registered public
accounting firm regarding our internal controls over financial reporting. The
disclosure contained under this Item 8/A was not subject to attestation by
our registered public accounting firm pursuant to temporary rules of the SEC
that permit us to provide only the disclosure under this Item 8/A in
this Report.







18
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PART
II — OTHER INFORMATION




Item1. Legal Proceedings




On April
16, 2008, the Company and its wholly owned subsidiary filed voluntary
petitions under Chapter 11 of the US Bankruptcy Code with the United States
Bankruptcy Court, Central District of California, file numbers
1:08-BK-12363-KT and 1:08-BK-12359-KT, respectively. Active litigation at the
time of this bankruptcy filing will be moved to the bankruptcy
court.




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
Bradham 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. 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 Industrial, Ltd.





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. On October 2, 2007, a default judgment was entered
for $315,055, including interest and court costs. The Company has included this
amount as accounts payable and accrued expenses in the accompanying condensed
consolidated balance sheet. A restraining order on $136,847 of the Company’s
cash balances at Comerica Bank was obtained and was classified as restricted
cash at December 31, 2007. The Company’s senior secured lender filed a lawsuit
subsequent to December 31, 2007 to block payment of these funds to Artful Minds.
On September 3, 2008, the Company was able to recover the restricted
cash.





TCK
Designs, LTD.





On May
11, 2007, a complaint was filed in New York by TCK Designs, LTD alleging breach
of contract for terminating a purported one year agreement without making
payment to the Plaintiff. The plaintiff sought damages in the amount of $37,500,
plus legal fees and interest. A default judgment was entered on September 24,
2007. On October 31, 2007, an Order to Show Cause with Temporary Restraints was
filed in New Jersey, barring the Company’s public warehouse in New Jersey from
moving goods stored at that location. On November 5, 2007, at the Company’s
request, the Court granted a partial release on the restraining order allowing
the Company to continue shipping goods from the public warehouse.  The
Company was required by the court to maintain $100,000 of goods at the warehouse
and a cash deposit of $40,000 in its attorney’s trust account. The Company had
the option of placing an additional $20,000 in the attorney trust account to
fully release all goods in the warehouse.  The Company’s senior
secured lender filed a lawsuit subsequent to December 31, 2007 to block payment
of these funds to Artful Minds.?  The court denied this request and
the funds were remitted to the plaintiff.





Barry
K. Rothman





On
October 26, 2007, a complaint was filed in Los Angeles by Barry K. Rothman
against the Company, John Hanna, Westrec Capital Partners, LLC and a principal
of Westrec Capital Partners, LLC for breach of contract in the amount of
$141,733 and appointment of receiver.  The suit relates to failure to
pay for legal services. The matter is currently pending.





Bowne
of Los Angeles





On
December 21, 2007 a complaint was filed in Los Angeles by Bowne of Los Angeles,
Inc. for breach of contract in the approximate amount of $20,000. The matter is
currently pending.





6310
San Vicente Associate, LLC





On
February 15, 2008, a complaint was filed in Los Angeles against the Company by
6310 San Vicente Associates, Inc., the Company’s former landlord for breach of
contract for failure to pay rent in the approximate amount of $26,000. The
matter is currently pending.


.


Oscar
De La Renta, Ltd





On
February 19, 2008, a complaint was filed in New York by Oscar De La Renta Ltd.
against the Company for breach of contract, unfair competition, and trademark
infringement relating to failure to make royalty payments in connection with the
Company’s license agreement with Oscar De La Renta, Ltd. The plaintiff seeks
damages totaling $1,786,015. The matter is currently pending.





19
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Item2. Unregistered Sales of Equity Securities and Use of
Proceeds




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 80,277,472. In connection with the warrant modification, the Company
recognized as expense approximately $6,928,000 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 does 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 classified all other
non-employee warrants as derivative liabilities and recorded 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.





During
the nine months ended September 30, 2008, the Company issued an additional
144,540,504 warrants to purchase common stock to Westrec under the amended
Westrec warrant agreement. The Company did not recognize any expense related to
these warrants they are deemed worthless due to the Chapter 11 filing on April
16, 2008.





As of
September 30, 2008, Westrec had been granted a total of 251,077,748
warrants.





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.




Item3. Defaults Upon Senior Securities




The
Company remains in default under an approximately $8.5 million line of credit
initially provided to it by Comerica Bank which was subsequently assigned to
Westrec. The Company is also in default of additional amounts owed to Westrec of
approximately $3.4 Million.




Item 4.
Submission of Matters to a Vote of Security Holders




Not
Applicable




Item 5.
Other Information




Not
applicable




Item 6.
Exhibits




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









20
 Table of Contents




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: November  19,
      2008
            By:
            /s/ John
      HannaJohn
      HannaChief
      Executive Officer














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EXHIBIT
INDEX




31.1 Certification of Chief Executive Officer
 31.2 Certification of Controller
 32.1 Section 1350 Certifications of Chief Executive Officer and
Controller








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