Thinspace Technology, Inc. - FORM 10-Q

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EX-31.2 - EXHIBIT 31.2 - Thinspace Technology, Inc.	ex312.htm
EX-32.1 - EXHIBIT 32.1 - Thinspace Technology, Inc.	ex321.htm
EX-32.2 - EXHIBIT 32.2 - Thinspace Technology, Inc.	ex322.htm
EX-31.1 - EXHIBIT 31.1 - Thinspace Technology, Inc.	ex311.htm
EXCEL - IDEA: XBRL DOCUMENT - Thinspace Technology, Inc.	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

o TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transitional period from ______ to ______

Commission File No. 0-52524

VANITY EVENTS HOLDING, INC.

(Exact name of registrant as specified in its charter)

Delaware		43-2114545
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

110 Front Street

Brookings, South Dakota 57006

(Address of principal executive offices) (zip code)

(605) 692-8226

(Registrant's telephone number)

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. YesR No£

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No£

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £ Accelerated filer £ Non-accelerated filer £

Smaller Reporting Company R

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes £ NoR

Number of shares of common stock issued and outstanding as of August 4, 2011 was 67,628,695.

VANITY EVENTS HOLDING, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.	Unaudited Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	23

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	[Reserved]	24
Item 5.	Other Information	24
Item 6.	Exhibits	24

SIGNATURES		25

PART I

ITEM 1. FINANCIAL STATEMENTS

VANITY EVENTS HOLDING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,			December 31,
	2011			2010

Assets

Current assets:
Cash and cash equivalents	$	8,223		$	294
Accounts receivable, net of allowance for doubtful accounts
of $7,219 and $11,185, respectively		19,664			9,034
Inventory		84,851			112,195
Other current assets		14,914			10,184
Receivable from related party		58,080			58,080
Total current assets		185,732			189,787

Property and equipment, net		70,191			78,563


Total assets	$	255,923		$	268,350

Liabilities and deficiency in stockholders' equity

Current liabilities:
Bank overdraft	$	10,293		$	17,414
Accounts payable and accrued expenses		525,426			472,504
Notes payable - bank, current portion		125,955			130,057
Notes payable - other, net of discount of 218,025 and $132,877, respectively		391,350			137,123
Notes payable - related parties		287,382			252,771
Accrued payroll liabilities and sales tax liabilities		289,924			287,366
Other liabilities		37,169			40,819
Derivative liabilities		3,859,570			1,551,289
Total current liabilities		5,527,069			2,889,343

Deficiency in stockholders' equity:
Preferred stock, authorized 50,000,000 shares, $0.001 par value,
500,000 shares issued and outstanding at June 30, 2011 and
December 31, 2010, respectively		500			500
Common stock authorized 350,000,000 shares, $0.001 par value,
67,628,695 and 64,989,807 shares issued and outstanding at June 30, 2011
and December 31, 2010, respectively		67,629			64,990
Additional paid in capital		416,480			408,077
Accumulated deficit		(5,755,755	)		(3,094,560	)
Total deficiency in stockholders' equity		(5,271,146	)		(2,620,993	)

Total liabilities and deficiency in stockholders' equity	$	255,923		$	268,350

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

VANITY EVENTS HOLDING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010


Revenues	$	29,347		$	76,816		$	59,908		$	173,694
Cost of goods sold		20,829			45,155			31,441			82,453

Gross profit		8,518			31,661			28,467			91,241

Operating expense:
Selling expense		27,194			90,317			84,063			152,145
General and administrative expense		72,282			65,962			346,864			117,635

Total operating expense		99,476			156,279			430,927			269,780

Loss from operations		(90,958	)		(124,618	)		(402,460	)		(178,539	)

Gain on change in fair value of derivative liability		953,310			-			977,712			-
Interest expense and amortization of debt discount		(3,169,381	)		(3,437	)		(3,236,447	)		(6,070	)

Loss before provision for income taxes		(2,307,029	)		(128,055	)		(2,661,195	)		(184,609	)

Provision for income taxes		-			-			-			-

Net loss		(2,307,029	)		(128,055	)		(2,661,195	)		(184,609	)

Basic and diluted loss per share	$	(0.03	)	$	(0.00	)	$	(0.04	)	$	(0.00	)

Weighted average shares outstanding,
Basic and diluted		67,628,695			64,989,807			67,176,731			64,989,807

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

VANITY EVENTS HOLDING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010

(Unaudited)

	Six Months Ended June 30,
	2011			2010

Cash flows from operating activities:
Net loss	$	(2,661,195	)	$	(184,609	)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization		9,538			4,009
Allowance for doubtful accounts		(3,966	)		-
Change in fair value of derivative liability		(977,712	)		-
Amortization of debt discount		3,209,987			-
Changes in operating assets and liabilities:
Accounts receivable		(6,664	)		(16,419	)
Inventory		27,344			(28,973	)
Other assets		(4,730	)
Accounts payable and other current liabilities		136,605			166,681

Net cash used in operating activities		(270,793	)		(59,311	)

Cash flows from investing activities:
Cash paid for fixed assets		(1,166	)		(8,304	)

Cash flows from financing activities:
Bank overdraft		(7,121	)		-
Proceeds from notes payable - bank		-			31,141
Repayments of notes payable - bank		(4,102	)
Proceeds from notes payable - related parties		47,075			50,312
Repayments of notes payable - related parties		(12,464	)		(14,574	)
Proceeds from notes payable - other		271,500			-
Repayments of notes payable - other		(15,000	)
Advances - other		-			48,012
Advances to related party		-			(33,578	)

Net cash provided by financing activities		279,888			81,313

Net increase in cash		7,929			13,698
Cash, beginning of period		294			1,592
Cash, end of period	$	8,223		$	15,290

Supplemental Schedule of Cash Flow Information:
Cash paid for interest	$	1,144		$	-
Cash paid for income taxes	$	-		$	-

Non-cash investing and financing activities:
Note payable issued as payment for accounts payable	$	84,775		$	-
Note payable converted to common stock	$	1,900		$	-
Derivative liability reclassified to equity upon conversion of debt	$	9,142		$	-
Derivative liability of conversion feature of debt	$	2,947,633		$	-
Derivative liability of warrants issued with debt	$	347,500		$	-

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

VANITY EVENTS HOLDING, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2011 AND 2010

(Unaudited)

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

COMPANY OVERVIEW

Nature of Operations

VANITY EVENTS HOLDING, INC. (the “Company” or “Vanity” or “we” or “our”), was organized as a Delaware Corporation on August 25, 2004, and is a holding company with expanding lines of business. Utilizing the acquired trademark of America’s Cleaning Company™, Vanity had established a cleaning company offering a full range of residential and commercial cleaning services as its only operating business until December 2010. In September 2010 the Company was forced to temporarily suspend its cleaning services operations due to a lack of available funds. In December 2010 we entered into a share exchange agreement (“Exchange Agreement”) by and among the Company, Shogun Energy, Inc., a South Dakota corporation (“Shogun”), Shawn Knapp, the principal shareholder of Shogun (the “Principal Shareholder”) and the other shareholders of Shogun (the “Shogun Shareholders” and collectively with the Principal Shareholder, the “Shareholders”). Pursuant to the terms of the Exchange Agreement, the Shareholders exchanged an aggregate of 100% of the issued and outstanding shares of capital stock of Shogun in exchange for 500,000 shares of the Company’s series A preferred stock (the “Exchange”). Each share of series A preferred stock shall be entitled to 1,604 votes per share and shall be convertible into 1,604 shares of the Company’s common stock. Upon filing an amendment to the Company’s certificate of incorporation to increase the number of shares of authorized common stock so that there is an adequate amount of shares of authorized common stock for issuance upon conversion of the series A preferred stock (the “Amendment”), the shares of series A preferred stock will be automatically converted into an aggregate of 802,000,000 shares of the Company’s common stock. The Exchange Agreement contains customary terms and conditions for a transaction of this type, including representations, warranties and covenants, as well as provisions describing the Exchange consideration, the process of exchanging the consideration and the effect of the Exchange. The closing of the transaction took place on December 31, 2010.

The Company’s wholly-owned subsidiaries include Shogun Energy, Inc.; Vanity Events, Inc.; America’s Cleaning Company; and Vanity Licensing, Inc.

Reverse Mergers

April 2008 Transaction

On April 2, 2008, the Company, formerly known as Map V Acquisition, Inc., a Delaware corporation entered into a Share Exchange Agreement with Vanity Holding Group, Inc. (“Vanity Group”) and Vanity Group’s then shareholders whereby we acquired all of the issued and outstanding shares of the common stock of Vanity Group. As consideration for the acquisition of the shares of Vanity Group, the Company agreed to issue an aggregate of 21,392,109 shares (with the 1.7118 to 1 share of stock split effect) of its common stock, $0.0001 par value (the “Common Stock”) to the Vanity Group Shareholders. Upon consummation of the acquisition, Vanity Group became a wholly-owned subsidiary of the Company. Subsequent to the completion of the reverse merger acquisition, we filed a Certificate of Amendment with the Delaware Secretary of State changing its name from Map V Acquisition, Inc. to Vanity Events Holding, Inc. (“Vanity” or the “Company”) in 2008.

The acquisition was accounted for as a “reverse merger”, since the stockholders of Vanity Group owned the majority of the Company’s common stock immediately following the transaction and their management has assumed operational, management and governance control. The reverse merger transaction is recorded as a recapitalization of Vanity Group pursuant to which Vanity Group is treated as the surviving and continuing entity although Vanity or the Company is the legal acquirer rather than a business combination. The Company did not recognize goodwill or any intangible assets in connection with this transaction. Accordingly, the Company’s then historical financial statements were those of Vanity Group prior to the consummation of the December 2010 Transaction.

Effective with the reverse merger, all previously outstanding common stock owned by Vanity Group’s shareholders were exchanged for the Company’s common stock. The value of the Company’s common stock that was issued to Vanity Group’s shareholders was the historical cost of the Company’s net tangible assets, which did not differ materially from its fair value.

Vanity had no operations and or no or minimal assets prior to and on the closing date of the December 31, 2010 reverse recapitalization transaction.

December 2010 Transaction

On December 31, 2010, we entered into a share exchange agreement (“Exchange Agreement”) by and among the Company, Shogun Energy, Inc., a South Dakota corporation (“Shogun”), Shawn Knapp, the principal shareholder of Shogun (the “Principal Shareholder”) and the other shareholders of Shogun (the “Shogun Shareholders” and collectively with the Principal Shareholder, the “Shareholders”). Pursuant to the terms of the Exchange Agreement, the Shareholders exchanged an aggregate of 100% of the issued and outstanding shares of capital stock of Shogun in exchange for 500,000 shares of the Company’s series A preferred stock (the “Exchange”). Each share of series A preferred stock shall be entitled to 1,604 votes per share and shall be convertible into 1,604 shares of the Company’s common stock. Upon filing an amendment to the Company’s certificate of incorporation to increase the number of shares of authorized common stock so that there is an adequate amount of shares of authorized common stock for issuance upon conversion of the series A preferred stock (the “Amendment”), the shares of series A preferred stock will be automatically converted into an aggregate of 802,000,000 shares of the Company’s common stock. The Exchange Agreement contains customary terms and conditions for a transaction of this type, including representations, warranties and covenants, as well as provisions describing the Exchange consideration, the process of exchanging the consideration and the effect of the Exchange. The closing of the transaction took place on December 31, 2010.

The transaction has been accounted for as a reverse acquisition of Vanity by Shogun but in substance as a capital transaction, rather than a business combination since Vanity had no or nominal operations and assets prior to and as of the closing of the transaction. The stockholders of Shogun owned a majority of the Company’s voting power immediately following the transaction and Shogun’s management has assumed operational, management and governance control. The transaction is deemed as reverse recapitalization and the accounting is similar to that resulting from a reverse acquisition, except that no goodwill or other intangible assets should be recorded. Shogun is treated as the surviving and continuing entity. The Company did not recognize goodwill or any intangible assets in connection with this transaction. Accordingly, the Company’s historical financial statements are those of Shogun, Energy, Inc.

All references to common stock, share and per share amounts have been retroactively restated to reflect the reverse recapitalization as if the transaction had taken place as of the beginning of the earliest period presented.

Vanity assets and liabilities retained at December 31, 2010, subsequent to the transaction, are as follows:

Other current asset	$	184
Accounts payable and accrued expenses		(229,218	)
Accrued payroll liabilities and sales tax liabilities		(281,100	)
Loans and notes payable, net of discount of $132,877		(137,123	)
Derivative liability		(1,551,289	)
Net liabilities retained	$	(2,198,546	)

Vanity was forced to temporarily suspend its operations due to lack of available funds as disclosed above. In addition, the Company had no operations and no or minimal assets prior to and on the closing date of the December 2010 Transaction. The transaction is in substance as a capital transaction or deemed as reverse recapitalization, rather than a business combination and no goodwill or other intangible assets should be recorded.

Current Operations

Shogun Energy, Inc. (“Shogun”) was incorporated in the state of South Dakota on September 25, 2009 under the name “Abstract Nationwide Distributing, Inc.” On September 20, 2010, Shogun changed its name from “Abstract Nationwide Distributing, Inc.” to “Shogun Energy, Inc.”

Shogun’s goal is to produce a premium line of energy drinks that are unique and appealing to all demographics, which adds to the allure of its product and the value of its brand. Shogun operates with the four warrior attributes in mind: loyalty to our customers; honor and pride in ourselves to produce an excellent product; confidence to promote our energy drink; and determination to toil long hours in order to perfect our product.

Currently, Shogun’s only product is the Shogun Energy® drink which is available in both regular and sugar-free varieties. Shogun packages its Shogun Energy® drinks in 8.4-ounce and/or 16-ounce aluminum cans.

BASIS OF PRESENTATION AND GOING CONCERN

We have incurred a net loss of $2,661,195 for the six months ended June 30, 2011. At June 30, 2011 we have negative working capital of $5,341,337 and a stockholders’ deficiency of $5,271,146. As a result, there is substantial doubt about the Company’s ability to continue as a going concern at June 30, 2011.

Management’s plan regarding these matters is to increase sales, resulting in reduced losses and raise additional debt and/or equity financing to cover operating costs as well as its obligations as they become due.

Management is actively in engaged in evolving the existing business model of the Company from a sourcing and distribution company to that of a licensing and marketing company. This model allows the Company to have the ability to capture revenue without many of the associated costs that come along with the production of its products.

There can be no assurances that funds will be available to the Company when needed or, if available, that such funds would be available under favorable terms. In the event that the Company is unable to generate adequate revenues to cover expenses and cannot obtain additional funds in the near future, the Company may seek protection under bankruptcy laws. To date, management has not considered this alternative, nor does management view it as a likely occurrence, since the Company is progressing with various potential sources of new capital and we anticipate a successful outcome from these activities. However, capital markets remain difficult and there can be no certainty of a successful outcome from these activities.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

The unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited financial statements and footnotes included in the Company's Annual Report on Form 10-K. The results for the three and six months ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.

The condensed consolidated balance sheet as at December 31, 2010 has been derived from the audited financial statements at that date but do not include all disclosures required by the accounting principles generally accepted in the United States of America.

USE OF ESTIMATES

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION

We recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605 “Revenue Recognition”. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred and title has transferred or services have been rendered, the price is fixed and determinable and collectability is reasonably assured. Revenue is not recognized on product sales transacted on a test or pilot basis. Instead, receipts from these types of transactions offset marketing expenses.

MAJOR CUSTOMERS

Three customers accounted for 56% of our sales for the six months ended June 30, 2011 and five customers accounted for 58% of our sales for the six months ended June 30, 2010.

Two customers accounted for 55% of our accounts receivable at June 30, 2011. Two customers accounted for 31% of our accounts receivable at December 31, 2010.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Our short-term financial instruments, including cash, accounts receivable and accounts payable and accrued expenses consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of our notes and advances payable is based on management estimates and reasonably approximates their book value based on their current maturity.

Fair value measurements

ASC 820 “Fair Value Measurements and Disclosure” establishes a framework for measuring fair value and expands disclosure about fair value measurements.

ASC 820 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels of inputs that may be used:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In accordance with ASC 820, the following table represents the fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2011:

	Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents	$	8,223	$	-	$	-	$	8,223
Total Assets	$	8,223	$	-	$	-	$	8,223
Liabilities
Notes payable	$	-	$	-	$	804,687	$	804,687
Conversion and warrant derivative liabilities		-		-		3,859,570		3,859,570
Total Liabilities	$	-	$	-	$	4,664,257	$	4,664,257

The following is a description of the valuation methodologies used for these items:

Conversion derivative liability — these instruments consist of certain of our notes which are convertible based on a discount to the market value of our common stock. These instruments were valued using pricing models which incorporate the Company’s stock price, volatility, U.S. risk free rate, dividend rate and estimated life.

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (warrant derivative liability and conversion derivative liability) for the six months ended June 30, 2011.

Balance at beginning of year	$	1,551,289
Additions to derivative instruments		3,295,135
Change in fair value of derivative liabilities		(977,712	)
Reclassification to equity upon conversion of debentures		(9,142	)
Reclassification to equity upon extinguishment or modification		-

Balance at end of period	$	3,859,570

LOSS PER SHARE

We utilize ASC 260, “Earnings Per Share” for calculating the basic and diluted loss per share. Basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding. 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 common shares had been issued and if the additional common shares were dilutive. Common equivalent shares are excluded from the computation if their effect is anti-dilutive. There were 4,408,291,588 common share equivalents at June 30, 2011 and none at June 30, 2010 which have been excluded from the computation of the weighted average diluted shares.

INCOME TAXES

We utilize ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

The Company made a comprehensive review of its portfolio of uncertain tax positions in accordance with recognition standards established by the guidance. As a result of this review, the Company concluded that at this time there are no uncertain tax positions that would result in tax liability to the Company. There was no cumulative effect on retained earnings as a result of applying the provisions of this guidance.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

NOTE 3 - INVENTORY

Inventory at June 30, 2011 and December 31, 2010 consisted of the following:

	June 30, 2011		December 31, 2010

Work in process	$	42,750	$	42,750
Finished goods		42,101		69,445
Total	$	84,851	$	112,195

NOTE 4 – CONVERTIBLE DEBENTURES, NOTES PAYABLE AND DERIVATIVE LIABILITY

CONVERTIBLE DEBENTURES

The Company has identified the embedded derivatives related to its convertible notes, consisting of the conversion feature and its warrants. Since the notes are convertible into a variable number of shares, the conversion features of the debentures are recorded as derivative liabilities. Since the warrants have a price reset feature, they are recorded as derivative liabilities. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date and to adjust to fair value as of each subsequent balance sheet date.

During the three months ended March 31, 2011, $1,900 of our convertible debentures subject to derivative accounting was converted into 2,638,888 shares of common stock. As a result of the conversion of the debt, we have reclassified $9,142 of our conversion feature derivative liability to additional paid in capital.

On April 6, 2011, the Company entered into a Securities Purchase Agreement with IIG Management LLC , an accredited investor (the “Investor”), providing for the sale by the Company to the Investor of a 10% convertible debenture in the principal amount of up to $135,000 (the “Debenture”). The Debenture matures on the first anniversary of the date of issuance (the “Maturity Date”) and bears interest at the annual rate of 10% per year. The Company is not required to make any payments until the Maturity Date. The Investor may convert, at any time, the outstanding principal and accrued interest on the Debenture into shares of the Company’s common stock at a conversion price per share equal to the lower of ten percent (10%) of the lowest closing price of the Common Stock during the ten (10) trading days immediately preceding the conversion date or ten percent of the closing price on the date of issue of the debenture. In connection with the agreement, the Investor received a warrant to purchase 30,000,000 shares of the Company’s Common Stock (the “Warrant”). The Warrant is exercisable for a period of three years from the date of issuance at an initial exercise price of $0.0045 per share, the closing price of the Company’s Common Stock as quoted on the Over-the-Counter Bulletin Board on April 5, 2011. The Investor may exercise the Warrant on a cashless basis if the shares of Common Stock underlying the Warrant are not then registered pursuant to an effective registration statement after one year from the date of issuance. In the event the Investor exercises the Warrant on a cashless basis, then we will not receive any proceeds.

As an inducement for the Investors to enter into the Purchase Agreement, the Company, Shawn Knapp, the Company’s then chief executive officer (“Mr. Knapp”) and the Investor entered into a Pledge Agreement pursuant to which the Debenture is secured by 270,262 of Mr. Knapp’s shares of series A convertible preferred stock of the Company. In addition, on April 6, 2011, Mr. Knapp entered into a Make Good Securities Escrow Agreement with the Investor and Sichenzia Ross Friedman Ference LLP (the “Escrow Agent”) whereby Mr. Knapp has agreed to deliver to the Escrow Agent certificate(s) representing an aggregate of 129,738 shares of the Company’s series A convertible preferred stock, which shall be deliverable in the event the Company fails to achieve certain financial performance thresholds for the 12-month period ending December 31, 2011.

On May 10, 2011, the Company entered into a Securities Purchase Agreement with Greystone Capital Partners LLC , an accredited investor (the “Investor”), providing for the sale by the Company to the Investor of a 10% convertible debenture in the principal amount of up to $50,000 (the “Debenture”). The Debenture matures on the first anniversary of the date of issuance (the “Maturity Date”) and bears interest at the annual rate of 10% per year. The Company is not required to make any payments until the Maturity Date. The Investor may convert, at any time, the outstanding principal and accrued interest on the Debenture into shares of the Company’s common stock at a conversion price per share equal to the lower of ten percent (10%) of the lowest closing price of the Common Stock during the ten (10) trading days immediately preceding the conversion date or ten percent of the closing price on the date of issue of the debenture. In connection with the agreement, the Investor received a warrant to purchase 16,666,667 shares of the Company’s Common Stock (the “Warrant”). The Warrant is exercisable for a period of three years from the date of issuance at an initial exercise price of $0.003 per share, the closing price of the Company’s Common Stock as quoted on the Over-the-Counter Bulletin Board on May 9, 2011. The Investor may exercise the Warrant on a cashless basis if the shares of Common Stock underlying the Warrant are not then registered pursuant to an effective registration statement after one year from the date of issuance. In the event the Investor exercises the Warrant on a cashless basis, then we will not receive any proceeds.

On June 13, 2011, the Company entered into a Securities Purchase Agreement with Greystone Capital Partners LLC , an accredited investor (the “Investor”), providing for the sale by the Company to the Investor of a 10% convertible debenture in the principal amount of up to $50,000 (the “Debenture”). The Debenture matures on the first anniversary of the date of issuance (the “Maturity Date”) and bears interest at the annual rate of 10% per year. The Company is not required to make any payments until the Maturity Date. The Investor may convert, at any time, the outstanding principal and accrued interest on the Debenture into shares of the Company’s common stock at a conversion price per share equal to the lower of ten percent (10%) of the lowest closing price of the Common Stock during the five (5) trading days immediately preceding the conversion date or ten percent of the closing price on the date of issue of the debenture. In connection with the agreement, the Investor received a warrant to purchase 33,333,333 shares of the Company’s Common Stock (the “Warrant”). The Warrant is exercisable for a period of three years from the date of issuance at an initial exercise price of $0.0015 per share, the closing price of the Company’s Common Stock as quoted on the Over-the-Counter Bulletin Board on June 12, 2011. The Investor may exercise the Warrant on a cashless basis if the shares of Common Stock underlying the Warrant are not then registered pursuant to an effective registration statement after one year from the date of issuance. In the event the Investor exercises the Warrant on a cashless basis, then we will not receive any proceeds.

The conversion feature of the debentures contains a variable conversion rate and the warrants issued with the debt have a price protection feature. As a result, we have classified these instruments as derivative liabilities in the financial statements. At issue, we have recorded a conversion feature liability of $2,947,635 and a warrant liability of $235,000. The value of the conversion feature liabilities and the warrant liabilities was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 0.20% - 0.28%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 522% - 582%; and (4) an expected life of 1 - 3 years.

Of the aggregate amount of $3,182,635, the Company has allocated $235,000 to debt discount, to be amortized over the life of the debt, with the balance of $2,947,635 being charged to expense at issue.

The warrants issued with the April debentures have been adjusted due to the May and June issuance of debt. As a result, those warrants now total 90,000,000 with an exercise price of $0.0015. The Company has recorded income related to the change in fair value of the warrants through the dates of adjustment in the amount of $112,500. The Company has also recorded an expense of $112,500 due to the increase in the fair value of the warrants as a result of the modifications.

At June 30, 2011, we recalculated the fair value of our embedded conversion features and warrants subject to derivative accounting and have determined that their fair value at June 30, 2011 was $3,859,570. The value of the conversion liabilities and warrant liabilities was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 0.20% - 1.25%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 582%; and (4) an expected life of 0.16 – 2.75 years. We recorded income of $840,810 and $865,212 during the three and six month periods ending June 30, 2011, respectively.

During the three months ended March 31, 2011, we executed three promissory notes in the aggregate amount of $36,500. Two of the notes, aggregating $21,500, bear interest at the rate of 10% per year and mature on June 30, 2011. The third note, in the amount of $15,000, has no stated interest rate and is due upon the consummation of our next financing through either debt or equity securities. The $15,000 note was repaid on April 6, 2011.

On March 9, 2011 we executed a promissory note in the amount of $84,775 as payment of outstanding legal fees. The note bears interest at 5% per year and matures on September 9, 2011.

NOTE 5 – NOTES AND ADVANCES PAYABLE – RELATED PARTIES

Shawn Knapp, Shogun’s chief executive officer, has funded Shogun on an ongoing basis through loans and advances made by him personally, by his company, Shawn Custom Home, Inc., by his wife, by his father and by the affiliated entities. The aggregate amounts due to Mr. Knapp, his wife, his father and the affiliated entities were $287,382 and $252,771 at June 30, 2011 and December 31, 2010, respectively. At December 31, 2010 these advances and loans have been converted into notes bearing interest at 5% per year with repayment scheduled to begin in June 2011.

A Summary of Advances and Notes Payable - Related Parties at June 30, 2011 and December 31, 2010 are as follows:	2011		2010

Notes Payable / Advances - LaserIT, Inc.	$	17,131	$	20,684
Notes Payable / Advances - Shawn Knapp and Shawn's Custom Home, Inc.		52,367		52,367
Notes Payable / Advances - Roxanne Knapp		117,884		79,720
Notes Payable / Advances - Duane Knapp		100,000		100,000
Total	$	287,382	$	252,771

NOTE 6 – ADVANCES RECEIVABLE – RELATED PARTIES

Shogun has made advances to an entity affiliated with Shawn Knapp. These advances aggregated $58,080 at June 30, 2011 and December 31, 2010, respectively.

As of June 30, 2011, Vanity had loan receivables due from related parties / shareholders in the amount of $617,424, as a result of a note issued by Vanity which was executed in April 2010 under the direction of Vanity’s former CEO, Steven Y. Moskowitz, without proper approval of, or ratification by, the Company’s board of directors. These related parties are or were under the common ownership / control and or management of Steven Y. Moskowitz, where he was an officer and or shareholder. The Company cannot determine whether it will be able to collect any further monies on this note and has fully impaired it as of June 30, 2011. The Company is determining what options it may have in attempting to take action to collect on the note.

NOTE 7 – STOCKHOLDERS’ EQUITY

Preferred Stock

The Company is authorized to issue 50,000,000 shares of preferred stock, with par value of $0.001 per share, of which there were 500,000 shares issued and outstanding at June 30, 2011 and December 31, 2010.

The 500,000 preferred shares were issued in connection with the December 31, 2010 transaction pursuant to which Shogun was acquired in a reverse recapitalization which in substance is a capital transaction. Pursuant to the terms of the transaction, the shareholders of Shogun exchanged an aggregate of 100% of the issued and outstanding shares of capital stock of Shogun in exchange for 500,000 shares of our series A preferred stock. Each share of series A preferred stock shall be entitled to 1,604 votes per share and shall be convertible into 1,604 shares of our common stock. Upon filing an amendment to our certificate of incorporation to increase the number of shares of authorized common stock so that there is an adequate amount of shares of authorized common stock for issuance upon conversion of the series A preferred stock, the shares of series A preferred stock will be automatically converted into an aggregate of 802,000,000 shares of our common stock.

Common Stock

The Company is authorized to issue 350,000,000 shares of common stock, with par value of $0.001 per share. As of June 30, 2011 and December 31, 2010, there were 67,628,695 and 64,989,807 shares of common stock issued and outstanding, respectively.

During the three months ended March 31, 2011, $1,900 of our convertible debentures was converted into 2,638,888 shares of common stock. As a result of the conversion of the debt, we have reclassified $9,142 of our conversion feature derivative liability to additional paid in capital.

The Company does not have sufficient authorized shares of common stock as of June 30, 2011 and as of the filing date of this report to satisfy the equivalent common stock if converted.

NOTE 8 - SUBSEQUENT EVENTS

Preferred Stock Financing

On July 13, 2011, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Thalia Woods Management, Inc., an accredited investor (the “Investor”), pursuant to which the Investor purchased 75,000 shares of the Company’s series B convertible preferred stock (the “Preferred Stock”) for an aggregate purchase price of $75,000. Each share of Preferred Stock shall be entitled to 1,000 votes per share which voting right shall be non-dilutive for a period of one year from the date of issuance. The Preferred Stock pays dividends of 10% per year, payable quarterly in arrears beginning on the one year anniversary of the date of issuance, at the Company’s option, in cash or in additional shares of the Company’s common stock.

Each share of Preferred Stock has a stated value equal to $1.00 per share and is initially convertible at any time into shares of the Company’s common stock at a conversion price equal to $0.002 per share or an aggregate of 37,500,000 shares of the Company’s common stock. The conversion price of the Preferred Stock is subject to full ratchet and anti-dilution adjustment for subsequent lower price issuances by the Company, as well as customary adjustments provisions for stock splits, stock dividends, recapitalizations and the like.

The securities were offered and sold to the Investor in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506 promulgated under Regulation D thereunder. The Investor is an accredited investor as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended.

On August 9, 2011, the Company entered into an omnibus waiver and modification agreement with Greystone Capital Partners LLC (“Greystone”) related to the convertible note issued to Greystone in June 2010, pursuant to which, among other things, (i) Greystone agreed to extend the maturity date of the note from June 4, 2011 until September 30, 2011, (ii) the irrevocable transfer agent instructions were terminated effective immediately, (iii) the Company is no longer required to reserve a sufficient number of shares of common stock for issuance upon conversion of the convertible note, and (iv) Greystone waived any default or breach that may have resulted by way of the convertible note maturing on June 4, 2011 or a failure by the Company to reserve a sufficient number of shares under the convertible note.

On August 9, 2011, the Company entered into an omnibus waiver and modification agreement with IIG Management LLC (“IIG”) related to the convertible note issued to IIG in July 2010, pursuant to which, among other things, (i) IIG agreed to extend the maturity date of the note from July 29, 2011 until September 30, 2011, (ii) the irrevocable transfer agent instructions were terminated effective immediately, (iii) the Company is no longer required to reserve a sufficient number of shares of common stock for issuance upon conversion of the convertible note, and (iv) IIG waived any default or breach that may have resulted by way of the convertible note maturing on July 29, 2011 or a failure by the Company to reserve a sufficient number of shares under the convertible note.

On August 9, 2011, the Company entered into an omnibus waiver and modification agreement with Greystone related to the convertible note issued to Greystone in November 2010, pursuant to which, among other things, (i) the irrevocable transfer agent instructions were terminated effective immediately, (ii) the Company is no longer required to reserve a sufficient number of shares of common stock for issuance upon conversion of the convertible note, and (iii) Greystone waived any default or breach that may have resulted from a failure by the Company to reserve a sufficient number of shares under the convertible note.

On August 9, 2011, the Company entered into an omnibus waiver and modification agreement with IIG related to the convertible note and warrant issued to IIG in April 2011, pursuant to which, among other things, (i) the irrevocable transfer agent instructions were terminated effective immediately, (iii) the Company is no longer required to reserve a sufficient number of shares of common stock for issuance upon conversion of the convertible note and upon exercise of the warrant, (iv) there is no longer a buy-in penalty in the warrant if the Company doesn’t have a sufficient amount of authorized shares and (v) IIG waived any default or breach that may have resulted by a failure by the Company to reserve a sufficient number of shares under the convertible note.

On August 9, 2011, the Company entered into an omnibus waiver and modification agreement with Greystone related to the convertible note and warrant issued to Greystone in May 2011, pursuant to which, among other things, (i) the irrevocable transfer agent instructions were terminated effective immediately, (iii) the Company is no longer required to reserve a sufficient number of shares of common stock for issuance upon conversion of the convertible note and upon exercise of the warrant, (iv) there is no longer a buy-in penalty in the warrant if the Company doesn’t have a sufficient amount of authorized shares and (v) Greystone waived any default or breach that may have resulted by a failure by the Company to reserve a sufficient number of shares under the convertible note.

On August 9, 2011, the Company entered into an omnibus waiver and modification agreement with Greystone related to the convertible note and warrant issued to Greystone in June 2011, pursuant to which, among other things, (i) the irrevocable transfer agent instructions were terminated effective immediately, (iii) the Company is no longer required to reserve a sufficient number of shares of common stock for issuance upon conversion of the convertible note and upon exercise of the warrant, (iv) there is no longer a buy-in penalty in the warrant if the Company doesn’t have a sufficient amount of authorized shares and (v) Greystone waived any default or breach that may have resulted by a failure by the Company to reserve a sufficient number of shares under the convertible note.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Statement of Forward Looking Information

In this quarterly report on Form 10-Q, references to "Vanity Events Holding, Inc.," "Vanity," the "Company," "we," "us," and "our" refer to Vanity Events Holding, Inc. and its wholly owned subsidiaries, Shogun Energy, Inc., Vanity Events, Inc. and America’s Cleaning Company.

This discussion contains forward-looking statements based upon our current expectations and involves risks and uncertainties. To the extent that the information presented in this report discusses financial projections, information or expectations about our business plans, results of operations, products or markets, or otherwise makes statements about future events, such statements are forward-looking. Such forward-looking statements can be identified by the use of words such as “may,” “will,” “should,” “might,” “would,” “intends,” “anticipates,” “believes,” “estimates,” “projects,” “forecasts,” “expects,” “plans,” and “proposes.” Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. These include, among others, the cautionary statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this report. These cautionary statements identify important factors that could cause actual results to differ materially from those described in the forward-looking statements. When considering forward-looking statements in this report, you should keep in mind the cautionary statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section below, and other sections of this report.

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, objectives, anticipations, plans, hopes, beliefs, intentions or strategies regarding the future.

All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results could differ materially from those included in such forward-looking statements.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the financial statements and related notes.

Overview

Vanity is a holding company with expanding lines of business. Utilizing their licensed trademark of America’s Cleaning Company™, Vanity established a cleaning company offering residential and commercial cleaning services. This company intended to expand its reach through national franchising. In addition, the Company also sought out, licenses, develops, promotes, and brings to market various innovative consumer and commercial products. Upon the closing of transactions contemplated by the Exchange Agreement (as described below), the Company shifted its operations to focus on the business of Shogun Energy, Inc.

The first major area that we are moving this model forward is in our Direct Response TV spot that leverages our Sorbco Agreement (as defined below) with the launch of the Plant Sorb product. We have also established an online ecommerce presence with www.thereisaproductforthat.com;in both cases, we will end up receiving our revenue for products sold sequentially ahead of when we have to pay our fulfillment partners.

Recent Developments

Shogun Transaction

On December 31, 2010, we entered into a share exchange agreement (“Exchange Agreement”) by and among Shogun, the Company, Shawn Knapp, the principal shareholder of Shogun (tMr. Knapp”) and the other shareholders of Shogun (the “Shogun Shareholders” and collectively with Mr. Knapp, the “Shareholders”). Pursuant to the terms of the Exchange Agreement, the Shareholders exchanged an aggregate of 100% of the issued and outstanding shares of capital stock of Shogun in exchange for 500,000 shares of Vanity’s series A preferred stock. Each share of series A preferred stock shall be entitled to 1,604 votes per share and shall be convertible into 1,604 shares of Vanity’s common stock. Upon filing an amendment to Vanity’s certificate of incorporation to increase the number of shares of authorized common stock so that there is an adequate amount of shares of authorized common stock for issuance upon conversion of the series A preferred stock, the shares of series A preferred stock will be automatically converted into an aggregate of 802,000,000 shares of Vanity’s common stock. As a result of this transaction, Shogun has become a wholly owned subsidiary of Vanity, and the Shareholders will own approximately 93% of Vanity’s common stock after the series A preferred stock conversion.

On July 26, 2011, a majority of the voting capital stock of the Company took action in lieu of a special meeting of Stockholders authorizing the Company to enter into a rescission agreement (the “Rescission Agreement”) of the Exchange Agreement, by and among the Company, Shogun, the “hareholders for the purpose of rescinding the transactions contemplated by the Exchange Agreement, and upon closing (the “Closing Date”), the Exchange Agreement will be rescinded and all obligations of any party arising from such Exchange Agreement, shall, in all respects, be deemed to be null and void and of no further force and effect (the “Rescission”). Following the closing of the Rescission, no party to the Exchange Agreement shall have any further obligations of any nature whatsoever with respect to the other parties pursuant to or arising from the Exchange Agreement. The Board of Directors approved this action on June 27, 2011.

After careful review, the Company determined that the capital requirements and time to market for the products and services of Shogun were greater than had been previously expected. The Rescission relieves the Company of further capital investment in the Shogun business and will allow the Company to streamline its business operations and operate under a more efficient business model on a going forward basis.

Sorbco Exclusive License and Distribution Agreement

On July 13, 2011, the Company entered into an exclusive license and distribution agreement (the “Sorbco Agreement”) with Plant Sorb LLC (“Sorbco”) pursuant to which the Company will have the exclusive right and license to (i) market, sell, distribute and otherwise deal in commerce with the Sorbco products in the United States through any media and (ii) use Sorbco’s trademark. The License Agreement shall have an initial term ending on July 13, 2011, and shall continue on successive one-year terms thereafter unless terminated by either party for cause. For purposes of the Sorbco Agreement, “cause” is defined as the Company not exceeding a threshold of five hundred thousand dollars ($500,000.00) of retail revenues through sales of Sorbco products during the initial term of the Sorbco Agreement.

Change in business model

Critical Accounting Policies

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our financial statements; we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:

Use of Estimates - These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, accordingly, require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Going Concern - The financial statements have been prepared on a going concern basis, and do not reflect any adjustments related to the uncertainty surrounding our recurring losses or accumulated deficit

Revenue Recognition - We recognize revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605 “Revenue Recognition”. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred and title has transferred or services have been rendered, the price is fixed and determinable and collectability is reasonably assured. Revenue is not recognized on product sales transacted on a test or pilot basis. Instead, receipts from these types of transactions offset marketing expenses.

Fair Value of Financial Instruments — Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of the Company’s derivative instruments is determined using option pricing models.

Results of Operations

Three Months ended June 30, 2011 as compared to the Three Months ended June 30, 2010

Net sales were $29,347 for the three months ended June 30, 2011 compared to net sales of $76,816 for the comparable 2010 period, a decrease of $47,469, or 62%. The principal reason for the decrease in sales in 2011 is directly related to a lack of working capital to adequately promote our products and develop new sales accounts.

We generated a gross profit of $8,518, or 29%, during the three months ended June 30, 2011. For the comparable 2010 period, we generated a gross profit of $31,661, or 41%. The decrease in gross profit percentage results from sales promotions to develop increased product interest and new sales accounts.

Operating expense:

Selling expense was $27,194 for the three months ended June 30, 2011, as compared to $90,317 for the three months ended June 30, 2010, a decrease of $63,123, or 70%. The decrease resulted from decreases in advertising and promotion of approximately $50,000, travel expense of approximately $9,000 and salaries of approximately $5,000. The principal reason for the decrease is directly related to a lack of working capital for promotional activities.

General and administrative expense for the three months ended June 30, 2011 was $72,282, as compared to $65,962 for the three months ended June 30, 2010, an increase of $6,320, or 9%. General and administrative expense consists primarily of payroll, professional fees and rent. Professional fees increased by approximately $133,000 and other general and administrative expenses increased by approximately $7,000. These increases were offset by a decrease in payroll expense of approximately $134,000, resulting from the reversal of prior period payroll accruals in the current quarter.

Other income (expense):

We had income from the gain on the change in the fair value of our derivative liabilities of $953,310 during the three months ended June 30, 2011, with no comparable item in the 2010 period. The change in the fair value of our derivative liabilities resulted primarily from the changes in our stock price and the volatility of our common stock during the reported periods. Refer to Note 4 to the financial statements for further discussion of our derivative liabilities.

We reported interest expense of $3,169,381 during the three months ended June 30, 2011 as compared with interest expense of $3,437 during the three months ended June 30, 2010. Interest expense during the comparable 2011 period consists primarily of the expense associated with the derivative liabilities issued during the period whose fair values exceeded the proceeds of the debt. This amount was approximately $3,060,000. The balance of the expense relates to the amortization of debt discount and interest accrued on the debt.

Net loss:

We reported net losses of $2,307,029 and $128,055 during the three months ended June 30, 2011 and 2010, respectively, resulting from the components described above.

Six Months ended June 30, 2011 as compared to the Six Months ended June 30, 2010

Net sales were $59,908 for the six months ended June 30, 2011 compared to net sales of $73,694 for the comparable 2010 period, a decrease of $113,786, or 66%. The principal reason for the decrease in sales in 2011 is directly related to a lack of working capital to adequately promote our products and develop new sales accounts and to the record cold, and blizzard conditions in the Midwest during the winter of 2010-2011.

We generated a gross profit of $28,467, or 48%, during the six months ended June 30, 2011. For the comparable 2010 period, we generated a gross profit of $91,241, or 53%. The decrease in gross profit percentage results from sales promotions to develop increased product interest and new sales accounts.

Operating expense:

Selling expense was $84,063 for the six months ended June 30, 2011, as compared to $152,145 for the six months ended June 30, 2010, a decrease of $68,082, or 45%. The decrease resulted from decreases in advertising and promotion of approximately $54,000 and travel expense of approximately $21,000 partially offset by an increase in benefits expense of approximately $6,000. The principal reason for the decrease is directly related to a lack of working capital for promotional activities.

General and administrative expense for the six months ended June 30, 2011 was $346,864, as compared to $117,635 for the six months ended June 30, 2010, an increase of $229,229, or 195%. General and administrative expense consists primarily of payroll, professional fees and rent. Professional fees increased by approximately $203,000, rent and other expenses increased by approximately $61,000 and payroll decreased by approximately $35,000 (resulting partially from the reversal of prior period payroll accruals in the current period).

Other income (expense):

We had income from the gain on the change in the fair value of our derivative liabilities of $977,712 during the six months ended June 30, 2011, with no comparable item in the comparable 2010 period. The change in the fair value of our derivative liabilities resulted primarily from the changes in our stock price and the volatility of our common stock during the reported periods. Refer to Note 4 to the financial statements for further discussion of our derivative liabilities.

We reported interest expense of $3,236,447 during the six months ended June 30, 2011 as compared with interest expense of $6,070 during the six months ended June 30, 2010. Interest expense during the 2011 period consists primarily of the expense associated with the derivative liabilities issued during the period whose fair values exceeded the proceeds of the debt. This amount was approximately $3,060,000. The balance of the expense relates to the amortization of debt discount and interest accrued on the debt.

Net loss:

We reported net losses of $2,661,195 and $184,609 during the six months ended June 30, 2011 and 2010, respectively, resulting from the components described above.

Liquidity and Capital Resources

As of June 30, 2011 we had a working capital deficit of $5,341,337. Subsequent to June 30, 2011 we raised $75,000 in cash proceeds from the sale of 75,000 shares of our convertible preferred stock (see below).

Operating Activities - For the six months ended June 30, 2011, net cash used in operating activities was $270,793, primarily attributable to a loss of $423,348 (after adjusting for non-cash items), partially offset by an increase in accounts payable of $136,605. Net cash used in operating activities for the six months ended June 30, 2010 was $59,311, primarily attributable to a loss of $180,600 (after adjusting for non-cash items) and increases in accounts receivable and inventory of $45,392, partially offset by an increase in accounts payable of $166,681.

Investing Activities - For the six months ended June 30, 2011 and 2010, net cash used in investing activities was $1,166 and $8,304, respectively, related to the purchases of furniture and equipment.

Financing Activities - For the six months ended June 30, 2011 and 2010, net cash provided by financing activities was $279,888 and $81,313, respectively. Net proceeds from loans obtained through bank, related parties and others were $318,575 and $129,465 during 2011 and 2010, respectively. During 2011 we repaid a bank overdraft of $7,121 and made other repayments of debt aggregating $31,566. During 2010 we made repayments of debt of $14,574. During 2010 we made advances to a related party of $33,578.

Our continuation as a going concern for a period longer than the current fiscal year is dependent upon our ability to obtain necessary additional funds to continue operations and expansion of our Shogun Energy® drink products, to determine the existence, discovery and successful exploitation of potential revenue sources that will be financed primarily through available working capital, the sales of securities and convertible debt, issuance of notes payable other debt or a combination thereof, depending upon the transaction size, market conditions and other factors.

On July 13, 2011, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Thalia Woods Management, Inc., an accredited investor (the “Investor”), pursuant to which the Investor purchased 75,000 shares of tour series B convertible preferred stock (the “Preferred Stock”) for an aggregate purchase price of $75,000. Each share of Preferred Stock shall be entitled to 1,000 votes per share which voting right shall be non-dilutive for a period of one year from the date of issuance. The Preferred Stock pays dividends of 10% per year, payable quarterly in arrears beginning on the one year anniversary of the date of issuance, at the Company’s option, in cash or in additional shares of the Company’s common stock.

We presently do not have any other available credit, bank financing or other external sources of liquidity. We will need to obtain additional capital in order to expand operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding.

We will still need additional capital in order to continue operations until we are able to achieve positive operating cash flow. Additional capital is being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

Off-Balance Sheet Arrangements

We have not entered into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer (principal financial officer) as appropriate, to allow timely decisions regarding required disclosure. During the quarter ended June 30, 2011 we carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were ineffective as of June 30, 2011.

Management has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.

To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

These control deficiencies could result in a misstatement of account balances that would result in a reasonable possibility that a material misstatement to our consolidated financial statements may not be prevented or detected on a timely basis.In light of this material weakness, we performed additional analyses and procedures in order to conclude that our consolidated financial statements for the quarter ended June 30, 2011 included in this Quarterly Report on Form 10-Q were fairly stated in accordance with US GAAP. Accordingly, management believes that despite our material weaknesses, our consolidated financial statements for the quarter ended June 30, 2011 are fairly stated, in all material respects, in accordance with US GAAP.

Limitations on Effectiveness of Controls and Procedures

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

Changes in Internal Controls

During the fiscal quarter ended June 30, 2011, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting

PART II

ITEM 1. LEGAL PROCEEDINGS

From time to time, Vanity may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. Vanity is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.

ITEM 1A: RISK FACTORS

Not applicable.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4.

Reserved.

ITEM 5. OTHER INFORMATION.

Not applicable.

ITEM 6. EXHIBITS

EXHIBIT NO.		DESCRIPTION

31.1		Certificate of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

31.2		Certificate of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.

32.1		Certificate of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

32.2		Certificate of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Documen

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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.

	VANITY EVENTS HOLDING, INC.

Date: August 15, 2011	By:	/s/ Lloyd Lapidus
		Name: Lloyd Lapidus
		Title: Interim Chief Executive Officer

Thinspace Technology, Inc. - FORM 10-Q - August 15, 2011

Attached files

Thinspace Technology, Inc. Reports