**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION** ****


WASHINGTON,
      DC 20549





**FORM
      10-KSB**





**[X]
      ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES ACT OF 1934**





For
      the
      fiscal year ended December 31, 2004





Commission
      File Number 0-27219





**Warning
      Management Services, INC.**





(Exact
      name as specified in its charter)





New
                York13-3865655
              (State
                or other jurisdiction of                 (IRS
                Employer
              incorporation
                or organization)                Identification
                No.)
              
              9440
                Santa Monica Boulevard, Suite 400, Beverly Hills, CA             90210
              Address
                of principal executive office)                (Zip
                Code)
              
              Registrant's
                telephone number: (310) 860-9969





Securities
      registered under section 12 (b) of the Exchange Act: None





Securities
      registered under section 12 (g) of the Exchange Act:  Common
      Stock







Check
      whether the registrant (1) has filed all reports required to be filed by Section
      13 or 15(d) of the Securities Exchange Act during the last 12 months (or for
      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 (
      )





Check
      here if there is no disclosure of delinquent filers in response to Item 405
      of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of the registrants' knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this 10-KSB or any amendment
      to this Form 10-KSB. [ ]





Aggregate
      market value of Registrants' voting and non-voting common equity held by
      non-affiliates as of June 14, 2005 is approximately $1,258,210.





Outstanding
      common stock, $.001 par value as of June 15, 2005 was 840,532,352 shares.










1


**WARNING
      MANAGEMENT SERVICES. INC**








PART
      I





Item
      1.
      Description of Business





Item
      2.
      Description of Property





Item
      3.
      Legal Proceedings





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





PART
      II





Item
      5.
      Market for Company's Common Equity and Related Stockholder Matters





Item
      6.
      Management's Discussion and Analysis and Plan of Operation





Item
      7.
      Financial Statements





Item
      8.  Changes
      in and Disagreements with Accountants on Accounting and


Financial
      Disclosure





Item
      8A.
      Controls and Procedures





PART
      III





Item
      9.
      Directors, Executive Officers, Promoters and Control Persons;
      Compliance


with
      Section 16 (a) of the Exchange Act





Item
      10.
      Executive Compensation





Item
      11.
      Security Ownership of Certain Beneficial Owners and Management





Item
      12.
      Certain Relationships and Related Transactions





Item
      13.
      Exhibits and Reports on Form 8-K





Item
      14.
      Principal Accountant Fees and Services





SIGNATURES


2


**PART
      I.**





**ITEM
      1. Description of Business**





On
      May
      28, 1998, we acquired Famous Fixins, Inc., a privately-held New York corporation
      formed on November 29, 1995 ("FFNY"), in a transaction viewed as a reverse
      acquisition. FFNY was a promoter and marketer of celebrity endorsed consumer
      products. It commenced business activities in 1995 and began sales operations
      in
      March 25, 1997. Pursuant to a Plan and Agreement of Reorganization, we issued
      5,494,662 shares of common stock to Jason Bauer, as trustee for certain
      shareholders of FFNY, in exchange for 97% of the outstanding common stock of
      FFNY. Pursuant to the reorganization, the controlling shareholders became our
      controlling shareholders and officers and directors. FFNY became a
      majority-owned subsidiary of our company.





On
      June
      8, 1998, we changed our name to Famous Fixins, Inc. under the laws of the State
      of Nevada.





On
      November 16, 1998, we reincorporated under the laws of the State of New York
      by
      merging into our wholly-owned subsidiary, Famous Fixins Holding Company, Inc.,
      a
      corporation formed for the purpose of reincorporation. On November 20, 1998,
      we
      merged with our New York subsidiary, FFNY. On November 20, 1998, we changed
      our
      name to Famous Fixins, Inc. under the laws of the State of New York. We operate
      as a single entity under the laws of the State of New York. Pursuant to a
      shareholder vote, In March 2003 we changed our name to Warning Model Management
      Inc., and in August 2004 we changed our name to Warning Management Services,
      Inc. and increased the number of authorized shares of our common stock from
      800,000,000 to 2,000,000,000;





On
      May 6,
      2002, we sold off substantially all assets to a limited liability company,
      Starbrand, LLC, in exchange for the assumption by Starbrand of certain WNMI
      liabilities. The purpose of the transaction between FIXN and Starbrand, LLC,
      was
      despite the best efforts of management to increase revenues and to reduce costs
      by significantly altering the product lines and by decreasing certain operating
      expenses during the fiscal year ended December 31, 2001, FIXN sustained losses
      from operations during the year of $(1,020,966). FIXN had been unable to raise
      the required additional capital to finance is operations in their present form,
      in part due to the debt burdens. FIXN believed that in order to maximize the
      value of its common stock and ultimately maximize shareholder value, that it
      should divest all of its present operations, sell substantially all of its
      assets in exchange for the assumption of a significant portion of its
      liabilities, and seek to acquire a new business. Thus FIXN was able to reduce
      its debt load by selling substantially all of FIXN’s assets and certain
      liabilities. In exchange for the assumption of certain FIXN liabilities
      amounting to approximately $938,000 as of December 31, 2001, FIXN sold
      substantially all assets amounting to approximately $725,000 also as of December
      31, 2001. At the time of transaction, Starbrand, LLC was controlled by Jason
      Bauer, a former officer and director, who resigned from Famous Fixins upon
      the
      closing of the transaction to initially manage Starbrand. Pursuant to the
      definitive 14C Information Schedule filed on April 15, 2002, file number
      000-27219, certain persons who voted in favor of this transaction had a
      beneficial or equity interest in Starbrand, including Bauer, Roseworth Group
      Ltd., Austost Anstalt Schaan, and Balmore Funds, S.A. A fairness opinion was
      not
      obtained.





On
      December 27, 2002 we consummated an Agreement and Plan of Merger ("Agreement")
      whereby we combined FIXN Acquisition Sub, Inc., a Delaware corporation and
      wholly owned subsidiary of FIXN, with Warning Model Management, LLC, a
      California Limited Liability Company, ("Warning") which was organized in
      September 1998. The purpose of the transaction was to acquire a public entity
      to
      provide for national exposure of the business as well as a vehicle to obtain
      financing. The control persons of Warning Model Management, LLC, were Steve
      Chamberlin, George Furla, and Jeffrey Wong. Concurrent with the Plan of Merger,
      George Furla and Jeffrey Wong resigned. The transaction has been accounted
      for,
      as a reverse acquisition for accounting purposes and the continuing business
      is
      that of Warning Model Management, LLC. Pursuant to the Agreement, 24,313,655
      shares of common stock valued at $.01 and a three convertible notes in the
      aggregate principal amount of $2,900,000 were issued to the Members of Warning
      Model Management, LLC in exchange for 100% of FIXN Acquisition Sub, Inc., a
      subsidiary of Famous Fixins, Inc. The surviving entity between the Acquisition
      Sub and Warning Model Management, LLC. was the LLC.. The terms of the
      transaction were negotiated between FIXN and WNMI, which indicates an arms
      length transaction. The acquisition did not have a shareholder vote and a
      fairness opinion was not obtained. .








The
      accounting treatment is that of a business combination using the reverse
      acquisition method, with Warning being the accounting acquirer under accounting
      principles generally accepted in the United States. The assets and liabilities
      of WNMI at that time consisted primarily of petty cash, receivables, convertible
      debentures and accrued expenses and are combined with those of Warning at
      historical cost. The statements of operations subsequent to the combination
      will
      be those of the Warning. At the time the Agreement was executed, acquisition
      target had no operations.





Warning
      Model Management, LLC (“WAMM”) was established in September 1998 and is a full
      service model and talent agency. We develop and supply models, both male and
      female for assignments in a variety of jobs, including but not limited to
      fashion editorials for magazines, catalogues and newspaper advertisements,
      for
      advertising clients who use models in magazines, posters, websites, billboards,
      bus sides, look books and other such outlets. We also supply models and actors
      for all forms of TV work as well as industrial videos and personal appearances
      for promotions. Both the models and the end users would be considered our
      clients.





Income
      is
      derived by booking models on assignments with end users. We take a commission
      from both the model and the end user for print jobs (photos) and modeling
      campaigns. In cases where our model or actor is on a television commercial,
      we
      would earn a commission from these jobs. If the commercial runs for many years,
      we would get paid in the form of residuals. The usual fee rate of is 40% in
      the
      aggregate, with 20% coming from the model and 20% from the end user client.
      If
      the job was priced at $20,000, we would invoice the end user client 20% above
      cost or $24,000. This 20% represents our fee paid by the end user client. When
      we receive payment for the job performed by the model, we take 20% of what
      the
      job was priced at, or $4,000 as a fee from the model. The remainder of the
      payment is then paid to the model less any out of pocket costs or funds that
      WNMI advanced to the model We also book models and actors on Television
      commercial assignments. We take a commission (usually 10% or more) on these
      jobs
      as well and if these jobs run for many years, we are paid in the form of
      residuals. These same principles apply to many forms of assignments we “book”
      for the models and actors we represent. It may be in the form of a runway job,
      personal appearances, acting gig, clothes fitting or extra work.





WAMM’s
      models contract with us via a talent agreement and they function as independent
      contractors.  The
      agreements with these models have no time period duration. In addition, from
      month to month, there will be amounts due under such agreements to certain
      models which can be seen in the “due to model” category on the Balance Sheet. We
      provide models on an as-needed basis. ** As
      discussed *,
      w* hen
      our
      models are requested for jobs by our user clients, we negotiate the fee that
      we
      will charge for the model’s services. Once the fee is agreed upon, the user
      client issues us a purchase order. We do not have a written contract with our
      end user clients. We provide advance costs for our model and actor clients,
      such
      as rental fees for photo shooting locations, or photographer expenses. We deduct
      these advances from payments due the models for work done on behalf of our
      end
      user clients. Furthermore, since we provide models to these clients on an
      as-needed basis, there are currently no material contracts in place.





WAMM
      tries to provide the fashion/retailing industry in California and other Western
      States the level of modeling talent similar to that usually only found in New
      York and Paris. We feel we have achieved this by focusing on those clients
      that
      use LA and San Francisco as a primary location rather than as a base, and making
      available the talent they require locally, saving them (in many cases) the
      expense of having to bring those models from New York or Paris. Facilitating
      this service is our website which contains a copy of the portfolios of all
      of
      the models we represent. Our website ( www.warningmanagement.com )
      is a
      fully functioning tool whereby clients can immediately access the models
      portfolios and we can follow up with marketing packages. Our website contains
      information regarding the agency but primarily holds pictures of all the
      approximately 250 models that we represent. The site allows us to direct both
      our clients and end users to these web pages without them having lengthy
      downloads of photos. This saves a lot of time as it replaces the expensive
      and
      delay of transporting bulky books across country. To access the website, a
      login
      name and password is required.





The
      domain name www.warningmanagement.com is
      registered to Warning Management Services, Inc. There is then a link to
      Modelwire.com which maintains the operative part of our website. By operative
      is
      meant we can send out customized “packages” to clients requesting models for
      particular assignments. We pay a monthly fee to Modelwire on a yearly contract
      basis. They promote our website to clients and magazines worldwide. This gives
      us additional exposure to a huge number of possible clients.








The
      website is currently a password protected site as it is purely a function tool
      whereby clients can immediately access the models portfolios and we can send
      packages.





Acquisition
      of Employment Systems, Inc.





On
      September 21, 2004, we purchased Employment Systems, Inc (“ESI”), a California
      corporation, from Berryman & Henigar Enterprises, a Nevada corporation. The
      acquisition of all the outstanding shares of ESI was secured by a purchase
      price
      of $1,500,000 of which $750,000 was a cash payment and the remaining $750,000
      was paid in the form of a promissory note payable in 12 equal installment of
      $60,000 with a final payment of $30,000. In addition to purchasing the
      outstanding shares, WNMI acquired all the assets owned or leased by ESI plus
      certain liabilities.





ESI
      provides staffing services and business processing services to municipalities
      and small businesses principally in Southern California. ESI also provides
      a
      variety of financial services to small and medium-size businesses, including:
      benefits and payroll administration, health and workers' compensation insurance
      programs, personnel records management, employer liability management, full
      time
      and temporary staffing services.





These
      services allow ESI customers to outsource many human resource tasks, including
      payroll processing, workers' compensation insurance, health insurance, employee
      benefits, 401k investment services, personal financial management, and income
      tax consultation. These services also relieve existing and potential customers
      of the burdens associated with personnel management and control.





WNMI
      feels that the sellers, Berryman and Henigar had certain withheld critical
      information concerning the state of the business which has resulted in the
      erosion of the business. This matter is currently in litigation. The erosion
      has
      required a further analysis in how to record the original acquisition pursuant
      to FASB 141 (acquisitions) and 142 (related intangible assets) and resulted
      in
      an adjustment to the acquisition which is discussed in the MD&A section of
      this document.





Unconditional
      Purchase Obligation in Connection with Acquisition of ESI





Pursuant
      to the ESI  acquisition, o n  September
      9, 2004,  ESI  and Dalrada
      Financial Corporation (“Dalrada”) entered  into  a  payroll
      processing  agreement  whereby
      WMNI  committed  to  contract
      with Source One Group, a subsidiary of Dalrada, for all
      of its payroll processing. Dalrada Financial Corporation is a guarantor for
      the
      $750,000 note payable issued to the seller of ESI. WMNI 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 from September through December 31, 2004 was $138,152. The fees
      paid
      to Dalrada for payroll processing from January 1, 2005 through March 31, 2005
      was $116,996.





ESI
      has the following two of the types of revenue sources :





ESI’s
      primary 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 (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.








ESI’s
      second source of revenue is from 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).





Principal
      products or services and their markets ;





Warning
      Model Management, LLC





WAMM”s
      principal service is providing models, talent and photographers for commercial
      and high-end fashion purposes. We provide both male and female models; talent
      and photographers to a wide range of advertising media using print, still
      photography, video and television commercials. We also supply models for
      high-end fashion engagements, such as fashion shows and runway
      walks.





While
      our
      market is world wide, we concentrate our presence in the United States, with
      our
      base of operations in Los Angeles, California. We choose Los Angeles because
      of
      its relatively rain-free climate allowing for almost year round production
      of
      outdoor oriented filming and print oriented photography. Los Angeles also has
      a
      diversity of landscape with oceans, mountains and desert that makes it an ideal
      location for shooting commercials and advertising.





Employment
      Systems, Inc.





As
      discussed above, ESI provides staffing services and business processing services
      to municipalities and small businesses principally in Southern California.
      ESI
      also provides a variety of financial services to small and medium-size
      businesses, including: benefits and payroll administration, health and workers'
      compensation insurance programs, personnel records management, employer
      liability management, full time and temporary staffing services.





Distribution
      methods of the products or service





WAMM
      functions as an independent agency, having no branch offices in other cities.
      As
      an independent, we can work with any number of other model agencies in cities
      all around the world to maximize our talent’s exposure.





The
      modeling business is driven by personal relationships that are developed over
      time. We have numerous contacts with various booking agencies, retail fashion
      advertising departments, fashion magazines and high-end designers that represent
      a source of bookings and revenue.





Each
      model has a portfolio that is developed by WAMM that serves as a critical
      business development component. The portfolio contains a pictorial
      representation of past assignments, various poses and technical information
      such
      as height, weight, shoe size, etc. The end user can then request representative
      portfolio samples or can go directly to WNMI’s web site to view individual
      models and their portfolios. We believe that our web site adds a convenience
      factor to our business in that it allows customers and prospects to see all
      of
      our potential modeling talent. The online element changes the existing dynamics
      of sending a portfolio by courier to the customer to immediate online access.
      Our web site ( www.warningmanagement.com )
      allows
      for the expansion of customer choice in viewing many model portfolios for their
      contemplated project. In addition to inbound requests by customers for talent,
      there are also many outbound calls made to solicit business.





In
      addition to individual assignments, models may be requested for longer term
      activities such as representing a customer’s product line (for example,
      cosmetics or lingerie) wherein an entire advertising campaign is developed
      around the product and the model. A more recent phenomenon has been the model
      transitioning to a film/acting or entertainment role. WAMM can benefit at each
      stage, collecting a fee as part of the model’s print or commercial
      shoot.


6





Competitive
      business conditions and the small business issuer’s competitive position in the
      industry and methods
      of competition





Warning
      Management Services, Inc.





WNMI
      through its wholly owned subsidiary WAMM, operates in a highly competitive
      industry. While there are certain brand name competitors such as LA Models
      and
      Ford, the industry is characterized as somewhat fragmented and with no clear
      dominant competitor. Some key drivers and competitive differentiation include
      the overall talent pool that is maintained by each competitor, a new face or
      talent that can become a hot property, historic ties to customers and
      advertising relationships as well as the ability to match modeling product
      with
      customer need.





In
      regards to non-brand name agencies, we are not aware of any that are market
      leaders or are major competition to our position. WAMM’s staff is fully derived
      of long term agents that have all worked previously on the west coast for all
      of
      the brand name agents. From our experience there is a shortage of qualified
      staff that have worked in the industry for any length of time and many of the
      newer, smaller non brand agencies and even the brand named ones have great
      difficult attracting experienced staff.





Our
      competitive position is largely influenced by our ability to maintain
      responsiveness to the developing market in which we are engaged and to ensure
      continuing development of our models in order to keep pace with the competition
      and developing market trends and needs.





Employee
      Staffing





The
      employee staffing business is highly competitive, with approximately 800 firms
      operating in the U.S. There are several firms that operate on a nationwide
      basis
      with revenues and resources far greater than ours. Some large staffing companies
      are owned by insurance carriers and some are public companies whose shares
      trade
      on Nasdaq, including Administaff, Inc., Team Staff, Inc., Barrett Business
      Services, and Staff Leasing, Inc.





Sources
      and availability of models and the names of principal suppliers





There
      are
      a variety of sources for model talent development, including portfolio
      submission by the prospective model, interaction with other modeling agencies,
      and through fashion shows and industry functions. A classic source is that
      of
      simple discovery by WAMM’s representatives while in the course of everyday
      activities.





As
      part
      of the process, if the model agrees to have WAMM represent them, an agreement
      is
      executed between WAMM and the model that delineates responsibilities, payment
      and other terms. WAMM engages models as independent contractors and not as
      employees. While there is a large pool of available talent, the longer-term
      success of any model is much narrower and uncertain.





Dependence
      on one or a few major customers





Our
      customer base and revenue sources for both WAMM and ESI are diverse. Concerning
      WAMM, while we are based in Los Angeles, we supply talent for assignments
      throughout the world. Consequently we believe that we have geographic diversity
      to help balance economic cycles. Continual contact with worldwide customers
      and
      prospects is important to continue business growth and new customer acquisition.





Our
      major
      WAMM clients are as follows:





**Ranked
                by Total Sales 1/1/04-12/31/04****Department**
            
            **Client**
            
            
            **Total
                Sales**Print
            
            Nordstrom
            
            
            $121,984.90Print
            
            Chole
                Productions
            
            
            $104,000.00Photo
            
            Sony
                Pictures
            
            
            $97,620.32Print
            
            Soft
                Sheen Carson
            
            
            $96,000.00Print
            
            Macy's
            
            
            $83,587.52











Patents,
      trademarks, licenses, franchises, concessions, royalty agreements or labor
      contracts, including duration





Outside
      of our logo and service mark for Warning, WMNI does not hold title to patents,
      trademarks, licenses, franchises, and concessions. We do maintain royalty
      agreements between the models and talent and our company that are part of the
      standard model agreement.





Need
      for
      any government approval of principal products or services. If government
      approval is necessary and the small business issuer has not yet received that
      approval, discuss the status of the approval within the government approval
      process





WAMM
      is
      required to have a Talent Agency License and be bonded within the State of
      California. To the best of our knowledge, additional government approval for
      our
      products and services is not required in the normal course of business
      operation.





Need
      for any government approval of principal products or services. If government
      approval is necessary and the small business issuer has not yet received that
      approval, discuss the status of the approval within the government approval
      process;





WAMM
      does not require government approval.





While
      many states do not explicitly regulate employee staffing, over 20 states have
      passed laws that have licensing or registration requirements for employee
      staffing, and several other states are considering such regulation. Such laws
      vary from state to state, but generally provide for monitoring the fiscal
      responsibility of employee staffing co.’s and, in some cases, codify and clarify
      the co-employment relationship for unemployment, workers' compensation, and
      other purposes under state law.




Effect
      of existing or probable governmental regulations on the
      business





For
      WAMM,
      government regulations at both the State and Federal level are encountered.
      Regulations and laws related to labor principally affect our company.
      Indirectly, we are also impacted by changes at the Federal and State level
      that
      may affect advertising or related business.





ESI
      estimates that the annual cost of compliance with regulations is
      minimal.




Costs
      and effects of compliance with environmental laws (federal, state and
      local)





Compliance
      costs with environmental laws have a minimal impact on our company.





**ITEM
      2. Description of Property**





As
      of
      January 1, 2005, WNMI’s lease for its facility at 9440 Santa Monica Boulevard,
      Suite 400, Beverly Hills, CA 90210, became a month to month lease. The monthly
      payments are $10,393.11. We are currently looking for a new location and
      anticipate relocation shortly.





As
      of
      February 1, 2005, ESI leased 8,918 square feet at 1520 S. Lewis, Anaheim, CA
      92803 for three years at $6,241 per month. ESI subleases space out to two
      affiliated companies, Source One and Quik Pix, Inc., for an aggregate of $5,500
      per month.





ESI
      also
      leases approximately 800 square feet space on a month to month basis from
      Dalrada Financial Corporation, located at 9449 Balboa Avenue, Suite 211, San
      Diego, CA 92123 for $3,606 per month.








**ITEM
      3. Legal Proceedings**





Huth
      v. Warning Management Services, Inc.





On
      or
      about July 9, 2004, Michael Huth and Edward Pekarek (collectively “Plaintiffs”),
      filed a complaint in the United States District Court, Northern District of
      Ohio, Case No. 1:04CV1292. Plaintiffs, who were shareholders, claimed that
      WNMI
      violated various federal securities laws. The Company retained the law firm
      of
      Spieth, Bell, McCurdy & Newell Co. in Cleveland, Ohio as its litigation
      counsel.


WNMI
      requested that the matter be aggressively defended based on the fact that
      Plaintiffs’ claims lacked legal and factual merit. As such, management was
      actively involved during the litigation process.





Shortly
      after the action was filed, the Company filed a motion to have the matter
      transferred from the United States District Court of Ohio to California. The
      court agreed with the Company’s position and thereby granted the request.
      However, on March 29, 2005, the Plaintiffs voluntarily dismissed the action
      before the matter was actually transferred.





Berryman
      & Henigar Enterprises v. Warning Management Services, Inc.


On
      February 10, 2005, Berryman & Henigar Enterprises (“Plaintiff”), filed a
      complaint in the Superior Court of California, County of San Diego, Case No.
      GIC842610, against WNMI for breach of a promissory note issued pursuant to
      terms
      and conditions of a certain stock purchase and sale agreement dated September
      9,
      2004. Plaintiff seeks principal damages of $750,000.00 in that regard.


It
      is
      WNMI’s position that Plaintiff failed to disclose certain material information
      in the underlying transaction which thereby negates the promissory note. WNMI,
      in that regard, intends to file a cross-complaint against Plaintiff for
      resulting damages.





Discovery
      has commenced but is not complete at this time. Trial has not been set.
      Management has fully cooperated in our investigation of the facts and we intend
      to defend against the claim asserted.




**ITEM
      4. Submission of Matters to a Vote of Security Holders**





The
      following actions were taken pursuant to the written consent of a majority
      of
      our shareholders, dated March 10, 2003, in lieu of a special meeting of the
      shareholders. The following actions became effective on or about April 10,
      2003:





1. Amendment
      of our certificate of incorporation to change the Company name
      from
      Famous Fixins, Inc. to Warning Model Management, Inc., and concurrently to
      change the


Company’s OTCBB trading symbol.





2.
            Amendment
                of our Certificate of Incorporation to increase the authorized number
                of
                shares of our common stock from 200,000,000 to
                800,000,000.





3.
            The
                ratification of the appointment of Pohl, McNabola, Berg, & Co., LLP,
                as our independent accountants for the current fiscal
                year.





The
      following actions were taken pursuant to the written consent of a majority
      of
      our shareholders, dated August 5, 2004, in lieu of a special meeting of the
      shareholders. The following actions became effective on or about August 9,
      2004:





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.;














**PART
      II**





**ITEM
      5. Market for Company's Common Equity and Related Stockholder Matters**





Our
      common stock is quoted on the Over-the Counter Bulletin Board, also called
      the
      OTCBB, under the trading symbol “WNMI”. The following table set forth the
      quarterly high and low bid prices per share for our common stock. The bid prices
      reflect inter-dealer prices, without retail markup, markdown, or commission
      and
      may not represent actual transactions.





Fiscal
                Year
            Quarter
                Ended
            High
            Low2002
            March
                31, 2002
            $0.01
            $0.01June
                30, 2002
            $0.01
            $0.01September
                30, 2002
            $0.01
            $0.01December
                31, 2002
            $0.02
            $0.012003
            March
                31, 2003
            $0.03
            $0.01June
                30, 2003
            $0.02
            $0.01September
                30, 2003
            $0.01
            $0.00December
                31, 2003
            $0.0
            $0.002004
            March
                31, 2004
            $0.03
            $0.00June
                30, 2004
            $0.00
            $0.00September
                30, 2004
            $0.00
            $0.00December
                30, 2004
            $0.00
            $0.002005
            March
                31, 2005
            $0.00
            $0.00June
                15, 2005
            $0.00
            $0.00








The
      Company has not declared or paid any cash dividends on the common stock and
      does
      not anticipate that any cash dividends will be paid in the foreseeable future.





As
      of
      June 15, 2005, the Company's common stock was held by approximately 108
      shareholders of record.





**Recent
      Sales of Unregistered Securities**





On
      January 7, 2003, we issued a $50,000 of 10% convertible debenture due in 2004
      to
      Alpha Capital Aktiengesellschaft, in a transaction deemed to be exempt under
      Section 4(2) of the Securities Act of 1933 as a sale of securities not involving
      a public offering. The debenture accrues interest at 10% per annum. The holder
      has the right to convert the debentures in to common shares at any time through
      maturity at a conversion price of 85% of the average of the lowest three trading
      prices during the 20 trading days preceding the conversion date.





On
      February 6, 2003, Mercator Momentum Fund L.P., the holder of an assigned portion
      of the 4% convertible debenture issued by Famous Fixins Inc. to Roseworth Group
      Limited on October 27, 2000, elected to convert, $25,500 of the outstanding
      principal amount of the debenture, into 5,000,000 shares of our restricted
      common stock in a transaction deemed to be exempt under Section 4(2) of the
      Securities Act of 1933 as a sale of securities not involving a public offering.





On
      March
      5, 2003, we issued a $48,000 promissory note to Filter International, LTD.
      For
      cash loaned to us in a transaction deemed to be exempt under Section 4(2) of
      the
      Securities Act of 1933 as a sale of securities not involving a public offering.
      On December 9, 2003, the maturity date of this note was extended to June 5,
      2004





On
      March
      5, 2003, we issued a $20,000 promissory note to Peter Benz for cash loaned
      to us
      in a transaction deemed to be exempt under Section 4(2) of the Securities Act
      of
      1933 as a sale of securities not involving a public offering. This note was
      paid
      off in July, 2003.




10








On
      April
      4 th and on
      April 15, 2003 we issued one year promissory notes for $10,000 respectively
      to
      George Furla for cash loaned to WNMI in a transaction deemed to be exempt under
      Section 4(2) of the Securities Act of 1933 as a sale of securities not involving
      a public offering.





On
      May
      15, 2003 we issued a promissory note for $100,000 to the Momentum Fund L.P.
      for
      cash loaned to WNMI in a transaction deemed to be exempt under Section 4(2)
      of
      the Securities Act of 1933 as a sale of securities not involving a public
      offering. On November 12, 2003, the due date was extended to May 15, 2004.





On
      June
      16, 2003 we issued a promissory note for $40,000 to George Furla for cash loaned
      to WNMI in a transaction deemed to be exempt under Section 4(2) of the
      Securities Act of 1933 as a sale of securities not involving a public offering.
      On December 9, 2003, the maturity date of this note was extended to June 16,
      2004





On
      June
      17, 2003 we issued a promissory note for $28,911 to George Furla for cash loaned
      to WNMI in a transaction deemed to be exempt under Section 4(2) of the
      Securities Act of 1933 as a sale of securities not involving a public offering.
      On December 9, 2003, the maturity date of this note was extended to June 17,
      2004





On
      July
      9, 2003 we issued a promissory note for $300,000 to the Michael T. Covell and
      Arline Covell Revocable Trust for cash loaned to WNMI in a transaction deemed
      to
      be exempt under Section 4(2) of the Securities Act of 1933 as a sale of
      securities not involving a public offering.





On
      July
      22, 2003 we issued 5,446,623 shares of common stock to Mercator Momentum Fund
      L.P. for the partial conversion ($25,000) of a convertible note. The conversion
      price was $.00459 per share in a transaction deemed to be exempt under Section
      4(2) of the Securities Act of 1933 as a sale of securities not involving a
      public offering. On December 9, 2003, the maturity date of this note was
      extended to June 17, 2004.





On
      August
      5, 2003 we issued a promissory note for $50,000 to Howard Schraub for cash
      loaned to WNMI in a transaction deemed to be exempt under Section 4(2) of the
      Securities Act of 1933 as a sale of securities not involving a public offering.





On
      September 26, 2003, the company issued a short-term note for $15,000 with
      interest of interest at 10% per annum to Betty Reider in a transaction deemed
      to
      be exempt under Section 4(2) of the Securities Act of 1933 as a sale of
      securities not involving a public offering.





On
      October 30, 2003 we issued 5,882,353 shares of common stock to Mercator Momentum
      Fund L.P. for the partial conversion ($10,000) of a convertible note. The
      conversion price was $.0017 per share in a transaction deemed to be exempt
      under
      Section 4(2) of the Securities Act of 1933 as a sale of securities not involving
      a public offering. On December 9, 2003, the maturity date of this note was
      extended to June 17, 2004





On
      March
      22, 2004 we issued 4,577,536 shares of common stock to Balmore S.A. for the
      partial conversion ($10,000) of a convertible note that was held for over two
      years. The conversion price was $.0255 per share in a transaction deemed to
      be
      exempt under Section 4(2) of the Securities Act of 1933 as a sale of securities
      not involving a public offering.





On
      March
      23, 2004 we issued 11,445,164 shares of common stock to Balmore S.A. for the
      partial conversion ($10,000) of a convertible note that was held over two years.
      The conversion price was $.0255 per share in a transaction deemed to be exempt
      under Section 4(2) of the Securities Act of 1933 as a sale of securities not
      involving a public offering.




On
      March
      24, 2004 we issued 57,252,308 shares of common stock to Balmore S.A. for the
      partial conversion ($125,000) of a convertible note that was held over two
      years. The conversion price was $.0255 per share in a transaction deemed to
      be
      exempt under Section 4(2) of the Securities Act of 1933 as a sale of securities
      not involving a public offering.










On
      March
      25, 2004 we issued 16,032,500 shares of common stock to Austost Anstalt Schaan
      for the partial conversion ($125,000) of a convertible note that was held over
      two years. The conversion price was $.0255 per share in a transaction deemed
      to
      be exempt under Section 4(2) of the Securities Act of 1933 as a sale of
      securities not involving a public offering.





On
      March
      25, 2004 we issued 8,758,169 shares of common stock to Alpha Capital for the
      partial conversion ($20,000) of a convertible note that was held over two years.
      The conversion price was $.0255 per share in a transaction deemed to be exempt
      under Section 4(2) of the Securities Act of 1933 as a sale of securities not
      involving a public offering.





On
      March
      30, 2004 we issued 22,908,871 shares of common stock to Balmore S.A. for the
      partial conversion ($50,000) of a convertible note that was held over two years.
      The conversion price was $.0255 per share in a transaction deemed to be exempt
      under Section 4(2) of the Securities Act of 1933 as a sale of securities not
      involving a public offering.





On
      April
      5, 2004 we issued 34,051,747 shares of common stock to Balmore S.A. for the
      partial conversion ($75,000) of a convertible note that was held over two years.
      The conversion price was $.0255 per share in a transaction deemed to be exempt
      under Section 4(2) of the Securities Act of 1933 as a sale of securities not
      involving a public offering.





From
      April 16, 2004 through November 19, 2004, we issued 229,796,205 share of common
      stock to eight entities for the conversion of $503,240 in convertible debt
      and
      $74,237 in related interest. These transactions were deemed to be exempt under
      Section 4(2) of the Securities Act of 1933 as a sale of securities not involving
      a public offering.





On
      January 7, 2005, we issued to the Roseworth Group, Limited 37,586,563 shares
      of
      common stock for the conversion of $70,000 in principle of a convertible note
      plus $10,811.11 of related interest at $.00215 per share.


12





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








**General**


Plan
      of
      Operation





Short-term
      Objectives:





|· | Continue
              to expand revenue through organic growth of existing business
              lines;
|- | ---------------------------------------------------------------------------------------------------------

|· | Source
              and develop new talent in both male and female
              models.
|- | -----------------------------------------------------------------------------------------

|· | Seek
              additional financing so as to provide capital to rapidly growing
              components of the organization.
|- | ---------------------------------------------------------------------------------------------------------------------------------

|· | Establish
              workers compensation policy for Employment Systems, Inc. to allow rapid
              expansion of the staffing business.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------

|· | Develop
              an internal sales force to penetrate the municipality and staffing
              sector
              marketplace.
|- | ----------------------------------------------------------------------------------------------------------------------------------------




Long-term
      Objectives:





|· | Continue
              business expansion through acquisition, merger or joint venture with
              modeling agencies located in other geographic areas to provide economy
              of
              scale, incremental revenue and a larger talent
              pool;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Acquire
              complementary product lines to provide a broader service offering for
              customers, expand modeling careers and revenue
              sources.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | Develop
              new by-products for Employment Systems.
|- | -------------------------------------------------------------

|· | Seek
              strategic partners to develop a national
              footprint.
|- | ------------------------------------------------------------------------------------

|· | Explore
              the capital marketplace for venture partners to seek merger and
              acquisition candidates.
|- | ---------------------------------------------------------------------------------------------------------------------------







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 December 31, 2004 the Company’s current liabilities
      exceeded its current assets by $6,991,155, its total liabilities exceeded its
      total assets by $6,577,195, and for the period ending December 31, 2004, net
      cash used in operations was ($988,819). 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 to derive more revenues
|- | --------------------------------------------------------------------------------




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 $810,000 cash was received, 2) we have a credit line with a financial
      institution for $100,000, 3) $2,560,255 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 to apply to the acquisition of Employment
      Services, Inc., and 4) we have a secured credit line of up 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.










Year
      Ended December 31, 2004 versus Year Ended December 31, 2003





Consolidated
      revenues for the year ended December 31, 2004 ere $5,158,728 as compared to
      $1,746,075 for the same period in 2003, or an increase of $3,412,653 (195.5%).
      The increase in revenue is mainly the result of the acquisition of Employment
      Systems, Inc. which is $2,736,000 of the increase and the photography business
      which contributed $646,000 of the increase for an aggregate increase of
      $3,382,000. The remaining increase consisted of an increase of $106,000 in
      the
      commercial management business line offset by decreases in talent management
      of
      $39,000 and print revenue of $36,000.





Consolidated
      gross profit for the year ended December 31, 2004 was $1,014,674 as compared
      to
      $ 659,682 for the same period in 2003, or an increase of $354,992
      (53.8%).  This
      increase consists of $180,760 of margin derived from the acquisition of
      Employment Systems, Inc. and an increase in margins from WAMM of $174,307.




Operating
      expenses for the period ending December 31, 2004 were $3,839,331 as compared
      to
      $1,735,620 for the same period in 2003, or an increase of $2,103,711. The
      increase in operating expenses were mainly attributable to increases in:
      1)salaries and wages of $289,552 (47.6%) of which $183,415 of the increase
      is
      due to the acquisition of ESI and the remaining $106,137 attributable to
      increases in WAMM salary expense, 2) Rent of $13,835 (8.6%), 3) general and
      administrative of $867,784 (99.4%), which consisted of increases in a)
      professional fees in the aggregate of $157,598, b) consulting fees of $633,238,
      c) accounting fees of $50,686, d) office supplies of $10,600, e) computer
      maintenance of $17,100, f) consulting fees of $25,869, g) bank charges of
      $18,072, h) insurance payments of $18,075, i) miscellaneous items of $726 offset
      by doubtful accounts of $154,100, 4) business development increased $42, 150,
      5)
      impairment of goodwill of $459,713 as a result of the write down of ESI’s
      goodwill and 6) the acceleration of depreciation and amortization of $430,677,
      which included $409,968 of ESI’s customer list.





Interest
      expense was $1,907,963 for the year ended December 31, 2004 as compared to
      $562,655 for the same period in 2003, or an increase of $1,345,298 (239.1%).
      The
      increase in interest expense in 2004 was primarily due to the issuance of
      $1,053,000 of additional convertible notes and an increase in the use of our
      secured line of credit as a result of the Employments Systems, Inc.
      acquisition.





Other
      income of $80,013 increased $40,780 (103.9%) over the same period the prior,
      which was primarily due to the forgiveness of $41,780 of shareholder advances.





Our
      net
      (loss) for the current year ended December 31, 2004 was $4,656,031 as compared
      to a net loss of $1,601,006 for the year ended December 31, 2003, which is
      an
      increase of $3,055,025 or 191%. This increase in loss is mainly attributable
      to
      the increase in interest expense of $1,345,298 and the accelerated amortization
      of the customer list, equaling 409,968; the impairment of Goodwill totaling
      $459,713.




Liquidity
      and Capital Resources







Net
      cash
      used in operating activities in 2004 was ($988,819). This is a result of non
      cash adjustments to net loss of $2,863,265 plus cash adjustments in 1) unbilled
      receivables of $92,200, 2) officer advances of $28,040, 3) increase in account
      payable and accrued expenses of $211,113, 4) payables to photographers of
      $157,719, 5) increase in accrued employment service liabilities of $440,000
      and
      an increase in accrued interest on convertible debt of $225,091 offset by 1)
      and
      increase in accounts receivable trade of $231,496, 2) an increase in advances
      to
      models of $45,738, 3) increase in prepaid expenses of $8,891, 4) an increase
      in
      advances to employees of $10,750, 5) decrease in model fees payable of $41,645,
      6) decrease in model reserves of $12,696 and the net loss for the year of
      $4,656,031




Net
      cash
      provided by (used in) investing activities was $779,323. This was mainly due
      to
      the cash paid for the purchase of Employment Systems, Inc. of $750,000 plus
      purchases of property and equipment of $29,323.










Net
      cash
      provided by financing activities was $1,842,590 for the year ended December
      31,
      2004. This increase was due to 1) proceeds from advances from related parties
      of
      $497,473. 2) proceeds from issuing convertible notes of $810,000, 3) borrowings
      from secured lines of credit of $2,791,632, 4) exercise of warrants of $575,625,
      5) borrowings under bank lines of credit of $142,637, 6) proceeds from notes
      payable of $816,000, 7) advances from shareholders of $29,000, offset by 1)
      debt
      issuance costs of $119,500, 2) payments on advances from related parties of
      $467,588, 3) restricted cash of $100,000, 4) payments in convertible notes
      payable, 5) payments on secured lines of credit of $2,237,566, 6) payments
      on
      capital lease obligations of $9,797, 7) payments on notes payable of $704,172
      and 8) payment on advances from 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.





Over
      the
      next twelve months an addition of $900,000 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.





The
      following is a discussion of future cash requirements.








The
      fixed
      and ongoing expenses of WNMI are as follows:





Future
      annual maturities of convertible notes payable (including related accrued
      interest) at December 31, 2004 were as follows:


Year
                EndedDecember
                31,
            
            Amount2005
            Convertible
                Notes due on demand
            $
                3,722,0162006
            Convertible
                Notes Due in December 2005
            500,000$
                4,222,016








Accounts Payable and Accrued Liabilities





Accounts
      payable and accrued liabilities at December 31, 2004 consisted of the
      following:




2004Accounts
                payable
            $
                349,436Accrued
                liabilities
            300,227Notes
                Payable - Short Term
            61,598Notes
                payable
            1,450,000$
                2,161,261


Future
      annual minimum lease payments under operating leases with remaining lease terms
      of greater than one year are summarized as follows:












Year
                Ended**December
                31,**2005
            $19,000
                per month in rent for 12
            $
                228,000months
                - (month to month terms)$
                228,000








Fixed
      recurring Selling General and Administrative expenses would be as
      follows:





Estimated
      2005


Monthly
      Average


Salaries
      and benefits:     $75,000


Rent:             19,000
      (increased space in 2005)


Monthly
      G&A       68,454


Total
      Monthly


Fixed
      SG&A costs       
      $162,245





Estimated
      future cash requirements





WNMI’s
      estimate of net cash requirements for overhead for the next twelve months
      subsequent to June 2005, is approximately $2,984,268 (includes the above fixed
      cost estimate of $162,245 a month for a twelve total of $1,946,940. The Estimate
      of net cash inflow from operations for that time period is estimated to be
      approximately $1,065,407. Our estimated shortfall is approximately $900,000.





WNMI
      has
      generally financed operations through the sale of its common stock. In order
      to
      sustain operations in the near term, it is anticipated that we will need an
      additional infusion of funds of approximately $1,918,861from outside sources.
      If
      our projections over the next twelve months fall short of expectations, we
      will
      have to seek additional equity funding. If we are unable to gain access to
      such
      funding, WNMI will be forced to curtail operations until such funding is
      obtained.





Federal
      and State Income Taxes





We
      have
      not been able to remain current in our payments of federal and state tax
      obligations related to our staffing and PEO Operations. We are working with
      the
      Internal Revenue Service and State Agencies to resolve these issues and
      establish repayment plans. If we are not able to establish repayment plans
      that
      allow us to continue our operations we may be forced to cease doing business
      in
      the Staffing PEO marketplace. The amount due as of December 31, 2004 is $442,929
      for federal and $86,778 to the states. In addition, due to our delinquency,
      we
      are not in compliance with contractual obligations with certain of our
      customers.




**Subsequent
      events:**





1)
      In
      February 2005, the following investors modified the terms of their April 29,
      2004 convertible notes in order to provide funds to WNMI. The due date and
      conversion discount percentage remain the same.





Remaining
            
            
            15%
                penaltyInvestors
            Original
            Note
            Modification
            
            on
            New
                Note BalancesBalance
            Balances
            Fee
                Allocation
            
            Old
                balanceAlpha
                Capital Aktiengesellschaft (1)
            $650,000
            $486,955
            $32,080
            
            97,500
            **779,580**Longview
                Fund LP (2)
            $130,000
            $83,836
            $5,523
            
            19,500
            **155,023**Ellis
            $130,000
            $112,300
            $7,398
            
            19,500
            **149,500**Steve
                “Sagi” Adirim
            $143,000
            $91,058
            $5,999
            
            21,450
            **170,449**Total
            $1,053,000
            $774,149
            $51,000
            
            $157,950
            **$1,254,552**










2)
      In
      February, WNMI agreed to change a $100,000 six month promissory note issued
      to
      Mercator Momentum Fund, LP on May 15, 2003 into a two year, 10% per annum,
      convertible note on February 9, 2005. The convertible note was issued for
      $138,291 which consisted of principle and interest due on the promissory note.
      The note is convertible into common shares at seventy per cent of the market
      price on the date of conversion,





3)
      On
      June 8, 2005, LH Financial Funded $25,000 to WNMI. A convertible note will
      be
      issued with the same terms as the convertible notes issued on April 29,
      2004.





**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.





Going
      Concern





The
      accompanying financial statements have been prepared in conformity with
      generally accepted accounting principles, which contemplate continuation of
      the
      Company as a going concern. However, the Company has experienced net losses
      of
      $4,656,031 and $1,601,006 for the years ended December 31, 2004 and 2003,
      respectively. The Company also had a net working deficit of $6,991,155 and
      $2,299,114 for the years ended December 31, 2004 and 2003 respectively.
      Additionally, the Company must raise additional capital to meet its working
      capital needs. These factors raise substantial doubt about the Company’s ability
      to continue as a going concern. In view of the matters described above,
      recoverability of a major portion of the recorded asset amounts shown in the
      accompanying balance sheet is dependent upon the Company’s ability to generate
      sufficient sales volume to cover its operating expenses and to raise sufficient
      capital to meet its payment obligations. The financial statements do not include
      any adjustments relating to the recoverability and classification of recorded
      asset amounts, or amounts and classification of liabilities that might be
      necessary should the Company be unable to continue in existence.





Management
      has previously relied on equity financing sources and debt offerings to fund
      operations. The Company's reliance on equity and debt financing will continue,
      and the Company will continue to seek to enter into strategic acquisitions.
      Management has obtained additional capital through debt offerings subsequent
      to
      December 31, 2004.







Management
      raised an additional $810,000 in debt financing in May 2004 and the Company
      has
      previously relied on equity financing sources and debt offerings to fund
      operations. The Company's reliance on equity and debt financing will most likely
      continue in the short term.







**ITEM
      7. Financial Statements**





The
      report of independent auditors and financial statements are set forth in this
      report beginning on Page F-1.










**ITEM
      8. Changes in and Disagreements with Accountants on Auditing and Financial
      Disclosures**





On
      January 31, 2003, the Registrant changed its principal independent accountants
      from Freeman & Davis LLP, 225 West 34 th Street,
      Suite 320, New York, NY 10122 to Pohl, McNabola, Berg & Co., LLP, 50
      Francisco Street, Suite 120, San Francisco, CA, 94133. Freeman & Davis LLP
      was dismissed and the decision to change accountants was approved by the Board
      of Directors and audit committee.





The
      reports of Freeman & Davis LLP on the financial statements for the two years
      ended December 31, 2001 and 2000 and through the third quarter ended September
      30, 2002, and through the date of dismissal of January 31, 2003, contained
      no
      adverse opinions or disclaimers or were qualified as to audit review scope,
      or
      accounting principles, except that a going concern uncertainty was included
      in
      such reports.





During
      the Registrant's two years ended December 31, 2001 and 2000 and through the
      third quarter ended September 30, 2002, and through the date of dismissal of
      January 31, 2002, there were no disagreements with Freeman & Davis LLP on
      any matter of accounting principles or practices, financial statement
      disclosure, or auditing review scope or procedures, which disagreements, if
      not
      resolved to the satisfaction of the former accountant, would have caused it
      to
      make a reference to the subject matter of the disagreements in connection with
      its report.





During
      the Registrant’s two fiscal years ended December
      31, 2001 and 2000 and through the third quarter ended September 30, 2002, and
      through the date of dismissal of January 31, 2003, the
      Registrant did not consult with Pohl,
      McNabola, Berg & Co., LLP regarding any of the matters or events set forth in Item 304 (a)(2) of
      Regulations S-B.





**ITEM
      8A.**  **Controls
      and Procedures.**





(a)       
      Our Chief Executive Officer and Chief Financial Officer have evaluated the
      effectiveness of our disclosure controls and procedures (as such term is defined
      in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended
      (the “Exchange Act”)) as of the end of the period ended December 31, 2004, (the
“Evaluation Date”). Based on such evaluation, such officers have concluded that,
      as of the Evaluation Date, our disclosure controls and procedures are effective
      in alerting them on a timely basis to material information relating to our
      Company (including our consolidated subsidiaries) required to be included in
      our
      reports filed or submitted under the Exchange Act except for the limitations
      discussed below.





(b)        Changes in Internal
      Controls over
      Financial Reporting. During the last fiscal quarter (fourth quarter) of the
      most
      recent fiscal year, there have not been any significant changes in our internal
      controls over financial reporting or in other factors that have materially
      affected, or are reasonably likely to materially affect, our internal controls
      over financial reporting.





Limitations
      on the Effectiveness of Internal Controls





Our
      management does not expect that our disclosure controls and procedures or our
      internal control over financial reporting will necessarily prevent all fraud
      and
      material error. An internal control system, no matter how well conceived and
      operated, can provide only reasonable, not absolute, assurance that the
      objectives of the control system are met. Further, the design of a control
      system must reflect the fact that there are resource constraints, and the
      benefits of controls must be considered relative to their costs. We have had
      internal control issues in billing which affects our ability to manage control
      in several areas such as accounts receivable and inventory. This issue has
      been
      a result of employee turnover in our accounting area at both the subsidiary
      level and the corporate level. In addition, we made a major acquisition which
      we
      feel had certain critical areas not discloses and the transaction is currently
      in litigation. These situations have put an additional burden on our internal
      controls, especially in regards to reporting. These matters will be addressed
      to
      the best of our ability in the future.





**Item
      8B.**  **Other
      Information.**





None





18





**Part
      III**





**Item
      9. Directors, Executive Officers, Promoters And Control Persons: Compliance
      With
      Section 16(A) Of The Exchange Act**





Name
            Age
            Position
                with Company
            SinceSteven
                Chamberlin
            41
            Director
                and Managing Partner of Warning Model Management, LLC.
            January
                29, 2003Stanley
                Tepper *
            59
            Chief
                Financial Officer, and Principal Accounting Officer
            January
                29, 2003Brian
                Bonar
            56
            Director,
                New Chief executive Officer and Principal Accounting Officer
            February
                4, 2004John
                Capezzuto
            57
            Director
            May
                , 2004Randall
                Jones
            50
            Chief
                Financial Officer
            January,
                2005





*
      Mr.
      Tepper resigned December 31, 2004





Steven
      Chamberlin: Stephen Chamberlin was appointed Director of Famous Fixins on
      January 29, 2003. Mr. Chamberlin founded and has been the Managing Partner
      of
      Warning Model Management, LLC, (“WMM”) since 1998. Mr. Chamberlin co founded and
      ran NY Models from 1996 through 1998 and prior to that he was involved in the
      development and administration of LA Models. Mr. Chamberlin was involved as
      a
      founder or senior manager in various modeling agencies since 1979. In 1984,
      Mr.
      Chamberlin earned a Bachelor of Law from the University of New South Wales
      in
      Sidney Australia.





Stanley
      Tepper: Mr. Tepper was appointed the Chief Financial Officer in January 2003.
      At
      present, Mr. Tepper is also the Chief Financial Officer of Family Room
      Entertainment Corporation since March 2000. Mr. Tepper has held senior
      management positions with such entities since February, 1998 through March
      2000
      Mr. Tepper was Controller of Operations for Time/Warner/Village Roadshow
      Pictures joint venture , Prior to that Mr. Tepper has over 30 years of
      experience as senior management in accounting and finance , principally in
      the
      entertainment industry such entities as Time/Warner/Orion Pictures joint
      venture, Satori Film, ALMI Distribution/RKO Warner Theaters, and the Cannon
      Group, Inc. Mr. Tepper began his career with Price Waterhouse, New York. He
      earned a BS degree from Southeastern University of Washington, DC with a major
      in accounting and minor in computer methodology.





Brian
      Bonar: Mr. Bonar was appointed Director and Chief Executive Officer on February
      4, 2004. Brian Bonar is currently serving as a director of Imaging Technologies
      Corporation (“IMTO”) since August 1995 and became IMTO's Chairman of the Board
      in December 1999. From August 1992 through April 1994, Mr. Bonar served as
      the
      IMTO’s Director of Technology Sales and from April 1994 through September 1994
      as the IMTO’s Vice President, Sales and Marketing. In September 1994, Mr. Bonar
      became the IMTO’s Executive Vice President and, in July 1997, was appointed as
      the IMTO’s President and Chief Operating Officer. In April 1998 Mr. Bonar
      assumed the post of CEO. From 1991 to 1992, Mr. Bonar was Vice President of
      Worldwide Sales and Marketing for Bezier Systems, Inc., a San Jose,
      California-based manufacturer and marketer of laser printers. From 1990 to
      1991,
      he was Worldwide Sales Manager for Adaptec, Inc., a San Jose-based laser printer
      controller developer. From 1988 to 1990, Mr. Bonar was Vice President of Sales
      and Marketing for Rastek Corporation, a laser printer controller developed
      located in Huntsville, Alabama. From 1984 to 1988, Mr. Bonar was employed as
      Executive Director of Engineering at QMS, Inc., an Alabama-based developer
      and
      manufacturer of high-performance color and monochrome printing solutions. Prior
      to these positions, Mr. Bonar was employed by IBM, U.K. Ltd. for approximately
      17 years.





John
      Capezzuto. Mr. Capezzuto was appointed a director in May 2004. Mr. Capezzuto
      currently serves on the BOD of Quik Pix Inc. Mr. Capezzuto was also one of
      the
      founders, and past President of QPI. Mr. Capezzuto's employment history includes
      various managerial positions in New York-based photograph


19


labs.
      He
      has also had extensive experience in Point-of-purchases displays and trade
      shows
      exhibit building. Over the last twelve years, he has been on the board of
      directors for the following private, and public, corporations: Exhibitronix
      Inc., Modular Display Systems, Inc., Tabery Corporation, Delta Transport, and
      American Distributing Company.





Randall
      Jones. Mr. Jones was appointed Chief Financial Officer on January 1, 2005.
      Over
      25 years experience in financial and accounting management, with the last 20
      as
      Chief Executive Officer of South Coast Corporate Development. A firm
      specializing in corporate accounting reorganzations on publicly held companies.
      Prior to his position at South Coast he worked in public accounting for a Big
      4
      firm.





Each
      director holds office for a one-year term or until his successor has been
      elected and qualified at the annual meeting of the Company's shareholders.
      The
      members of the Board of Directors serve without remuneration for service on
      the
      board. Corporate officers are appointed by the Board of Directors and serve
      at
      the discretion of the Board.





The
      Company has no standing audit, nominating or compensation committee. During
      the
      period from January 1, 2003 (end of last fiscal year of Warning Model
      Management, Inc.) to December 31, 2003, there was no Board meetings that wer
      held.





Compliance
      with Section 16(a) of the Securities Exchange Act of 1934





Section
      16(a) of the Securities Exchange Act of 1934 requires the Company’s directors
      and executive officers, and persons who own more than 10% of a registered class
      of the Company’s equity securities to file with the Securities and Exchange
      Commission initial reports of ownership and reports of changes in ownership
      of
      Common Stock and other equity securities of the Company. Officers, directors
      and
      greater than 10% shareholders are required by SEC regulations to furnish the
      Company with copies of all Section 16(a) forms they file.





To
      the
      Company’s knowledge, based solely on its review of the copies of such reports
      furnished to the company and written representations that no other reports
      were
      required during the fiscal year ended December 31, 2003, all Section 16(a)
      filing requirements applicable to its officers, directors and greater than
      10%
      beneficial owners were complied with.





January
      1, 2004 to December 31, 2004 all filing requirements applicable to Reporting
      Persons were complied with.





Code
      of Ethics for the Chief Executive Officer and the Principal Financial
      Officer





On
      September 7, 2004, the Board of Directors of the Company adopted the Code of
      Ethics for Chief Executive Officer and the Principal Financial Officer, which
      is
      included in Item 13 as an exhibit.




















**ITEM
      10. Executive Compensation**





The
      following table discloses the compensation paid to Warning Management Services,
      Inc.'s executive officers during the period November 13, 2002 to December 31,
      2004:





**Summary
      Compensation Table**





Executive
      Compensation :


Payouts
            Annual
                Compensation
            Long
                Term Compensation Awards(a)
            (b)
            (c)
            (d)
            (e)
            (f)
            (g)
            (h)
            (i)Name
                and Principal Position
            Year
            Salary
            Bonus
            Other
                Annual Compensation ($)
            Restricted
                Stock Awards ($)
            Securities
                Underlying Options/SAR (#)
            LTIP
                Payouts ($)
            All
                Other Compensation ($)Brian
                Bonar
              CEO
            2004
            $
                0
            $0
            $0
            $0
            0
            $0
            $0Steven
                Chamberlin
            2004
            120,000
            $0
            $0
            $0
            0
            $0
            $0COO
            2003
            $58,000
            $0
            $0
            $0
            0
            $0
            $02002
            $50,000
            $0
            $0
            $0
            0
            $0
            $0Stanley
                * Tepper
            2004
            $
                0
            $0
            $0
            $0
            0
            $0
            $02003
            $
                0
            $0
            $0
            $0
            0
            $0
            $02002
            $
                0
            $0
            $0
            $0
            0
            $0
            $0Randall
                Jones - CFO
            2004
            $
                0
            $0
            $0
            $0
            0
            $0
            $0





***
      Mr. Tepper resigned December 31, 2004**





**OPTIONS
      GRANTED IN LAST FISCAL YEAR**





No
      options to purchase Common Stock of the Company have been granted to the
      Company's executive officers.




**FISCAL
      YEAR-END OPTION EXERCISES AND OPTION VALUES**





No
      options to purchase Common Stock of the Company have been granted to the
      Company's executive officers.





**EMPLOYEE
      COMPENSATION**





We
      do not
      yet have a compensation committee that approves or offers recommendations on
      compensation for our employees.


21





**ITEM
      11. Security Ownership of Certain Beneficial Owners and Management**





The
      following table sets forth certain information known to the Company with respect
      to the beneficial ownership of the Company’s common stock as of March 31,, 2004
      by (i) each person who is known by the Company to own beneficially more than
      5%
      of the Company's common stock, (ii) each of the Company's directors and
      executive officers, and (iii) all officers and directors of the Company as
      a
      group. Except as otherwise listed below, the address of each person is c/o
      Warning Model Management, INC. 9440 Santa Monica Blvd. $400 Beverly Hills,
      CA
      90210.





Name
                and Address of Beneficial OwnerClass
            
            Number
                ofShares
            
            PercentOwned
                (1)Steve
                Chamberlin
              Director
                and Managing Member of WAMM
            
            1,725,462
            
            0%





(1)
      Except as pursuant to applicable community property laws, the persons named
      in
      the table have sole


voting
      and investment power with respect to all shares of common stock beneficially
      owned. The total


number
      of
      issued and outstanding shares of 840,532,352 and the total number of shares
      owned by


each
      person is calculated as of April 5, 2005.





**ITEM
      12. Certain Relationships and Related Transactions**





Dalrada
      Financial Corporation





Dalrada
      Financial Corporation (Dalrada), an entity who’s CEO and Chairman, Brian Bonar
      is also the Company’s CEO and Chairman of the board of directors. Additionally,
      Dalarada’s CFO, Randall Jones is also the Company’s CFO. An officer of Quik Pix,
      Inc., a majority owned subsidiary of Dalrada, is a member of our Board of
      Directors. The following is a summary of significant transactions with Dalrada.
      ESI pays Dalarada a fee of 5% of gross revenue





Company’s
      Corporate Services Agreement with Dalrada Financial Corporation





The
      Company has a corporate services agreement with Dalrada. 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 $135,152 for the twelve months ended
      December 31, 2004. The Company had no such agreement in 2003. The Corporate
      Services Agreement is a two year agreement,  Dalrada
      Financial Corporation is a guarantor for the $750,000 note payable issued to
      the
      seller 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.





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 $15,180 to Source One Group in administrative fees during
      2004. These fees are commensurate with the industry. Subsequent to the
      acquisition of ESI on September 8, 2004, all payroll processing functions of
      the
      Warning Model Management payroll were handled by ESI.





Transactions
      with shareholders





A
      shareholder has advanced an additional $29,000 to the Company during the year
      ended December 31, 2004. The Company has repaid $60,625 of shareholder advances
      as of December 31, 2004, and a shareholder forgave an additional $41,780. These
      shareholder advances bear an interest rate of 10% per annum, and are due on
      demand.





As
      of
      December 31, 2004 and 2003, shareholders advances total $40,383 and $113,788,
      which are due on demand and bear 10% interest per annum.










**ITEM
      13. Exhibits and Reports on Form 8-K.**





(a)
      Exhibits





Exhibit


Number    Description





(a)
            Exhibits14.1
            Code
                of Ethics31.1
            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 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 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:





Form
      8-K
      filed under date of January 7, 2003 with respect to Items 2 and 7.


Form
      8-K
      filed under date of February 11, 2003 with respect to Items 4 and
      7.


Form
      8-K/A amendment to Form 8-K filed March 3, 2003 with respect to Items 4 and
      7.


Form
      8-K
      filed under date of May 23, 2003 with respect to Items 5 and 7.


Form
      8-K
      filed under date of February 19, 2004 with respect to Items 5, 6, and
      7.


Form
      8-K
      filed under date of July 27, 2004 with respect to Item 5.


Form
      8-K
      filed under date of September 27, 2004 with respect to Items 2.01 and
      9.01.




**ITEM
      14.**  **Principal
      Accountant Fees and Services**





The
      Company paid or accrued the following fees in each of the prior two fiscal
      years
      to its independent certified public accountants, Pohl, McNabola, Berg & Co.,
      LLP:








**For
                the Year Ended December 31,****2004**
            **2003****Audit
                Fees**
            **70,000**
            **27,500****Audit-Related
                Fees**
            **53,023**
            **25,378****Tax
                Fees**
            **4,238**
            **6,700****All
                Other Fees**
            **3,252**
            **4,791****Total
                Fees**
            **130,513**
            **64,369**





**"Audit
      Fees" consisted of fees billed for services rendered for the audit of the
      Company’s annual financial statements and for review of the financial statements
      included in the Company’s quarterly reports on Form
      10-QSB.**





23








**SIGNATURES**





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





**Warning
      Management Services, Inc.**





/s/
                Brian Bonar
              ------------------
              Brian
                Bonar, CEO and Director





Dated:
      June 15, 2005





In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the Registrant and in the capacities on the
      dates
      indicated:








/s/  Brian
      Bonar      June
      15,
      2005


Brian
      Bonar Chief Executive Officer,


Principal
      Financial Officer and Director








/s/  Randall
      Jones  June
      15,
      2005


Randall
      Jones: Acting Chief Financial Officer





/s/  John
      Capezzuto  June
      15,
      2005


John
      Capezzuto: Director














24



































**Warning
      Management Services, Inc.**


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





**Consolidated
      Financial Statements**





**December
      31, 2004 and 2003**


25


**Warning
      Management Services, Inc.**


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





**Consolidated
      Financial Statements**





**December
      31, 2004 and 2003**

















**C
      O N T E N T S**














Page


Report
      of
      Independent Registered Public Accounting
      Firm F1





Consolidated
      Balance
      Sheets F2
      -
      3





Consolidated
      Statements of
      Operations F4





Consolidated
      Statements of Shareholders’ Equity
      (Deficit) F5





Consolidated
      Statements of Cash
      Flows F6
      -
      8





Notes
      to
      the Consolidated Financial
      Statements F9
      -
      39








26








**Report
      of Independent Registered Public Accounting Firm**











To
      the
      stockholders and Board of Directors of


Warning
      Management Services, Inc. and Subsidiaries








We
      have
      audited the accompanying consolidated balance sheets of Warning Management
      Services, Inc. and Subsidiaries as of December 31, 2004 and 2003, and the
      related consolidated statements of operations, stockholders’ equity (deficit)
      and cash flows for the years then ended. These consolidated financial statements
      are the responsibility of the Company’s management. Our responsibility is to
      express an opinion on these consolidated financial statements based on our
      audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Warning
      Management Services, Inc. and Subsidiaries as of December 31, 2004 and 2003,
      and
      the consolidated results of their operations and their cash flows for the year
      then ended, in conformity with U.S. generally accepted accounting principles.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 2 to the
      consolidated financial statements, the Company has incurred substantial net
      losses and utilized substantial amounts of cash in its operating activities
      over
      the past several years and as of December 31, 2004, has an accumulated deficit
      of $10,519,827 and a stockholders’ deficit of $6,577,195. These matters, among
      others, raise substantial doubt about its ability to continue as a going
      concern. Management’s plans concerning these matters are described in Note 2.
      These consolidated financial statements do not include any adjustments relating
      to the recoverability and classification of recorded assets, or the amounts
      and
      classification of liabilities that might be necessary in the event the Company
      cannot continue in existence.

















*/s/
      Pohl, McNabola, Berg and Company, LLP*


*San
      Francisco, California*


*April
      29, 2005*





























2004
            
            2003ASSETSCurrent
                AssetsCash
                and cash equivalents
            $
            74,448
            
            $
            -Restricted
                cash
            
            100,000
            
            
            -Workers’
                compensation deposit
            
            58,231
            
            
            -Accounts
                receivable, net of reserve for doubtfulaccounts
                of $173,330 and $61,332, respectively
            
            948,844
            
            
            292,746Advances
                to models, net of reserve of$120,684
                and $166,180, respectively
            
            402,675
            
            
            356,937Unbilled
                staffing revenues
            
            243,500
            
            
            -Advances
                to officer
            
            -
            
            
            28,040Advances
                to employees
            
            14,400
            
            
            3,650Prepaid
                expenses
            
            41,063
            
            
            11,628Total
                Current Assets
            
            1,883,161
            
            
            693,001Property
                and EquipmentFurniture
                and fixtures
            
            28,517
            
            
            8,168Computers
                and equipment
            
            102,540
            
            
            73,793131,057
            
            
            81,961Accumulated
                depreciation
            
            (60,162)
            
            
            (42,703)Total
                Property and Equipment
            
            70,895
            
            
            39,258Intangible
                AssetsPurchased
                contracts (net of amortization)
            
            349,895
            
            
            -Total
                Intangible Assets
            
            349,895
            
            
            -Total
                Assets
            $
            2,303,951
            
            $
            732,259








(continued)








The
            accompanying notes are an integral part of these financial
            statements.
 F-
            2
            -















2004
            
            2003LIABILITIES
                AND EQUITYCurrent
                LiabilitiesAccounts
                payable and accrued expenses
            $
            711,260
            
            $
            315,267Model
                fees payable
            
            276,698
            
            
            318,343Payable
                to photographers
            
            157,719
            
            
            -Model
                reserves
            
            27,000
            
            
            39,696Accrued
                employment service liabilities
            
            852,357
            
            
            -Advances
                - related parties
            
            29,885
            
            
            -Line
                of credit
            
            151,087
            
            
            50,979Notes
                payable
            
            1,450,500
            
            
            588,672Advances
                from shareholders
            
            40,383
            
            
            113,788Accrued
                interest - convertible debentures
            
            232,987
            
            
            220,454Income
                taxes payable
            
            8,060
            
            
            7,060Current
                portion - capital leases
            
            10,914
            
            
            9,797Secured
                lines of credit
            
            703,450
            
            
            149,384Convertible
                debentures
            
            4,222,016
            
            
            1,178,675Total
                Current Liabilities
            
            8,874,316
            
            
            2,992,115Long
                Term LiabilitiesConvertible
                debentures
            
            -
            
            
            434,329Convertible
                notes payable to shareholders
            
            -
            
            
            2,560,225Capital
                leases
            
            6,830
            
            
            17,653Total
                Long Term Liabilities
            
            6,830
            
            
            3,012,207Total
                Liabilities
            
            8,881,146
            
            
            6,004,322EquityCommon
                stock - 2,000,000,000 authorized, par value $0.001,785,524,189
                and 92,252,810 issued and outstanding for2004
                and 2003, respectively
            
            785,524
            
            
            92,253Additional
                paid-in capital
            
            3,157,108
            
            
            499,480Accumulated
                deficit
            
            (10,519,827)
            
            
            (5,863,796)Total
                Equity
            
            (6,577,195)
            
            
            (5,272,063)Total
                Liabilities and Equity
            $
            2,303,951
            
            $
            732,259





The
            accompanying notes are an integral part of these financial
            statements.
 F-
            3
            -










2004
            
            2003RevenuesModeling
                revenue
            $
            2,422,662
            
            $
            1,746,075Staff
                leasing revenue
            
            2,734,236
            
            
            -PEO
                revenue
            
            1,830
            
            
            -Total
                Revenues
            
            5,158,728
            
            
            1,746,075Cost
                of SalesModeling
                cost of sales
            
            (1,588,753)
            
            
            (1,086,393)Staff
                leasing cost of sales
            
            (2,555,301)
            
            
            -Total
                Cost of Sales
            
            (4,144,054)
            
            
            (1,086,393)Gross
                Margin
            
            1,014,674
            
            
            659,682Operating
                ExpensesSalaries
                and wages
            
            898,391
            
            
            608,839Rent
            
            174,840
            
            
            161,005General
                and administrative
            
            1,740,937
            
            
            873,153Business
                development
            
            115,334
            
            
            73,184Impairment
                of goodwill
            
            459,713
            
            
            -Depreciation
                and amortization
            
            450,116
            
            
            19,439Total
                Operating Expenses
            
            3,839,331
            
            
            1,735,620Net
                Loss from Operations
            
            (2,824,657)
            
            
            (1,075,938)Other
                Income (Expense)Interest
                income
            
            182
            
            
            843Other
                income
            
            80,013
            
            
            39,233Interest
                expense
            
            (1,907,963)
            
            
            (562,665)Other
                expense
            
            (165)
            
            
            (499)Total
                Other Income (Expense)
            
            (1,827,933)
            
            
            (523,088)Net
                Loss Before Income Taxes
            
            (4,652,590)
            
            
            (1,599,026)Provision
                for Income Taxes
            
            (3,441)
            
            
            (1,980)Net
                Loss
            $
            (4,656,031)
            
            $
            (1,601,006)Net
                loss per share - basic
            $
            (0.01)
            
            $
            (0.02)Net
                loss per share - diluted
            $
            (0.01)
            
            $
            (0.02)Number
                of share used in calculation - basic
            
            507,856,898
            
            
            75,860,170Number
                of share used in calculation - diluted
            
            507,856,898
            
            
            75,860,170








The
            accompanying notes are an integral part of these financial
            statements.
 F-
            4
            -


















AdditionalCommon
                Stock
            
            Paid-In
            
            AccumulatedShares
            
            Amount
            
            Capital
            
            Deficit
            
            TotalBalance,
                December 31, 2002
            44,673,834
            
            $
            44,674
            
            $
            97,235
            
            $
            (4,262,790)
            
            $
            (4,120,881)Common
                stock issued for compensation
            25,250,000
            
            
            25,250
            
            
            282,250
            
            
            -
            
            
            307,500Conversion
                of notes payable
            16,328,976
            
            
            16,329
            
            
            44,171
            
            
            -
            
            
            60,500Warrant
                issuance
            -
            
            
            -
            
            
            33,824
            
            
            -
            
            
            33,824Exercise
                of warrants
            6,000,000
            
            
            6,000
            
            
            42,000
            
            
            -
            
            
            48,000Net
                loss
            -
            
            
            -
            
            
            -
            
            
            (1,601,006)
            
            
            (1,601,006)Balance,
                December 31, 2003
            92,252,810
            
            $
            92,253
            
            $
            499,480
            
            $
            (5,863,796)
            
            $
            (5,272,063)Common
                stock issued for services
            7,200,000
            
            
            7,200
            
            
            47,800
            
            
            -
            
            
            55,000Conversion
                of notes payable and interest
            586,571,379
            
            
            586,571
            
            
            751,328
            
            
            -
            
            
            1,337,899Warrant
                issuance
            -
            
            
            -
            
            
            690,500
            
            
            -
            
            
            690,500Exercise
                of warrants
            99,500,000
            
            
            99,500
            
            
            1,168,000
            
            
            -
            
            
            1,267,500Net
                loss
            -
            
            
            -
            
            
            -
            
            
            (4,656,031)
            
            
            (4,656,031)Balance,
                December 31, 2004
            785,524,189
            
            $
            785,524
            
            $
            3,157,108
            
            $
            (10,519,827)
            
            $
            (6,577,195)





The
            accompanying notes are an integral part of these financial
            statements.
 F-
            5
            -
















December
                31, 2004
            
            December
                31, 2003Operating
                Activities:Net
                Loss
            
            $
            (4,656,031)
            
            $
            (1,601,006)Adjustments
                to reconcile loss to net cashprovided
                by (used in) operating activities:Depreciation
                and amortization
            
            
            450,116
            
            
            19,439Stock-based
                compensation
            
            
            -
            
            
            307,500Common
                stock issued for services
            
            
            55,000
            
            
            -Bad
                debt
            
            
            60,241
            
            
            122,910Expense
                on warrants granted
            
            
            691,875
            
            
            -Bond
                and warrant discount amortization
            
            
            1,207,714
            
            
            244,060Impairment
                of intangible assets
            
            
            459,713
            
            
            -Loss
                on disposal of assets
            
            
            -
            
            
            3,579Gain
                on forgiveness of debt
            
            
            (63,063)
            
            
            -Other
            
            
            1,669
            
            
            (902)Changes
                in operating assets and liabilities:(Increase)/decrease
                in accounts receivable - trade
            
            
            (231,496)
            
            
            42,167Decrease
                in unbilled receivables
            
            
            92,200
            
            
            -Increase
                in advances to models
            
            
            (45,738)
            
            
            (62,704)Increase
                in prepaid expenses
            
            
            (8,891)
            
            
            (8,894)Increase
                in advances to employees
            
            
            (10,750)
            
            
            (3,650)Decrease
                in officer advances
            
            
            28,040
            
            
            -Increase/(decrease)
                in accounts payable and accrued expenses
            
            
            211,113
            
            
            (139,948)Decrease
                in model fees payable
            
            
            (41,645)
            
            
            (1,603)Increase
                in payable to photographers
            
            
            157,719
            
            
            -Increase/(decrease)
                in model reserves
            
            
            (12,696)
            
            
            12,741Increase
                in accrued employment service liabilities
            
            
            440,000
            
            
            -Increase
                in income taxes payable
            
            
            1,000
            
            
            1,900Increase
                in accrued interest on convertible debt
            
            
            225,091
            
            
            202,937Net
                cash used in operating activities
            
            
            (988,819)
            
            
            (861,474)Investing
                activities:Cash
                paid for purchase of ESI
            
            
            (750,000)
            
            
            -Purchases
                of property and equipment
            
            
            (29,323)
            
            
            (3,762)Net
                cash used in investing activities
            
            
            (779,323)
            
            
            (3,762)











(continued)








The
            accompanying notes are an integral part of these financial
            statements.
 F-
            6
            -
















December
                31, 2004
            
            December
                31, 2003(unaudited)
            
            (unaudited)Financing
                activities:Debt
                issuance costs
            
            (119,500)
            
            
            -Proceeds
                from advances from related parties
            
            361,135
            
            
            -Payments
                on advances from related parties
            
            (331,250)
            
            
            -Restricted
                cash
            
            (100,000)
            
            
            -Proceeds
                from convertible notes payable
            
            810,000
            
            
            50,000Payments
                on convertible notes payable
            
            (78,000)
            
            
            -Borrowings
                from secured lines of credit
            
            2,791,632
            
            
            789,947Payments
                on secured lines of credit
            
            (2,237,566)
            
            
            (1,007,963)Exercise
                of warrants
            
            575,625
            
            
            48,000Payments
                on capital lease obligation
            
            (9,797)
            
            
            (7,015)Borrowings
                under bank lines of credit
            
            142,637
            
            
            10,134Payments
                under bank lines of credit
            
            (42,529)
            
            
            (10,077)Proceeds
                from notes payable
            
            816,000
            
            
            545,000Payments
                on notes payable
            
            (704,172)
            
            
            (118,000)Advances
                from shareholders
            
            29,000
            
            
            108,788Payments
                on advances from shareholders
            
            (60,625)
            
            
            (47,000)Net
                cash provided by (used in) financing activities
            
            1,842,590
            
            
            361,814Increase
                (Decrease) in cash and cash equivalents
            
            74,448
            
            
            (503,422)Cash
                and cash equivalents, beginning of period
            
            -
            
            
            503,422Cash
                and cash equivalents, end of period
            $
            74,448
            
            $
            -Supplemental
                disclosures of cash flow information:Cash
                paid during the period forInterest
            $
            182,685
            
            $
            29,895Taxes
            $
            5,263
            
            $
            7,542Supplemental
                schedule of non-cash financing activities:Value
                of convertible benefit feature on convertible debt
            $
            230,500
            
            $
            8,824Conversion
                of debt and interest to common stock
            $
            1,337,899
            
            $
            60,500Common
                stock issued for services
            $
            55,000
            
            $
            307,500Fair
                value of warrants issued with notes payable
            $
            460,000
            
            $
            25,000Expense
                recognized on warrants/options granted
            $
            691,875
            
            $
            -Disposal
                of equipment
            $
            -
            
            $
            20,775Acquisition
                of ESI financed with debt to the seller
            $
            750,000
            
            $
            -








(continued)








The
            accompanying notes are an integral part of these financial
            statements.
 F-
            7
            -







In
      September 2004, the Company acquired Employment Systems, Inc. for $750,000
      in
      cash and a note payable for $750,000





Accounts
                receivable acquired in transaction
            $
            484,482Unbilled
                receivables
            
            335,700Prepaid
                expenses
            
            20,544Property
                and equipment, net of accumulated depreciation
            
            5,654Workers'
                compensation deposit
            
            58,231Goodwill
            
            468,266Client
                list
            
            774,000Accounts
                payable and accrued expenses
            
            (234,520)Accrued
                employment service liabilities
            
            (412,357)Cash
                paid
            
            (750,000)Note
                payable
            
            (750,000)$
            -








The
            accompanying notes are an integral part of these financial
            statements.
 F-
            8
            -


**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”). In August 2004, at the annual shareholders
      meeting, the shareholders approved to change the Company’s name to Warning
      Management Services, Inc., from Warning Model Management, Inc., and to increase
      the authorized shares of common stock from 800 million to 2 billion.





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.





Effective
      September 8, 2004, the Company purchased a 100% interest in Employment Systems,
      Inc (“ESI”), a California corporation, from Berryman & Henigar Enterprises,
      a Nevada corporation. ESI is located in San Diego, California. The purchase
      price was $1.5 million.





ESI
      provides temporary staffing services, professional employer services and
      business processing services to municipalities and small businesses principally
      in Southern California. ESI also provides a variety of financial services to
      small and medium-size businesses, including: benefits and payroll
      administration, health and workers’ compensation insurance programs, personnel
      records management, employer liability management, full time and temporary
      staffing services.





The
      acquisition of ESI was accounted for under the purchase method, and the
      operating results of ESI beginning September 8, 2004 are included in the
      accompanying consolidated statements of operations.








*History*





Prior
      to
      December 27, 2002, Warning Management Services, Inc., (“the Company” or “WNMI”),
      was known as Famous Fixins, Inc. (“FIXN”), and 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 products brokers to distribute its products
      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, a California
      limited liability company.










**1.**  **Summary
      of Significant Accounting Policies (continued)**





A.  General
      Description of Business (continued)





*History
      (continued)*





In
      March
      2003, the Company has filed a Proxy Statement with the Securities Exchange
      Commission (SEC) and changed its name to Warning Model Management, Inc., and
      increased the authorized shares from 200 million to 800 million.





Warning
      Model Management, LLC, was established in September 1998 to provide 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 WNMI being one of Los Angeles’s premier model management
      companies.








B.  Basis
      of Presentation and Organization








These
      audited consolidated financial statements represent the financial activity
      of
      Warning Management Services, Inc., and its subsidiaries. The consolidated
      financial statements for the years ended December 31, 2004 and 2003 have been
      prepared in accordance with generally accepted accounting principles in the
      US.
      The financial statements and notes are representations of the management and
      the
      Board of Directors, who are responsible for their integrity and objectivity.








*Consolidation
      Policy*





The
      accompanying consolidated financial statements include the accounts of the
      Company and its two wholly-owned operating subsidiaries, WAMM and ESI, after
      elimination of all material inter-company accounts, transactions and profits.








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.










**1.**  **Summary
      of Significant Accounting Policies (continued)**





C.  Cash
      and Cash Equivalents (continued)





*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 as of
      December 31, 2004 and 2003.








D.  Property
      and Equipment





Property
      and equipment are recorded at cost less accumulated depreciation and
      amortization. Maintenance and minor replacements are charged to expense as
      incurred. Renewals and improvements that extend the useful lives of the assets
      are capitalized and added to the property and equipment. Gains and losses on
      disposals are included in the results of operations.





Depreciation
      and amortization are provided using the straight-line method over estimated
      useful lives of the respective assets as follows:





Office
                furniture and fixtures
            5-7
                yearsComputer
                and office equipment and software
            3
                yearsLeasehold
                improvements
            4
                years (lease term)





Amortization
      of leasehold improvements is computed using the straight-line method over the
      lesser of the asset life or the life of the respective lease.





The
      cost
      and related accumulated depreciation of all property and equipment retired
      or
      otherwise disposed of are removed from the accounts. Any gain or loss is
      recognized in the current period. Various accelerated methods are used for
      tax
      purposes.








*Assets
      Held under Capital Leases*





Assets
      held under capital leases are recorded at the lower of the net present value
      of
      the minimum lease payments or the fair value of the leased asset at the
      inception of the lease. Amortization expense is computed using the straight-line
      method over the shorter of the estimated useful lives of the assets or the
      period of the related lease.










**1.**  **Summary
      of Significant Accounting Policies (continued)**





E.  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 the California limited liability company fee, which is
      based on the Company’s revenues. WNMI is subject to New York State and City
      franchise fees.








F.  Revenue
      Recognition





The
      Company’s revenues from are derived from the following sources.





WAMM
      has
      following three types of revenue sources.





WAMM’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.













**1.**  **Summary
      of Significant Accounting Policies (continued)**





F.  Revenue
      Recognition





ESI
      has
      the following two of the types of revenue sources:





ESI’s
      primary 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 (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.





ESI’s
      second source of revenue is from 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.





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








G.  Advertising
      Costs





All
      advertising costs are expensed as incurred. Advertising expense totaled $7,310
      and $550 for the years ended December 31, 2004 and 2003, respectively.








H.  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 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.












**1.**  **Summary
      of Significant Accounting Policies (continued)**





I.  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 three segments.








*Intangible
      Assets and Goodwill*





The
      Company follows Statement of Financial Accounting Standards No. 142 (FAS-142),
      Goodwill and Other Intangible Assets in regards to its intangible assets, which
      consist of acquired customer contracts and list and goodwill. SFAS-142 requires
      goodwill and other intangible assets that have indefinite useful lives to no
      longer be amortized; however, these assets must be tested at least annually
      for
      impairment. SFAS-142 also requires an evaluation of existing acquired goodwill
      and other intangible assets for proper classification. In addition, intangible
      assets (other than goodwill) that have finite useful lives will continue to
      be
      amortized over their useful lives. Under this standard, the Company’s goodwill
      balance is subject to at least an annual assessment for impairment by applying
      a
      fair-value-based test. Intangible assets are reviewed whenever indicators of
      impairment are present and the undiscounted cash flows are not sufficient to
      recover the related asset carrying amount.








*Impairment
      of Goodwill*





The
      Company evaluates the carrying value of goodwill during the fourth quarter
      of
      each year and between annual evaluations if events occur or circumstances change
      that would more likely than not reduce the fair value of the reporting unit
      below its carrying amount. Such circumstances could include, but are not limited
      to: (1) a significant adverse change in legal factors or in business climate,
      (2) unanticipated competition, or (3) an adverse action or assessment by a
      regulator. When evaluating whether goodwill is impaired, the Company compares
      the fair value of the reporting unit to which the goodwill is assigned to the
      reporting unit’s carrying amount, including goodwill. The fair value of the
      reporting unit is estimated using a combination of the income, or discounted
      cash flows, approach and the market approach. If the carrying amount of a
      reporting unit exceeds its fair value, then the amount of the impairment loss
      must be measured. The impairment loss would be calculated by comparing the
      implied fair value of reporting unit goodwill to its carrying amount. In
      calculating the implied fair value of reporting unit goodwill, the fair value
      of
      the reporting unit is allocated to all of the other assets and liabilities
      of
      that unit based on their fair values. The excess of the fair value of a
      reporting unit over the amount assigned to its other assets and liabilities
      is
      the implied fair value of goodwill. An impairment loss would be recognized
      when
      the carrying amount of goodwill exceeds its implied fair value. The Company’s
      evaluation of goodwill completed during the year resulted in $459,713 of
      impairment loss.










**1.**  **Summary
      of Significant Accounting Policies (continued)**





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





*Impairment
      of Identifiable Intangible Assets*





The
      Company evaluates the recoverability of identifiable intangible assets whenever
      events or changes in circumstances indicate that an intangible asset’s carrying
      amount may not be recoverable. Such circumstances could include, but are not
      limited to: (1) a significant decrease in the market value of an asset, (2)
      a
      significant adverse change in the extent or manner in which an asset is used,
      or
      (3) an accumulation of costs significantly in excess of the amount originally
      expected for the acquisition of an asset. The Company measures the carrying
      amount of the asset against the estimated undiscounted future cash flows
      associated with it. Should the sum of the expected future net cash flows be
      less
      than the carrying value of the asset being evaluated, an impairment loss would
      be recognized. The impairment loss would be calculated as the amount by which
      the carrying value of the asset exceeds its fair value. The fair value is
      measured based on quoted market prices, if available. If quoted market prices
      are not available, the estimate of fair value is based on various valuation
      techniques, including the discounted value of estimated future cash flows.
      The
      evaluation of asset impairment requires the Company to make assumptions about
      future cash flows over the life of the asset being evaluated. These assumptions
      require significant judgment and actual results may differ from assumed and
      estimated amounts. During the year ended December 31, 2004, the Company recorded
      an impairment loss of $409,968 related to customer contracts and list (see
      Note
      3).





In
      September 2004, the Company acquired ESI in a business combination accounted
      for
      as a purchase. The purchase 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 goodwill. 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.





As
      of the
      date of this filing the Company is in litigation with the former owners of
      ESI
      regarding the payment of a $750,000 note payable issued by the Company as part
      of the purchase price. The Company claims that the former owners misrepresented
      the business of ESI and therefore it is not obligated to pay the $750,000 note.
      As a result of the litigation, loss of business and continual losses from
      operations, management elected to write down the Customer List by $409,968
      and
      100% of Goodwill equaling $459,713








J.  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 the 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.





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.




**F-15**







**1.**  **Summary
      of Significant Accounting Policies (continued)**





K.  Fair
      Value of Financial Instruments





The
      carrying value of certain of the financial instruments, including accounts
      receivable, other current assets, accounts payable, notes payable and accrued
      expenses approximate fair value due to their short maturities. Based on
      borrowing rates currently available to the Company for loans with similar terms,
      the carrying value of notes payable approximates fair value.





The
      value
      attributable to a beneficial conversion feature and/or to stock purchase
      warrants issued in conjunction with convertible notes payable is amortized
      to
      interest expense over the term of the notes.








L.  Recent
      Accounting Pronouncements





In
      January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable
      Interest Entities” (an interpretation of Accounting Research Bulletin (ARB) No.
      51, Consolidated Financial Statements). Interpretation 46 addresses
      consolidation by business enterprises of entities to which the usual condition
      of consolidation described in ARB-51 does not apply. The Interpretation changes
      the criteria by which one company includes another entity in its consolidated
      financial statements. The general requirement to consolidate under ARB-51 is
      based on the presumption that an enterprise’s financial statement should include
      all of the entities in which it has a controlling financial interest (i.e.,
      majority voting interest). Interpretation 46 requires a variable interest entity
      to be consolidated by a company that does not have a majority voting interest,
      but nevertheless, is subject to a majority of the risk of loss from the variable
      interest entity’s activities or entitled to receive a majority of the entity’s
      residual returns or both. A company that consolidates a variable interest entity
      is called the primary beneficiary of that entity. In December 2003, the FASB
      concluded to revise certain elements of FIN 46, primarily to clarify the
      required accounting for interests in variable interest entities. FIN-46R
      replaces FIN-46 that was issued in January 2003. FIN-46R exempts certain
      entities from its requirements and provides for special effective dates for
      entities that have fully or partially applied FIN-46 as of December 24, 2003.
      In
      certain situations, entities have the option of applying or continuing to apply
      FIN-46 for a short period of time before applying FIN-46R. In general, for
      all
      entities that were previously considered special purpose entities, FIN 46 should
      be applied for registrants who file under Regulation SX in periods ending after
      March 31, 2004, and for registrants who file under Regulation SB, in periods
      ending after December 15, 2004. The adoption FIN-46 did not have any impact
      on
      the Company’s financial position or results of operations.





During
      April 2003, the FASB issued SFAS 149 - “Amendment of Statement 133 on Derivative
      Instruments and Hedging Activities”, effective for contracts entered into or
      modified after September 30, 2003, except as stated below and for hedging
      relationships designated after September 30, 2003. In addition, except as stated
      below, all provisions of this Statement should be applied prospectively. The
      provisions of this Statement that relate to Statement 133 Implementation Issues
      that have been effective for fiscal quarters that began prior to June 15, 2003,
      should continue to be applied in accordance with their respective effective
      dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases
      or sales of when-issued securities or other securities that do not yet exist,
      should be applied to both existing contracts and new contracts entered into
      after September 30, 2003. The adoption of SFAS 149 had no impact on the
      Company’s consolidated financial statements.












**1.**  **Summary
      of Significant Accounting Policies (continued)**





L.  Recent
      Accounting Pronouncements (continued)





During
      May 2003, the FASB issued SFAS 150 - “Accounting for Certain Financial
      Instruments with Characteristics of both Liabilities and Equity”, effective for
      financial instruments entered into or modified after May 31, 2003, and otherwise
      is effective for public entities at the beginning of the first interim period
      beginning after June 15, 2003. This Statement establishes standards for how
      an
      issuer classifies and measures certain financial instruments with
      characteristics of both liabilities and equity. It requires that an issuer
      classify a freestanding financial instrument that is within its scope as a
      liability (or an asset in some circumstances). Many of those instruments were
      previously classified as equity. Some of the provisions of this Statement are
      consistent with the current definition of liabilities in FASB Concepts Statement
      No. 6, Elements of Consolidated Financial Statements. The adoption of this
      statement had no impact on the Company’s 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 portions 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.





In
      March
      2004, the FASB approved the consensus reached on the Emerging Issues Task Force
      (EITF) Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its
      Application to Certain Investments.” The objective of this Issue is to provide
      guidance for identifying impaired investments. EITF 03-1 also provides new
      disclosure requirements for investments that are deemed to be temporarily
      impaired. In September 2004, the FASB issued a FASB Staff Position (FSP) EITF
      03-1-1 that delays the effective date of the measurement and recognition
      guidance in EITF 03-1 until after further deliberations by the FASB. The
      disclosure requirements are effective only for annual periods ending after
      June
      15, 2004. The Company has evaluated the impact of the adoption of the disclosure
      requirements of EITF 03-1 and does not believe it will have an impact to the
      Company’s overall consolidated results of operations or consolidated financial
      position. Once the FASB reaches a final decision on the measurement and
      recognition provisions, the Company will evaluate the impact of the adoption
      of
      EITF 03-1.





In
      July
      2004, the EITF issued a draft abstract for EITF Issue No. 04-08, “The Effect of
      Contingently Convertible Debt on Diluted Earnings per Share” (“EITF 04-08”).
      EITF 04-08 reflects the Task Force’s tentative conclusion that contingently
      convertible debt should be included in diluted earnings per share computations
      regardless of whether the market price trigger has been met. If adopted, the
      consensus reached by the Task Force in this Issue will be effective for
      reporting periods ending after December 15, 2004. Prior period earnings per
      share amounts presented for comparative purposes would be required to be
      restated to conform to this consensus and the Company would be required to
      include the shares issuable upon the conversion of the Notes in the diluted
      earnings per share computation for all periods during which the Notes are
      outstanding Management does not expect the implementation of this new standard
      to have a material impact on its computation of diluted earnings per share.




**F-17**







**1.**  **Summary
      of Significant Accounting Policies (continued)**





L.  Recent
      Accounting Pronouncements (continued)





In
      September 2004, the EITF delayed the effective date for the recognition and
      measurement guidance previously discussed under EITF Issue No. 03-01, “The
      Meaning of Other-Than-Temporary Impairment and Its Application to Certain
      Investments” (“EITF 03-01”) as included in paragraphs 10-20 of the proposed
      statement. The proposed statement will clarify the meaning of
      other-than-temporary impairment and its application to investments in debt
      and
      equity securities, in particular investments within the scope of FASB Statement
      No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” and
      investments accounted for under the cost method. The Company is currently
      evaluating the effect of this proposed statement on its financial position
      and
      results of operations.





In
      November 2004, the Financial Accounting Standards Board Statement issued SFAS
      No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4”, which
      clarifies the accounting for abnormal amounts of idle facility expense, freight,
      handling costs, and charges regardless of whether they meet the criterion of
“so
      abnormal” that was originally stated in Accounting Research Bulletin No. 43,
      chapter 4. In addition, SFAS No. 151 requires that the allocation of fixed
      production overheads to conversion costs be based on the normal capacity of
      the
      production facilities. SFAS No. 151 is effective for inventory costs incurred
      during fiscal years beginning after June 15, 2005. Management does not expect
      the implementation of this new standard to have a material impact on its
      financial position, results of operations and cash flows.





In
      December 2004, the FASB issued a revision to SFAS 123, “Share-Based Payment, an
      amendment of FASB Statements Nos. 123 and 95,” that addresses the accounting for
      share-based payment transactions in which a Company receives employee services
      in exchange for either equity instruments of the Company or liabilities that
      are
      based on the fair value of the Company’s equity instruments or that may be
      settled by the issuance of such equity instruments. This statement would
      eliminate the ability to account for share-based compensation transactions
      using
      the intrinsic method that the Company currently uses and generally would require
      that such transactions be accounted for using a fair-value-based method and
      recognized as expense in the consolidated statement of operations. The effective
      date of this standard is for periods beginning after June 15, 2005. The Company
      has determined that the adoption of SFAS 123R will result in the Company having
      to recognize additional compensation expense related to the options or warrants
      granted to employees, and it will have an impact on the Company’s net earnings
      in the future. This standard requires expensing the fair value of stock option
      grants and stock purchases under employee stock purchase plan.





In
      December 2004, the Financial Accounting Standards Board Statement issued SFAS
      No. 153, “Exchanges of Nonmonetary Assets - an amendment of APB Opinion No. 29”,
      which amends Opinion 29 by eliminating the exception for nonmonetary exchanges
      of similar productive assets and replaces it with a general exception for
      exchanges of nonmonetary assets that do not have commercial substance. A
      nonmonetary exchange has commercial substance if the future cash flows of the
      entity are expected to change significantly as a result of the exchange. SFAS
      No. 151 is effective for a fiscal year beginning after June 15, 2005, and
      implementation is done prospectively. Management does not expect the
      implementation of this new standard to have a material impact on its financial
      position, results of operations and cash flows.











**1.**  **Summary
      of Significant Accounting Policies (continued)**





M.  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 generally expects repayment within one year.





Advances
      to models have been reviewed by management, and the Company has recorded an
      allowance for doubtful collections of $120,684 and $166,180 for the years 2004
      and 2003, respectively.








N.  Trade
      Accounts Receivable





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.








*Unbilled
      Receivables*





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








O.  Basic
      and Diluted Net Earnings per Share





The
      Company utilizes SFAS No.128, “Earnings 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. The Company incurred a loss from
      operations and an overall net loss, thus common stock equivalents are deemed
      to
      be anti-dilutive.





The
      following common stock equivalents were excluded from the calculation of diluted
      loss per share for the year ended December 31, 2004 and 2003 since their effect
      would have been anti-dilutive:





2004
            
            2003Convertible
                debentures
            3,058,775,779
            
            3,168,633,218Options
                and warrants
            10,236,500
            
            12,920,652













**1.**  **Summary
      of Significant Accounting Policies (continued)**





P.  Accounting
      for Derivative Instruments and Hedging Activities





The
      Company has adopted Financial Accounting Standards Board Statement No. 133
      “Accounting for Derivative Instruments and Hedging Activities,” which requires
      that all derivative instruments be recorded on the balance sheet at fair value.
      The Company is currently not engaged in hedging activities nor does it have
      any
      derivative instruments, thus there is no impact on the current period’s
      financial statements








Q.  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 years ended December 31, 2004 and 2003, comprehensive income
      (loss) is equivalent to the Company’s reported net income (loss).








R.  Long-Lived
      Assets





The
      Company accounts for impairment of its long-lived assets in accordance with
      Financial Accounting Standards Board issued Statement of Financial Accounting
      Standards No. 144 (FAS-144), Accounting for the Impairment or Disposal of
      Long-Lived Assets. In accordance with SFAS 144, long-lived assets held are
      reviewed for events or changes in circumstances, which indicate that their
      carrying value may not be recoverable.





During
      the years ended December 31, 2004 and 2003, no impairment has been recorded.








S.  Reclassifications





Certain
      reclassifications have been made to the 2003 financial statements to conform
      to
      the 2004 presentation. The reclassifications did not have any impact on
      previously reported results from operations or shareholders’ deficit.








T.  Stock-Based
      Compensation - Warrants





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.










**1.**  **Summary
      of Significant Accounting Policies (continued)**





T.  Stock-Based
      Compensation - Warrants (continued)





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
      twelve months ended December 31, 2004 and 2003.





Years
                ended December 31,2004
            
            2003Net
                income (loss)As
                reported
            $
            (4,656,031)
            
            $
            (1,601,006)Fair
                value based method compensation expense
            
            -
            
            
            -Pro
                forma
            $
            (4,656,031)
            
            $
            (1,601,006)Basic
                and diluted earnings per shareAs
                reported
            $
            (0.01)
            
            $
            (0.02)Pro
                forma
            $
            (0.01)
            
            $
            (0.02)








During
      the years ended December 31, 2004, the Company granted warrants/options
      convertible into 46,700,000 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 compensation expense of
      $691,875 related to these grants. There were no options or warrants granted
      to
      employees during the period











**2.**  **Going
      Concern**





The
      accompanying financial statements have been prepared in conformity with
      generally accepted accounting principles, which contemplate continuation of
      the
      Company as a going concern. However, the Company has experienced net losses
      of
      $4,656,031 and $1,601,006 for the years ended December 31, 2004 and 2003,
      respectively. The Company also had a net working deficit of $6,991,155 and
      $2,299,114 for the years ended December 31, 2004 and 2003 respectively.
      Additionally, the Company must raise additional capital to meet its working
      capital needs. In 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. These factors
      raise substantial doubt about the Company’s ability to continue as a going
      concern. In view of the matters described above, recoverability of a major
      portion of the recorded asset amounts shown in the accompanying balance sheet
      is
      dependent upon the Company’s ability to generate sufficient sales volume to
      cover its operating expenses and to raise sufficient capital to meet its payment
      obligations. The financial statements do not include any adjustments relating
      to
      the recoverability and classification of recorded asset amounts, or amounts
      and
      classification of liabilities that might be necessary should the Company be
      unable to continue in existence.














**2.**  **Going
      Concern (continued)**





Management
      has previously relied on equity financing sources and debt offerings to fund
      operations. The Company’s reliance on equity and debt financing will continue,
      and the Company will continue to seek to enter into strategic acquisitions.
      Management has obtained additional capital through debt offerings subsequent
      to
      December 31, 2004.











**3.**  **Acquisition
      of Employment Services, Inc.**





On
      September 8, 2004, the Company acquired 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. 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 approximately $600,000 under a new credit facility. This
      transaction was accounted for by the purchase method of accounting, as required
      by SFAS No. 141, “Business Combinations,” and accordingly, the purchase price
      has been allocated to the assets acquired and the liabilities assumed based
      upon
      the estimated fair values at the date of acquisition. The Company purchased
      ESI
      to provide the Company with a consistently cash flow profitable operation.
      The
      excess purchase has been allocated to contracts and goodwill, which is being
      reviewed at the end of each reporting period for impairment of
      value.





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:





Accounts
                receivable
            $
            484,482Other
                receivables
            
            356,244Property
                and equipment
            
            5,654Customer
                list
            
            774,000Goodwill
            
            468,266Other
                assets
            
            58,231Total
                assets
            
            2,146,877Other
                current liabilities
            
            614,632Long-term
                accrued liabilities
            
            -Total
                liabilities
            
            614,632Total
                acquisition cost
            $
            1,532,245





The
      allocation of the purchase price is based on current data and could change.
      The
      Company is currently in litigation with the former owners of ESI regarding
      the
      payment of a $750,000 note payable issued by the Company as part of the purchase
      price. The Company claims that the former owners misrepresented the business
      of
      ESI and therefore it is not obligated to pay the $750,000 note. As a result
      of
      the litigation, loss of business and continual losses from operations,
      management elected to write down the Customer List by $409,968 and 100% of
      Goodwill equaling $459,713.










**3.**  **Acquisition
      of Employment Services, Inc.**





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





Years
                ended December 31,2004
            
            2003Sales
            $
            8,409,001
            
            $
            9,554,580Net
                income
            $
            (3,302,273)
            
            $
            (1,266,226)Net
                income per share - basic
            $
            (0.01)
            
            $
            (0.02)Net
                income per share - diluted
            $
            (0.01)
            
            $
            (0.02)





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.











**4.**  **Income
      Taxes**





Significant
      components of the provision for income taxes for the years ended December 31,
      2004 and 2003 are as follows:





2004
            
            2003CurrentFederal
            $
            -
            
            $
            -State
            
            (3,441)
            
            
            (1,980)(3,441)
            
            
            (1,980)DeferredFederal
            
            -
            
            
            -State
            
            -
            
            
            -Total
            $
            (3,441)
            
            $
            (1,980)





The
      tax
      provision differs from the expense that would result from applying statutory
      rates to income before income taxes due to differences in expense recognition
      between book and statutory tax accounting methods for bad debts, depreciation
      and amortization, state income taxes and benefits of operating loss
      carryforwards.











**4.**  **Income
      Taxes (continued)**





Significant
      components of the Company’s deferred tax assets and liabilities for income taxes
      consist of the following:





Federal
            
            State
            
            LocalDeferred
                tax assetNet
                operating loss carryforwards
            $
            1,962,794
            
            $
            261,802
            
            $
            46,148Bad
                debts
            
            38,468
            
            
            8,617
            
            
            1,099Total
                deferred tax asset
            $
            2,001,262
            
            $
            370,419
            
            $
            47,247Less
                valuation allowance
            $
            (2,001,262)
            
            $
            (370,419)
            
            $
            (47,247)Net
                deferred tax asset
            $
            -
            
            $
            -
            
            $
            -





At
      December 31, 2004, The Company has available approximately $6,200,000 in net
      operating loss carryforwards available to offset future federal and New York
      state income taxes, respectively, which expire through 2021. The Company has
      available approximately $5,300,000 in net operating loss carryforwards available
      to offset future California state income taxes which expire through 2015.
      Realization is dependent on generating sufficient taxable income prior to
      expiration of the loss carryforwards. This and other components of deferred
      tax
      asset accounts are described above. At December 31, 2004, the Company has
      provided a valuation allowance to reduce its net deferred tax asset to zero.
      The
      amount of the deferred tax asset considered realizable, however, can be revised
      in the near term based upon future operating conditions during the carryforward
      period.





The
      provision for income taxes consists of state franchise taxes. The expected
      combined federal and state income tax benefit of approximately 45% is reduced
      predominately by the valuation allowance applied to such benefits. The use
      of
      loss carryforwards from WNMI of approximately $1,000,000 is limited because
      of
      the change of greater than 50% in the ownership of its stock resulting from
      the
      merger.





A
      reconciliation of the provision for income tax expense with the expected income
      tax computed by applying the federal statutory income tax rate to income before
      provision for (benefit from) income taxes for the year ended December 31, 2004
      and 2003 is as follows:





2004
            
            2003Income
                tax provision (benefit) computed at federal statutory rate
            (35.00%)
            
            (35.00%)State
                and local
            (9.84%)
            
            (9.84%)Other
            1.00%
            
            1.00%Valuation
                allowance
            43.79%
            
            43.96%Effective
                tax rate
            0.05%
            
            0.12%





The
      Company incurred minimum franchise taxes in New York and California.




**5.**  **Financing
      Agreement**





Effective
      October 15, 2003, the Company has obtained a new secured lending facility from
      a
      new financial institution. The Company’s borrowings are secured by the
      underlying trade receivables. The borrowings are collateralized, with recourse,
      by certain eligible trade receivables up to a maximum percentage of 70% of
      the
      net amounts of each receivable. Under the secured borrowing program all
      collateralized receivables have full recourse. For WAMM, as receivables
      collateralized to the financial institution are collected, the Company may
      collateralize 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, its eligible trade receivables, which ESI can use up to the
      maximum line of $1,000,000. As receivables collateralized to the financial
      institution are collected, the Company may transfer additional receivables
      up to
      the discretion of the lending institution. Gross receivables transferred to
      the
      financial institution amounted to $3,988,045 and $408,202 in 2004 and 2003,
      respectively. The Company retains the right to recall collateralized receivables
      under the program, and all collateralized 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 December 31, 2004, and, 2003, are
      account balances totaling $1,004,930 and $213,406 of uncollected trade
      receivables collateralized to the financial institution under this
      agreement.











**6.**  **Lines
      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
      December 31, 2004 and 2003, $50,000 was borrowed against the line of credit.
      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
      December 31, 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 $100,000 certified deposit with the bank, which is collateralized
      against any borrowings.











**7.**  **Equity**





Shareholders’
      Meeting





At
      a
      meeting on August 5, 2004, the shareholders approved the increase in authorized
      shares of common stock from 800 million to 2 billion.
















**7.**  **Equity
      (continued)**





Common
      stock transactions during 2004





In
      2004,
      the Company issued 7,200,000 shares of its registered common stock, having
      a
      market value of $55,000, to four individuals in lieu of cash compensation for
      services rendered.





In
      2004,
      the holders of convertible debentures converted $1,125,351 of principal and
      $212,558 of interest into 641,321,378 shares of the Company’s common stock.





In
      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, due to all the warrants being
      exercised almost immediately. 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.








Common
      stock transactions during 2003





In
      January 2003, the Company issued 11,000,000 shares of its registered common
      stock, having a market value of $165,000, to three individuals in lieu of cash
      compensation for services rendered.





In
      January 2003, the holder of a 4% convertible debenture converted $25,500 of
      principal into 5,000,000 shares of the Company’s common stock.





In
      April
      2003, the Company issued 4,250,000 shares of its registered common stock, having
      a market value of $42,500 to three individuals in lieu of cash compensation
      for
      legal and management consulting services rendered.





In
      April
      2003, the Company issued to a consultant warrants to purchase 6,000,000 shares
      of its common stock at an exercise price of $0.008 per share under the terms
      of
      a consulting agreement. In April 2003, this warrant holder exercised the warrant
      to purchase 6,000,000 shares of common stock for $48,000.





In
      May
      2003, the Company issued 5,000,000 shares of its registered common stock, having
      a market value of $50,000, to various consultants in lieu of cash compensation
      for services rendered.





In
      June
      2003, the Company issued 5,000,000 shares of its registered common stock, having
      a market value of $50,000, to various consultants in lieu of cash compensation
      for services rendered.





In
      July
      2003, the holder of a 4% convertible debenture converted $25,000 of principal
      into 5,446,623 shares of the Company’s common stock.





In
      November 2003, the holder of a 4% convertible debenture converted $10,000 of
      principal into 5,882,353 shares of the Company’s common stock.













**8.**  **Related
      Party Transactions**





Dalrada
      Financial Corporation





Dalrada
      Financial Corporation’s (“Dalrada”) CEO and Chairman, Brian Bonar, is also the
      Company’s CEO and Chairman of the board of directors. Additionally, Dalarada’s
      CFO, Randall Jones is also the Company’s CFO. An officer of Quik Pix, Inc., a
      majority owned subsidiary of Dalrada, is a member of our Board of Directors.
      The
      following is a summary of significant transactions with Dalrada.








*Company’s
      Corporate Services Agreement with Dalrada Financial Corporation*





The
      Company has a corporate services agreement with Dalrada. Under the terms of
      the
      agreement, the Company pays a fee equal to 5% of gross payrolls processed to
      Dalrada for various support staff, administrative services and office rent
      related to the operations of its subsidiary ESI. Fees incurred to Dalrada
      totaled $135,152 for the twelve months ended December 31, 2004. The Company
      had
      no such agreement in 2003. The Corporate Services Agreement is renewed on a
      monthly basis.








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 $15,180 to Source One Group in administrative fees during
      2004. These administrative fees are commensurate with the industry. Subsequent
      to the acquisition of ESI on September 8, 2004, all payroll processing functions
      of the Warning Model Management payroll were handled by ESI.








*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 year ended December 31, 2004 are $138,152.











**8.**  **Related
      Party Transactions (continued)**





Transactions
      with shareholders





A
      shareholder has advanced an additional $29,000 to the Company during the year
      ended December 31, 2004. The Company has repaid $60,625 of shareholder advances
      as of December 31, 2004, and a shareholder forgave an additional $41,780. These
      shareholder advances bear an interest rate of 10% per annum, and are due on
      demand.





As
      of
      December 31, 2004 and 2003, shareholders advances total $40,383 and $113,788,
      respectively, which are due on demand and bear 10% interest per annum.








**9.**  **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.








*Huth
      v. Warning Management Services, Inc.*





On
      or
      about July 9, 2004, Michael Huth and Edward Pekarek (collectively “Plaintiffs”),
      filed a complaint in the United States District Court, Northern District of
      Ohio, Case No. 1:04CV1292. Plaintiffs, who were shareholders, claimed that
      WNMI
      violated various federal securities laws. The Company retained the law firm
      of
      Spieth, Bell, McCurdy & Newell Co. in Cleveland, Ohio as its litigation
      counsel.


WNMI
      requested that the matter be aggressively defended based on the fact that
      Plaintiffs’ claims lacked legal and factual merit. As such, management was
      actively involved during the litigation process.





Shortly
      after the action was filed, the Company filed a motion to have the matter
      transferred from the United States District Court of Ohio to California. The
      court agreed with the Company’s position and thereby granted the request.
      However, on March 29, 2005, the Plaintiffs voluntarily dismissed the action
      before the matter was actually transferred.








*Berryman
      & Henigar Enterprises v. Warning Management Services, Inc.*


On
      February 10, 2005, Berryman & Henigar Enterprises (“Plaintiff”), filed a
      complaint in the Superior Court of California, County of San Diego, Case No.
      GIC842610, against WNMI for breach of a promissory note issued pursuant to
      terms
      and conditions of a certain stock purchase and sale agreement dated September
      9,
      2004. Plaintiff seeks principal damages of $750,000.00 in that regard.










**9.**  **Commitments
      and Contingencies (continued)**





A.  Legal
      (continued)





*Berryman
      & Henigar Enterprises v. Warning Management Services, Inc.
      (continued)*


It
      is
      WNMI’s position that Plaintiff failed to disclose certain material information
      in the underlying transaction which thereby negates the promissory note. WNMI,
      in that regard, intends to file a cross-complaint against Plaintiff for
      resulting damages.





Discovery
      has commenced but is not complete at this time. Trial has not been set.
      Management has fully cooperated in our investigation of the facts and we intend
      to defend against the claim asserted.








B.  Operating
      Leases





On
      May
      17, 2001, 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 leased the facility under a 60-month agreement that
      terminated on April 30, 2005, with the option to renew for an additional six
      months. The aggregate rental rate for the entire facility for the year ending
      December 31, 2004 and 2003 were $128,026 and $125,516, respectively. All
      operations were performed at this facility.





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





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 31, 2004, the Company
      started paying monthly rent of $2,705.





The
      aggregate rental cost for the twelve months ended December 31, 2004 and 2003
      was
      $174,840 and $161,005.





In
      March
      2000, the Company leased an automobile under a 36-month non-cancelable operating
      lease agreement. The Company was obligated to pay $376 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.












**9.**  **Commitments
      and Contingencies (continued)**





B.  Operating
      Leases (continued)





In
      November 2002, the Company leased an automobile under an operating lease
      agreement. The lease was terminated in July 2003. The Company was obligated
      to
      pay $422 per month.





The
      aggregate future rental rates through December 31, 2008, are as follows:





Year
                ending December 31,2005
            $
            57,3172006
            
            7,0232007
            
            7,0232008
            
            7,023$
            78,386








C.  Capital
      Leases





The
      Company maintains a capital lease for some of its office equipment. The
      following is a schedule by year of the approximate future minimum lease payments
      required under this lease:





Year
                ending December 31,2005
            $
            14,5002006
            
            7,059Future
                minimum lease payments
            
            21,555Less
                amounts representing interest
            
            (3,811)Present
                value of minimum lease payments
            
            17,744Less
                current portion
            
            (10,914)Long-term
                capital lease obligation
            $
            6,830





The
      leased property under capital leases as of December 31, 2004 has a cost of
      $39,761, accumulated amortization of $25,679 and a net book value of $14,082.
      Amortization of the leased property is included in depreciation expense and
      amounts to $9,940 and $9,940 for the years ended December 31, 2004 and 2003,
      respectively.











**9.**  **Commitments
      and Contingencies (continued)**





D.  Contingent
      Liability





On
      May
      15, 2002, WNMI completed a transaction pursuant to a Settlement of Debts and
      Asset Purchase Agreement, dated March 29, 2002, with Starbrand, LLC, pursuant
      to
      which WNMI 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.
      WNMI is contingently liable for the payment of the liabilities transferred
      aggregating approximately $200,000. No claim has been made regarding these
      liabilities as of December 31, 2004 and 2003, and management believes that
      no
      reserve is necessary.








E.  Payroll
      Taxes Not Paid





The
      Company currently owes $569,863 in state and federal payroll taxes and is late
      in filing its payroll tax returns. The Company may be in violation of certain
      of
      its contracts to provide staffing and other payroll services.











**10.**   **Segment
      Information**





The
      Company managed and internally reported the Company's business as three
      reportable segments, principally, (1) model management, (2) and temporary
      staffing and (3) PEO Services.





Segment
      information for the year ended December 31, 2004 is as follows:





ModelManagement
            
            Staffing
            
            PEO
            
            TotalRevenues
            $
            2,422,662
            
            $
            2,734,236
            
            $
            1,830
            
            $
            5,158,728Operating
                income (loss)
            $
            833,909
            
            $
            178,935
            
            $
            
            
            $
            1,012,844





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












**11.**  **Notes
      Payable**





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





2004
            
            200310%
                note payable - private party. Interest payable or accruing monthly,
                due on
                demand
            $
            27,500
            
            $
            48,783Note
                payable - private party, due on demand, unsecured
            
            48,000
            
            
            48,00010%
                note payable - private party. Interest payable or accruing monthly,
                due on
                demand, unsecured
            
            20,000
            
            
            100,00010%
                note payable - private party. Interest payable or accruing monthly,
                due on
                demand, unsecured
            
            105,000
            
            
            105,00018%
                note payable - private party. Interest payable or accruing at 1.5%
                per
                month, due on demand
            
            300,000
            
            
            300,0007.5%
                note payable - private party. Interest payable or accruing monthly,
                due on
                demand, unsecured
            
            200,000
            
            
            -6%
                note payable - private party. Interest payable or accruing monthly,
                due on
                demand, unsecured
            
            750,000
            
            
            -Total
                notes payable at December 31,
            
            1,450,500
            
            
            601,783Less
                bond discount
            
            -
            
            
            (13,111)$
            1,450,500
            
            $
            588,672





In
      August
      2004, the Company obtained a $600,000 in debt financing for the acquisition
      of
      ESI, in the form of a short-term note bearing interest at 7.5% per annum. The
      Company has repaid $400,000 of this note payable as of December 31, 2004. This
      note is now deemed to be due on demand.





In
      August, 2004, the Company issued a $750,000 note payable to the sellers in
      connection with its acquisition of ESI. The note bears interest at 6% per annum
      and is due on August 9, 2005.





In
      March
      2003, the Company obtained short-term debt financing of $48,000 from an
      unrelated party.





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 for the warrants issued to be $25,000,
      which was amortized over the term of the note.












**11.**  **Notes
      Payable (continued)**





In
      August
      2003, the Company obtained short-term debt financing of $50,000 from an
      unrelated party. In December 2003, the Company obtained additional short-term
      debt financing of $50,000 from the same party. These short-term notes bear
      10%
      interest per annum.











**12.**  **Convertible
      Debentures & Promissory Notes**





Short
      term convertible notes consisted of the following at December 31:





2004
            
            20035%
                convertible note payable, due on demand
            $
            20,975
            
            $
            33,9754%
                convertible note payable, due on demand
            
            254,000
            
            
            989,7004%
                convertible note payable, due on demand
            
            62,154
            
            
            105,00010%
                convertible note payable, due on January 3, 2005
            
            1,713
            
            
            50,00010%
                convertible note payable, due on December 27, 2005
            
            500,000
            
            
            -4%
                convertible note payable, due on December 27, 2004
            
            2,817,837
            
            
            -0%
                convertible notes payable, due on May 1, 2006
            
            763,252
            
            
            -Total
                current notes
            
            4,419,931
            
            
            1,178,675Less
                discount
            
            (197,915)
            
            
            -$
            4,222,016
            
            $
            1,178,675





Long
      term
      convertible notes consisted of the following at December 31:





2004
            
            200310%
                convertible note payable, due on December 27, 2005
            $
            -
            
            $
            500,0004%
                convertible note payable, due on December 27, 2004
            
            -
            
            
            2,900,000Total
                current notes
            
            -
            
            
            3,400,000Less
                discount
            
            -
            
            
            (405,446)$
            -
            
            $
            2,994,554











**12.**  **Convertible
      Debentures & Promissory Notes (continued)**





4%
      Convertible Debentures Payable





On
      October 27, 2000, WNMI 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 WNMI’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, WNMI 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 WNMI. The debenture holders may cause WNMI 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. At December 31, 2004 the aggregate
      principal balance remaining on these notes is $254,000.





The
      debenture conversion price was 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 $17,674. 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. Interest on the indebtedness is accrued through
      December 31, 2004.





The
      financial statements as of December 31, 2004 reflect the remaining principal
      amount of the 4% debentures, less the unamortized bond discount. Interest on
      the
      indebtedness is accrued through December 31, 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 the Company to exchange the
      Debentures for Convertible Preferred Stock.












**12.**  **Convertible
      Debentures & Promissory Notes (continued)**





5%
      Convertible Debentures Payable (continued)





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





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








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. All these
      debentures are redeemable in cash due one year from the date of issuance. The
      notes mature in December 2005.





The
      debenture conversion price was 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
      share, 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. At December 31, 2004 and 2003, the unamortized discount
      on
      the Notes is approximately $0 and $65,333, respectively.





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 2004. 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 December 31, 2004, reflect the remaining principal
      amount of the 10% debentures, less the unamortized bond discount attributable
      to
      the beneficial conversion feature and the warrants. Interest on the indebtedness
      is accrued through December 31, 2004.














**12.**  **Convertible
      Debentures & Promissory Notes (continued)**





Convertible
      Notes Payable Due to Members of Warning Model Management, LLC





The
      merger of Warning Model Management, LLC and FIXN resulted in FIXN issuing to
      the
      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.





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.





The
      debenture conversion price is 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 the Company 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. Interest on the indebtedness is accrued through December 31, 2004.





The
      financial statements as of December 31, 2004 and 2003, reflect the remaining
      principal amount of the 4% debentures to shareholders, less the unamortized
      bond
      discount.











**12.**  **Convertible
      Debentures & Promissory Notes (continued)**





Convertible
      Debentures Payable





On
      May 4,
      2004, the Company issued four convertible debentures totaling $1,053,000, which
      were issued with a discount totaling $243,000. The convertible debentures can
      be
      converted into shares of common stock by the note holders at the conversion
      price per share being $0.0075. Should the company choose to make the monthly
      payment in stock in lieu of cash, such common stock will be valued at the lesser
      of (i) the average closing bid prices of the Common Stock during a one-day
      lookback period immediately preceding the relevant payment due date, or (ii)
      $0.0075 per share. The beneficial conversion feature of these debentures issued
      was $230,500, 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 Warrants”) to
      purchase 91,797,300 shares of the Company’s common stock, par value $0.001 per
      share (“the Common Stock”), at an exercise price of $0.025 per share, and are
      immediately exercisable. Total funds received of $810,000 were allocated
      $460,000 to the Warrants, $230,500 to the beneficial conversion feature and
      $119,500 in debenture issuance costs. The total value allocated to the Warrants
      is being amortized to interest expense over the term of the Debentures. At
      December 31, 2004, the unamortized discount on the Debentures is approximately
      $365,118.











**13.**  **Equity
      Drawdown Facility**





On
      October 31, 2000, WNMI entered into a type of equity line of credit agreement
      for the future sale of shares of its common stock and warrants. Under the
      agreement, which is subject to various conditions, an investor has committed
      to
      provide up to $5 million, at WNMI’s request, over a 24-month period, to be
      applied to the purchase price of WNMI’s common stock. WNMI may request at
      specified intervals, $100,000 minimum equity drawdowns, with maximum drawdown
      amounts at each request based on 4.5% of (i) the weighted average price of
      WNMI’s common stock for a prescribed period prior to the request multiplied by
      (ii) the total trading volume during such period. As at December 31, 2002 and
      2001 the minimum drawdown requirement has not been met. Drawdowns may be further
      limited due to a provision in the agreement that prevents WNMI from issuing
      shares to the extent that the investor would beneficially own more than 9.9%
      of
      WNMI’s then outstanding common stock. Under the agreement, WNMI is required to
      file a Registration Statement with the Securities and Exchange Commission before
      the investor is obligated to accept a drawdown request by WNMI. Consequently,
      until such Registration Statement is effective, WNMI will not receive any funds
      under the agreement.





The
      per
      share amount to be received by WNMI for the sale of its common stock on each
      equity drawdown shall be reduced by a 17.5% discount on the market price of
      the
      shares (as defined in the agreement). Escrow agent fees and a 10% placement
      fee
      will also reduce the proceeds of sale. At the October 31, 2000 closing, WNMI
      issued a stock purchase warrant for up to 500,000 shares of common stock to
      the
      investor at an exercise price of $.0636 per share, such warrant to expire on
      October 31, 2003. The value of the 500,000 stock warrants ($35,730) is charged
      to interest expense in 2000. WNMI has also agreed to issue additional warrants
      for shares equal to 50% of the shares purchased by the investor on each
      drawdown. There are various other conditions to the agreement, including the
      investor’s right to terminate the agreement under specified events. At the
      closing, WNMI paid $10,000 for the investor’s legal and other expenses.












**13.**  **Equity
      Drawdown Facility (continued)**





See
      Note
      12 in connection with an election by the holders of the 4% Convertible
      Debentures to apply a portion of the proceeds of the equity drawdowns to redeem
      their debentures.





WNMI
      did
      not utilize this equity drawdown facility as of December 27, 2002. The Company
      did not utilize this facility as of December 31, 2002. Subsequent to the merger,
      the Company has elected to pursue a different financing vehicle.





In
      December 2002, the Company signed a letter of intent with a different unrelated
      third party, who has provided debt financing to the Company, to provide an
      equity drawdown facility of up to $2,000,000. As of December 31, 2003, the
      Company had decided not to utilize this new equity drawdown facility.











**14.**  **Outstanding
      Warrants to Purchase Common Stock**





WNMI
      had
      issued warrants to purchase shares of its common stock to certain officers,
      employees and non-employees. The objectives of the issuance of the warrants
      include attracting and retaining the best talent, providing for additional
      performance incentives and promoting the success of WNMI by providing the
      opportunity to employees and non-employees to acquire common stock. WNMI had
      also issued warrants to certain investors in connection with the issuance of
      debentures and the sale of common stock. Outstanding warrants have been granted
      at exercise prices ranging from $.001 to $1.00 and expire as much as five years
      from the date of grant. On December 31, 2004, WNMI had warrants outstanding
      to
      purchase 12,920,652 common shares.





The
      status of the Company’s warrants is summarized below as of December 31, 2004 and
      2003:





Number
                of warrants
            
            Weighted
                Range of Exercise Prices
            
            Average
                Exercise PriceOutstanding
                at December 31, 2002
            9,867,480
            
            $
            0.001
                - 1.00
            
            $
            0.35Granted
                in 2003
            5,000,000
            
            
            0.001
            
            
            0.01Expired
                in 2003
            (1,946,828)
            
            
            0.06
                - 1.00
            
            
            0.29Outstanding
                at December 31, 2003
            12,920,652
            
            $
            0.001
                - 1.00
            
            $
            0.21Granted
                in 2004
            99,500,000
            
            
            0.0025
                - 0.01
            
            
            0.0059Expired
                in 2004
            (102,184,152)
            
            
            0.15
                - 1.00
            
            
            0.0139Outstanding
                at December 31, 2004
            10,296,500
            
            $
            0.013
                - 0.75
            
            $
            0.195













**13.**  **Outstanding
      Warrants to Purchase Common Stock (continued)**





2004
            
            2003Weighted
                average remaining contractual terms
            2.11
                years
            
            1.73
                yearsNumber
                of warrants exercisable at December 31
            10,236,500
            
            12,920,652Weighted
                average exercise price of warrants
            0.12
            
            0.13





As
      stated
      in Note 1, the Company accounts for stock-based compensation using the fair
      value method prescribed in SFAS No. 123 “Accounting for Stock-Based
      Compensation”, under which compensation cost for all stock warrants issued (both
      vested and non-vested) is measured at the grant date based on the fair value
      of
      the warrants. Such cost is recognized over the service period (the contract
      period).





The
      fair
      value of each warrant issued was estimated on the date of grant using the
      Black-Scholes option-pricing model.





The
      Black-Scholes option valuation model was developed for use in estimating the
      fair value of traded options and warrants, which have no vesting restrictions
      and are fully transferable. In addition, option valuation models require the
      input of highly subjective assumptions including the expected stock price
      volatility. Because the Company’s warrants have characteristics significantly
      different from those of traded options and warrants, and because changes in
      the
      subjective input assumptions can materially affect the fair value estimate,
      in
      management’s opinion, the existing models do not necessarily provide a reliable
      single measure of the fair value of its stock options.





Warrants
      are granted at prices equal to the current fair value of the Company’s common
      stock at the date of grant. The vesting period is usually related to the term
      of
      the underlying convertible debenture.





The
      fair
      value of these options was estimated at the date of grant using the
      Black-Scholes option-pricing model with the following weighted-average
      assumptions: 2004 - dividend yield of 0%; expected volatility of 200%; risk-free
      interest rate of 5.5%, and expected life of 3 years. The fair value of the
      options granted in 2004 was $0.005 per share. 2003 - dividend yield of 0%;
      expected volatility of 200%; risk-free interest rate of 5.5%, and expected
      life
      of 3 years. The fair value of the options granted in 2003 was $0.005 per share.











**14.**  **Subsequent
      Events**





In
      February 2005, certain investors modified the terms of their April 29, 2004,
      convertible notes in order to provide an additional $201,552 in funds to WNMI.
      Also in February 2005, WNMI agreed to modify a $100,000 six-month promissory
      note issued on May 25, 2003, into a two-year 10%-per-annum convertible note.
      The
      convertible note was issued for $138,291, which consisted of principle and
      interest due on the promissory note. The note is convertible into common shares
      at seventy percent of the market price on the date of conversion.