NOTE PURCHASE AGREEMENT

                                 By and Between

                              STROME HEDGECAP LTD.

                                       and

                             SMALL WORLD KIDS, INC.

                                     Dated:

                            As of September 16, 2004

<PAGE>


                             NOTE PURCHASE AGREEMENT

      Note Purchase  Agreement dated as of September 16, 2004 (this "Agreement")
by and between Small World Kids, Inc., a Nevada corporation (the "Company"), and
Strome Hedgecap Ltd, a corporation  organized under the laws of the Grand Cayman
Islands ("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"),  substantially  in the form attached  hereto as
Exhibit A, in the aggregate principal amount of one million two hundred thousand
($1,200,000) (the "Loan Amount").

      B.  The  Company  shall  issue  to  the  Purchaser,   without   additional
consideration,  warrants  (the  "Warrants")  in the form of  Exhibit B  attached
hereto,  evidencing Purchaser's right to acquire up to one million three hundred
forty-four  thousand  (1,344,000)  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,  and the Lock-Up Agreement (as
hereinafter defined) are sometimes  hereinafter  collectively referred to as the
"Transaction Documents."

                                   AGREEMENTS

      NOW,  THEREFORE,  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 the  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 the Purchaser and the
Purchaser hereby agrees to purchase from the Company,  the Note. The Note or any
portion thereof shall at the option of Purchaser,  be convertible into shares of
the Company's Common Stock (the "Note Shares").

            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 24, 2004 (the "Closing Date"). At the Closing, the
Company  shall  deliver the Note and the Warrants to the Purchaser and Purchaser
shall pay to the  Company  the Loan  Amount,  less a closing  fee of ninety  six
thousand  dollars  ($96,000),  by  cashiers'  check,  certified  funds  or  wire
transfer.

<PAGE>

2. PURCHASER'S REPRESENTATIONS AND WARRANTIES.

      The 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.  The
Purchaser  is  acquiring  the  Note and the  Warrants  for the  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.  The Purchaser is an  "accredited
Investor" as that term is defined in Rule 501 (a) of Regulation D. The 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.  The Purchaser  understands  the Note and
the  Warrants 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 the Purchaser to acquire the Note, and the Warrants.

            d. Information.  The 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,  and the  Warrants  that have been  requested by the
Purchaser.  The 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  the  Purchaser's
investment  in the Note  and,  the  Warrants  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, and the Note 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) the 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 Warrants and/or the
Warrant Shares,  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 Notes  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.


                                       2
<PAGE>

            f. Legends. The Note, the Note Shares, the Warrants, 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 ABSENCE 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
the  Purchaser  is a party have been duly and validly  authorized,  executed and
delivered  by the  Purchaser  and are each and  collectively  valid and  binding
agreements of the 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 the
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.


                                       3
<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. The Company has obtained
the of from Manufacturers Bank for the transactions contemplated hereby.

            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.

            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).


                                       4
<PAGE>

            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.  Financial   Statements.   The  audited  consolidated   financial
statements of the Company as of and for each of the fiscal years ended  December
31, 2001 and 2002, and the unaudited financial  statements for fiscal year ended
December  31,  2003,  and for the six (6)  month  period  ended  June  30,  2004
(collectively,  the  "Financial  Statements"),  including in each case a balance
sheet,  a statement  of income and  retained  earnings,  and a statement of cash
flows are complete and correct, in all material respects, are in accordance with
the books and records of the Company  (which are also  complete  and accurate in
all respects),  accurately state the assets, liabilities, cash flows, results of
operations  and the  financial  condition of the Company as of the dates and for
the periods  indicated,  and have been  prepared in  accordance  with GAAP.  The
Company does not have any debt,  liability or obligation of any nature,  whether
accrued,  absolute,  contingent  or  otherwise,  whether  due or to become  due,
including without limitation liability for charges,  long-term leases or forward
or long-term  commitments,  that are not  reflected  or reserved  against in the
Financial  Statements,  except  for  those (i) that  have  been  incurred  after
December  31,  2003 in the  ordinary  course of business  consistent  with prior
practices and which are usual and normal in nature and amount, both individually
and in the aggregate,  and are individually and in the aggregate not material to
the  unaudited  Financial  Statements  as of  December  31,  2003,  or (ii ) the
Promissory  Note to St. Cloud  Capital  Partners LP in the  aggregate  amount of
$2,000,000  (iii) which are not required to be reflected in, reserved against or
otherwise  described on a balance sheet or the notes thereto in accordance  with
GAAP.

            k. Intellectual Property. The Company possesses all patents,  patent
licenses, copyrights,  know-how, formulae and other proprietary and trade rights
necessary for the conduct of it business as now conducted. To the Company's best
knowledge none, its products patents, licenses,  copyrights,  know-how, formulae
and other proprietary and trade rights violate or conflict with the intellectual
property  rights of any other  person.  The Company has not infringed and is not
now infringing any proprietary right belonging to any other Person.

      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.


                                       5
<PAGE>

            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 Notes
or the  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.

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

            e. 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  permits  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 sixty thousand (60,000) 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. The  Company  will take all
action necessary to perfect any such security interest.

      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. The  Purchaser  shall have  entered  into the  Lock-Up  Agreement
attached  hereto as  Exhibit C with  respect  the  Warrant  Shares  and the Note
Shares.

            f.  The  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
<PAGE>

      7. REGISTRATION

      The Company  shall  include  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  ___, 2004 (the  "Purchase
Agreements)  between the Company and each of Pewter Hill Partners,  LLC and Wire
Mill Partners III, LLC (the "Put Purchasers").

      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 Buckingham Parkway
                                    Culver City, California 90230
                                    Attention:  Debra Fine

                                    Facsimile:  310-258-1194

With a copy to:                     Loeb & Loeb LLP

                                    10100 Santa Monica Boulevard, Suite 2200
                                    Los Angeles, California 90067
                                    Attention:  David L. Ficksman

                                    Facsimile:  310-282-2200

If to Purchaser:                    Strome Investment Management

                                    100 Wilshire Blvd. Suite 1500
                                    Santa Monica, CA 90401
                                    Attention:
                                    Facsimile:

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 the 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
the 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, the 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.

                [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:

                                     STROME HEDGECAP LTD.

                                     By:
                                        -----------------------------
                                     Name: Mark Strome
                                     Title: Director


                                       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.

o     Commitment to grant a security interest to St. Cloud Capital Partners L.P.

<PAGE>

Small World Kids
Capitalization Table
Beneficial Ownership

<TABLE>
<CAPTION>
                                                                          SaVon         Bridge
                                            Purchase of      Exchange     Team          Notes         Total
                                           Ruben 05/20/04  Agmt 05/20/04  Shares        Shares       Shares        Percentage
                                           --------------  -------------  --------     ----------   ----------     ----------
<S>                                           <C>          <C>             <C>            <C>       <C>             <C>
Russell and Debra Fine, as trustees of FFT    1,648,714    13,509,843                               15,158,557         28.5%
SWT Investments, LLC                          1,846,467    15,130,261                               16,976,728         32.0%
Phoenix Capital Opportunity, LLC                820,652     6,724,560                                7,545,212         14.2%
David Marshall, Inc.                          1,173,134     9,612,858                               10,785,992         20.3%
David L. Ficksman and Maxine B.  Ficksman,
as trustees of the Ficksman Family Trust         41,033       336,228                                  377,261          0.7%
Michael Ruben                                                              650,000              0      650,000          1.2%
Other Holders                                                              977,000              0      977,000          1.8%
St.Cloud                                                                                  650,000      650,000          1.2%
Debra Fine
John Nelson
Bob Rankin
All other employees

Shares remaining for issuance
                                           ------------------------------------------------------------------------------------
Total Shares                                  5,530,000    45,313,750    1,627,000        650,000   53,120,750        100.0%
                                           ====================================================================================

Authorized:    Common Stock

Options outstanding
Restricted Stock/Options Exercised
Shares remaining for issuance
Authorized:   Employee stock options

<CAPTION>

                                              Bridge
                                              Notes                   Fully
                                             Warrants    Options     Diluted    Percentage
                                          ------------ ----------  -----------  ----------
<S>                                          <C>       <C>          <C>              <C>
                                                                   15,158,557       25.4%
Russell and Debra Fine, as trustees of FFT                         16,976,728       28.5%
SWT Investments, LLC                                                7,545,212       12.7%
Phoenix Capital Opportunity, LLC                                   10,785,992       18.1%
David Marshall, Inc.
David L. Ficksman and Maxine B.  Ficksman,                            377,261        0.6%
as trustees of the Ficksman Family Trust                              650,000        1.1%
Michael Ruben                                                         977,000        1.6%
Other Holders                                350,000                1,000,000        1.7%
St.Cloud                                               2,600,000    2,600,000        4.4%
Debra Fine                                               600,000      600,000        1.0%
John Nelson                                              520,000      520,000        0.9%
Bob Rankin                                             2,400,000    2,400,000        4.0%
All other employees

Shares remaining for issuance                ----------------------------------------------
                                             350,000   6,120,000    59,590,750       100%
Total Shares                                 ==============================================


Authorized:    Common Stock

Options outstanding
Restricted Stock/Options Exercised
Shares remaining for issuance
Authorized:   Employee stock options
</TABLE>

<PAGE>


                                                                       Exhibit A

                                 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 Strome Investment  Management
(the  "Holder")  or order,  without  demand,  the sum of one million two hundred
thousand  dollars  ($1,200,000)  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 16, 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 16, 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  occurrence  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.  Notwithstanding
the  forging,  any such  increase  in  interest  shall be limited as required by
applicable usury laws.

            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 one hundred thousand dollars ($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 rank pari passu
with the two million dollar note ($2,000,000) to St. Cloud Capital Partners L.P.
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,  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 the Put 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.

                                   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.


                                       3
<PAGE>

            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
Buckingham  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 17th 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>

                                                                       Exhibit B

                                     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 16, 2004                               1,344,000    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,  Strome Hedgecap Ltd.  (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 one million,  three hundred and
forty-four  thousand  (1,344,000) 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 16, 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 17th day of September, 2004.

                                           SMALL WORLD KIDS, INC.

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

HOLDER

------------------------------
Name:  Mark Strome
Title:   Director


                                       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
         Facsimile:  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 C

                                LOCK-UP AGREEMENT

                               September __, 2004

STROME HEDGECAP LTD.("Purchaser")

         Re:      Lock-Up Agreement

Ladies and Gentlemen:

      Reference  is made to that  certain Note  Purchase  Agreement  dated as of
September 16, 2004 by and between Small World Kids,  Inc., a Nevada  corporation
(the "Company") and the Purchaser (the "Note Purchase  Agreement"),  pursuant to
which (i) the Purchaser  shall loan to the Company a gross amount of one million
two hundred  thousand  dollars  $1,200,000 (the "Loan"),  (ii) the Company shall
issue a note (the "Note") to the Purchaser  evidencing the Company's  obligation
to repay the Loan plus  interest,  in the  principal  amount of one  million two
hundred thousand  dollars  $1,200,000 which Note is convertible at the option of
the Purchaser into shares of the Company's Common Stock (the "Note Shares"), and
(iii) warrants (the "Warrants")  evidencing the Purchaser's right to acquire one
million three hundred  thousand  forty four thousand  (1,344,000)  shares of its
Common Stock (the "Warrant Shares").

      Pursuant to the Note Purchase Agreement and the transactions  contemplated
therein,  the  Company has granted the  Purchaser  certain  registration  rights
whereby  the Company  agreed to include  the Warrant  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  __, 2004 by and between the Company and each of Wire Mill
Partners III, 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 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,
the 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,  the
Purchaser  has  agreed to enter into this  letter  agreement  to further  assure
certain of the Purchaser Securities,  now held by the Purchaser,  will not enter
the public market.


                                       16
<PAGE>

      The Purchaser, therefor, hereby acknowledges and agrees that the 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,  the  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 17th day of September, 2004.

                             Very truly yours,

                             STROME HEDGECAP LTD., a Cayman Islands corporation

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

                                 Name: Mark Strome
                                 Title: Director

                                       17