NOTE PURCHASE AGREEMENT

                                 By and Between

                         St. Cloud Capital Partners L.P.

                                       and

                             Small World Kids, Inc.

                                     Dated:

                             As of September 7, 2004

<PAGE>


                             NOTE PURCHASE AGREEMENT

      Note Purchase  Agreement dated as of September 7, 2004 (this  "Agreement")
by and between Small World Kids, Inc., a Nevada corporation (the "Company"), and
St. Cloud Capital Partners L.P. ("Purchaser").

                                    RECITALS

      A. Purchaser desires to purchase from the Company, and the Company desires
to sell to  Purchaser,  upon the terms and  subject  to the  conditions  of this
Agreement,  a note (the "Note") in the aggregate principal amount of two million
dollars ($2,000,000) (the "Loan Amount").

      B. The Company shall issue to Purchaser, without additional consideration,
an aggregate of 650,000 shares of the Company's  Common Stock (the "Shares") and
warrants (the "Warrants") in the form of Exhibit B attached  hereto,  evidencing
Purchaser's  right to acquire an  aggregate of 350,000  shares of the  Company's
Common Stock (the "Warrant Shares");

      C. The  Company  and the  Purchaser  are  executing  and  delivering  this
Agreement in reliance upon the exemption from securities  registration  afforded
by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act")
and the provisions of Regulation D ("Regulation  D") as promulgated  thereunder;
and

      D. This  Agreement,  the Note,  the  Warrants,  the Letter  Agreement  (as
hereinafter  defined) and the Lock-Up  Agreement  (as  hereinafter  defined) are
sometimes hereinafter collectively referred to as the "Transaction Documents."

                                   AGREEMENTS

      NOW, THEREFOR, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the parties, the Company and Purchaser hereby
agree as follows:

      1. ISSUANCE SALE AND DELIVERY OF SECURITIES.

            a.  Issuance of the Note.  Subject to the terms and  conditions  set
forth in this Agreement and in reliance upon the  representations and warranties
contained  herein,  the  Company  agrees  to  issue  and sell to  Purchaser  and
Purchaser hereby agrees to purchase from the Company,  the Note. The Note or any
portion thereof shall (a) at the option of Purchaser, be convertible into shares
of the Company's  Common Stock (the "Note Shares") and (b) be  substantially  in
the form attached hereto as Exhibit A.

            b.  Closing.  The closing of the  purchase and sale of the Note (the
"Closing")  shall  be held at the  offices  of Loeb & Loeb  LLP in Los  Angeles,
California,  or at such other  location  as shall be agreed  upon by the parties
hereto on or before September 15, 2004 (the "Outside Date"). At the Closing, the
Company  shall  deliver the Note,  the Warrants and the Shares to Purchaser  and
Purchaser  shall pay to the  Company  the Loan  Amount,  less a  closing  fee of
$80,000  (the  "Closing  Fee"),  by  cashiers'  check,  certified  funds or wire
transfer.  Concurrently  with the receipt of the Loan Amount,  the Company shall
also pay to St. Cloud  Capital LLC a management  fee (the  "Management  Fee") of
$80,000 pursuant to the Letter Agreement attached as Exhibit C.  Notwithstanding
anything to the  contrary,  if the  conditions to Closing set forth in Article 6
have been  satisfied  by the  Company by the Outside  Date,  and (a) the Closing
occurs after the Outside Date, no Closing Fee shall be paid or deducted, and (b)
if the Closing  occurs after  September  17, 2004,  no  Management  Fee shall be
payable. The date of the Closing is referred to herein as the Closing Date.

<PAGE>

      2. PURCHASER'S REPRESENTATIONS AND WARRANTIES.

      Purchaser  understands,  agrees with,  and  represents and warrants to the
Company with respect to the purchase hereunder, that:

            a. Investment Purposes; Compliance With Securities Act. Purchaser is
acquiring the Note, the Warrants and the Shares for Purchaser's own account, for
investment only and not with a view towards,  or in connection  with, the public
sale or  distribution  thereof,  except  pursuant to sales  registered  under or
exempt from the Securities Act.

            b.  Accredited   Purchaser  Status.   Purchaser  is  an  "accredited
Purchaser" as that term is defined in Rule 501 (a) of Regulation D. Purchaser is
a sophisticated purchaser and has such knowledge and experience in financial and
business  matters  that the  Purchaser is capable of  evaluating  the merits and
risks of an investment made pursuant to this Agreement.

            c.  Reliance on  Exemptions.  Purchaser  understands  the Note,  the
Warrants  and the Shares are being  offered  and sold to in reliance on specific
exemptions from the  registration  requirements of the applicable  United States
federal and state securities laws and that the Company is relying upon the truth
and  accuracy  of,  and  Purchaser's   compliance  with,  the   representations,
warranties,  acknowledgments,  understandings,  agreements  and covenants of the
Purchaser  set  forth  herein in order to  determine  the  availability  of such
exemptions  and the  eligibility  of Purchaser to acquire the Note, the Warrants
and the Shares.

            d. Information. Purchaser and the advisors of the Purchaser, if any,
have been  furnished  with all material  information  relating to the  business,
finances and operations of the Company and material  information relating to the
offer and sale of the Note, the Warrants and the Shares that have been requested
by the Purchaser. Purchaser and Purchaser's advisors, if any, have been afforded
the  opportunity  to ask all such questions of the Company as they have in their
discretion deemed advisable.  Purchaser understands that Purchaser's  investment
in the  Note,  the  Warrants  and the  Shares  involves  a high  degree of risk.
Purchaser has sought such accounting,  legal and tax advice as it has considered
necessary to an informed investment decision with respect to the investment made
pursuant to this Agreement.

            e. Transfer or Resale. Purchaser understands that: (i) the Note, the
Warrants,  the  Warrant  Shares,  the Note  Shares and the Shares  have not been
registered under the Securities Act of 1933, as amended (the  "Securities  Act")
or any state securities laws, and may not be offered for sale, sold, assigned or
transferred  unless  either  (a)  subsequently   registered  thereunder  or  (b)
Purchaser  shall have delivered to the Company an opinion by counsel  reasonably
satisfactory  to  the  Company,   in  form,   scope  and  substance   reasonably
satisfactory to the Company,  to the effect that the Note, the Note Shares,  the
Shares  and/or  the  Warrants,  as the case  may be,  to be  sold,  assigned  or
transferred may be sold,  assigned or transferred  pursuant to an exemption from
such  registration,  and (ii) except as expressly  provided herein,  neither the
Company nor any other person is under any  obligation to register such Note, the
Note  Shares,  the Shares,  the Warrant  Shares  and/or the  Warrants  under the
Securities  Act or any state  securities  laws or to  comply  with the terms and
conditions of any exemption thereunder.


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<PAGE>

            f. Legends. The Note, the Warrants,  the Shares, the Note Shares and
the Warrant Shares shall bear the following legend:

"THIS  SECURITY HAS NOT BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933, AS
AMENDED,  OR, IF APPLICABLE,  STATE  SECURITIES  LAWS.  THIS SECURITY MAY NOT BE
SOLD,  OFFERED FOR SALE,  PLEDGED OR HYPOTHECATED IN THE ABSENSE OF AN EFFECTIVE
REGISTRATION STATEMENT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO SMALL
WORLD KIDS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

            g. Authorization; Enforcement. The Transaction Documents as to which
Purchaser  is a party  have  been  duly and  validly  authorized,  executed  and
delivered  by  Purchaser  and  are  each  and  collectively  valid  and  binding
agreements of Purchaser  enforceable in accordance  with their terms,  except as
enforceability   may  be  limited   by   bankruptcy,   insolvency,   moratorium,
liquidation,   or  similar  laws  relating  to,  or  affecting,   generally  the
enforcement of creditors'  rights and remedies or by other equitable  principles
of general application.

      3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

      The Company  understands,  agrees  with,  and  represents  and warrants to
Purchaser that:

            a. Organization and Qualification.  The Company and its subsidiaries
are  duly  organized  and  existing  in  good  standing  under  the  laws of the
respective  jurisdictions  in which they are incorporated and have the requisite
corporate  power to own their  properties  and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the  business  conducted  by it makes such  qualification
necessary  and where the  failure  so to qualify  would have a Material  Adverse
Effect.  "Material  Adverse  Effect" as used herein means any  material  adverse
effect on the operations,  properties or financial  condition of the Company and
its subsidiaries taken as a whole.

            b.  Authorization;  Enforcement.  (i) The Company has the  requisite
corporate  power  and  authority  to enter  into  and  perform  the  Transaction
Documents,  to issue and sell the Note in accordance with the terms hereof,  and
to perform its obligations under the Note in accordance with the requirements of
the same,  (ii) the  execution,  delivery  and  performance  of the  Transaction
Documents  by  the  Company  and  the  consummation  by it of  the  transactions
contemplated hereby and thereby have been duly authorized by the Company's Board
of Directors and no further consent or authorization  of the Company,  its Board
of Directors,  or its shareholders is required,  (iii) the Transaction Documents
have been duly and validly  authorized,  executed and  delivered by the Company,
and (iv) the Transaction  Documents constitute the valid and binding obligations
of the  Company  enforceable  against  the  Company  in  accordance  with  their
respective  terms,  except as such  enforceability  may be limited by applicable
bankruptcy, insolvency, reorganization,  moratorium, liquidation or similar laws
relating to, or affecting,  generally,  the enforcement of creditors' rights and
remedies or by other equitable principles of general application.


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<PAGE>

            c. No Conflicts.  The  execution,  delivery and  performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated  hereby  will not (i)  result in a  violation  of the  Articles  of
Incorporation  or Bylaws of the Company or (ii)  conflict  with, or constitute a
default (or an event  which with notice or lapse of time or both would  become a
default)  under,  or  give to  others  any  rights  of  termination,  amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its  subsidiaries  is a party, or result in a violation of
any law, rule,  regulation,  order,  judgment or decree  (including  federal and
state securities laws and  regulations)  applicable to the Company or any of its
subsidiaries  or by which any  property  or asset of the  Company  or any of its
subsidiaries  is  bound  or  affected  (except  for  such  conflicts,  defaults,
terminations,  amendments, accelerations,  cancellations and violations as would
not, individually or in the aggregate, have a material adverse effect).

            d.  Consents.  Except  for the  filing  of a Form D with the  United
States Securities and Exchange Commission, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute,  deliver or perform
any of its obligations under the Transaction Documents.

            e. SEC Reports. The Company has filed all proxy statements,  reports
and other documents required to be filed by it under the Securities Exchange Act
of 1934 as amended (the  "Exchange  Act").  The Company has furnished  Purchaser
with copies of (i) its Annual Report on Form 10-K for the fiscal year ended June
30,  2003,  Form 8-K filed June 4, 2004,  as amended on June 16, 2004 and August
31, 2004, and its Quarterly Report on Form 10-QSB for the quarter ended June 30,
2004, as amended on August 31, 2004 (collectively,  the "SEC Reports").  The SEC
Reports were in substantial  compliance with the  requirements of its respective
form and neither the SEC Reports,  nor the financial  statements  (and the notes
thereto)  included  in the SEC  Reports,  contained  any untrue  statement  of a
material fact or omitted to state a material fact required to be stated  therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.

            f. Absence of Certain  Changes.  Since June 30, 2004, there has been
no material adverse change and no material adverse  development in the business,
properties,  operation,  financial condition, results of operations or prospects
of the Company.

            g.  Absence of  Litigation.  Except as set forth on  Schedule  3(g),
there is no action, suit, proceeding,  inquiry or investigation before or by any
court,  public  board or body  pending  or,  to the  knowledge  of the  Company,
threatened  against or affecting the Company,  wherein an unfavorable  decision,
ruling or finding would have a Material  Adverse Effect or which would adversely
affect the  validity or  enforceability  of, or the  authority or ability of the
Company to perform its obligations under, this Agreement or any of the documents
contemplated herein.


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<PAGE>

            h. Title to Assets and Liens.  Except as set forth on Schedule 3(h),
the  Company  has good and  marketable  title to the Assets  owned by it and the
valid and  enforceable  right to receive  and/or use each of the Assets in which
the Company has any other interest,  free and clear of all Liens. As used herein
(i)  "Liens"  shall  mean any  lien,  encumbrance,  pledge,  mortgage,  security
interest,  lease,  charge,  conditional  sales  contract,  option,  restriction,
reversionary  interest,  right  of  first  refusal,  voting  trust  arrangement,
preemptive  right,  claim under  bailment or storage  contract,  easement or any
other adverse claim or right whatsoever; and (ii) "Assets" shall mean all of the
goodwill,  assets,  properties and rights of every nature, kind and description,
whether tangible or intangible,  real,  personal or mixed,  wherever located and
whether or not carried or  reflected  on the books and  records of the  Company,
which  are  owned  by the  Company  or in which  the  Company  has any  interest
(including the right to use).

            i.  Capitalization.  Attached as Schedule 3(i) is a true and correct
description of the capitalization of the Company. Additionally, the Company owns
10,000  shares of Small  World  Toys,  Inc.  representing  all of the issued and
outstanding capital stock of Small World Toys.

            j.  Minute  Books.  The  minute  books of the  Company  provided  to
Purchaser   contain  a  complete  summary  of  all  meetings  of  directors  and
shareholders  since  the time of  incorporation  and  reflect  all  transactions
referred to in such minutes accurately in all material respects.

      4. COVENANTS.

            a. Best  Efforts.  Each party shall use its best  efforts  timely to
satisfy each of the  conditions  to be satisfied by it as provided in Sections 5
and 6 of this Agreement.

            b.  Securities  Laws.  The Company agrees to timely file all reports
and other documents  required to be filed with the SEC,  specifically,  a Form D
(or equivalent  form required by applicable  state law) with respect to the Note
Shares and Warrants if and as required under  Regulation D and applicable  state
securities  laws and to provide a copy thereof to Purchaser  promptly after such
filing.

            c.  Expenses.   Each  party  shall  pay  such  party's  expenses  in
connection with the  transactions  contemplated by the Agreement except that the
Company  concurrently with the execution of this Agreement will pay to Purchaser
up to $5,000 to cover in full  Purchaser's  legal costs in connection  with this
Agreement.

            d. Use of Proceeds.  The Company shall use the net proceeds from the
sale of the Note for working capital and general corporate purposes.


                                       5
<PAGE>

            e. Board Seat. During the period that the Note is outstanding,  Cary
Fitchey will be appointed to the  Company's  board of directors for such period,
provided that the Company  shall have no obligation to provide Mr.  Fitchey with
any compensation  otherwise made available to its other outside directors except
that Mr.  Fitchey shall be entitled to be reimbursed  for his  reasonable out of
pocket expenses upon providing  documentation  therefor. In addition, as long as
Purchaser owns in excess of 500,000 shares of the Company (subject to adjustment
for stock splits,  recapitalizations,  etc.), a designee of Purchaser reasonably
acceptable  to the Company shall be entitled to an observer seat on the board of
directors.  On or before the Closing, Mr. Fitchey shall submit to the Company an
undated  letter  of  resignation  in  connection  with his  board of  directors'
appointment.

            f. Security Interest. Purchaser has been advised by the Company that
(a) the  Company's  credit  agreement  with  Manufacturers'  Bank  prohibits the
placing of liens on the property of Small World Toys without the consent of such
bank, and (b) the Company is currently  engaged in discussions  with one or more
financial  institutions  for  a  replacement  credit  facility.  It  shall  be a
condition to the Company entering into any such replacement credit facility that
the lender permit the Company to grant a security interest in favor of Purchaser
in the assets of Small World Toys which security interest will be subordinate to
the lien of such lender  pursuant  to an  intercreditor's  agreement  reasonably
acceptable to Purchaser.  Notwithstanding the foregoing,  if for whatever reason
the Company has not  granted to  Purchaser a security  interest in the assets of
Small World Toys, Inc. which security interest shall have the priority described
in  the  Note  (or  such  other  credit  enhancement  reasonably  acceptable  to
Purchaser)  by  November  30,  2004,  then the  number of Warrant  Shares  shall
increase by 100,000  without  any further  action on the part of the parties and
Purchaser shall issue a new Warrant for such increased  number of Warrant Shares
on the same terms as Exhibit B.

      5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

      The obligations of the Company  hereunder are subject to the satisfaction,
on or before the Closing,  unless otherwise specified,  of each of the following
conditions,  provided that these  conditions  are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:

            a.  Each of the  Company  and  Purchaser  shall  have  executed  the
Transaction Documents as to which it is a party.

            b. The representations and warranties of Purchaser shall be true and
correct in all  material  respects as of the Closing as though made at that time
(except for  representations  and warranties  that speak as of a specific date).
Purchaser shall have performed,  satisfied and complied in all material respects
with the covenants,  agreements and conditions  required by this Agreement to be
performed, satisfied or complied with by Purchaser at or prior to the Closing.

            c. No statute, rule, regulation,  executive order, decree, ruling or
injunction  shall have been  enacted,  entered,  promulgated  or endorsed by any
court or governmental authority of competent jurisdiction or any self regulatory
organization  having  authority  over  the  matters  contemplated  hereby  which
restricts or prohibits the consummation of any of the transactions  contemplated
herein.


                                       6
<PAGE>

            d. All consents, approval,  authorizations and orders required to be
obtained and all registrations,  filings and notices required to be made with or
given to any regulatory  authority or person as provided  herein shall have been
made.

            e. Purchaser shall have entered into the Lock Up Agreement  attached
hereto as Exhibit D with respect to the Shares,  the Warrant Shares and the Note
Shares.

            f. Purchaser shall execute such  documentation  as may be reasonably
requested by the Company to subordinate the obligations of the Company under the
Note to the Senior  Indebtedness  of the Company (as such term is defined in the
Note) from time to time outstanding.

      6. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE.

      The obligations of Purchaser are subject to the satisfaction, on or before
the Closing,  unless otherwise specified,  of each of the following  conditions,
provided that these  conditions are for the sole benefit of Purchaser and may be
waived by Purchaser at any time in its sole discretion:

            a. The Company shall have executed the Transaction Documents.

            b. The  representations  and warranties of the Company shall be true
and  correct  in  all   material   respects  as  of  the  Closing   (except  for
representations  and warranties that speak as of a specific  date).  The Company
shall have performed,  satisfied and complied in all material  respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied  or  complied  with by the  Company  at or prior to the  Closing.  The
Purchaser may require a certificate,  executed by the Chief Executive Officer of
the Company,  dated as of the Closing,  to the  foregoing  effect and as to such
other matters as may be reasonably requested by Purchaser.

            c. No statute, rule, regulation,  executive order, decree, ruling or
injunction  shall have been  enacted,  entered,  promulgated  or endorsed by any
court or governmental authority of competent jurisdiction or any self regulatory
organization  having  authority  over  the  matters  contemplated  hereby  which
restricts or prohibits the consummation of any of the transactions  contemplated
herein.

            d. All consents, approval,  authorizations and orders required to be
obtained and all registrations,  filings and notices required to be made with or
given to any regulatory  authority or person as provided  herein shall have been
made.

            e. Purchaser shall receive  evidence  reasonably  satisfactory to it
that the holder of the Term Note (as such term is defined in the Note) agrees to
defer payment of principal under the Term Note until the Note is paid in full.

      7. REGISTRATION

      The Company  shall  include  the  Shares,  the Note Shares and the Warrant
Shares in a registration statement to be filed by the Company in connection with
the  resale  of shares  of the  Company's  Common  Stock  (the "Put  Financing")
issuable  pursuant to Stock  Purchase  Agreements  dated as of September 3, 2004
(the "Purchase Agreements) between the Company and each of Pewter Hill Partners,
LLC, Infinium Investment Partners, LLC and Wire Mill Partners III, LLC (the "Put
Purchasers").


                                       7
<PAGE>

      8. GOVERNING LAW; MISCELLANEOUS.

            a. Governing Law and Venue.  This Agreement shall be governed by and
interpreted  in  accordance  with the laws of the  State of  California  without
regard to the  principles  of conflict of laws.  In the event of any  litigation
regarding the  interpretation  or  application  of this  Agreement,  the parties
irrevocably  consent  to  jurisdiction  in any of the  state or  federal  courts
located in the City of Los Angeles,  State of California  and waive their rights
to  object  to  venue  in any  such  court,  regardless  of the  convenience  or
inconvenience  thereof  to any party.  Service  of  process in any civil  action
relating to or arising out of this  Agreement  (including  also all  Exhibits or
Schedules hereto) or the transaction(s)  contemplated herein may be accomplished
in any  manner  provided  by  law.  The  parties  hereto  agree  that  a  final,
non-appealable  judgment in any such suit or proceeding  shall be conclusive and
may be enforced in other  jurisdictions by suit on such judgment or in any other
lawful manner.

            b.  Counterparts.  This  Agreement  may be  executed  in two or more
identical  counterparts,  all of  which  shall  be  considered  one and the same
agreement and shall become effective when  counterparts have been signed by each
party and signature pages from such counterparts have been delivered.

            c.  Headings;  Gender,  Etc. The headings of this  Agreement are for
convenience  of  reference  and  shall  not  form  a  part  of,  or  affect  the
interpretation of this Agreement.  As used herein,  the masculine shall refer to
the  feminine  and neuter,  the feminine to the  masculine  and neuter,  and the
neuter to the  masculine  and  feminine,  as the  context may  require.  As used
herein,  unless the context  clearly  requires  otherwise,  the words  "herein,"
"hereunder" and "hereby,"  shall refer to this entire  Agreement and not only to
the  Section or  paragraph  in which such word  appears.  If any date  specified
herein falls upon a Saturday, Sunday or public or legal holidays, the date shall
be construed to mean the next business day following  such  Saturday,  Sunday or
public or legal holiday. For purposes of this Agreement, a "business day" is any
day other than a Saturday, Sunday or public or legal holiday.

            d. Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction,  such invalidity or unenforceability shall
not affect the validity or  enforceability of the remainder of this Agreement in
that  jurisdiction  or the validity or  enforceability  of any provision of this
Agreement in any other jurisdiction.

            e. Entire Agreement;  Amendments. This Agreement and the instruments
referenced  herein contain the entire  understanding of the parties with respect
to the matters covered herein and therein and, except as specifically  set forth
herein or therein,  neither the Company nor Purchaser makes any  representation,
warranty,  covenant or undertaking with respect to such matters. No provision of
this  Agreement  may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.


                                       8
<PAGE>

            f. Notices.  Any notices required or permitted to be given under the
terms of this Agreement shall be sent by U.S. Mail or delivered personally or by
courier or via  facsimile  (if via  facsimile,  to be followed  within three (3)
business  days by an original of the notice  document via U.S.  Mail or courier)
and shall be effective  five (5) days after being placed in the mail, if mailed,
certified or registered, return receipt requested, or upon receipt, if delivered
personally or by courier or by facsimile, in each case properly addressed to the
party to receive the same. The addresses for such communications shall be:

If to the Company:                  Small World Kids, Inc.
                                    5711 Bunkingham Parkway
                                    Culver City, California 90230
                                    Attention:  Debra Fine
                                    Fax Number:  310-258-1194

With a copy to:                     Loeb & Loeb LLP
                                    10100 Santa Monica Boulevard, Suite 2200
                                    Los Angeles, California 90067
                                    Attention:  David L. Ficksman
                                    Fax Number:  310-282-2200

If to Purchaser:                    St. Cloud Capital Partners L.P.
                                    10866 Wilshire Boulevard, Suite 1450
                                    Los Angeles, California 90024
                                    Attention: Cary S. Fitchey
                                    Fax Number:  310-553-0257

With a copy to:                     Latham and Watkins, LLP
                                    633 West Fifth Street, Suite 4000
                                    Los Angeles, California 90071
                                    Attention: Alex Voxman
                                    Fax Number:  213-891-8763

If to the  Purchaser,  at the address on the signature of this  Agreement.  Each
party shall provide written notice to the other party of any change in address.

            g. Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
Neither the Company nor Purchaser  shall assign this  Agreement or any rights or
obligations  hereunder  without the prior  written  consent of the other  (which
consent shall not be  unreasonably  withheld),  and in any event any assignee of
Purchaser  shall be an accredited  investor (as defined in Regulation D), in the
written opinion of counsel who is reasonably  satisfactory to Company,  and such
assignment shall be in form, substance and scope reasonably  satisfactory to the
Company.  Notwithstanding anything herein to the contrary,  Purchaser may pledge
the Note as collateral for a bona fide loan with a third party lender,  and such
pledge shall not be considered  an assignment in violation of this  Agreement so
long as it is made in compliance with all applicable law.


                                       9
<PAGE>

            h. No Third Party Beneficiaries.  This Agreement is intended for the
benefit of the parties  hereto and their  respective  permitted  successors  and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

            i. Survival.  The  representations and warranties of the Company and
Purchaser  contained in Sections 2 and 3 and the  agreements  and  covenants set
forth in Section 4 shall  survive the final  Closing of the purchase and sale of
the Note purchased and sold hereby.

            j. Further Assurance.  Each party shall do and perform,  or cause to
be done and performed,  all such further acts and things,  and shall execute and
deliver all such other agreements,  certificates,  instruments and documents, as
the other  party may  reasonably  request  in order to carry out the  intent and
accomplish  the  purposes  of  this  Agreement  and  the   consummation  of  the
transactions contemplated hereby.

            k.  Remedies.  No  provision  of this  Agreement  providing  for any
specific  remedy  to a party  shall  be  construed  to limit  such  party to the
specific  remedy  described,  and any  other  remedy  that  would  otherwise  be
available  to such party at law or in equity shall be so  available.  Nothing in
this  Agreement  shall  limit any  rights a party  may have with any  applicable
federal or state securities laws with respect to the  transactions  contemplated
hereby.

            l.  Termination.  If the Company has satisfied all of the conditions
set forth in Section 6, if the Closing has not occurred by the Outside  Date, in
addition to any other right or remedy,  at law or in equity,  the Company  shall
have the right to terminate this Agreement by notice to the Purchaser.

                [Remainder of the page intentionally left blank]


                                       10
<PAGE>

      IN WITNESS  WHEREOF,  Purchaser  and the  Company  have  caused  this Note
Purchase Agreement to be duly executed as of the date first written above.

                                                THE COMPANY:

                                                SMALL WORLD KIDS, INC.

                                                By:
                                                   -----------------------------
                                                Name: Debra Fine
                                                Title: Chief Executive Officer

                                                PURCHASER:

                                                ST. CLOUD CAPITAL PARTNERS L.P.

                                                By: SCGP, LLC
                                                Its: General Partner

                                                By:
                                                   -----------------------------
                                                Name:  Cary S. Fitchey
                                                Title: Senior Managing Member


                                       11
<PAGE>

                                  Schedule 3(g)
                                   Litigation

o     The Company has  received a letter  from an attorney  claiming  that Small
      World  Kids  owes  $180,000  as a  finder's  fee in  connection  with  the
      acquisition of Small World Toys which claim is subject to  indemnification
      by Eddy Goldwasser.


<PAGE>

                                  Schedule 3(h)
                                 Pledged Assets

o     Promissory  Note dated May 20, 2004 in the aggregate  principal  amount of
      five million  dollars  ($5,000,000)  executed by Small World Kids, Inc. in
      favor of SWT, LLC is secured by a majority  (8,333)  shares of Small World
      Toys.

o     Credit  Facility  by  and  between  Small  World  Toys,  as  Borrower  and
      Manufacturer's  Bank as Lender is  secured  by all of the  assets of Small
      World Toys.

o     1,667 shares of Small World Toys have been pledged to Eddy  Goldwasser  to
      secure two promissory notes dated May 20, 2004 to Mr. Goldwasser.


<PAGE>

                                  Schedule 3(i)
                                 Capitalization

Small World Kids
Capitalization Table
Beneficial Ownership

<TABLE>
<CAPTION>


                                                                              Sav-On
                                                Purchase        Exchange       Team
                                                of Ruben          Agmt        Sports
                                                05/20/04        05/20/04      Shares       Total Shares
<S>                                            <C>             <C>            <C>           <C>
Russell and Debra Fine, as trustees of FFT     1,648,714       13,509,843                   15,158,557
SWT Investments, LLC                           1,846,467       15,130,261                   16,976,728
Phoenix Capital Opportunity, LLC                 820,652        6,724,560                    7,545,212
David Marshall, Inc.                           1,173,134        9,612,858                   10,785,992
David L. Ficksman and Maxine B. Ficksman, as
trustees of the Ficksman Family Trust             41,033          336,228                      377,261
Michael Ruben                                                                   650,000        650,000
Other Holders                                                                   977,000        977,000
Debra Fine
John Nelson
Bob Rankin
All other employees

Shares remaining for issuance
                                               -------------------------------------------------------
Total Shares                                   5,530,000       45,313,750     1,627,000     52,470,750
                                               =======================================================

<CAPTION>
                                               Percentage    Options    Fully Diluted   Percentage
<S>                                                <C>     <C>            <C>              <C>
Russell and Debra Fine, as trustees of FFT         28.9%                  15,158,557       25.9%
SWT Investments, LLC                               32.4%                  16,976,728       29.0%
Phoenix Capital Opportunity, LLC                   14.4%                   7,545,212       12.9%
David Marshall, Inc.                               20.6%                  10,785,992       18.4%
David L. Ficksman and Maxine B. Ficksman, as
trustees of the Ficksman Family Trust               0.7%                     377,261        0.6%
Michael Ruben                                       1.2%                     650,000        1.1%
Other Holders                                       1.9%                     977,000        1.7%
Debra Fine                                                 2,600,000       2,600,000        4.4%
John Nelson                                                  600,000         600,000        1.0%
Bob Rankin                                                   520,000         520,000        0.9%
All other employees                                        2,400,000       2,400,000        4.1%

Shares remaining for issuance
                                                  ----------------------------------------------
Total Shares                                      100.0%   6,120,000      58,590,750        100%
                                                  ==============================================
</TABLE>



<PAGE>

                                 PROMISSORY NOTE

THIS NOTE HAS NOT BEEN  REGISTERED  UNDER THE SECURITIES ACT OF 1933, AS AMENDED
OR, IF APPLICABLE, STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE,  PLEDGED  OR  HYPOTHECATED  IN THE  ABSENCE OF AN  EFFECTIVE  REGISTRATION
STATEMENT  AS TO THIS NOTE UNDER  SAID ACT OR AN  OPINION OF COUNSEL  REASONABLY
SATISFACTORY TO SMALL WORLD KIDS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

                                      NOTE

            FOR VALUE RECEIVED, Small World Kids, Inc. a Nevada corporation (the
"Borrower") with principal  offices located at 5711 Buckingham  Parkway,  Culver
City,  California  90230,  hereby promises to pay to St. Cloud Capital  Partners
L.P. (the "Holder") or order,  without  demand,  the sum of Two Million  Dollars
($2,000,000) with interest at the rate of 10% per annum. The principal amount of
the Note shall be due and payable on the Maturity Date (as hereinafter defined).
Capitalized  term used herein but not  otherwise  defined shall have the meaning
assigned to those terms in that certain Note Purchase  Agreement dated September
7, 2004, between the Borrower,  the Holder and the other holders of notes of the
Borrower.

                  The following terms shall apply to this Note:

                                    ARTICLE I

                                     PAYMENT

            1.1 Payment of Interest.  Interest  shall be due and payable in full
on the  Maturity  Date.  However,  that if the Note has not been paid in full by
February ___, 2005, commencing on the last day of the next month and on the last
day of each month thereafter until the Note is paid in full, Borrower shall make
interest  payments  on the  unpaid  principal  amount,  provided  that  any such
installment  of interest may be deferred if, in the  reasonable  judgment of the
Company, such payment would impair the Company's ability to meet its obligations
as they become due. During the occurance and continuation of an Event of Default
the interest  rate shall be increased by five (5%) per annum  commencing  on the
date when the Event of Default was declared by Holder.

            1.2 Maturity Date. On the Maturity Date, the entire principal amount
and any accrued and unpaid  interest  shall be paid to the Holder without offset
or deduction of any kind. The Maturity Date shall be twelve (12) months from the
Closing Date.

            1.3 Prepayment. The Note may be prepaid in whole or in part (subject
to a minimum payment of $100,000), without premium or penalty.



<PAGE>

            1.4   Priority.   The  Note  shall  rank  senior  to  the  Company's
indebtedness  in  the  aggregate   principal  amount  of  five  million  dollars
($5,000,000)  to SWT,  LLC  evidenced  by the Term Note dated as of May 20, 2004
(the "Term Note") to the effect that no payment of  principal  may be made under
the Term Note until  this Note is paid in full . The Note shall be  subordinated
to all  existing or  reasonably  approved  Senior  Indebtedness  of the Company.
Senior  Indebtedness  shall mean all  indebtedness of the Company  regardless of
whether  incurred on,  before or after the Closing  Date (i) for money  borrowed
from any bank,  savings  and loan  association,  insurance  company or any other
financial  institution  engaged  in the  business  of  lending  funds  which  is
evidenced by notes, bonds,  debentures or other written obligations and (ii) any
other  indebtedness  in  writing  signed by the  Company  which,  by its  terms,
provides that it is senior in priority to the payment to the Note.

            1.5   Mandatory   Repayment.   The  Company   shall  pay  to  Holder
seventy-five  percent (75%) of the net proceeds received by the Company from the
Put Financing (and, to the extent permitted by the terms of such investment, any
other  equity  financing)  to be applied to the  repayment of the Note until the
Note is repaid in full, such prepayments to be applied first to accrued interest
and then to unpaid  principal.  Notwithstanding  the  foregoing,  if the Company
enters  into any other debt  financing  up to a  cumulative  amount of  $750,000
(which in any event shall be on terms reasonably  acceptable to Purchaser) which
requires  prepayment  from the net  proceeds of equity  financings,  the Company
shall have the right to apply such seventy-five percent (75%) between Holder and
any other holders of debt on a pari passu basis.

                                   ARTICLE II

                                EVENTS OF DEFAULT

            2.1 Events of Default. The occurrence of any of the following events
of default ("Event of Default") shall, at the option of the Holder hereof,  make
the principal balance then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable:

            (a) Failure to Pay Principal and/or Interest.  The Borrower fails to
pay any  installment  of principal or interest  hereon when due and such failure
continues for a period of ten (10) days after the due date.

            (b) Breach of Covenant.  The Borrower breaches any material covenant
or other term or  condition of this Note or the Note  Purchase  Agreement in any
material respect and such breach, if subject to cure,  continues for a period of
thirty (30) days after written notice to the Borrower from the Holder.

            (c)  Breach  of   Representations   and  Warranties.   Any  material
representation  or warranty  of the  Borrower  made herein in any  Transactional
Document shall be false or misleading in any material respect.

            (d) Receiver or Trustee.  The Borrower  shall make an assignment for
the  benefit  of  creditors,  or apply for or consent  to the  appointment  of a
receiver  or  trustee  for it or for a  substantial  part  of  its  property  or
business; or such a receiver or trustee shall otherwise be appointed.

                                        2
<PAGE>

            (e) Judgments.  Any money  judgment,  writ or similar final process,
shall be entered  or filed  against  Borrower  or any of its  property  or other
assets for more than $500,000, and shall remain unvacated,  unbonded or unstayed
for a period of forty-five (45) days.

            (g)   Bankruptcy.   Bankruptcy,   insolvency,    reorganization   or
liquidation  proceedings or other proceedings or relief under any bankruptcy law
or any law for the  relief of debtors  shall be  instituted  by or  against  the
Borrower and if instituted  against Borrower are not dismissed within 60 days of
initiation.

            2.2  Enforcement.  Upon the occurrence of any Event of Default,  the
Holder may thereupon proceed to protect and enforce its rights either by suit in
equity and/or by action at law or by other appropriate  proceedings  whether for
the  specific  performance  (to the extent  permitted by law) of any covenant or
agreement  contained in this Note or in aid of the exercise of any power granted
in this Note, and proceed to enforce the payment of this Note held by it, and to
enforce any other legal or equitable right of the Holder.

                                   ARTICLE III

                                   CONVERSION

            3.1 Right to  Convert.  In the  event  that the  Borrower  elects to
exercise  its put rights under the Put  Financing,  it shall  provide  notice to
Holder  (the "Put  Notice")  concurrently  with its  notice  under the  Purchase
Agreements.  Upon receipt of such Notice, Holder shall have the right to convert
any unpaid  principal  portion and accrued  interest on this Note into shares of
Borrower's  Common Stock (the "Conversion  Shares") by delivery to Borrower of a
Notice of Conversion  within three  business days from formal receipt of the Put
Notice at the  conversion  price equal to the average price per share of the Put
Financing  for all tranches  with respect to which the Borrower has the right to
exercise  (the  "Conversion  Price").  Holder  shall be entitled to exercise its
conversion rights hereunder only one time.

            3.2 Issuance of Shares. Upon the delivery to Borrower of a Notice of
Conversion of the Holder's written request for conversion,  Borrower shall issue
and deliver to the Holder  within  five (5)  business  days from the  Conversion
Notice  that  number  of shares of  Common  Stock  for the  portion  of the Note
converted in accordance with the foregoing. The number of shares of Common Stock
to be issued upon each  conversion  of this Note shall be determined by dividing
that  portion  of the  principal  and  accrued  interest  under  the  Note to be
converted by the  Conversion  Price.  In the event that,  after the  Conversion,
shares have been issued  pursuant to the Put Financing so that the average price
of the Put Financing becomes lower than the Conversion Price, the Borrower shall
issue to Holder  such number of  additional  Conversion  Shares  based upon such
lower average price.


                                       3
<PAGE>

                                   ARTICLE IV

                                  MISCELLANEOUS

            4.1 Failure or  Indulgence  Not  Waiver.  No failure or delay on the
part of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof,  nor shall any single or partial  exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other  right,  power or  privilege.  All  rights  and  remedies  existing
hereunder  are  cumulative  to, and not  exclusive  of,  any rights or  remedies
otherwise available.

            4.2  Notices.  Any notice  herein  required or permitted to be given
shall be in writing  and may be  personally  served or sent by fax  transmission
(with copy sent by certified or registered  mail or by overnight  courier).  For
the  purposes  hereof,  the address and fax number of the Holder is set forth on
the  signature  page hereto.  The address and fax number of the Borrower is 5711
Bunkingham  Parkway,  Culver City,  California 90230,  facsimile (310) 258-1194.
Both  Holder and  Borrower  may change the address and fax number for service by
service of notice to the other as herein provided.

            4.3 Amendment Provision.  The term "Note" and all reference thereto,
as used  throughout  this  instrument,  shall mean this instrument as originally
executed,  or  if  later  amended  or  supplemented,   then  as  so  amended  or
supplemented.

            4.4 Assignability.  This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.

            4.5 Cost of  Collection.  If default is made in the  payment of this
Note,  Borrower  shall pay the Holder  hereof  reasonable  costs of  collection,
including reasonable attorneys' fees.

            4.6 Maximum  Payments.  Nothing  contained herein shall be deemed to
establish  or require  the  payment of a rate of  interest  or other  charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest  required  to be paid or other  charges  hereunder  exceed the  maximum
permitted by such law, any payments in excess of such maximum  shall be credited
against  amounts  owed by the  Borrower  to the Holder and thus  refunded to the
Borrower.

            4.7  Governing  Law and Venue.  This Note shall be  governed  by and
interpreted  in  accordance  with the laws of the  State of  California  without
regard to the  principles  of conflict of laws.  In the event of any  litigation
regarding  the   interpretation   or  application  of  this  Note,  the  parties
irrevocably  consent  to  jurisdiction  in any of the  state or  federal  courts
located in the City of Los Angeles,  State of California  and waive their rights
to  object  to  venue  in any  such  court,  regardless  of the  convenience  or
inconvenience  thereof  to any party.  Service  of  process in any civil  action
relating to or arising out of this Agreement or the transaction(s)  contemplated
herein may be  accomplished  in any manner  provided by law. The parties  hereto
agree that a final, non-appealable judgment in any such suit or proceeding shall
be  conclusive  and  may be  enforced  in  other  jurisdictions  by suit on such
judgment or in any other lawful manner.


                                       4
<PAGE>

      IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its President on this __ day of September, 2004.

                                            SMALL WORLD KIDS, INC.

                                            By:
                                               ---------------------------------

                                            Name:  Debra Fine

                                            Title:  Chief Executive Officer

Address of Borrower:
5711 Buckingham Parkway
Culver City, California 90230


                                       5
<PAGE>

                                     WARRANT

NEITHER THE SECURITIES  REPRESENTED HEREBY NOR THE SECURITIES  ISSUABLE UPON THE
EXERCISE  HEREOF  HAVE BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS
AMENDED (THE  "SECURITIES  ACT"),  OR ANY STATE  SECURITIES  LAWS AND MAY NOT BE
OFFERED,  SOLD,  PLEDGED,  ASSIGNED,  OR  OTHERWISE  TRANSFERRED  UNLESS  (1)  A
REGISTRATION  STATEMENT WITH RESPECT  THERETO IS EFFECTIVE  UNDER THE SECURITIES
ACT AND ANY APPLICABLE  STATE  SECURITIES  LAWS, OR (2) THE COMPANY  RECEIVES AN
OPINION  OF COUNSEL TO THE  HOLDER OF THIS  WARRANT  OR SUCH  SECURITIES,  WHICH
COUNSEL  AND OPINION  ARE  REASONABLY  SATISFACTORY  TO THE  COMPANY,  THAT THIS
WARRANT OR SUCH  SECURITIES,  AS  APPLICABLE,  MAY BE  OFFERED,  SOLD,  PLEDGED,
ASSIGNED,  OR  OTHERWISE  TRANSFERRED  IN THE  MANNER  CONTEMPLATED  WITHOUT  AN
EFFECTIVE  REGISTRATION  STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE  STATE
SECURITIES LAWS.

THE TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED HEREIN.

September __, 2004                                    350,000   Common Stock
                                                                Purchase Warrant

                             SMALL WORLD KIDS, INC.

               Incorporated under the laws of the State of Nevada
                 Certificate for Common Stock Purchase Warrants

      THIS CERTIFIES that, for value received,  St. Cloud Capital  Partners L.P.
(together  with all  permitted  assigns,  the "Holder") is entitled to subscribe
for, and  purchase  from,  SMALL WORLD KIDS,  INC.,  a Nevada  corporation  (the
"Company"),  upon the terms and conditions set forth herein, at any time or from
time to time during the period  commencing  on the date  hereof and  terminating
four years from the date hereof (the  "Exercise  Period"),  up to three  hundred
fifty thousand  (350,000)  shares of Common Stock (the "Warrant  Shares").  This
Warrant is  exercisable  at an  exercise  price per share equal to the lesser of
$.50 per share (as such price may be adjusted as provided herein,  the "Exercise
Price") or the average price of the Put Financing;  provided, however, that upon
the  occurrence  of any of the events  specified in Sections 5 or 6 hereof,  the
rights  granted by this Warrant,  including the number of shares of Common Stock
to be received upon such exercise, shall be adjusted as therein specified.

      Capitalized  term used  herein but not  otherwise  defined  shall have the
meaning assigned to those terms in that certain Note Purchase Agreement dated as
of September 7, 2004, between the Holder and the Company.


                                       6
<PAGE>

1. Exercise of Warrant.

      This Warrant may be exercised during the Exercise Period,  either in whole
or in part,  by the  surrender  of this  Warrant  (with the  election at the end
hereof duly executed) to the Company at its office at 5711  Buckingham  Parkway,
Culver City, California 90230 or at such other place as is designated in writing
by the Company, together with a certified or bank cashier's check payable to the
order of the Company in an amount equal to the product of the Exercise Price and
the number of Warrant Shares for which this Warrant is being exercised.

2. Rights Upon Exercise; Delivery of Securities.

      Upon each exercise of the Holder's rights to purchase Warrant Shares,  the
Holder  shall be deemed  to be the  holder  of  record  of the  Warrant  Shares,
notwithstanding  that the transfer  books of the Company shall then be closed or
certificates  representing the Warrant Shares with respect to which this Warrant
was exercised shall not then have been actually delivered to the Holder. As soon
as practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a certificate or certificates representing the Warrant
Shares issuable upon such exercise,  registered in the name of the Holder or its
designee.  If this Warrant  should be exercised in part only, the Company shall,
upon surrender of this Warrant for  cancellation,  execute and deliver a Warrant
evidencing  the right of the Holder to  purchase  the  balance of the  aggregate
number of Warrant Shares purchasable  hereunder as to which this Warrant has not
been exercised or assigned.

3. Registration of Transfer and Exchange.

      Any Warrants  issued upon the transfer or exercise in part of this Warrant
shall be numbered and shall be  registered  in a warrant  register (the "Warrant
Register")  as they are  issued.  The  Company  shall be  entitled  to treat the
registered  holder of any Warrant on the  Warrant  Register as the owner in fact
thereof for all  purposes,  and shall not be bound to recognize any equitable or
other claim to, or interest  in, such  Warrant on the part of any other  person,
and shall not be liable for any  registration  or transfer of Warrants which are
registered  or to be  registered  in the name of a fiduciary or the nominee of a
fiduciary  unless made with the actual  knowledge that a fiduciary or nominee is
committing a breach of trust in requesting  such  registration  of transfer,  or
with the knowledge of such facts that its  participation  therein amounts to bad
faith.  This Warrant shall be transferable on the books of the Company only upon
delivery thereof duly endorsed by the Holder or by his duly authorized  attorney
or representative, or accompanied by proper evidence of succession,  assignment,
or  authority to  transfer.  In all cases of transfer by an attorney,  executor,
administrator,  guardian,  or other  legal  representative,  duly  authenticated
evidence of his, her, or its authority shall be produced.  Upon any registration
of transfer,  the Company  shall deliver a new Warrant or Warrants to the person
entitled  thereto.  This Warrant may be  exchanged,  at the option of the Holder
thereof, for another Warrant, or other Warrants of different  denominations,  of
like tenor and representing in the aggregate the right to purchase a like number
of Warrant  Shares (or portions  thereof),  upon surrender to the Company or its
duly authorized agent.  Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person if, in
the opinion of counsel to the Company,  such  transfer  does not comply with the
provisions of the Securities Act and the rules and regulations thereunder.


                                       7
<PAGE>

4. Reservation of Shares.

      The  Company  shall at all times  reserve  and keep  available  out of its
authorized  and unissued  Common Stock,  solely for the purpose of providing for
the  exercise of the  Warrants,  such number of shares of Common Stock as shall,
from time to time,  be  sufficient  therefor.  The Company  represents  that all
shares  of  Common  Stock  issuable  upon  exercise  of this  Warrant  are  duly
authorized and, upon receipt by the Company of the full payment for such Warrant
Shares,  will be validly  issued,  fully paid,  and  nonassessable,  without any
personal liability  attaching to the ownership thereof and will not be issued in
violation of any preemptive or similar rights of stockholders.

5. Antidilution.

            (a) In the event that the Company  shall at any time;  (i) declare a
dividend on the outstanding Common Stock payable in shares of its capital stock,
(ii)  subdivide  the  outstanding  Common Stock;  (iii) combine the  outstanding
Common  Stock into a smaller  number of shares;  or (iv) issue any shares of its
capital  stock by  reclassification  of the  Common  Stock  (including  any such
reclassification  in  connection  with a  consolidation  or  merger in which the
Company is the continuing  corporation),  then, in each case, the Exercise Price
per Warrant Share in effect at the time of the record date for the determination
of  stockholders  entitled to receive such  dividend or  distribution  or of the
effective date of such subdivision,  combination,  or reclassification  shall be
adjusted  so that it shall  equal  the  price  determined  by  multiplying  such
Exercise  Price by a  fraction,  the  numerator  of which shall be the number of
shares of Common Stock  outstanding  immediately  prior to such action,  and the
denominator  of which shall be the number of shares of Common Stock  outstanding
after giving effect to such action.  Such adjustment shall be made  successively
whenever any event  listed  above shall occur and shall become  effective at the
close of  business  on such  record date or at the close of business on the date
immediately preceding such effective date, as applicable.

            (b) All  calculations  under  this  Section  5 shall  be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.

            (c) In any  case in  which  this  Section  5 shall  require  that an
adjustment in the number of Warrant Shares be made effective as of a record date
for a specified event,  the Company may elect to defer,  until the occurrence of
such event,  issuing to the Holder,  if the Holder  exercised this Warrant after
such record date, the Warrant Shares,  if any,  issuable upon such exercise over
and above the number of Warrant Shares  issuable upon such exercise on the basis
of the  number of shares of  Common  Stock in effect  prior to such  adjustment;
provided,  however,  that the Company  shall deliver to the Holder a due bill or
other  appropriate  instrument  evidencing  the  Holder's  right to receive such
additional  shares of Common Stock upon the  occurrence  of the event  requiring
such adjustment.

            (d)  Whenever  there  shall be an  adjustment  as  provided  in this
Section 5, the Company  shall within 15 days  thereafter  cause  written  notice
thereof to be sent by registered mail,  postage prepaid,  to the Holder,  at its
address  as it shall  appear in the  Warrant  Register,  which  notice  shall be
accompanied  by an  officer's  certificate  setting  forth the number of Warrant
Shares issuable and the Exercise Price thereof after such adjustment and setting
forth  a  brief  statement  of the  facts  requiring  such  adjustment  and  the
computation thereof, which officer's certificate shall be conclusive evidence of
the correctness of any such adjustment absent manifest error.


                                       8
<PAGE>

            (e) The Company  shall not be required to issue  fractions of shares
of Common Stock or other  capital stock of the Company upon the exercise of this
Warrant.  If any  fraction  of a share of Common  Stock would be issuable on the
exercise of this Warrant (or  specified  portions  thereof),  the Company  shall
purchase  such  fraction for an amount in cash equal to the same fraction of the
average  closing sale price (or average of the closing bid and asked prices,  if
closing  sale price is not  available)  of Common  Stock for the 10 trading days
ending on and including the date of exercise of this Warrant.

            (f) No adjustment  in the Exercise  Price per Warrant Share shall be
required if such  adjustment  is less than $0.05;  provided,  however,  that any
adjustments  which by reason of this Section 5 are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.

            (g)  Whenever  the  Exercise  Price  payable  upon  exercise of this
Warrant is adjusted  pursuant  to  subsection  (a) above,  the number of Warrant
Shares issuable upon exercise of this Warrant shall  simultaneously  be adjusted
by multiplying the number of Warrant Shares  theretofore  issuable upon exercise
of this Warrant by the Exercise  Price in effect on the date hereof and dividing
the product so obtained by the Exercise Price, as adjusted.

6. Reclassification; Reorganization; Merger, etc.

            (a) In case of any capital  reorganization,  other than in the cases
referred  to in  Section  5(a)  hereof,  or the  consolidation  or merger of the
Company with or into another  corporation  (other than a merger or consolidation
in which the Company is the continuing corporation, and which does not result in
any reclassification of the outstanding shares of Common Stock or the conversion
of such  outstanding  shares of Common Stock into shares of other stock or other
securities or  property),  or in the case of any sale,  lease,  or conveyance to
another  corporation  of the property and assets of any nature of the Company as
an entirety or  substantially  as an entirety  (such actions  being  hereinafter
collectively  referred  to as  "Reorganizations"),  there  shall  thereafter  be
deliverable  upon  exercise  of this  Warrant  (in lieu of the number of Warrant
Shares  theretofore  deliverable)  the  number  of  shares  of  stock  or  other
securities  or  property to which a holder of the  respective  number of Warrant
Shares which would  otherwise  have been  deliverable  upon the exercise of this
Warrant would have been entitled  upon such  Reorganization  if this Warrant had
been exercised in full immediately prior to such Reorganization.  In case of any
Reorganization, appropriate adjustment, as determined in good faith by the Board
of Directors of the Company,  shall be made in the application of the provisions
herein set forth with respect to the rights and  interests of the Holder so that
the  provisions set forth herein shall  thereafter be  applicable,  as nearly as
possible,  in relation to any shares or other  property  thereafter  deliverable
upon exercise of this  Warrant.  Any such  adjustment  shall be made by, and set
forth  in, a  supplemental  agreement  between  the  Company,  or any  successor
thereto,  and the  Holder,  with  respect  to this  Warrant,  and  shall for all
purposes  hereof  conclusively  be deemed to be an appropriate  adjustment.  The
Company shall not effect any such  Reorganization  unless,  upon or prior to the
consummation thereof, the successor corporation,  or if the Company shall be the
surviving  corporation in any such  Reorganization  and is not the issuer of the
shares of stock or other  securities  or property to be  delivered to holders of
shares of the Common Stock outstanding at the effective time thereof,  then such
issuer,  shall assume by written  instrument  the  obligation  to deliver to the
Holder such shares of stock, securities,  cash, or other property as such Holder
shall be entitled to purchase in accordance  with the foregoing  provisions.  In
the  event  of  sale,   lease,  or  conveyance  or  other  transfer  of  all  or
substantially all of the assets of the Company as part of a plan for liquidation
of the  Company,  all rights to exercise  this Warrant  shall  terminate 30 days
after  the  Company  gives  written  notice  to the  Holder  that  such  sale or
conveyance or other transfer has been consummated.


                                       9
<PAGE>

            (b) In case of any  reclassification  or  change  of the  shares  of
Common Stock  issuable upon exercise of this Warrant (other than a change in par
value or from a  specified  par  value  to no par  value,  or as a  result  of a
subdivision or  combination,  but including any change in the shares into two or
more classes or series of shares),  or in case of any consolidation or merger of
another  corporation  into the  Company in which the  Company is the  continuing
corporation  and in which there is a  reclassification  or change  (including  a
change to the right to receive  cash or other  property) of the shares of Common
Stock (other than a change in par value, or from no par value to a specified par
value, or as a result of a subdivision or combination,  but including any change
in the  shares  into two or more  classes  or series of  shares),  the Holder or
holders of this Warrant shall have the right thereafter to receive upon exercise
of this  Warrant  solely  the kind and  amount  of  shares  of stock  and  other
securities,  property,  cash, or any  combination  thereof  receivable upon such
reclassification,  change, consolidation, or merger by a holder of the number of
Warrant  Shares for which this  Warrant  might have been  exercised  immediately
prior to such reclassification,  change,  consolidation,  or merger. Thereafter,
appropriate  provision  shall be made for  adjustments  which shall be as nearly
equivalent as practicable to the adjustments in Section 5.

            (c) The above  provisions of this Section 6 shall similarly apply to
successive  reclassifications  and  changes  of shares  of  Common  Stock and to
successive consolidations,  mergers, sales, leases, or conveyances. 7. Notice of
Certain Events.

         In case at any time the Company shall propose:

            (a) to pay any dividend or make any distribution on shares of Common
Stock in shares  of Common  Stock or make any  other  distribution  (other  than
regularly  scheduled cash dividends  which are not in a greater amount per share
than the most recent such cash dividend) to all holders of Common Stock; or

            (b) to  issue  any  rights,  warrants,  or other  securities  to all
holders of Common  Stock  entitling  them to purchase any  additional  shares of
Common Stock or any other rights, warrants, or other securities; or

            (c) to effect any  reclassification  or change of outstanding shares
of Common Stock or any  consolidation,  merger,  sale,  lease,  or conveyance of
property, as described in Section 6; or


                                       10
<PAGE>

            (d) to effect any  liquidation,  dissolution,  or  winding-up of the
Company;

            (e) to take any other action which would cause an  adjustment to the
Exercise  Price per Warrant  Share;  then, and in any one or more of such cases,
the Company  shall give  written  notice  thereof by  registered  mail,  postage
prepaid, to the Holder at the Holder's address as it shall appear in the Warrant
Register, mailed at least 15 days prior to; (i) the date as of which the holders
of record of shares of Common Stock to be entitled to receive any such dividend,
distribution,  rights, warrants, or other securities are to be determined;  (ii)
the date on which any such  reclassification,  change of  outstanding  shares of
Common  Stock,  consolidation,  merger,  sale,  lease,  conveyance  of property,
liquidation,  dissolution, or winding-up is expected to become effective and the
date as of which it is expected that holders of record of shares of Common Stock
shall be entitled to exchange their shares for securities or other property,  if
any,  deliverable  upon such  reclassification,  change of  outstanding  shares,
consolidation,   merger,  sale,  lease,  conveyance  of  property,  liquidation,
dissolution, or winding-up; or (iii) the date of such action which would require
an adjustment to the Exercise Price per Warrant Share.

8. Charges and Taxes.

      The issuance of any shares or other  securities  upon the exercise of this
Warrant and the delivery of certificates or other instruments  representing such
shares or other  securities  shall be made without  charge to the Holder for any
tax or other charge in respect of such issuance. The Company shall not, however,
be  required  to pay any tax which may be payable  in  respect  of any  transfer
involved in the issue and delivery of any  certificate in a name other than that
of the Holder and the Company shall not be required to issue or deliver any such
certificate  unless and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have  established
to the satisfaction of the Company that such tax has been paid.

9. Periodic Reports.

      The Company  agrees that until all the Warrant Shares shall have been sold
pursuant to Rule 144 under the Securities  Act, it shall use its best efforts to
keep current in filing all reports,  statements, and other materials required to
be filed with the  Commission  to permit  holders of the Warrant  Shares to sell
such securities under Rule 144 under the Securities Act.

10. Legend.

      Until sold pursuant to the provisions of Rule 144 or otherwise  registered
under the Securities  Act, the Warrant Shares issued on exercise of the Warrants
shall be subject to a stop transfer order and the  certificate  or  certificates
representing the Warrant Shares shall bear the following legend:

THE SECURITIES  REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE OFFERED, SOLD ,PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1)
A REGISTRATION  STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE  STATE  SECURITIES  LAWS,  OR(2) THE COMPANY  RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF THE  SECURITIES,  WHICH  COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED,
SOLD,  PLEDGED,  ASSIGNED,  OR OTHERWISE  TRANSFERRED IN THE MANNER CONTEMPLATED
WITHOUT  AN  EFFECTIVE  REGISTRATION  STATEMENT  UNDER  THE  SECURITIES  ACT  OR
APPLICABLE STATE SECURITIES LAWS.


                                       11
<PAGE>

11. Loss; Theft; Destruction; Mutilation.

      Upon receipt of evidence  satisfactory to the Company of the loss,  theft,
destruction,  or mutilation of any Warrant (and upon surrender of any Warrant if
mutilated),   and  upon  receipt  by  the  Company  of  reasonably  satisfactory
indemnification,  the Company shall execute and deliver to the Holder  thereof a
new Warrant of like date, tenor, and denomination.

12. Stockholder Rights.

      The  Holder  of any  Warrant  shall not have,  solely on  account  of such
status, any rights of a stockholder of the Company,  either at law or in equity,
or to any notice of meetings of stockholders or of any other  proceedings of the
Company, except as provided in this Warrant.

13. Governing Law.

      This Warrant shall be construed in  accordance  with the laws of the State
California applicable to contracts made and performed within such State, without
regard to principles of conflicts of law.

         [Remainder of page intentionally left blank; signatures follow]


                                       12
<PAGE>

IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly
executed on the __ day of September, 2004.

                                           SMALL WORLD KIDS, INC.

                                           By:
                                              ----------------------------------
                                           Name:  Debra Fine
                                           Title:   Chief Executive Officer

HOLDER

------------------------------
Name:
Title:


                                       13
<PAGE>

                               FORM OF ASSIGNMENT

(To be executed by the registered  holder if such holder desires to transfer the
attached Warrant.)

      FOR VALUE RECEIVED,  ________________ hereby sells, assigns, and transfers
unto  __________________ a Warrant to purchase _________ shares of Common Stock,
$.001  par  value,  of  Small  World  Kids,  Inc.,  a  Nevada  corporation  (the
"Company"),  and does  hereby  irrevocably  constitute  and  appoint  __________
attorney to transfer  such Warrant on the books of the Company,  with full power
of substitution.

Dated: _____________                                    Signature: _____________


                                       14
<PAGE>

                              ELECTION TO EXERCISE

To:      Small World Kids, Inc.
         5711 Buckingham Parkway
         Culver City, California 90230
         Attention:  Debra Fine
         Fax:  310-258-1194

      The  undersigned  hereby  exercises  his,  her,  or its rights to purchase
______________  shares of Common Stock, $.001 par value ("the Common Stock"), of
Small World Kids,  Inc. a Nevada  corporation  (the  "Company"),  covered by the
within  Warrant  and  tenders  payment  herewith  in the  amount of  $______  in
accordance  with the terms  thereof,  and  requests  that  certificates  for the
securities  constituting  such shares of Common  Stock be issued in the name of,
and delivered to:


     -----------------------------------------------------------------------
     (Print Name, Address, and Social Security or Tax Identification Number)

Further,  if such number of shares of Common Stock shall not constitute all such
shares of Common Stock covered by the within Warrant, that a new Warrant for the
balance of the shares of Common  Stock  covered by the within  Warrant  shall be
registered  in the name of, and  delivered  to, the  undersigned  at the address
stated below.

Dated:                                Name:
      -----------------------------         --------------------------
                                                        (Print)

Address:
           ------------------------         --------------------------
                                                       (Signature)
           ------------------------

           ------------------------


                                       15
<PAGE>

                                                                     Exhibit D

                                LOCK-UP AGREEMENT

                               September __, 2004

To St. Cloud Capital Partners L.P. ("Purchaser")

         Re:      Lock-Up Agreement

Ladies and Gentlemen:

      Reference  is made to that  certain Note  Purchase  Agreement  dated as of
September __, 2004 by and between Small World Kids,  Inc., a Nevada  corporation
(the "Company") and Purchaser (the "Note Purchase Agreement"), pursuant to which
(i) the Purchaser  shall loan to the Company a gross amount of  $2,000,000  (the
"Loan"),  (ii)  the  Company  shall  issue  a note  (the  "Note")  to  Purchaser
evidencing  the  Company's  obligation to repay the Loan plus  interest,  in the
principal  amount of  $2,000,000  which  Note is  convertible  at the  option of
Purchaser  into shares of the Company's  Common Stock (the "Note  Shares"),  and
(iii) as additional consideration for the investment, the Company shall issue to
Purchaser  650,000  shares of its Common Stock (the  "Shares") and warrants (the
"Warrants") evidencing Purchaser's right to acquire 350,000 shares of its Common
Stock (the "Warrant Shares").

      Pursuant to the Note Purchase Agreement and the transactions  contemplated
therein,  the Company has granted Purchaser certain  registration rights whereby
the Company agreed to include the Warrant Shares, the Shares and the Note Shares
(collectively  the  "Purchaser   Securities")  in  the  registration   statement
("Registration  Statement")  which  will  be  filed  by  the  Company  with  the
Securities  and Exchange  Commission  (the "SEC") in connection  with the equity
financing of $12,000,000  contemplated  by the Securities  Purchase  Agreements,
dated as of  September  3, 2004 by and between the Company and each of Wire Mill
Partners III, LLC, Infinium Investment  Partners,  LLC and Pewter Hill Partners,
LLC.

      In light of the foregoing  transactions,  the Company has determined  that
the prospect of sales of the Purchaser  Securities held by the Purchaser  within
three months,  in the case of the Warrant  Shares,  and one year, in the case of
the Shares and the Note Shares, from the date that the Registration Statement is
declared effective by the SEC (each, a "Lock-Up Period") could be detrimental to
the  Company.  Therefor,  the Company has  requested  that,  except as set forth
herein,  Purchaser agrees not to sell certain of the Purchaser  Securities until
the expiration of the applicable Lock-Up Period.

      The undersigned  recognizes that the Purchaser  Securities are, or may be,
subject to certain restrictions on its transferability,  including those imposed
by  the  federal  and  securities  laws.   Notwithstanding  these  restrictions,
Purchaser  has  agreed to enter into this  letter  agreement  to further  assure
certain of the Purchaser Securities,  now held by Purchaser,  will not enter the
public market.


                                       16
<PAGE>

      Purchaser,  therefor,  hereby  acknowledges and agrees that Purchaser will
not,  directly or indirectly,  without the prior written consent of the Company,
sell, offer, contract to sell, pledge, grant any option to purchase or otherwise
dispose  (collectively,  a "Disposition")  any of the Purchaser  Securities (the
"Lock-Up  Shares"),  at any time  during  the  applicable  Lock-Up  Period.  The
foregoing restriction is expressly agreed to preclude, among other Dispositions,
the holder of Lock-Up  Shares from engaging in any hedging or other  transaction
which  is  designed  to  or  reasonably  expected  to  lead  to or  result  in a
Disposition of Lock-Up Shares during the applicable Lock-Up Period, even if such
Lock-Up  Shares  would be disposed of by someone  other than such  holder.  Such
prohibited hedging or other transactions would include, without limitation,  any
short sale  (whether or not against the box) or any  purchase,  sale or grant of
any right (including,  without limitation,  any put or call option) with respect
to any Lock-Up Shares or with respect to any security  (other than a broad-based
market  basket or index) that  includes,  relates to or derives any  significant
part of its value from Lock-Up Shares.

      Notwithstanding  the foregoing,  Purchaser may transfer the Lock-Up Shares
(i) as a bona fide gift or gifts,  (ii) as a distribution to limited partners or
shareholders of such person;  provided,  however, that in any such case it shall
be a condition to the transfer that the transferee  execute an agreement stating
that the  transferee is receiving and holding the Lock-Up  Shares subject to the
provisions of this letter  agreement.  Any transferor  transferring  pursuant to
subsections  (i) or (ii) above shall notify the Company in writing  prior to the
transfer.  There shall be no further  transfer of such Lock-Up  Shares except in
accordance with this letter agreement.

      The  undersigned  also agrees and  consents to the entry of stop  transfer
instructions  with the  Company's  transfer  agent  against the  transfer of any
Lock-Up Shares.  Further,  the transfer agent shall deliver a consent in writing
to the Company,  confirming its obligation to notify the Company in writing upon
each removal of the stop transfer instructions.

      Executed this __ day of September, 2004.

                                               Very truly yours,

                                               ST. CLOUD CAPITAL PARTNERS L.P.

                                               By:
                                                  ------------------------------
                                                  Name:
                                                  Title:

                                       17
<PAGE>