WNMI Form 10QSB Sept 2004

FORM 10-QSB

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

[X] Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2004

[ ] Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission file number 0-27219

WARNING MANAGEMENT SERVICES, INC.

(Exact name of registrant as specified in its charter)

New York 13-3865655__

(State or other jurisdiction of (I.R.S. employer

incorporation or organization) identification number)

9440 Santa Monica Boulevard, Suite 400, Beverly Hills, CA 90210

(Address of principal executive offices) (Zip Code)

Registrant's Telephone number, including area code: (310) 860-9969

(former name, address and former fiscal year, if changed since last report)

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 X No _

State the number of shares outstanding of each of the Registrant's classes of common stock, as of

the latest practicable date.

Class of Common Stock Outstanding at December 9, 2004

$.001 par value 785,524,186

Transitional Small Business Disclosure Format Yes No X


	1

Form 10-QSB

Securities and Exchange Commission

Washington, D.C. 20549

WARNING MANAGEMENT SERVICES, INC.

Index

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Balance Sheets at September 30, 2004 and December 31, 2003

Statements of Operations for the three months ended

September 30, 2004 and September 30, 2003

Statements of Operations for the six months ended

September 30, 2004 and September 30, 2003

Statements of Cash Flows for the six months ended

September 30, 2004 and September 30, 2003

Notes to the Financial Statements for the nine months ended

September 30, 2004

Item 2. Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

Item 3. Controls and Procedures

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Changes in Securities

Item 3. Defaults Upon Senior Securities

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

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES


	2

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Consolidated Financial Statements

September 30, 2004


	3

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Consolidated Financial Statements

September 30, 2004

C O N T E N T S

Page

Consolidated Balance Sheets.....................................................................................F1 -F 2

Consolidated Statements of Operations.........................................................................F3

Consolidated Statements of Cash Flows...............................................................F4 - F5

Notes to the Financial Statements..........................................................................F6 - F27


	4

Warning Management Services, Inc.

(F/K/A Warning Model Management, Inc.)

Consolidated Balance Sheets

September 30, 2004 and December 31, 2003

				September 30, 2004		December 31, 2003
ASSETS				(unaudited)		(audited)
Current Assets
	Cash and cash equivalents			$	55,862	$	-
	Restricted cash				99,681		-
	Workers' compensation deposit				58,231		-
	Accounts receivable, net of reserve for doubtful
		accounts of $113,089 and $61,332, respectively			839,088		292,746
	Advances to models, net of reserve of
		$166,180 and $166,180, respectively			318,806		356,937
	Unbilled staffing revenues				405,570		-
	Advances to officer				28,040		28,040
	Advances to employees				10,405		3,650
	Prepaid expenses				49,892		11,628

		Total Current Assets			1,865,575		693,001

Property and Equipment
	Furniture and fixtures				31,389		8,168
	Computers and equipment				229,558		73,793

					260,947		81,961

	Accumulated depreciation				(208,593)		(42,703)

		Total Property and Equipment			52,354		39,258

Intangible Assets
	Purchased contracts (net of amortization)				759,863		-
	Workforce (net of amortization)				459,713		-

		Total Intangible Assets			1,219,576		-


			Total Assets	$	3,137,505	$	732,259

(continued)

See accompanying notes to these financial statements. - K1 -

Warning Management Services, Inc.

(F/K/A Warning Model Management, Inc.)

Consolidated Balance Sheets (Continued)

September 30, 2004 and December 31, 2003


				September 30, 2004		December 31, 2003
LIABILITIES AND EQUITY				(unaudited)		(audited)
Current Liabilities
	Accounts payable and accrued expenses			$	701,701	$	315,267
	Model fees payable				299,148		318,343
	Payable to photographers				99,989		-
	Model reserves				35,801		39,696
	Accrued employment service liabilities				537,429		-
	Line of credit				150,487		50,979
	Notes payable				1,650,500		588,672
	Advances from shareholders				40,383		113,788
	Accrued interest - convertible debentures				151,774		220,454
	Taxes payable				6,860		7,060
	Current portion - capital leases				10,557		9,797
	Secured lines of credit				450,908		149,384
	Convertible debentures				728,142		1,128,475

		Total Current Liabilities			4,863,679		2,941,915

Long Term Liabilities
	Convertible debentures				452,884		484,529
	Convertible notes payable to shareholders				2,563,122		2,560,225
	Notes payable				-		-
	Capital leases				9,637		17,653

		Total Long Term Liabilities			3,025,643		3,062,407

Equity
	Common stock - 2,000,000,000 authorized, par value
		$0.001, 657,640,746 and 86,370,457 issued
		and outstanding for 2004 and 2003, respectively			657,641		92,253
	Additional paid-in capital				3,140,834		499,480
	Accumulated deficit				(8,550,292)		(5,863,796)

		Total Equity			(4,751,817)		(5,272,063)

			Total Liabilities and Equity	$	3,137,505	$	732,259

See accompanying notes to these financial statements. - K2 -

Warning Management Services, Inc.

(F/K/A Warning Model Management, Inc.)

Consolidated Statements of Operations

For The Three and Nine Months Ended September 30, 2004 and 2003

				Three months ended				Nine months ended
				September 30, 2004		September 30, 2003		September 30, 2004		September 30, 2003
				(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues
	Modeling revenue			$	754,305	$	212,869	$	1,613,150	$	1,240,276
	Staff leasing revenue				514,139		-		514,139		-
	PEO revenue				1,830		-		1,830		-

		Total Revenues			1,270,274		212,869		2,129,119		1,240,276

Cost of Sales
	Modeling cost of sales				(538,443)		(400,079)		(1,186,105)		(894,236)
	Staff leasing cost of sales				(439,404)		-		(439,404)		-

		Total Cost of Sales			(977,847)		(400,079)		(1,625,509)		(894,236)

			Gross Margin		292,427		(187,210)		503,610		346,040

Operating Expenses
	Salaries and wages				200,797		161,450		731,759		470,253
	Rent				37,391		43,142		115,721		108,013
	General and administrative				234,648		115,858		1,272,388		758,118
	Business development				24,982		3,504		67,430		68,387
	Depreciation and amortization				32,471		4,789		39,624		16,650

		Total Operating Expenses			530,289		328,743		2,226,922		1,421,421

			Loss from Operations		(237,862)		(515,953)		(1,723,312)		(1,075,381)

Other Income (Expense)
	Interest income				-		310		50		718
	Other income				24,919		2,600		76,194		20,208
	Interest expense				(527,665)		(135,048)		(1,006,863)		(374,188)
	Other expense				(30,965)		-		(31,165)		(499)

		Total Other Income (Expense)			(533,711)		(132,138)		(961,784)		(353,761)

			Net Loss Before Income Taxes		(771,573)		(648,091)		(2,685,096)		(1,429,142)

Provision for Income Taxes					(600)		(7,942)		(1,400)		(9,322)

			Net Loss	$	(772,173)	$	(656,033)	$	(2,686,496)	$	(1,438,464)

Net loss per share - basic				$	(0.00)	$	(0.01)	$	(0.01)	$	(0.02)
Net loss per share - diluted				$	(0.00)	$	(0.01)	$	(0.01)	$	(0.02)

Number of share used in calculation - basic					544,130,637		85,068,004		384,504,254		71,588,699
Number of share used in calculation - diluted					544,130,637		85,068,004		384,504,254		71,588,699

See accompanying notes to these financial statements. - K3 -

Warning Management Services, Inc.

(F/K/A Warning Model Management, Inc.)

Consolidated Statements of Cash Flows

For The Nine Months Ended September 30, 2004 and 2003

			September 30, 2004		September 30, 2003
			(unaudited)		(unaudited)
Operating Activities:
	Net Loss		$	(2,686,496)	$	(1,438,464)
Adjustments to reconcile loss to net cash
provided by (used in) operating activities:
	Depreciation and amortization			39,624		29,731
	Common stock issued for services			30,000		316,324
	Bad debt			-		125,000
	Expense on warrants granted			691,875		-
	Bond and warrant discount amortization			641,351		155,909
	Gain on forgiveness of debt			(63,063)		-
	Other			(26,336)		(19,362)

Changes in operating assets and liabilities:
	Accounts receivable - trade			(9,743)		200,100
	Unbilled receivables			(69,870)		-
	Advances to models			38,131		52,854
	Prepaid expenses			(17,720)		957
	Advances to employees			(6,755)		(1,815)
	Deposits			-		(11,400)
	Bank overdraft			-		37,994
	Accounts payable and accrued expenses			201,554		(169,520)
	Model fees payable			(19,195)		(46,959)
	Payable to photographers			99,989		-
	Model reserves			(3,895)		13,737
	Accrued employment service liabilities			125,072		-
	Taxes payable			(200)		1,200
	Accrued interest			95,320		139,864

		Net cash used in operating activities		(940,357)		(613,850)

Investing activities:
	Cash paid for purchase of ESI			(750,000)		-
	Purchases of property and equipment			(24,376)		(3,762)

		Net cash used in investing activities		(774,376)		(3,762)

(continued)

See accompanying notes to these financial statements. - K4 -

Warning Management Services, Inc.

(F/K/A Warning Model Management, Inc.)

Consolidated Statements of Cash Flows (Continued)

For The Nine Months Ended September 30, 2004 and 2003

			September 30, 2004		September 30, 2003
			(unaudited)		(unaudited)
Financing activities:
	Debt issuance costs			(119,500)		-
	Restricted cash			(99,681)		-
	Proceeds from convertible notes payable			810,000		50,000
	Payments on convertible notes payable			(78,000)		-
	Borrowings from secured lines of credit			875,577		594,916
	Payments on secured lines of credit			(574,053)		(962,276)
	Exercise of warrants			575,625		48,000
	Payments on capital lease obligation			(7,256)		(14,919)
	Borrowings under bank lines of credit			139,288		-
	Payments under bank lines of credit			(39,780)		(2,049)
	Proceeds from notes payable			816,000		495,000
	Payments on notes payable			(496,000)		(113,750)
	Advances from shareholders			29,000		93,788
	Payments on advances from shareholders			(60,625)		(32,000)

		Net cash provided by (used in) financing activities		1,770,595		156,710


		Increase (Decrease) in cash and cash equivalents		55,862		(460,902)

Cash and cash equivalents, beginning of period				-		503,422

Cash and cash equivalents, end of period			$	55,862	$	42,520


Supplemental disclosures of cash flow information:
	Cash paid during the period for
		Interest	$	65,534	$	11,555
		Taxes	$	2,812	$	-

Supplemental schedule of non-cash financing activities
	Value of convertible benefit feature on convertible debt		$	230,500	$	8,824

	Conversion of debt and interest to common stock		$	1,208,231	$	-

	Common stock issued for services		$	30,000	$	316,324

	Expense recognized on warrants/options granted		$	691,875	$	-

	Acquisition of ESI, financed with debt to the seller		$	750,000	$	-

See accompanying notes to these financial statements. - K5 -

Warning Management Services, Inc.

(F/K/A Warning Model Management, Inc.)

Notes To Financial Statements

September 30, 2004

1. Summary of Significant Accounting Policies

A. General Description of Business

Warning Management Services, Inc., (“WNMI” or “The Company”) has two operating subsidiaries, Warning Model Management, LLC (“Warning Model” or “WAMM”) and Employment Systems, Inc., (“ESI”). Warning Model provides high-quality fashion models to the Southern California market. Los Angeles is one of the premier locations for the creation of fashion advertisements and television commercials, with WAMM being one of Los Angeles’s premier model management companies. The Company’s current clients include major fashion companies, major department stores and major fashion magazines.

In August 2004, at the annual shareholders meeting, the shareholders approved to change the Company’s name to Warning Management Services, Inc., and to increase the authorized

share of common stock form 800 million to 2 billion.

On September 8, 2004, WNMI completed its acquisition of 100% of the issued and outstanding shares of common stock of Employment Staffing, Inc. (“ESI”). The purchase price was $1.5 million. ESI is located in San Diego, California and primarily provides temporary staffing services to various municipalities and government entities and certain private industry entities in California.

The operating results of ESI beginning September 8, 2004 are included in the accompanying consolidated statements of operations.

History

Famous Fixins, Inc. (“FIXN”) was incorporated on February 9, 1984, in the State of Utah. Through May 15, 2002, the date of its operating asset sale, FIXN was a promoter and marketer of celebrity endorsed consumer products for sale in supermarkets, other retailers and over the Internet. FIXN developed, marketed and sold licensed consumer products based on the diverse professional, cultural and ethnic backgrounds of various celebrities. FIXN entered into licensing agreements with high profile celebrities and created consumer products, which included various product lines consisting of salad dressings, candy products, cosmetic products, adhesive bandages and other novelty products endorsed by the licensors. FIXN sold directly to consumers and utilized a network of consumer product brokers to distribute its produ cts throughout the United States and Canada. Third party manufacturers produced FIXN's various consumer products. Effective May 15, 2002, FIXN became a shell company that had discontinued its operations and had no operating revenues subsequent to that date.

On December 27, 2002, FIXN merged with Warning Model Management, LLC (“WAMM”), a California limited liability company.


	K6

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

1. Summary of Significant Accounting Policies (continued)

B. Basis of Presentation and Organization

These unaudited consolidated financial statements represent the financial activity of Warning Management Services, Inc., and its subsidiaries. The consolidated financial statements for the three and nine months ended September 30, 2004 and 2003, have been prepared in accordance with generally accepted accounting principles for interim financial information in the US and in accordance with the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to consoli dated financial statements and footnotes thereto for the fiscal quarter ended September 30, 2004, included herein. The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All inter-company transactions were eliminated. The Company’s fiscal year ends on December 31 each year. The financial statements and notes are representations of the management and the Board of Directors, who are responsible for their integrity and objectivity.

The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. The financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.

Consolidation Policy

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, after elimination of all material inter-company accounts, transactions and profits. These financial statements consolidate the accounts of the WNMI and its subsidiaries.

Going-Concern Issues Arising from Recurring Losses and Cash Flow Problems

As shown in the accompanying Financial Statements, the Company has incurred recurring losses from operations, and as of September 30, 2004, the Company’s current liabilities exceeded its current assets by $2,998,104, and its total liabilities exceeded its total assets by $4,751,817. Management has been able obtain additional financing through the issuance of debt. In addition, the Company has instituted more efficient management techniques for its Warning Model subsidiary and continues to attract and add new models and clients (expanding to include representing fashion photographers). Management believes these factors will contribute toward achieving profitability. The accompanying Financial Statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. I n May 2004, the Company raised $810,000 in cash through the issuance of convertible notes payable. In September 2004, the Company acquired ESI, a temporary staffing company that provides staffing services to various municipalities, government and private entities in California.


	K7

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

1. Summary of Significant Accounting Policies (continued)

C. Cash and Cash Equivalents

For purposes of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents, those with original maturities greater than three months and current maturities less than twelve months from the balance sheet date are considered short-term investments, and those with maturities greater than twelve months from the balance sheet date are considered long-term investments.

The Company invests excess cash in high quality short-term liquid money market instruments with maturities of three months or less when purchased. Investments are made only in instruments issued by or enhanced by high quality financial institutions. The Company has not incurred losses related to these investments.

Concentration of cash

The Company at times maintains cash balances in excess of the federally insured limit of $100,000 per institution. There were no uninsured balances at September 30, 2004 or December 31, 2003.

D. Income Taxes

The Company utilizes SFAS No. 109, "Accounting for 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 period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

The Company is subject to California and New York State franchise taxes.


	K8

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

1. Summary of Significant Accounting Policies (continued)

E. Revenue Recognition

The Company’s revenues from are derived from four sources.

Three of the revenue sources are derived from WAMM.

The Company’s first source of revenue is from model services provided to print media. Revenue for print media is recorded when the models have completed the fashion shoot. The revenue is recorded at gross billings, which includes all agency fees. Costs of revenues consist of payments due to the models for services rendered and expenses and costs incurred for models in performance of those services.

The second source of revenue is from commissions on payments received for talent by models and actors for appearing in television and cable commercials. The Company records a commission of 10% to 15% when cash is received.

The third source of revenues is from photographers doing work for print media. The revenue from photographers is recorded when the photographers work/job is completed. The revenue is recorded as gross billings. Costs of revenues consist of payments due to the photographers for services rendered and expenses and costs incurred for photographers in performance of those services.

The fourth source of revenue is from temporary staffing at ESI. The Company records gross revenue for temporary staffing provided through ESI. The Company has concluded that gross reporting is appropriate because the Company (i) has the risk of identifying and hiring qualified employees, (ii) has the discretion to select the employees and establish their price and duties and (iii) bears the risk for services that are not fully paid for by customers. Temporary staffing revenues are recognized when the services are rendered by the Company's temporary employees. Temporary employees placed by the Company are the Company's legal employees while they are working on assignments. The Company pays all related costs of employment, including workers' compensation insurance, state and federal unemployment taxes, social security and certain fringe benefits. The Company assumes the risk of acceptability of its employees to its customers.

PEO Service Fees and Worksite Employee Payroll Costs

The Company recognizes its revenues associated with ESI’s PEO business pursuant to EITF 99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent.” The Company's revenues are reported net of worksite employee payroll cost (net method).

In determining the pricing of the markup component of the gross billings, the Company takes into consideration its estimates of the costs directly associated with its worksite employees, including payroll taxes, benefits and workers’ compensation costs, plus an acceptable gross profit margin. As a result, the Company’s operating results are significantly impacted by the Company’s ability to accurately estimate, control and manage its direct costs relative to the revenues derived from the markup component of the Company’s gross billings.


	K9

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

1. Summary of Significant Accounting Policies (continued)

E. Revenue Recognition (continued)

Temporary Staffing - ESI (continued)

PEO Service Fees and Worksite Employee Payroll Costs (continued)

Consistent with its revenue recognition policy, the Company’s direct costs do not include the payroll cost of its worksite employees.

F. Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.

Management makes estimates that affect the value attributed to purchased contracts, acquired workforce, reserves for doubtful accounts, depreciation and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the year in which such adjustments are determined.

G. Segments of an Enterprise and Related Information

The Company follows SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” SFAS No. 131 requires that a public business enterprise (optional for a private enterprise) report financial and descriptive information about its reportable operating segments on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. Currently, the Company operates in two segments, due to the acquisition of ESI.

Intangible Assets and Goodwill

In September 2004, the Company acquired ESI in a business combination accounted for as a purchase. The purch ase price of $1,550.000, which was paid in cash and a promissory note payable, exceeded the net assets acquired by approximately $1.2 million. Of that excess amount, approximately $774,000 was assigned to contracts and customer list, and the remainder to work force. The value attributable to purchased contracts was determined by management based on the discounted cash flows. The value attributed to these intangible assets is being amortized on the straight-line method over their estimated life of three years. Amortization expense charged to operations was $22,690 for both the three and nine months ended September 30, 2004 and 2003. There was no amortization expense for goodwill in 2003.


	K10

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

1. Summary of Significant Accounting Policies (continued)

G. Segments of an Enterprise and Related Information (continued)

Intangible Assets and Goodwill (continued)

Long-lived assets are reviewed whenever indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the related asset carrying amount.

H. Business Risks and Credit Concentrations

The Company operates in the high-end fashion modeling industry segment, which is rapidly evolving and highly competitive. The Company relies on clients engaging its models. There can be no assurance that the Company will be able to continue to provide models to support its operations.

The Company advances funds to its models, talent and photographers for preparing model and talent portfolios, prints, delivery travel costs and other costs. The Company evaluates these advances from time to time and sets up a reserve against such advances.

I. Recent Accounting Pronouncements

In April 2003, the FASB issued SFAS 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, which amends SFAS 133 for certain decisions made by the FASB Derivatives Implementation Group. In particular, SFAS 149: (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying instrument to conform it to language used in FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” and (4) amends certain other existing pronouncements. This Statement is effective for contracts entered into or modified aft er June 30, 2003, and for hedging relationships designated after June 30, 2003. In addition, most provisions of SFAS 149 are to be applied prospectively. Management does not expect the adoption of SFAS 149 to have a material impact on our financial position, cash flows or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS 150”). SFAS 150 changes the accounting for certain financial instruments that under previous guidance issuers could account for as equity. It requires that those instruments be classified as liabilities in balance sheets. The guidance in SFAS 150 is generally effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective on July 1, 2003. The adoption of SFAS 150 does not have a material impact on the Company’s financial position, cash flows or results of operations.


	K11

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

1. Summary of Significant Accounting Policies (continued)

I. Recent Accounting Pronouncements (continued)

In December 2003, the FASB issued a revised SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" which replaces the previously issued Statement. The revised Statement increases the existing disclosures for defined benefit pension plans and other defined benefit postretirement plans. However, it does not change the measurement or recognition of those plans as required under SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Specifically, the revised Statement requires companies to provide additional disclosures about pension plan assets, benefit obligations, cash fl ows, and benefit costs of defined benefit pension plans and other defined benefit postretirement plans. Also, companies are required to provide a breakdown of plan assets by category, such as debt, equity and real estate, and to provide certain expected rates of return and target allocation percentages for these asset categories. The Company has implemented this pronouncement and has concluded that the adoption has no material impact to the consolidated financial statements.

In December 2003, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.” SAB 104 supersedes SAB 101, “Revenue Recognition in Consolidated Financial Statements.” SAB 104’s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superseded as a result of the issuance of EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” Additionally, SAB 104 rescinds the SEC’s Revenue Recognition in Consolidated Financial Statements Frequently Asked Questions and Answers (“the FAQ”) issued with SAB 101 that had been codified in SEC Topic 13, Revenue Recognition. Selected port ions of the FAQ have been incorporated into SAB 104. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104, which was effective upon issuance. The adoption of SAB 104 did not impact the consolidated financial statements.

J Advances to Models

The Company pays bills on behalf of models for the preparation of their professional modeling portfolios and for travel costs. These amounts have no specific repayment terms, but management expects repayment within one year.


	K12

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

1. Summary of Significant Accounting Policies (continued)

K. Receivables

Accounts receivable are typically unsecured. The Company performs ongoing credit evaluations of its customers’ financial condition. It generally requires no collateral and maintains reserves for potential credit losses on customer accounts when necessary.

The Company establishes an allowance for uncollectible trade accounts receivable based on historical collection experience and management evaluation of collectibility of outstanding accounts receivable.

L. Unbilled Receivables

Unbilled Receivables represent revenue earned in the current period but not billed to the customer until future dates, usually within one month.

M. Basic and Diluted Net Earnings per Share

Basic net earnings (loss) per common share is computed by dividing net earnings (loss) applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

N. Comprehensive Income (Loss)

Comprehensive income consists of net income and other gains and losses affecting shareholders’ equity that, under generally accepted accounting principles are excluded from net income in accordance with Statement on Financial Accounting Standards No. 130, “Reporting Comprehensive Income.” The Company, however, does not have any components of comprehensive income (loss) as defined by SFAS No. 130 and therefore, for the six months ended September 30, 2004 and 2003, comprehensive income (loss) is equivalent to the Company’s reported net income (loss).


	K13

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

1. Summary of Significant Accounting Policies (continued)

O. Stock-Based Compensation

The Company accounts for its stock-based employee compensation plans using the intrinsic value method. As such, compensation expense is recorded on the date of grant if the current market price of the underlying stock exceeds the exercise price. The compensation expense is recorded over the vesting period of the grant.

As allowed under SFAS 123, “Accounting for Stock Based Compensation”, the Company applies APB Opinion No. 25 in accounting for its stock-based compensation plans and, accordingly, no compensation cost has been recognized for the plans in the financial statements because no options were granted to employees during the three and nine months ended September 30, 2004 and 2003.

	Three Months Ended September 30,
	2004		2003
Net income (loss):
As reported	$	(772,173)	$	(655,973)
Fair value based method
compensation expense		-		-
Pro forma	$	(772,173)	$	(655,973)
Basic and diluted net income (loss) per share:
As reported	$	(0.00)	$	(0.01)
Pro forma	$	(0.00)	$	(0.01)

	Nine Months Ended September 30,
	2004		2003
Net income (loss):
As reported	$	(2,686,496)	$	(1,438,464)
Fair value based method
compensation expense		-		-
Pro forma	$	(2,686,496)	$	(1,438,464)
Basic and diluted net income (loss) per share:
As reported	$	(0.01)	$	(0.02)
Pro forma	$	(0.01)	$	(0.02)

During the nine months ended September 30, 2004, the Company granted warrants/options convertible into 100,750,000 to various consultants under the terms of its 2004 Consulting and Legal Services Plan. These warrants/options were granted at below the current market price, and the Company recognized additional expense of $691,875 related to these grants. There were no options or warrants granted to employees during the period.


	K14

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

1. Summary of Significant Accounting Policies (continued)

P. Acquisition of ESI

On September 8, 2004, the Company completed the purchase of ESI, a temporary staffing company, which was a subsidiary of a publicly held company, by acquiring all of the outstanding capital stock of ESI for a total purchase price of $1,550,000. The acquisition was accounted for using the purchase method of accounting and, accordingly, ESI’s results of operations have been included in the consolidated financial statements since the date of acquisition. The source of funds for the acquisition was a combination of the Company’s available cash, promissory note payable to the seller, and advances totaling $600,000 under a new credit facility.

The following table presents the allocation of the acquisition cost, including professional fees and other related acquisition costs, to the assets acquired and liabilities assumed, in accordance with SFAS Nos. 141 and 142:

Cash and cash equivalents	$	-
Accounts receivable		484,482
Other receivables		356,244
Property and equipment		5,654
Goodwill and contracts		1,242,266
Other assets		58,231
Total assets	$	2,146,877
Notes payable debt due within one year	$	-
Other current liabilities		614,632
Long-term accrued liabilities		-
Total liabilities	$	614,632
Total acquisition cost	$	1,532,245

The allocation of the purchase price is based on preliminary data and could change when final valuation information is obtained.

The following (unaudited) pro forma consolidated results of operations have been prepared as if the acquisition of ESI had occurred at January 1, 2003:

	Three months ended				Nine months ended
	September 30, 2004		September 30, 2003		September 30, 2004		September 30, 2003
Sales	$	3,252,212	$	2,546,149	$	8,409,001	$	9,554,580
Net income	$	(1,541,811)	$	(576,152)	$	(3,302,273)	$	(1,266,226)
Net income per share—Basic	$	(0.00)	$	(0.01)	$	(0.01)	$	(0.02)
Net income per share—Diluted	$	(0.00)	$	(0.01)	$	(0.01)	$	(0.02)


	K15

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

1. Summary of Significant Accounting Policies (continued)

P. Acquisition of ESI (continued)

The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time, nor is it intended to be a projection of future results.

Q. Reclassifications

Certain amounts in the 2003 financial statements have been reclassified to conform to the 2004 presentations. These reclassifications had no effect on previously reported results of operations or retained earnings.

2. Income Taxes

Income tax expense has been recorded based on an estimated effective tax rate for the year ended December 31, 2004. The estimated effective tax rate has taken into account any change in the valuation allowance for deferred tax assets where the realization of various deferred tax assets is subject to uncertainty. Management believes that sufficient uncertainty exists regarding the future realization of deferred tax assets and, accordingly, a full valuation allowance has been provided against the gross deferred tax assets.

3. Financing Agreement

The Company had a secured asset-borrowing program with a financial institution to collateralize, with recourse, certain eligible trade receivables up to a maximum percentage of 70% of the net amounts of each receivable at September 30, 2004. Subsequently, in November, 2004 for the Company’s ESI subsidiary the maximum percentage has been increased to 75%. For WAMM, as receivables collateralized to the financial institution are collected, the Company may transfer additional receivables up to the discretion of the lending institution with a maximum line of $300,000. ESI has the secured-asset-borrowing program with the same institution to collateralize, with recourse, it eligible trade receivables, which ESI can use up to the maximum line of $1,000,000. The Company retains the right to recall collateralized receivable s under the program, and the receivables are subject to recourse. Therefore, the transaction does not qualify as a sale under the terms of Financial Accounting Standards Board Statement No. 125 (Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities). Included in the Balance Sheets as receivables at September 30, 2004, and December 31, 2003, are account balances totaling $839,088 and $292,746 of uncollected receivables collateralized to the financial institution.


	K16

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

4. Line of Credit

The Company has an unsecured line of credit agreement with a bank, which provides that it may borrow up to $50,000 at the interest rate of 12% per annum. At September 30, 2004 and December 31, 2003, $50,000 and $50,000 were borrowed against the line of credit, respectively. The line of credit is renewable annually by mutual agreement of the parties.

In 2004, The Company has a secured line of credit agreement with a bank, which provides that it may borrow up to $100,000 at the interest rate of 1.5% per annum. At September 30, 2004, the Company has borrowed $100,000 against the line of credit. The line of credit is renewable annually by mutual agreement of the parties. The Company has a $99,681 certified deposit with the bank, which is collateralized against any borrowings.

5. Equity

Shareholders’ Meeting

At a meeting on August 5, 2004, the shareholders approved the increase in authorized common shares to 2 billion.

Common Stock

During the nine months ended September 30, 2004, the Company issued 5,950,000 shares of its registered common stock, having a market value of $30,000, to three individuals in lieu of cash compensation for services rendered.

During the nine months ended September 30, 2004, the holders of convertible debentures converted $1,031,086 of principal and $177,145 of interest into 565,390,938 shares of the Company’s common stock.

During the nine months ended September 30, 2004, the Company issued registered warrants/options convertible into 100,750,000 shares of its common stock to various consultants. The exercise price of the warrants/options ranged from $0.0025 to $0.01 per share. All warrants/options were exercised as of March 31, 2004, and the Company recognized compensation expense of $691,875 related to these grants. The compensation expense was determined based on the intrinsic value method. The warrants or options were granted in lieu of cash compensation for legal and management consulting services rendered. The Company received aggregate cash proceeds of $575,625 as result of the warrants/options exercised.


	K17

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

6. Related Party Transactions

Mr. Steve Chamberlin

At September 30, 2004, the Company has advances to Mr. Chamberlin totaling $28,040. These advances are due on demand and are non-interest-bearing. These advances to Mr. Chamberlin were made by the Company when it was privately-held, and prior to its merger with Famous Fixins, Inc.

Company’s Corporate Services Agreement with Dalrada Financial Corporation

The Company has a corporate services agreement with Dalrada Financial Corporation (Dalrada) an entity whose CEO and Chairman is also the Company’s CEO and Chairman of the board of directors. Under the terms of the agreement, the Company pays a fee to Dalrada for various support staff, administrative services, and rent related to the operations of its subsidiary ESI. Fees incurred to Dalrada totaled $18,771 for the three and nine months ended September 30, 2004. The Company had no such agreement in 2003.

Source One Group

In April 2004, the Company has engaged the services of Source One Group, a professional employer organization. The Company is charged an administration fee for processing payroll. Source One Group is a wholly-owned subsidiary of Dalrada. The Company has paid $7,766 and $15,180 to Source One Group in administrative fees during the three and nine months ended September 30, 2004. These fees are commensurate with the industry.

Unconditional Purchase Obligation in Connection with Acquisition of ESI

In connection with the ESI acquisition in September 2004, ESI and the Company entered into a payroll processing agreement whereby the Company committed to contract with Source One Group, a subsidiary of Dalrada, for all of its payroll processing. During the first three weeks after the transaction. Dalrada Financial Corporation is a guarantor for the $750,000 note payable issued to the seller of ESI. The Company contracted with Dalrada through Source One Group to provide payroll processing services in order to have Dalrada act as the guarantor for the note payable. The fees charged by Dalrada for payroll processing are at market rates. The fees paid to Dalrada for payroll processing for the three and nine month period ending September 30, 2004 are $24,044.


	K18

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

6. Related Party Transactions (continued)

Transactions with shareholders

A shareholder has advanced an additional $29,000 to the Company during the nine months ended September 30, 2004. The Company has repaid $60,625 of shareholder advances as of September 30, 2004, and a shareholder forgave an additional $41,780. The advances bear an interest rate of 10% per annum, and are due on demand.

As of September 30, 2004, shareholders advances total $40,383, which are due on demand and bear 10% interest per annum.

7. Commitments and Contingencies

A. Legal

The Company is periodically involved in legal actions and claims that arise as a result of events that occur in the normal course of operations. The Company is not currently aware of any legal proceedings or claims that the Company believes will have, individually or in the aggregate, a material adverse effect on the Company’s financial position or results of operations.

Law Suit Filed Against Warning Management Services, Inc., Its Subsidiaries, Officers and Directors

Warning Management Services, Inc., received notice on or about July 12, 2004 that a complaint was filed by two plaintiffs, Michela Huth and Edward Pekarek, in the United States District Court for the Northern District of Ohio claiming violation of Federal Securities Laws; Fraud; Breach of Fiduciary Duty; Market Manipulation; Insider Trading By Misappropriation of Propriety Information; Unjust Enrichment; Negligent Misrepresentations and/or Omissions.

For relief, the Plaintiffs request the following:

Issue a temporary restraining order to stop any further 10b-5 violations;

Issue a temporary restraining order and preliminary injunction to stop the destruction of documents, ordering expedited discovery, freezing assets of Warning Modal Management, Inc., and its subsidiaries; freezing the assets derived from violations of pertinent anti-fraud provisions, ordering of audited accounting to demonstrate extent and details of insider trading;

Issue a restraining order to prohibit the further transfer, encumbrance, dispositions and/or dilution of any Warning assets; to prohibit from effecting any mergers, acquisitions and/or other combinations during pendency of this action, and to stop the shareholder meeting on August 5, 2004;


	K19

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

7. Commitments and Contingencies (continued)

A. Legal (continued)

Law Suit Filed Against Warning Management Services, Inc., Its Subsidiaries, Officers and Directors (continued)

Issue an order awarding Plaintiff compensatory damages, pre-judgment interest, and costs in an amount to be determined at trial the Plaintiffs have stated that their combined losses approach $18,000;

Issue an order awarding Plaintiff punitive damages in an amount not less than five-hundred thousand dollars;

Issue an Order awarding reasonable attorney's fees, expert fees and all other reasonably related costs, expenses and other such disbursements; and,

For the Court to retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure, in order to implement and carry out the terms of all orders and decrees that may be entered, and/or any suitable application or motion for additional relief.

The Plaintiffs filed an Ex Parte application on July 19, 2004. On August 4, 2004 the TRO was heard by the court, and all requests by the plaintiff were denied. The hearing on the complaint has been continued.

The Officers and Directors of Warning Management Services, Inc., feel that the complaint has no merit and have retained counsel to defend itself against this action.

B. Operating Leases

The Company’s principal executive offices relocated to a 3,479 square foot facility at 9440 Santa Monica Boulevard, Suite 400, Beverly Hills, CA 90210. The Company leases the facility under a 60-month agreement that terminates on April 30, 2005, with the option to renew for an additional six months. The aggregate rental cost for the nine months ended September 30, 2004 and 2003 was $61,060. All operations were performed at this facility.

The Company’s ESI subsidiary sub-leases its offices (an approximately 1,500 square foot facility) from Dalrada Corporation, a related party. The offices are located at 9449 Balboa Avenue, San Diego, CA 92123. The Company leases the facility under a month-to-month agreement. As of October 1, 2004, the Company will start paying monthly rent of $2,705.

The aggregate rental cost for the nine months ended September 30, 2004 and 2003 was $61,060.


	K20

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

7. Commitments and Contingencies (continued)

B. Operating Leases (continued)

The Company also leases office equipment under an open-ended operating lease. The aggregate monthly rental (exclusive of sales tax) is $585 per month.

In September 2002, the Company leased an automobile under a 36-month non-cancelable operating lease agreement. The Company is obligated to pay $1,392 per month.

C. Contingent Liability

On May 15, 2002, FIXN completed a transaction pursuant to a Settlement of Debts and Asset Purchase Agreement, dated March 29, 2002, with Starbrand, LLC, pursuant to which FIXN divested all of its operations and sold substantially all of its assets and certain specified liabilities to Starbrand, LLC, in exchange for cancellation of $450,000 of outstanding 4%, $1,500,000 convertible debentures. FIXN is contingently liable for the payment of the liabilities transferred aggregating approximately $200,000. No claim has been made regarding these liabilities as of September 30, 2004, and management believes that it is remote that any claim may arise, thus no reserve is deemed necessary.

8. Notes Payable

Notes payable at September 30, 2004, and December 31, 2003, consist of the following:

In September 2004, the Company obtained $600,000 in debt financing in the form of short-term notes (maturing in 28 days) bearing interest of 7.5% per annum, which is due at maturity. On September 28, 3004, the Company repaid $200,000.

In September 2004, the Company issued a 6% promissory note for $750,000 to the seller of ESI. The promissory note is a short-term note maturing in September 2005. The note requires payments of $60,000 per month starting October 1, 2004.


	K21

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

8. Notes Payable (continued)

In May, 2004, the Company executed an agreement with a group of investors whereby the Company issued $810,000 in convertible loan notes. The Company issued warrants convertible into 91,797,300 shares of common stock at an exercise price of $0.025 per share in conjunction with these notes. These convertible notes mature in May 2005, and have no stated interest per annum, however, the note holders are entitled to a premium of $243,000 at maturity and the premium can be either in cash or shares of the Company’s common stock. The note holders are entitled to convert, at any time, any portion of the principal of the convertible notes to common stock at a conversion price of $0.0075 for each share. Total funds received of $810,000 were allocated as follows: none to the convertible notes; $460,000 to the detachable note warrants; $230,500 to the beneficial conversion feature; and $119,500 were debt issuance costs related to legal fees and commissions. The value allocated to the note warrants, the beneficial conversion feature, and the debt issuance costs are being amortized to interest expense over the term of these notes. The holders have converted $218,903 as of September 30, 2004.

In February 2004, the Company obtained $100,000 in debt financing in the form of short-term notes (maturing in 4 months) bearing fixed interest of $10,000, which is due at maturity.

In March 2004, the Company obtained $100,000 in debt financing in the form of short-term notes (maturing in 4 months) bearing fixed interest of $10,000, which is due at maturity. The promissory note terms had a clause that if the Company is in default, then the note will become convertible and bear interest at 8% per annum. This promissory note was repaid in May 2004.

In March 2003, the Company obtained short-term debt financing of $40,000 from an unrelated party, plus an $8,000 premium.

In May 2003, the Company obtained short-term debt financing of $105,000 from an unrelated party. The lender is a holder of its 10% convertible debentures.

In July 2003, the Company obtained $300,000 in debt financing in the form of short-term notes bearing 18% interest per annum. The Company issued warrants convertible into 5,000,000 shares of common stock at an exercise price of $0.01 per share. Management determined the fair value of the warrants issued to be $25,000, which was amortized over the term of the note.

In August 2003, the Company obtained short-term debt financing of $50,000 from an unrelated party. During the nine months ended September 30, 2004, the Company has repaid $50,000.

In December 2003, the Company obtained short-term debt financing of $50,000 from an unrelated party. During the nine months ended September 30, 2004, the Company has repaid $30,000.


	K22

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

9. Convertible Debentures & Promissory Notes

4% Convertible Debentures Payable

On October 27, 2000, FIXN entered into an agreement with the three investors for the issuance of $1,500,000 4% Convertible Debentures and 250,000 warrants for shares of FIXN's common stock. Under the terms of the agreement, the $1,500,000 principal amount of the 4% debentures was issued for cash of $500,000 and the surrender of the outstanding $1,000,000 of 0% Convertible Debentures described above. The entire issue of the $1,500,000 4% Convertible Debentures was due on August 7, 2001, with a 5% premium on principal, plus accrued interest. Effective May 15, 2002, FIXN was relieved of $450,000 of the outstanding principal and the premium of $75,000 as a result of the asset sale to Starbrand, LLC. The debentures are convertible into common stock commencing on the maturity date at a conversion price of the lesser of $.054 per share or an amount computed under a formula, based on the discounted average of the lowest bid prices during a period preceding the conversion date.

The conversion of the 4% debentures into common shares is subject to the condition that, no debenture holder may own an aggregate number of shares, including conversion shares, which is greater than 9.9% of the then outstanding common stock. Other provisions of the agreement include default, merger and common stock sale restrictions on FIXN. The debenture holders may cause FIXN to redeem debentures, with interest and a 30% payment premium, from up to 50% of the net proceeds received under an equity line of credit type of agreement or other permitted financing. The equity line of credit agreement was a condition to the October 27, 2000, 4% Convertible Debenture and Warrants Purchase Agreement.

Interest on the 4% convertible debentures is payable semi-annually and is convertible into common stock at the investors' option. Due to the non-payment of interest in fiscal year 2000, the debenture holders had the right to consider the debentures as immediately due and payable.

In July 2002, FIXN issued an additional $100,000 of 4% convertible debentures. These debentures are due in July 2003 and are classified as current. The notes have a $5,000 premium due at maturity.


	K23

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

9. Convertible Debentures & Promissory Notes (continued)

4% Convertible Debentures Payable (continued)

The financial statements as of September 30, 2004, reflect the remaining principal amount of the 4% debentures, less any unamortized bond discount. During the nine months ended September 30, 2004, the Company has converted $750,696. Interest on the indebtedness is accrued through September 30, 2004.

5% Convertible Debentures Payable

The 5% Debenture holders are entitled to convert, at any time, any portion of the principal of the 5% Debentures to common stock at a conversion price for each share at the lower of (a) 80% of the market price at the conversion date or (b) $0.55. The 5% Debentures include an option by FIXN to exchange the Debentures for Convertible Preferred Stock.

The following summarizes the outstanding balance of the 5% Debentures at September 30, 2004 and December 31, 2003:

	2004		2003
Outstanding principal amount of 5% debentures	$	20,975	$	33,975
Less unamortized discount for warrants issued		-		-

Carrying amount	$	20,975	$	33,975

The holder has converted $13,000 in principal and $2,719 in interest during the nine months ended September 30, 2004.

10% Convertible Debentures Payable

On December 30, 2002, the Company issued $500,000 in new three-year convertible debentures with an interest rate of 10%, payable quarterly. These debentures are convertible in the Company’s common stock at 85% of the average of the three lowest closing prices during the 20 days prior to the conversion. The notes mature in December 2005, and are classified as long-term.


	K24

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

9. Convertible Debentures & Promissory Notes (continued)

10% Convertible Debentures Payable (continued)

The debenture conversion price is based on the conversion value being 85% of the average of the five (5) lowest closing bid prices of the Common Stock during the twenty-two (22) Trading Days preceding the applicable Conversion Date. The beneficial conversion feature of these debentures issued was $88,235, and the amount was credited in the accounts as additional paid in capital. The amount attributable to the beneficial conversion feature is amortized over the term of the loan and is included as a component of interest expense. In conjunction with the issuance of the convertible debentures, the Company issued Common Stock Purchase Warrants (collectively the Note Warrants) to purchase 1,000,000 shares of the Company’s common stock, par value $0.001 per share (the Common Stock), at an exercise price of $0.01 per sha re, and are immediately exercisable. Total funds received of $500,000 were allocated $9,000 to the Note Warrants and $491,000 to the Notes. The total value allocated to the Note Warrants is being amortized to interest expense over the term of the Notes.

In January 2003, the Company received aggregate proceeds of $50,000 in connection with the issuance of a 10% $50,000 convertible debenture, due in 2006. The lender, an unrelated party, is a current holder of a note payable issued by the Company. The convertible benefit feature value was $8,824, and it is amortized over the term of the note.

The financial statements as of September 30, 2004, reflect the remaining principal amount of the 10% debentures, less the unamortized bond discount attributable to the beneficial conversion feature and the warrants. During the nine months ended September 30, 2004, the Company has converted $20,000. Interest on the indebtedness is accrued through September 30, 2004.

Convertible Notes Payable due to certain shareholders and former members of Warning Model Management, LLC

The merger of Warning Model Management, LLC, and FIXN resulted in FIXN issuing to the certain members of Warning Model Management, LLC, an aggregate of $2,900,000 principal amount of 4% convertible debentures due December 27, 2004.

The terms of the debentures require that interest be paid on the principal sum outstanding semi-annually in arrears at the rate of 4% per annum accruing from the date of initial issuance. Accrual of interest shall commence on the first business day to occur after the date of initial issuance and continue until payment in full of the principal sum has been made or duly provided for. Semi-annual interest payments shall be due and payable on December 1 and June 1 of each year, commencing with June 1, 2003. The Company will pay the principal of and any accrued but unpaid interest due upon this Debenture on the Maturity Date.


	K25

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

9. Convertible Debentures & Promissory Notes (continued)

Convertible Notes Payable due to certain shareholders and former members of Warning Model Management, LLC (continued)

The Holders of these Convertible Debentures are entitled, at their option, to convert at any time, the principal amount of this Debenture or any portion thereof, plus, at the Holder’s election, any accrued and unpaid interest, into shares of Common Stock of the Company (the common stock of the Company, the “Common Stock” and shares of Common Stock so converted, the “Conversion Shares”) at a conversion price for each share of Common Stock (“Conversion Price”) equal to the lesser of (i) $0.05 (the “Set Price”) (subject to adjustment for stock splits and the like), and (ii) 85% of the average of the five (5) lowest closing bid prices of the Common Stock during the twenty-two (22) Trading Days preceding the applicable Conversion Date.

Based upon a debenture conversion price being either the lesser of 0.05 per share or 85% of the average of the five (5) lowest closing bid prices of the Common Stock during the twenty-two (22) Trading Days preceding the applicable Conversion Date. The beneficial conversion feature of the $2,900,000 debentures issued was $511,765, and the amount was credited in the accounts of FIXN as additional paid in capital. The amount attributable to the beneficial conversion feature is amortized over the term of the loan and is included as a component of interest expense.

During the nine months ended September 30, 2004, the company has repaid $78,000 of principal in cash and has converted $4,162 of principal into 1,601,000 shares of its common stock.

The financial statements as of September 30, 2004, reflect the remaining principal amount of the 4% debentures to shareholders, less the unamortized bond discount. The net carrying value is $343,804. Interest on the indebtedness is accrued through September 30, 2004.


	K26

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

Notes to Financial Statements

September 30, 2004

10. Segment Information

The Company managed and internally reported the Company's business as two reportable segments, principally, (1) model management, (2) and temporary staffing.

Segment information for the three and nine months ended September 31, 2004 is as follows:

		Model Management		Staffing		Total
3 months ended 9/30/2004
	Revenues	$	754,305	$	515,969	$	1,270,274
	Operating income (loss)	$	(145,303)	$	11,603	$	(133,700)

9 months ended 9/30/2004
	Revenues	$	1,613,150	$	515,969	$	2,129,119
	Operating income (loss)	$	(895,020)	$	11,603	$	(883,417)

The temporary staffing services business was acquired on September 8, 2004.

11. Subsequent Events

In October and November 2004, the Company converted $149,211 of convertible debt and related interest into 127,883,540 shares of its common stock.


	K27

Warning Management Services, Inc.

(f/k/a Warning Model Management, Inc.)

September 30, 2004

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

General

Plan of Operation

Short-term Objectives:

With the new acquisition of Employment Systems, Inc, a staffing company, we are able to expand business operations. The Company expects expanded growth in the staffing revenues though expansion of its customer base, and as well as to continue to expand revenue through organic growth of existing business lines of its modeling agency division;

·	To increase revenues from the modeling agency division, through the sourcing and development of new talent in both male and female models and photographers

·	Seek additional financing so as to provide capital to rapidly growing components of the organization, such as the new staffing company and its Modeling agency’s Talent and Photo Division.

Long-term Objectives:

·	Continue business expansion through acquisition, merger or joint venture with business areas to provide growth and incremental ongoing expansion of revenues;

·	Acquires complementary product lines to provide a broader service offering for customers, expand services including additional staffing venues and industries, and modeling, talent and photographers careers and other revenue sources.

We have no expected or planned sale of significant property or equipment.

As shown in the accompanying Financial Statements, WNMI has incurred recurring losses from operations, and as of September 30, 2004 the Company’s current liabilities exceeded its current assets by $2,998,104, its total liabilities exceeded its total assets by $4,751,817, and for the period ending September 30, 2004, net cash used in operations was ($940,357). These factors raise doubt about the Company’s ability to continue as a going concern.

In addressing the going concern issue, WNMI has been able obtain additional financing through the issuance of debt which has been used for acquiring Employment systems, Inc. (“ESI”), and for capital to attract and add new models and clients. In addition, WNMI is doing the following in its effort to reach profitability and to develop the business:

·	Cut costs in areas that add the least value to WNMI.

·	Expand the base of customers for the staffing business

·	Bring in new models, talent, photographer and new modeling business lines

·	Further Develop the Staffing customer base and existing model, talent and photographers to derive more revenues


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We feel that sufficient working capital will be available from it’s internal operations and from outside sources during the next twelve months thereby enabling us to meet our obligations and commitments as they become payable for the following reasons: 1) On April 23, 2004, WNMI entered into a private funding where a net of $690,000 cash was received, 2) we have successfully negotiated with a financial institution a $100,000 credit line, 3) $2,563,122 of our debt is with management, 3) on August 18, 2004, we received additional funds pursuant to issuing a promissory note in the amount of $600,000, and 4) we have a secured credit line of u p to $1,000,000 with a banking facility for ESI. WNMI has in the past successfully relied on private placements of common stock securities, bank debt and loans from private investors to sustain operations. If WNMI is unable to obtain additional funding in the future, it may be forced to curtail or terminate operations.

Results of Operations

Three Months Ended September 30, 2004 Compared to September 30, 2003

Consolidated Revenue for the three month period ended September 30, 2004 was $1,270,274 as compared to $212,869 for the same period in 2003, or a increase of $1,057,405 or 497%. The increase is attributable to the following, 1) $515,969 in revenue from the acquisition of the staffing company, Employment Systems Inc. (“ESI”). The $515,969 ESI revenue represents 21 days of the quarter, 2) $206,515 of the increase is attributable to a reclass of talent payment from cost of sales to an offset of revenue and 3) $334,921 increase in modeling revenue.

The $334,921 increase in Modeling revenue is primarily attributable to the following: 1) $252, 000 in photography business which is a result of adding more photographers to our client base and 2) $80,000 in print business which is a result of increased advertisement spending this year versus last year. .

Consolidated gross profit for the three-month period ended September 30, 2004 was $292,427 as compared to $(187,210) for the same three month period in 2003, or an increase of $479,637 or 256%. This increase in consolidated gross profit was attributable to mainly to the following; 1) the additional gross margin of $76,565 from ESI and 2) $403,072 increase in modeling gross margin.

The $403,072 increase in modeling gross margin consists of 1) $40,826 in the new photography area, 2) $10,467 in talent commissions and 3) $351,779 in print margins.

Consolidated Operating expenses for the three-month period ending September 30, 2004 were $530,289 as compared to $328,743 for the same period in 2003, or an increase of $201,546 or 61%. The increase in consolidated operating expense was mainly attributable to $64,761 in operating expenses from the ESI subsidiary and an increase of $136,785 in modeling operating expenses.

ESI operating expenses for the three month period (21 days) consisted of the following: 1) $7,294 in professional fees, 2) 24,984 in office supplies and equipment rentals, 3) $3,544 in insurance expense, and 4) $28,939 in depreciation.

The modeling increase in operating expense of $136,785 for the three month period was mainly attributable to 1) an increase of $21,478 in business development, 2) an increase in salaries of $39,347, and 3) an increase in general and administrative expenses of $82,968 (which was primarily due to an increase in professional and consulting expenses), offset by 1) a decrease in depreciation expense of $1,257, and 2) a decrease in rent and operating lease expenses of $5,751.


	2

Consolidated Interest expense was $527,665 for the three-month period ending September 30, 2004 as compared to $135,048 for the same period in 2003 for an increase of $392,617 or 291%. This increase in interest expense was a mainly attributable to an increase in bond amortization discount and issuance expense of $414,490 offset by miscellaneous interest items amounting to $21,873.

The net consolidated (loss) for the Company for the three-month period ended September 30, 2004 was $(772,173) compared to $(656,033) for the same period ending September 30, 2003 for an increase of $(166,140) or 18%.

Nine Months Ended September 30, 2004 Compared to September 30, 2003

Consolidated Revenues for the nine-month period ended September 30, 2004 were $2,129,119 as compared to $1,240,276 for the same period in 2003, or an increase of $888,843 or 72%. The increase is mainly attributable to the acquisition of the staffing company Employment Systems Inc. (“ESI”), amounting to $515,969 of the increase. The remaining increase of $372,874 is attributable to the modeling business.

The $372,874 increase in Modeling revenue is attributable primarily to the following: 1) $387,392 in photography business which is a result of adding photographers to our client base, 2) a $(50,386) decrease in print management business which is a result of the first two quarters being below average due to the general malaise in print advertising_, and 3) a $35,868 increase in commercial management revenue,

Consolidated Gross profit for the nine-month period ended September 30, 2004 was $503,610 as compared to $346,040 for the same period in 2003, or an increase of $157,570 or 46%. This increase in gross profit was attributable mainly to the addition of $76,565 in gross profit from ESI with the remaining increase of $81,005 in modeling gross profit.

The increase modeling gross profit of $81,005 was a result of a reduction in Model fee revenues and related costs plus the addition of the photography line.

Consolidated operating expenses for the nine-month period ending September 30, 2004 were $2,226,922 as compared to $1,421,421 for the same period in 2003, or an increase of $805,501 or 57%. The increase in operating expenses was mainly attributable to $64,761 in operating expenses from the ESI subsidiary and an increase of $740,740 in modeling operating expenses.

ESI operating expenses for the nine-month period (21 days) consisted of the following: 1) $7,294 in professional fees, 2) 24,984 in office supplies and equipment rentals, 3) $3,544 in insurance expense, and 4) $28,939 in depreciation.

The $733,198 increase in other operating expenses for the nine-month period is mainly attributable to: 1) an increase in salaries and wages of $261,506 which consisted mainly of the $100,000 bonus to Steve Chamberlin with the remaining $161,506 attributable to the addition of three employees and increases in other salaries, 2) an decrease in general and administrative of $470,906 which is attributable to an increase in consulting fees of $647,205, an increase in bank loan fees of $18,986 and an increase in office expenses of $51,568 offset by a decrease in accounting fees of $72,528, a decrease in legal fees of $20,175, and a decrease bad debt expense of $154,150 arising from adjustments to reserves for doubtful accounts receivable and adv ances, 3) a decrease in business development of $957 due to a decrease in travel and entertainment, 4) an increase in rent and operating lease expenses of $7,708, and 5) a decrease in depreciation expense of $5,965. Interest expense was $1,006,863for the nine-month period ending September 30, 2004, as compared to $374,188 for the same period in 2003, for an increase of $632,675 or 169 %. The increase in interest expense in 2004 was attributable to a $550,456 increase in bond discount amortization, an increase in bond issuance expense of $74,634, a decrease of interest on promissory notes and loan from third parties of $35,680, an increase in secured credit line of $7,181 and an increase in interest from other sources of $36,084.


	3

Other income net of other expenses of $ 45,029 increased $25,320 over the same period the prior year, an increase of 128%.

The net consolidated (loss) for the Company for the nine-month period ended September 30, 2004 was $(2,686,496) compared to $(1,438,464) for the nine-month period ended September 30, 2003 for an increase of $(1,248,032) or 87%.

Liquidity and Capital Resources

Nine Months Ended September 30, 2004

Net change in cash used in operating activities for the nine-month period ending September 30, 2004 was $(940,357), which mainly consisted of the net loss of $2,686,496 plus the following: 1) gain on forgiveness of debt of $63,063, 2) trade receivables of $9,743, 3) unbilled receivables ESI of $69,870,

4) prepaid expenses of $17,720, 5) advances to employees of $6,755, 6) model fees payable of $19,195, 7) model reserves of $3,895, 8) taxes payable of $200 and 9) other items of $26,336 offset by 1) depreciation and amortization of $39,624, 2) common stock issued for services of $30,000, 3) expense on warrants of $691,875, 4) bond and warrant discount of $641,351, 5) advances to models of $38,131, 6) accounts payable and accrued expenses of $201,554, 7) payables to photographers of $99,989, 8) accrued employment services, ESI, of $125,072 and 9) accrued interest of $95,320.

Net cash provided by (used in) investing activities was ($774,376) and ($3,762) for the nine month period ending September 30, 2004 and 2003, respectively. This change is due cash used for the purchase of ESI of $750,000 and purchases of property and equipment of $24,376.

Net cash provided by financing activities was $1,770,595 and $(156,710) for the nine month period ending September 30, 2004 and 2003, respectively, reflecting a change of $1,613,885. This increase use of cash was due to the following: 1) proceeds from issuance of convertible notes for $810,000, 2) borrowing from a secured line of credit of $875,577, 3) exercise of warrants $575,625, 4) borrowing on bank lines of credit of $139,288, 5) proceeds from notes payable of $816,000, and 6) advances form shareholders of $29,000, offset by 1) debt issuance costs of $119,500, 2) restricted cash of $99,681, 3) payment on convertible notes of $78,000, 4) payment on secured lines of credit of $574,053, 5) payment on capital lease obligations of $7,256, 6) payment on bank lines of credit, $39,780, 7) payments on notes payable of $496,00 0 and 8) payments on advances to shareholders of $60,625.

WNMI’s revenues have been insufficient to cover operating expenses. Therefore, WNMI has been dependent on private placements of its common stock and issuance of convertible notes and private funds via promissory notes from third parties in order to sustain operations. In addition, there can be no assurances that the proceeds from private or other capital will continue to be available, or that revenues will increase to meet WNMI’s cash needs, or that a sufficient amount of WNMI’s common stock or other securities can or will be sold or that any common stock purchase options/warrants will be exercised to fund the operating needs of WNMI.


	4

Over the next twelve months an addition of $500,000 will be needed to sustain the business. Management is of the opinion that sufficient working capital will be obtained from operations and external financing to meet WNMI's liabilities and commitments as they become payable. WNMI has in the past relied on private placements of common stock securities, and loans from private investors to sustain operations. However, if WNMI is unable to obtain additional funding in the future, it may be forced to curtail or terminate operations.

Going-Concern Issues Arising from Recurring Losses and Cash Flow Problems

As shown in the accompanying Financial Statements, the Company has incurred recurring losses

from operations, and as of September 30, 2004, the Company’s current liabilities exceeded its current

assets by $2,998,104, and its total liabilities exceeded its total assets by $4,751,817. Management has

been able obtain additional financing through the issuance of debt. In addition, the Company has

instituted more efficient management techniques for its Warning Model subsidiary and continues to

attract and add new models and clients (expanding to include representing fashion photographers).

Management believes these factors will contribute toward achieving profitability. The accompanying

Financial Statements do not include any adjustments that might be necessary if the Company is

unable to continue as a going concern. In May 2004, the Company raised $810,000 in cash through

the issuance of convertible notes payable In August, 2004, the Company obtained a short time promissory note for $600,000. In September 2004, the Company acquired ESI, a temporary staffing company that provides staffing services to various municipalities, government and

private entities in California.

The ESI subsidiary will contribute additional revenues. ESI’s growth pattern of its temporary staffing it should continue to add to the Companies revenues. The accompanying Financial Statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

News Releases

On September 28, 2004 we announced Warning Photo Photography by Marck Baptiste of Paris Hilton’s New Jobs.

On September 29, 2004 we announced the adding of Kymberly Marciano to our Warning photo roster. Ms. Marciano is a prominent children’s photographer.

On November 22, 2004 WNMI to File Quarterly Earning late.

On December 6, 2004 WNMI Update to Shareholders on Quarterly Filing


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ITEM 3. CONTROLS AND PROCEDURES

As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures at the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that the design and operation of our disclosure controls and procedures are effective. There were no changes in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.


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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Warning Management Services, Inc. a/k/a Warning Model Management, Inc. received notice on or about July 12, 2004 that a complaint was filed by two plaintiffs, Michela Huth and Edward Pekarek, in the United States District Court for the Northern District of Ohio claiming violation of Federal Securities Laws; Fraud; Breach of Fiduciary Duty; Market Manipulation; Insider Trading By Misappropriation of Propriety Information; Unjust Enrichment; Negligent Misrepresentations and/or Omissions.

For relief, the Plaintiffs request the following:

1.	Issue a temporary restraining order to stop any further 10b-5 violations;

3.	Issue a restraining order to prohibit the further transfer, encumbrance, dispositions and/or dilution of any Warning assets; to prohibit from effecting any mergers, acquisitions and/or other combinations during pendency of this action, and to stop the shareholder meeting on August 5, 2004;

4.	Issue an order awarding Plaintiff compensatory damages, pre-judgment interest, and costs in an amount to be determined at trial the Plaintiffs have stated that their combined losses approach $18,000;

5.	Issue an order awarding Plaintiff punitive damages in an amount not less than five-hundred thousand dollars;

6.	Issue an Order awarding reasonable attorney’s fees, expert fees, and all other reasonably related costs, expenses and other such disbursements; and,

7.	For the Court to retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure, in order to implement and carry out the terms of all orders and decrees that may be entered, and/or any suitable application or motion for additional relief.

The Plaintiffs filed an Ex Parte application on July 19, 2004. On August 4, 2004, the TRO was heard by the court, and all requests by the plaintiff were denied. We filed a motion for a change of venue which will be heard on or about January 3, 2005.

The Officers and Directors of Warning Management Services, Inc. a/k/a Model Management, Inc., feel that the complaint has no merit and has retained counsel to defend this action.


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

During the three months ended September 30, 2004, WNMI issued the following:

On July 1, 2004, 4,032,319 shares were issued to Balmore SA at an average of $.0058 per share pursuant to rule 144K.

On August 17, 2004, 1,517,281 shares were issued to Balmore SA at $.0039 per share pursuant to rule 144K.

On August 17, 2004, 4,551,843 shares were issued to Austost Anstalt Schaan at $.0039 per share pursuant to rule 144K.

On August 23, 2004, 5,555,556 shares were issued to Alpha Capital at $.0018 per share pursuant to rule 144K.

On August 23, 2004, 24,556,440 shares were issued to Roseworth Group, Ltd. at $.00175 per share pursuant to rule 144K.

On September 24, 2004, 24,538,138 shares were issued to Roseworth Group, Ltd. at $.00185 per share pursuant to rule 144K.

Subsequent issuances

On October 26, 2004, WNMI issued Mercator Momentum Fund, LP 17,045,455 shares at $.00088. These shares were registered in September 2003 and were for payment of interest on a convertible note

On October 29, 2004, WNMI paid down $29,545 of its convertible note Due Alpha Capital by issuing 27,031,619 shares at $.001093 per share.

On October 29, 2004, WNMI paid down $5,900 of its convertible note Due Ellis International by issuing 5,397,987 shares at $.001093 per share.

On November 3, 2004, WNMI paid down $29,500 of its convertible note Due Alpha Capital by issuing 29,207,921 shares at $.00101 per share.

On November 3, 2004, WNMI paid down $5,900 of its convertible note Due Ellis International by issuing 5,841,584 shares at $.00101 per share.

On November 19, 2004, WNMI issued Mercator Momentum Fund, LP 17,000,000 shares at $.00078. These shares were registered in September 2003 and were for payment of principal and interest on a convertible note

On November 19, 2004, WNMI issued Mercator Momentum Fund, LP 26,358,974 shares at $.00078. These shares were issued pursuant to rule 144K were for payment of principal and interest on a convertible note.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None


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ITEM 4. SUBMISSION OF MATTERS OF A VOTE TO SECURITY HOLDERS

At the Special Meeting held August 5, 2004 the Stockholders voted upon the following:

1.	To increase the number of authorized shares of our common stock from 800,000,000 to 2,000,000,000;

2. To change the Company name to Warning Management Services Inc.;

To approve the Company's 2004 Employee Stock Option Plan (the "2004 Stock Option Plan"), pursuant to which up to 20,000,000 shares of the Company's common stock, par value $.001 per share (the "Common Stock") will be reserved or may be reserved for issuance over the term of the 2004 Stock Option Plan; and

4. To authorize the Company to issue up to 20,000,000 shares of Preferred Stock.

Proposals 1 and 2 were approved, and are effective. Proposals 3 an 4 did were not approved due to a lack of a quorum.

ITEM 5. OTHER INFORMATION

1. WNMI has not filed audited financials for its September acquisition Employment Systems Inc. The delay is a result of the required work load as it related to ensuring that Employment Systems, Inc’s, (ESI) books and records would be in compliance with US GAAP. Further, considerable effort was required not only in these areas but also the stub reporting for Tax Filing for the prior owners of ESI. We anticipate starting the audit shortly.

2. We are in default on the note payable to Berryman & Henigar Enterprises, from whom we purchased ESI. We are currently in discussions with Berryman & Henigar Enterprises concerning the valuation of the purchase price of ESI and the amount of the note payable.


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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:

(a) Exhibits

31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)

(Section 302 of the Sarbanes-Oxley Act of 2002)

31.2	Certification of the Executive as Acting Chief Financial Officer pursuant to

Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)

32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350

(Section 906 of the Sarbanes-Oxley Act of 2002)

32.2	Certification of the Executive as Acting Chief Financial Officer pursuant to

18 U.S.C.ss.1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

(b) Reports on Form 8-K:

Filed: September 27, 2004 ITEM 2.01 Completion of Acquisition of Assets

On September 21, 2004, Warning Management Services, Inc, (“WNMI”), formerly Warning Model Management, Inc., received the final documents from Berryman & Henigar Enterprises, a Nevada corporation, for the purchase of all the outstanding shares of Employment Systems, Inc (“ESI”), a California corporation.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Signature Title Date

By: /s/ Brian Bonar Chief Executive Officer, ; December 10, 2004

Brian Bonar Director

By:/s/ Steve Chamberlin Chief Operating Officer, Director December 10, 2004

Steve Chamberlin

By:/s/ Stanley Tepper Executive as Acting Chief December 10, 2004

Stanley Tepper Financial Officer

By:/s/ John Cappezzuto Director December 10, 2004

John Cappezzuto


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