Warning Management Services (WNMI) 10QSB 2004 Q2 Quarterly report (small business)

FORM 10-QSB

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2004

OR

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

of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission file number0-27219

WARNING MODEL MANAGEMENT, INC.

(Exact name of registrant as specified in its charter)

  New York13-3865655__

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

 incorporation or organization)identification number)

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

(Address of principal executive offices) (Zip Code)

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YesXNo_

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

 the latest practicable date.

Class of Common StockOutstanding at August 18, 2004

$.001 par value519,372,448shares

 Transitional Small Business Disclosure FormatYesNoX

1 

Form 10-QSB

Securities and Exchange Commission

Washington, D.C. 20549

WARNING MODEL MANAGEMENT, INC.

Index

PART I - FINANCIAL INFORMATION

Item 1.Financial Statements

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

Statements of Operations for the three months ended

June 30, 2004 and June 30, 2003

Statements of Operations for the six months ended

June 30, 2004 and June 30, 2003

Statements of Cash Flows for the six months ended

June 30, 2004 and June 30, 2003

Notes to the Financial Statements for the six months ended

June 30, 2004

Item 2. Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

Item 3. Controls and Procedures

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Item 2.Changes in Securities

Item 3. Defaults Upon Senior Securities

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

Item 5.Other Information

Item 6.Exhibits and Reports on Form 8-K

SIGNATURES

 2

Warning Model Management, Inc.

Consolidated Financial Statements

June 30, 2004

 3

Warning Model Management, Inc.

Consolidated Financial Statements

June 30, 2004

C O N T E N T S

Page

 Consolidated Balance Sheets F1 – F2

 Consolidated Statements of OperationsF3

 Consolidated Statements of Cash FlowsF4 – F5

 Notes to the Financial Statements F6 – F26

4 

Warning Model Management, Inc.

Consolidated Balance Sheets

June 30, 2004 and December 31, 2003

				June 30, 2004		December 31, 2003
ASSETS				(unaudited)		(audited)
Current Assets
	Cash and cash equivalents			$	374,395	$	-
	Restricted cash				99,681		-
	Accounts receivable, net of reserve for doubtful
		accounts of $61,332 and $61,332, respectively			199,277		292,746
	Advances to models, net of reserve of
		$166,180 and $166,180, respectively			278,285		356,937
	Advances to officer				28,040		28,040
	Advances to employees				8,400		3,650
	Prepaid expenses				43,000		11,628
		Total Current Assets			1,031,078		693,001
Property and Equipment
	Furniture and fixtures				8,806		8,168
	Computers and equipment				73,793		73,793
					82,599		81,961
	Accumulated depreciation				(49,856)		(42,703)
		Total Property and Equipment			32,743		39,258
			Total Assets	$	1,063,821	$	732,259

(continued)

See accompanying notes to these financial statements.

- F1 -

Warning Model Management, Inc.

Consolidated Balance Sheets (Continued)

June 30, 2004 and December 31, 2003

				June 30, 2004		December 31, 2003
LIABILITIES AND EQUITY				(unaudited)		(audited)
Current Liabilities
	Accounts payable and accrued expenses			$	287,365	$	315,267
	Model fees payable				318,860		318,343
	Payable to photographers				33,380		-
	Model reserves				34,227		39,696
	Line of credit				150,975		50,979
	Notes payable				621,783		588,672
	Advances from shareholders				40,383		113,788
	Accrued interest - convertible debentures				146,502		220,454
	Taxes payable				6,260		7,060
	Current portion - capital leases				10,297		9,797
	Secured line of credit				64,669		149,384
	Convertible debentures				656,696		1,178,675
		Total Current Liabilities			2,371,397		2,992,115
Long Term Liabilities
	Convertible debentures				451,171		434,329
	Convertible notes payable to shareholders				2,563,122		2,560,225
	Capital leases				12,376		17,653
		Total Long Term Liabilities			3,026,669		3,012,207
Equity
	Common stock - 800,000,000 authorized, par value
		$0.001, 509,271,365 and 92,252,810 issued
		and outstanding for 2004 and 2003, respectively			509,271		92,253
	Additional paid-in capital				2,934,603		499,480
	Accumulated deficit				(7,778,119)		(5,863,796)
		Total Equity			(4,334,245)		(5,272,063)
			Total Liabilities and Equity	$	1,063,821	$	732,259

See accompanying notes to these financial statements.

-F 2 -

Warning Model Management, Inc.Consolidated Balance Sheets (continued)June 30, 2004 and December 31, 2003

Warning Model Management, Inc.

Consolidated Ststement Of Operations

For The Three And Six Months Ended June 30, 2004 and 2003

				Three months ended				Six months ended
				June 30, 2004		June 30, 2003		June 30, 2004		June 30, 2003
				(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues
	Revenues			$	504,893	$	562,133	$	858,845	$	1,027,407
	Costs of revenues				(363,498)		(256,893)		(647,662)		(494,157)
					141,395		305,240		211,183		533,250
Operating Expenses
	Salaries and wages				359,215		153,878		530,962		308,803
	Rent				37,451		27,714		78,330		64,871
	General and administrative				206,078		219,351		1,037,740		634,718
	Business development				36,901		31,537		42,448		64,883
	Depreciation and amortization				3,588		5,823		7,153		11,861
		Total Operating Expenses			643,233		438,303		1,696,633		1,085,136
Other Income (Expense)
	Interest income				-		-		50		468
	Other income				47,335		10,556		51,275		17,548
	Interest expense				(309,445)		(123,980)		(479,198)		(239,140)
	Other expense				-		(499)		(200)		(499)
		Total Other Income (Expense)			(262,110)		(113,923)		(428,073)		(221,623)
			Net Loss Before Income Taxes		(763,948)		(246,986)		(1,913,523)		(773,509)
Provision for Income Taxes					-		(7,942)		(800)		(8,922)
			Net Loss	$	(763,948)	$	(254,928)	$	(1,914,323)	$	(782,431)
Net loss per share - basic				$	(0.00)	$	(0.00)	$	(0.01)	$	(0.01)
Net loss per share - diluted				$	(0.00)	$	(0.00)	$	(0.01)	$	(0.01)
Number of share used in calculation - basic					480,573,074		71,682,167		303,560,784		64,400,223
Number of share used in calculation - diluted					480,573,074		71,682,167		303,560,784		64,400,223

See accompanying notes to these financial statements.

- F3 -

Warning Model Management, Inc.

Consolidated Ststement Of Cash Flows

For The Six Months Ended June 30, 2004 and 2003

			June 30, 2004		June 30, 2003
			(unaudited)		(unaudited)
Operating Activities:
	Net Loss		$	(1,914,323)	$	(782,431)
Adjustments to reconcile loss to net cash
provided by (used in) operating activities:
	Depreciation and amortization			7,153		11,861
	Common stock issued for services			30,000		316,324
	Bad debt expense			-		125,000
	Expense on warrants granted			691,875		-
	Bond and warrant discount amortization			260,647		98,660
	Gain on forgiveness of debt			(41,780)		-
	Other			(137)		(2,090)
Changes in operating assets and liabilities:
	Accounts receivable - trade			93,469		83,389
	Advances to models			78,652		113,163
	Prepaid expenses			(31,372)		(46)
	Advances to employees			(4,750)		-
	Deposits			-		(10,000)
	Accounts payable and accrued expenses			(27,902)		(204,399)
	Model fees payable			517		(106,930)
	Payable to photographers			33,380		-
	Model reserves			(5,469)		8,789
	Taxes payable			(800)		800
	Accrued interest			118,549		84,175
		Net cash used in operating activities		(712,291)		(263,735)
Investing activities:
	Purchases of property and equipment			(638)		(2,304)
		Net cash used in investing activities		(638)		(2,304)

(continued)

See accompanying notes to these financial statements.

- F4 -

Warning Model Management, Inc.

Consolidated Ststement Of Cash Flows (Continued)

For The Six Months Ended June 30, 2004 and 2003

			June 30, 2004		June 30, 2003
			(unaudited)		(unaudited)
Financing activities:
	Debt issuance costs			(119,500)		-
	Restricted cash			(99,681)		-
	Proceeds from convertible notes payable			810,000		50,000
	Payments on convertible notes payable			(78,000)		-
	Borrowings from secured line of credit			312,953		594,916
	Payments on secured line of credit			(397,667)		(946,821)
	Exercise of warrants			575,625		48,000
	Payments on capital lease obligation			(4,777)		(11,076)
	Borrowings under bank line of credit			138,221		-
	Payments under bank line of credit			(38,225)		(2,049)
	Proceeds from notes payable			216,000		145,000
	Payments on notes payable			(196,000)		(110,000)
	Advances from shareholders			29,000		93,788
	Payments on advances from shareholders			(60,625)		(32,000)
		Net cash provided by (used in) financing activities		1,087,324		(170,242)
		Increase (Decrease) in cash and cash equivalents		374,395		(436,281)
Cash and cash equivalents, beginning of period				-		503,422
Cash and cash equivalents, end of period			$	374,395	$	67,141
Supplemental disclosures of cash flow information:
	Cash paid during the period for
		Interest	$	33,789	$	11,555
		Taxes	$	2,812	$	-
Supplemental schedule of non-cash financing activities
	Value of convertible benefit feature on convertible debt		$	230,500	$	8,824
	Conversion of debt and interest to common stock		$	977,541	$	-
	Common stock issued for services		$	30,000	$	316,324
	Expense recognized on warrants/options granted		$	691,875	$	-

See accompanying notes to these financial statements.

- F5 -

Warning Model Management, Inc.

Notes To Financial Statements

For The Six Months Ended June 30, 2004 and 2003

1.Summary of Significant Accounting Policies

A.General Description of Business

Warning Model Management, Inc., (“WNMI” or “The Company”, and dba Warning Model Management) 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.

History

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

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

B.Basis of Presentation and Organization

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

 F6

Warning Model Management, Inc.

Notes to Financial Statements

June 30, 2004

1.Summary of Significant Accounting Policies (continued)

B.Basis of Presentation and Organization (continued)

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

Consolidation Policy

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

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

As shown in the accompanying Financial Statements, the Company has incurred recurring losses from operations, and as of June 30, 2004, the Company’s current liabilities exceeded its current assets by $1,340,319, and its total liabilities exceeded its total assets by $4,334,245. Management has been able obtain additional financing through the issuance of debt. In addition, the Company has instituted more efficient management techniques and continues to attract and add new models and clients (expanding to include representing fashion photographers). Management believes these factors will contribute toward achieving profitability. The accompanying Financial Statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. In May 2004, the Company raised $810,000 in cash through the issuance of convertible notes pa yable.

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.

	F7
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

1.Summary of Significant Accounting Policies (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 balances that exceeded $100,000, and the uninsured balances at June 30, 2004, were $152,363. There were no uninsured balances as of December 31, 2003.

D.Income Taxes

The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

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

E.Revenue Recognition

The Company’s revenues are derived from three sources.

The Company’s primary 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 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.

	F8
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

1.Summary of Significant Accounting Policies (continued)

F.Advertising Costs

All advertising costs are expensed as incurred.

G.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.

H.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 only one segment.

I.Business Risks and Credit Concentrations

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

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

	F9
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

1.Summary of Significant Accounting Policies (continued)

J.Recent Accounting Pronouncements

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

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

KAdvances to Models

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

L.Receivables

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

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

	F10
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

1.Summary of Significant Accounting Policies (continued)

M.Basic and Diluted Net Earnings per Share

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

N.Comprehensive Income (Loss)

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

O.Stock-Based Compensation

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

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

(in thousands, except per share data)	Three Months Ended June 30,
	2004		2003
Net income (loss):
As reported	$	(763,948)	$	(254,928)
Fair value based method
compensation expense		-		-
Pro forma	$	(763,948)	$	(254,928)
Basic and diluted net income (loss) per share:
As reported	$	(0.00)	$	(0.00)
Pro forma	$	(0.00)	$	(0.00)

	F11
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

1.Summary of Significant Accounting Policies (continued)

O.Stock-Based Compensation (continued)

(in thousands, except per share data)	Six Months Ended June 30,
	2004		2003
Net income (loss):
As reported	$	(1,914,323)	$	(782,431)
Fair value based method
compensation expense		-		-
Pro forma	$	(1,914,323)	$	(782,431)
Basic and diluted net income (loss) per share:
As reported	$	(0.01)	$	(0.01)
Pro forma	$	(0.01)	$	(0.01)

During the six months ended June 30, 2004, the Company granted warrants/options convertible into 100,750,000 to various consultants under the terms of its 2004 Consulting and Legal Services Plan. These warrants/options were granted at below the current market price, and the Company recognized additional expense of $691,875 related to these grants.

2.Income Taxes

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

3.Financing Agreement

The Company had a secured asset-borrowing program with a financial institution to collateralize, with recourse, certain eligible trade receivables up to a maximum percentage of 70% of the net amounts of each receivable. As receivables collateralized to the financial institution are collected, the Company may transfer additional receivables up to the discretion of the lending institution. The Company retains the right to recall collateralized receivables under the program, and the receivables are subject to recourse. Therefore, the transaction does not qualify as a sale under the terms of Financial Accounting Standards Board Statement No. 125 (Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities). Included in the Balance Sheets as receivables at June 30, 2004, and December 31, 2003, are account balances totaling $157,071 and $213,40 6 of uncollected receivables collateralized to the financial institution.

	F12
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

4.Line of Credit

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

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

5.Equity

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

During the six months ended June 30, 2004, the holders of 4% and 10% convertible debentures converted $787,172 of principal and $190,369 of interest into 310,318,557 shares of the Company’s common stock.

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

6.Related Party Transactions

Mr. Steve Chamberlin

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

	f13
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

6.Related Party Transactions (continued)

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. The Chief Executive Officer and the Chairman of the Company is also the Chief Executive Officer of the corporation that owns Source One Group. The Company has paid $7,400 to Source One Group in administrative fees during the six months ended June 30, 2004. These fees are commensurate with the industry.

Transactions with shareholders

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

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

7.Commitments and Contingencies

A.Legal

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

B.Operating Leases

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

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

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

	F14
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

7.Commitments and Contingencies (continued)

C.Contingent Liability

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

8.Notes Payable

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

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

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

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

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

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

	F15
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

8.Notes Payable (continued)

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

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

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

9.Convertible Debentures & Promissory Notes

4% Convertible Debentures Payable

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

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

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

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

	F16
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

9.Convertible Debentures & Promissory Notes (continued)

4% Convertible Debentures Payable (continued)

The debenture conversion price is based on the conversion value being 85% of the average of the five (5) lowest closing bid prices of the Common Stock during the twenty-two (22) Trading Days preceding the applicable Conversion Date. The beneficial conversion feature of these debentures issued was $17,674, and the amount was credited in the accounts of FIXN as additional paid in capital. The amount attributable to the beneficial conversion feature is amortized over the term of the loan and is included as a component of interest expense.

The financial statements as of June 30, 2004, reflect the remaining principal amount of the 4% debentures, less any unamortized bond discount. During the six months ended June 30, 2004, the Company has converted $645,704. Interest on the indebtedness is accrued through June 30, 2004.

5% Convertible Debentures Payable

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

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

	2004		2003
Outstanding principal amount of 5% debentures	$	33,975	$	33,975
Less unamortized discount for warrants issued		-		-
Carrying amount	$	33,975	$	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. The notes mature in December 2005, and are classified as long-term.

	F17
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

9.Convertible Debentures & Promissory Notes (continued)

10% Convertible Debentures Payable (continued)

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

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

The financial statements as of June 30, 2004, reflect the remaining principal amount of the 10% debentures, less the unamortized bond discount attributable to the beneficial conversion feature and the warrants. During the six months ended June 30, 2004, the Company has converted $41,827. Interest on the indebtedness is accrued through June 30, 2004.

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

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

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

	F18
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

9.Convertible Debentures & Promissory Notes (continued)

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

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

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

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

The financial statements as of June 30, 2004, reflect the remaining principal amount of the 4% debentures to shareholders, less the unamortized bond discount. The net carrying value is $2,563,122. Interest on the indebtedness is accrued through June 30, 2004.

10.Subsequent Events

Conversion of Debentures into Common Stock

As of August 17, 2004, the holders of the Company’s 4% and 10% convertible debentures have elected to convert an aggregate of $40,000 of principal and $7,253 of interest into 10,101,083 shares of the Company’s common stock.

Shareholders’ Meeting

On June 24, 2004, the Company filed a Definitive Proxy with the Securities Exchange Commission ("SEC") to change its name to Warning Management Services, Inc., to increase the authorizedshare of common stock form 800 million to 2 billion, to approve the Company's 2004 Employee Stock Option Plan and to authorize the Company to issue up to 20,000,000 shares of Preferred Stock.

	F19
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

10.Subsequent Events (continued)

Shareholders’ Meeting

At a meeting on August 5, 2004, the shareholders approved the name change and the increase in authorized shares, but did not approve the Company’s 2004 Employee Stock Option Plan or the 20,000,000 shares of Preferred Stock.

Law Suit Filed against Warning Model Management, Inc, its subsidiaries, Officers and Directors

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

For relief, the Plaintiffs request the following:

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

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

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

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

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

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

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

	F20
Warning Model Management, Inc. Notes to Financial Statements June 30, 2004

10.Subsequent Events (continued)

Law Suit Filed against Warning Model Management, Inc, its subsidiaries, Officers and Directors (continued)

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

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

 F21

ITEM 2. 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 and photographers
• Seek additional financing so as to provide capital to rapidly growing components of the organization, such as the Talent Division.

Long-term Objectives:

• Continue business expansion through acquisitions, merger or joint venture with business areas to provide economy of scale, incremental revenue.;
• Acquire complementary product lines to provide a broader service offering for customers, expand services including modeling, talent and photographers careers and revenue sources.

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

As shown in the accompanying Financial Statements, WNMI has incurred recurring losses from operations, and as of June 30, 2004 the Company’s current liabilities exceeded its current assets by $1,340,319, its total liabilities exceeded its total assets by $4,334,245, and for the three months ending June 30, 2004, net cash used in operations was ($712,219). 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 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.
• Bring in new models, talent, photographer and new business lines
• Developing existing model, talent and photographers to derive more income

We feel that sufficient working capital will be available from 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 funding where a net of $690,000 cash was received, 2) We have successfully negotiated with a financial institution a credit line, 3) $2,563,000 of our debt is with management and 3) we are seeking additional outside financing. 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 o perations.

 5

Results of Operations

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

Revenue for the three month period ended June 30, 2004 was $504,893 as compared to $562,133 for the same period in 2003, or a decrease of $57,240 or 10%. The decrease is mainly attributable to a reduction in the company's business from Model fees and Commercial commissions which is a result of a tighter model management market due to poor economic conditions, which led to lower marketing and advertising spending during the period.

Gross profit for the three-month period ended June 30, 2004 was $141,395 as compared to $305,240 for the same period in 2003, or a decrease of $163,845 or 54%. This decrease in gross profit was attributable mainly to the reduction in Model fee revenues and related costs plus the addition of the photography line.

Operating expenses for the three-month period ending June 30, 2004 were $643,233 as compared to $438,303 for the same period in 2003, or an increase of $204,930 or 47%. The increase in operating expense was mainly attributable to the following: 1) an increase in salaries and wages of $ 205,337. The increase in salaries is mainly attributable to a $100,000 bonus payment to Steve Chamberlin, with the remaining increase being from salary and consulting increases.

The decrease in general and administrative expenses for the three month period ending June 30, 2004 was $13,273 and is attributable mainly to a decrease in bad debt expense.

Interest expense was $309,445 for the three-month period ending June 30, 2004, as compared to $123,980for the same period in 2003 for an increase of $185,465. This increase in interest expense was a mainly attributable to an increase in bond amortization discount of $190,000.

The net (loss) for the Company for the three-month period ended June 30, 2004 was $(763,948) compared to $(254,928) for the year ending June 30, 2003 for an increase of $(509,020) or 200%.

Six Months Ended June 30, 2004 Compared to June 30, 2003

Revenue for the six month period ended June 30, 2004 was $858,843 as compared to $1,027,407 for the same period in 2003, or a decrease of $168,564 or 16% . The decrease is mainly attributable to a reduction in the company's business from Model fees and Commercial commissions, which is a result of a tighter model management market due to poor economic conditions, which led to lower marketing and advertising spending during the period.

Gross profit for the six-month period ended June 30, 2004 was $211,183 as compared to $533,250 for the same period in 2003, or a decrease of $322,067 or 60%. This decrease in gross profit was attributable mainly to the reduction in Model fee revenues and related costs plus the addition of the photography line.

Operating expenses for the six-month period ending June 30, 2004 were $1,696,633 as compared to $1,085,136 for the same period in 2003, or an increase of $611,497 or 56%. The increase in operating expenses were mainly attributable to: 1) an increase in salaries and wages of $222,159 which consisted of the $100,000 bonus to Steve Chamberlin, and increases to other salaries, 2) an increase in rent of $13,459, 3) an increase in general and administrative of $403,022 and4) a decrease in business development of $22,435 due to a decrease in travel and entertainment.

The increase in general and administrative expenses of $403,022 is primarily attributable to an increase in consulting fees of $565,057, an increase in bank service fees of $11,707, an increase in travel of $6,516, an increase in health insurance of $7,520 offset by a decrease in allowance for doubtful account of $154,050 and attorney fees of $41,250. We have been able to pay for the material amount of the consulting services through the issuance of common stock in lieu of cash.

6 

Interest expense was $479,198 for the six-month period ending June 30, 2004, as compared to $239,140for the same period in 2003, for an increase of $240,058 or 100%. The increase in interest expense in 2004 was attributable to a $190,683 increase in bond discount amortization, an increase in bond issuance expense of $19,917, interest of a promissory note to a third party of $36,432 offset by a decrease in factoring interest of $6,974. .

Other income of $51,275increased $33,727 over the same period the prior year.

The net (loss) for the Company for the six-month period ended June 30, 2004 was $(1,914,323) compared to $(782,431) for the year ending June 30, 2003 for an increase of $(1,131,892) or 145%.

Liquidity and Capital Resources

Six- Months Ended June 30, 2004

Net change in cash used in operating activities for the six-month period ending June 30, 2004 was $(712,291), which mainly consisted of the net loss of $1,914,323 plus the following: 1) gain on forgiveness of debt of $41,780, 2)decrease in prepaid expenses of $31,372, 3) decrease in employee advances of $4,750, 4) decrease in accounts payable and accrued expenses of $27,903, decrease in model reserves of $5,469 offset by 1)an increase in depreciation and amortization of $7,153, 2)an increase in common stock issued for services of $30,000, 3)an increase of expense on warrants granted of $691,875, 4) in increase in bond and warrant discount amortization of $260,647, 5) an increase in accounts receivable trade of $93,469, 6) an increase in advances to models of $78,652, 7)an increase in accrued interest of $118,549 and 8) miscellaneous items amounting to $32,960.

Net cash provided by (used in) investing activities was ($638) and ($2,304) for the six month period ending June 30, 2004 and 2003, respectively. This change is due to a decrease in purchases of property and equipment.

Net cash provided by financing activities was $1,187,005 and $(170,242) for the six month period

ending June 30, 2004 and 2003, respectively, reflecting a change of $1,357,247. This increase was due to the following: 1) the issuance of convertible notes of $810,000, 2) proceeds from the secured line of credit of $312,953, 3) exercise of warrants of $575,625, 4) borrowings under a bank line of credit of $138,221, 5) proceeds from notes payable of $216,000, and advances form shareholders of $29,000 offset by 1) payments on convertible notes of $78,000, 2) payments on secured line of credit of $397,667, 3)payments under the bank line of credit of $38,225, 4) payments on notes payable of $196,000 and 5) payments 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 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 $300,000 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.

 7

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

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

from operations, and as of June 30, 2004 and 2003, the Company’s current liabilities exceeded its

current assets by $1,340,319, and its total liabilities exceeded its total assets by $4,334,245. Management has been able obtain additional financing through the issuance of debt. In addition, the Company has instituted more efficient management techniques and continues to attract and add new Models, talent and adding the new line photographers Management believes these factors will contribute toward achieving profitability. The accompanying Financial Statements

do not include any adjustments that might be necessary if the Company is unable to continue as a

going concern. In May 2004, the Company raised $810,000 in cash through the issuance of

convertible notes payable.

Funding Event

On April 23, 2004, WNMI entered into a Subscription Agreement for $810,000, one year convertible debentures; 500,000 to Alpha Capital Aktiengesellschaft, $100,000 to Longview Fund, LP, $100,000 to Ellis International Ltd., and $110,000 to Steve “Sagi” Adirim. There is a 30% premium of $243,000 in the aggregate on these notes. Additionally, in conjunction with these convertible debentures, WNMI issued warrants to purchase WNMI common stock to Alpha Capital Aktiengesellschaft (50,000,000 shares), Longview Fund, LP, (10,000,000 shares), Ellis International, Ltd., (10,000,000 shares), Steve “Sagi” Adirim (11,000,000) and Bi-Coastal Consulting Corporation (10,797,300 shares). The transaction closed on April 23, 2004. The conversion price per share of the above debentures is equal to $.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 the 10 day lookback Period immediately preceding the relevant payment due date, or (ii) $.0075 per share.

The exercise price of the warrants is $0.025 and they mature in 5 years.

New Releases

Mar 23, 2004 -- Warning Model Management Inc., announced through its wholly owned subsidiary Warning: Model Management LLC the model representation of Paris Hilton. Warning will be representing Miss Hilton for all print work, advertising campaigns and endorsements, personal appearances and runway work. To date there has been no revenue generated from this agreement.

Mar 29, 2004 -- Warning Model Management Inc., announced through its wholly owned subsidiary, Warning Model Management, LLC, the exclusive representation of the world's best-known and most beautiful woman surfer MALIA JONES. Warning also signed a deal for development of Malia's own range of hair care and sun care products to be launched later this year.

Apr 12, 2004 -- Warning Model Management, Inc. announced through its wholly owned subsidiary, Warning Model Management, LLC, it will be working with Dennis Rodman in conjunction with his agent Darren Prince. To date there has been no revenue generated from this agreement.

 8

ITEM 3. CONTROLS AND PROCEDURES

    (a)        Evaluation of Disclosure Controls and Procedures. 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 covered by this quarterly report (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.

  (b)        Changes in Internal Controls over Financial Reporting. During the most recent fiscal quarter, 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.

9 

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

For relief, the Plaintiffs request the following:

1. Issue a temporary restraining order to stop any further 10b-5 violations;
2. Issue a temporary restraining order and preliminary injunction to stop the destruction of documents, ordering expedited discovery, freezing assets of Warning Modal Management, Inc., and its subsidiaries; freezing the assets derived from violations of pertinent anti-fraud provisions, ordering of audited accounting to demonstrate extent and details of insider trading;
3. Issue a restraining order to prohibit the further transfer, encumbrance, dispositions and/or dilution of any Warning assets; to prohibit from effecting any mergers, acquisitions and/or other combinations during pendency of this action, and to stop the shareholder meeting on August 5, 2004;
4. Issue an order awarding Plaintiff compensatory damages, pre-judgment interest, and costs in an amount to be determined at trial the Plaintiffs have stated that their combined losses approach $18,000;
5. Issue an order awarding Plaintiff punitive damages in an amount not less than five-hundred thousand dollars;
6. Issue an Order awarding reasonable attorney’s fees, expert fees, and all other reasonably related costs, expenses and other such disbursements; and,
7. For the Court to retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure, in order to implement and carry out the terms of all orders and decrees that may be entered, and/or any suitable application or motion for additional relief.

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

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

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

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.

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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 April 4^th and on April 15, 2003 we issued one year promissory notes for $25,000 respectively to Jeff Rice 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 Mercator 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 $28,788 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 along with receiving a 5,000,000 share warrant at an exercise price of $0.01 per share.

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 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

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On December 17, 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 February 5, 2004, we issued a promissory note for $100,000 to 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 March 5, 2004, 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.

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 $.00255 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 ($25,000) of a convertible note that was held over two years. The conversion price was $.00255 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 ($35,000) of a convertible note that was held over two years. The conversion price was $.00255 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 $.00255 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 $.00255 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 $.00255 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 16, 2004 we issued 30,698,116 shares of common stock to Balmore S.A. for the partial conversion ($70,000) of a convertible note that was held over two years. The conversion price was $.00267 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.

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On April 16, 2004 we issued 1,601,000 shares of common stock to Jeffrey Wong for the partial conversion ($4,162.60) of a convertible note that was held over one year. The conversion price was $.0026 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 16, 2004 we issued 22,935,252 shares of common stock to Austost Anstalt Schaan for the partial conversion ($50,000) of a convertible note that was held over two years. The conversion price was $.00255 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 16, 2004 we issued 6,287,600 shares of common stock to AMRO International S.A. for the partial conversion ($13,000) of a convertible note that was held over two years. The conversion price was $.0025 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 23, 2004 we issued 25,805,935 shares of common stock to Austost Anstalt Schaan for the partial conversion ($85,000) of a convertible note that was held over two years. The conversion price was $.003859 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 23, 2004 we issued 28,841,927 shares of common stock to Balmore S.A. for the partial conversion ($95,000) of a convertible note that was held over two years. The conversion price was $.003859 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 23, 2004, WNMI entered into a Subscription Agreement for $810,000, one year convertible debentures; 500,000 to Alpha Capital Aktiengesellschaft, $100,000 to Longview Fund, LP, $100,000 to Ellis International Ltd., and $110,000 to Steve “Sagi” Adirim. There is a 30% premium of $243,000 in the aggregate on these notes. Additionally, in conjunction with these convertible debentures, WNMI issued warrants to purchase WNMI common stock to Alpha Capital Aktiengesellschaft (50,000,000 shares), Longview Fund, LP, (10,000,000 shares), Ellis International, Ltd., (10,000,000 shares), Steve “Sagi” Adirim (11,000,000) and Bi-Coastal Consulting Corporation (10,797,300 shares). The transaction closed on April 23, 2004. The conversion price per share to the note holders is equal to $.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 the 10 day lookback Period immediately preceding the relevant payment due date, or (ii) $.0075 per share.

On April 23, 2004 we issued 5,000,000 shares of common stock to Mercator Momentum Fund for the partial conversion ($12,600) of a convertible note that was held over two years. The conversion price was $.00252 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 July 1, 2004 we issued 2,997,853 shares of common stock to Balmore S.A. for the partial conversion ($17,687) of a convertible note that was held over two years. The conversion price was $.0059 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 July 1, 2004 we issued 1,034,466 shares of common stock to Balmore S.A. for the partial conversion ($5,896) of a convertible note that was held over two years. The conversion price was $.0057 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.

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Subsequent issuances.

On August 17, 2004 we issued 1,517,281 shares of common stock to Balmore S.A. for the partial conversion ($5,917) of a convertible note that was held over two years. The conversion price was $.0039 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 August 17, 2004 we issued 4,551,483 shares of common stock to Austost Anstalt Schaan for the partial conversion ($17,752) of a convertible note that was held over two years. The conversion price was $.0039 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.

ITEM 3.DEFAULT UPON SENIOR SECURITIES

The convertible debenture holders have waived the default provisions for 90 days.

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

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

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

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

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

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

Proposals 1 and 2 were approved, and will be taking effect shortly. Proposals 3 an 4 did were not approved due to a lack of a quorum.

ITEM 5. OTHER INFORMATION

None

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

(a)Exhibits

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

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

31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)

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

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

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

32.2Certification 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:

 July 27, 2004ITEM 5. Other Events and Regulation FD Disclosure.

Law Suit Filed Against Warning Model Management, Inc, itssubsidiaries, Officers and Directors.

SIGNATURES

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

SignatureTitleDate

By:/s/ Brian BonarChief ExecutiveOfficer,August 20, 2004

Brian BonarDirector, and Principal Accounting Officer

By:/s/Steve ChamberlinDirectorAugust 20, 2004

Steve Chamberlin

By:/s/Stanley TepperChief Financial OfficerAugust 20, 2004

Stanley Tepper

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