Document:

NOTE PURCHASE AGREEMENT

                                 By and Between

                              STROME HEDGECAP LTD.

                                       and

                             SMALL WORLD KIDS, INC.

                                     Dated:

                            As of September 16, 2004

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                             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.

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<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.

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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. 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.

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<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.

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<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.

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<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

                                       17ASSET PURCHASE AGREEMENT

This Asset  Purchase  Agreement  (this  "Agreement"),  dated as of September 17,
2004,  is made and  entered  into by and between  SMALL WORLD TOYS a  California
corporation ("Small World"), and NEUROSMITH, LLC, a California limited liability
company ("Neurosmith").

A.  Neurosmith  has been engaged in the  business of  designing,  producing  and
selling  various  "smart"  toys and related  products  for  children (as defined
below, the "Products").

B. Small World wishes to purchase from Neurosmith, and Neurosmith wishes to sell
to Small World,  the  Purchased  Assets (as defined  below),  upon the terms and
conditions of this Agreement.

In  consideration  of the mutual  promises and covenants  set forth herein,  the
parties hereby agree as follows:

                                   ARTICLE I

                           SALE AND PURCHASE OF ASSETS

1.1 Assets to be  Transferred.  Subject to the terms and conditions set forth in
this  Agreement  and in reliance  upon the  representations  and  warranties  of
Neurosmith  and Small World herein set forth,  at the Closing  Neurosmith  shall
sell, transfer, convey, assign and deliver to Small World, by appropriate deeds,
bills of sale,  assignments and other instruments as set forth herein, and Small
World shall  purchase from  Neurosmith,  all of  Neurosmith's  right,  title and
interest, as of the Effective Time, in and to the Purchased Assets.

1.2 Title to Purchased  Assets.  The Purchased Assets shall be conveyed free and
clear of all  liabilities,  obligations and Liens,  excepting only the Permitted
Liens

1.3 No Other Assets. The Purchased Assets consist solely of those assets defined
as part of the Purchased  Assets  pursuant to Section 12.1 and shall not include
any other  properties or rights,  tangible or intangible.  Without  limiting the
foregoing,  the  Purchased  Assets shall not include any of the  following:  (a)
cash,  cash   equivalents,   securities,   stocks,   and  negotiable   financial
instruments;  (b) Tangible  Personal  Property  (including leases thereof) other
than the Tooling, Prototypes,  Models and Chips; (c) Prepaid Items; (d) Licenses
and Permits;  (e) real  property or interests  in leases of real  property;  (f)
accounts  receivable;  (g) Books and  Records;  (h)  claims,  causes of  action,
choices in action,  rights of recovery and rights of set-off;  and (i) rights to
receive mail and other communications. Although Neurosmith will retain ownership
of the Books and Records,  after the Closing it shall  provide  Small World upon
request  with  reasonable  access to any  Books and  Records  that  Small  World
requires and that are reasonably necessary for its business purposes relating to
the Purchased Assets.

1.4 No Assumption of Liabilities.  Small World shall not assume or be liable for
any  liabilities  or  obligations  of  Neurosmith,  direct or  indirect,  fixed,
contingent or otherwise,  known or unknown, which exist at the Effective Time or
which arise thereafter as a result of any act,  omission or circumstance  taking
place prior to the Effective  Time, and whether or not the same are reflected on
Neurosmith's financial statements,  including, without limitation, the following
liabilities or obligations:

<PAGE>

      1.4.1  any  liability  of  Neurosmith  for  unpaid  taxes  or for  income,
transfer, sales, use and other Taxes, other than Taxes described in Section 2.3,
and

      1.4.2 any  liability  of  Neurosmith  for costs and  expenses  incurred in
connection with this Agreement and the transactions contemplated hereby.

                                   ARTICLE II

                   PURCHASE PRICE, PAYMENT AND RELATED MATTERS

2.1 Purchase  Price;  Payment of the  Purchase  Price.  The purchase  price (the
"Purchase  Price") for the  Purchased  Assets  shall be Eight  Hundred  Thousand
Dollars  ($800,000).  Six Hundred  Thousand  Dollars  ($600,000) of the Purchase
Price shall be paid to Neurosmith  upon Closing (the "Closing  Payment") and the
remaining Two Hundred  Thousand  Dollars  ($200,000) shall be paid by making the
"T&C Payment" on behalf of Neurosmith as defined in Section 2.2.

2.2 Tinkers & Chance.

      2.2.1 Background.  Neurosmith previously had various contacts with Tinkers
& Chance, a partnership  comprised of Warren Heit and Brian Marcus (individually
and  collectively  "T&C").  T&C claims (as  defined  in Section  12.1,  the "T&C
Claims")  that some of the  Products  infringe  upon or violate  certain  issued
and/or  pending  patent  claims and  applications  of T&C (as defined in Section
12.1,  the "T&C Rights".) In connection  with the foregoing,  Neurosmith and T&C
entered into a binding Memorandum of Understanding (the "MOU") pursuant to which
T&C and Neurosmith  entered into various agreements some of which related to the
T&C Rights and their use by Neurosmith.  One of the provisions  called for a Two
Hundred Thousand Dollar ($200,000) payment (defined in the MOU as the "Payment")
that Neurosmith would make to T&C if certain transactions  occurred on or before
March 31, 2004.  There is a pending dispute between T&C as to whether any of the
Transactions  occurred  on or before  March 31, 2004 and  therefore  whether the
Payment was due and owing.

      2.2.2 Payment. Prior to or concurrently with the Closing, Small World will
pay T&C the sum of Two Hundred Thousand  Dollars  ($200,000) (the "T&C Payment")
and obtain from Tinkers & Chance a full and complete  general  release (the "T&C
Release") of all claims,  damages,  liabilities  etc.  that T&C may have against
Neurosmith and any of its affiliates,  owners, managers,  directors,  employees,
attorneys, agents and other representatives (past and present) (individually and
collectively,  the  "Neurosmith  Parties").  The T&C  Payment  shall  explicitly
represent a payment by Small World on behalf of Neurosmith in  consideration  of
T&C's claims against  Neurosmith  and for the T&C Release  provided by Tinkers &
Chance. Neurosmith agrees execute a general release in favor of Tinkers & Chance
and its  partners  (the  "Neurosmith  Release").  The forms of T&C  Release  and
Neurosmith Release are attached hereto Exhibit "B".

2.3 Taxes. Small World shall pay documentary and transfer taxes including sales,
use and excise  taxes if any,  arising out of the sale of the  Purchased  Assets
hereunder. It is also understood that all of the Chips and Tooling are currently
outside of the United States and are to be transferred to Small World where they
are.

                                       2
<PAGE>

                                  ARTICLE III

                                     CLOSING

3.1 Time and Place.  The closing  shall take place at the offices of Loeb & Loeb
LLP, 10100 Santa Monica Boulevard, Suite 2200, Los Angeles, California 90067, at
10:00 a.m. local time at such time as Small World and Neurosmith  mutually agree
(the "Closing").  The Closing and the transfer of title,  possession and control
of the  Purchased  Assets shall be effective as of the Effective  Time,  and all
transactions  and  deliveries  at the Closing  shall be deemed to have  occurred
simultaneously.  The "Effective  Time" shall mean 12:01 a.m. Los Angeles time on
the day after the Closing.

3.2 Transactions at the Closing. At the Closing, the following shall occur:

3.2.1  Small  World  shall  deliver  the  Closing  Payment by wire  transfer  in
accordance with instructions from Neurosmith;

3.2.2 Small World shall deliver to Neurosmith evidence  reasonably  satisfactory
to Neurosmith that the T&C Payment has been delivered to T&C;

3.2.3 Small World  shall  deliver to  Neurosmith  the T&C Release  executed  and
delivered by T&C;

3.2.4 Small World shall deliver to Neurosmith  the  certificates  referred to in
Sections 9.1 and 9.2;

3.2.5 Neurosmith shall deliver to Small World assignments in registrable form of
all trademarks, service marks, patents, copyrights and registrations or
applications for the same included within the Purchased Assets and a bill of
sale and assignment covering the balance of the Purchased Assets, in forms
reasonably acceptable to Neurosmith and Small World, together with such other
instruments of sale, transfer, conveyance, assignment and confirmation as are
reasonably required by Small World but in form reasonably acceptable to
Neurosmith. It is understood and agreed that none of the representations or
warranties in the foregoing assignments or bills of sale will supercede,
increase, modify or amend any of the representations or warranties of Neurosmith
in this Agreement nor limit in any manner any of the limitations of liabilities
or disclaimers set forth in this Agreement (so that, it shall be deemed as if
the only representations or warranties made by Neurosmith in the bills of sale
and assignments shall be those set forth herein, the representations and
warranties in the bills of sale and assignments shall be of no force or effect
and that this Agreement shall prevail in all respects in the event of any
conflict between those documents and this Agreement);

3.2.6 Neurosmith shall physically deliver the Models and Prototypes in its
possession. The Tooling and Chips are in the possession of third parties as
described on Exhibit A. Neurosmith shall deliver the Tooling and Chips solely by
providing notice to the third parties described on Exhibit A informing such
third parties of Small World's ownership, in form acceptable to Small World; and

                                       3
<PAGE>

3.2.7 Neurosmith shall deliver to Small World the certificates referred to in
Sections 8.1 and 8.2.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES
                                  OF NEUROSMITH

Neurosmith hereby represents and warrants to Small World that:

4.1 Organization; Authority; Due Authorization. Neurosmith is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of California and has all requisite power to own, lease
and operate its assets, properties and business and to carry on its business as
conducted. Neurosmith has all requisite power, authority and approvals required
to enter into, execute and deliver this Agreement and all of the other
transaction documents to which it is a party, and to perform fully Neurosmith's
obligations hereunder and thereunder. Neurosmith has taken all actions of a
limited liability company necessary to authorize it to enter into and perform
fully its obligations under this Agreement and all of the other transaction
documents to be executed by it and to consummate the transactions contemplated
herein and therein. This Agreement has been duly and validly executed by
Neurosmith and (assuming the due authorization, execution and delivery by Small
World) constitutes the legal, valid and binding obligation of Neurosmith,
enforceable in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
Applicable Laws affecting creditors' rights generally or by general equitable
principles affecting the enforcement of contracts.

4.2 No Violation. Neither the execution or delivery by Neurosmith of this
Agreement and all other transaction documents to which Neurosmith is a party,
nor the consummation of the transactions contemplated hereby and thereby will
(with or without notice or lapse of time or both): (i) violate any provision of
the Articles of Organization, Operating Agreement, bylaws or other charter
documents of Neurosmith; (ii) require the consent of any party; (iii) violate in
any material respect any Applicable Law or Order, the violation of which may
affect the Purchased Assets or Small World's rights therein; or (iv) result in
the creation of any Lien or other encumbrance upon any of the Purchased Assets.

4.3 Regulatory Approvals and Other Consents. No consent, approval,
authorization, or exemption from, nor any notice to or filing with, any
Governmental Authority is required to consummate the transactions contemplated
herein.

4.4 Title to Tangible Assets. Section 4.4 of Neurosmith's Disclosure Schedule
sets forth a description of the Models, Tooling and Chips, including the
location thereof. Except as indicated in Section 4.4 of Neurosmith's Disclosure

                                       4
<PAGE>

Schedule and except for Permitted Liens: (a) Neurosmith has good and marketable
title owned by it to each item of Tangible Assets, free and clear of all Liens
or other encumbrances; (b) no officer, director, shareholder or employee of
Neurosmith, nor any Affiliate thereof, owns directly or indirectly, in whole or
in part, any item of the Tangible Assets or has any other interest therein; (c)
Neurosmith has the valid and enforceable right to receive and/or use each of the
items of Tangible Assets in which Neurosmith has any other interest, free and
clear of all Liens; and (d) the delivery to Small World of the instruments of
transfer of ownership of the Tangible Assets contemplated by this Agreement will
at the Effective Time vest good and marketable title to, or the valid and
enforceable right to receive and/or use, the Tangible Property in Small World,
free and clear of all Liens. Neurosmith makes no representation or warranty
whatsoever as to the physical condition of any Tangible Assets (including
whether any such Tangible Asset is in good operating condition and repair or
usable in the ordinary course of business). Neurosmith also makes no
representation or warranty that the Products will conform to any Applicable Laws
or meet any applicable health and safety, consumer protection or environmental
protection rules, regulations orders or laws.

4.5 Intellectual Assets. Except as set forth in Neurosmith's Disclosure Schedule
4.5 and except for the T&C Claims, to the Knowledge of Neurosmith: (i)
Neurosmith is the owner of all right, title and interest in and to each of the
Intellectual Assets (excluding the Miscellaneous Assets, which are transferred
"as is" without representation) free and clear of all Liens, other than
Permitted Liens; (ii) none of the Intellectual Assets (other than Miscellaneous
Assets) is subject to any Taxes, maintenance fees or actions falling due within
90 days after the date hereof (it being understood that not all of trademarks
have been registered and that this representation does not relate to
registration fees or actions for trademarks); (iii) there are no pending claims,
actions, judicial or other adversary proceedings, disputes or disagreements
involving Neurosmith concerning any item of the Intellectual Assets, and no such
action, proceeding, dispute or disagreement is threatened; (iv) the Intellectual
Assets do not infringe upon the Intellectual Property Rights of any third
person, including patent, copyright, and trade secrets; (iii) all officers,
employees and consultants of Neurosmith who were involved in any material manner
in developing any of the Intellectual Assets) have executed and delivered to
Neurosmith agreements regarding the protection of proprietary information and
the assignment to Neurosmith of all Intellectual Property Rights arising from
the services performed for Neurosmith by such Persons, and Neurosmith has made
available to Small World or its counsel copies of all such agreements; and (iv)
no employee or consultant of Neurosmith violated any term of any employment
Contract, disclosure agreement, non-competition agreement or any other Contract
or restrictive covenant relating to the right of such Person to be employed or
engaged by Neurosmith or to use the Intellectual Property rights of others.
Neurosmith makes no representation that any Intellectual Property Right in any
Intellectual Asset is valid and enforceable. A list of trademarks and patents
and patent applications is set forth on Exhibit C.

4.6 Contracts. There are no executory obligations or liabilities arising from
any Contracts relating to the Purchased Assets that could be or may result in a
Lien or otherwise affect the Purchased Assets after the sale and transfer to
Small World.

4.7 Litigation. Except as set forth in Section 4.7 of Neurosmith's Disclosure
Schedule and except for the T&C Claims, to Neurosmith's Knowledge, there is no
action, suit, proceeding or investigation pending or threatened: (i) against
Neurosmith by any Person with respect to any of the Purchased Assets or which
could create a Lien or other obligation against or relating to the ownership of
the Purchased Assets; (ii) seeking to prohibit or restrict the sale and purchase
of the Purchased Assets or the carrying out of any of the other transactions
contemplated by this Agreement. Neurosmith is not subject to any judgment,
order, decree, award, writ, injunction, decision, ruling or finding that may
have an adverse affect on this Agreement or the rights of Small World in and to
the Purchased Assets.

                                       5
<PAGE>

4.8 Applicable Law. To Neurosmith's knowledge, Neurosmith has, in all material
respects, complied with and is now in all material respects, in compliance with
all Applicable Laws and Orders.

4.9 Representations and Warranties on Closing. The representations and
warranties contained in this ARTICLE IV shall be true and complete in all
material respects at and as of the Effective Time with the same force and effect
as though such representations and warranties had been made at and as of the
Effective Time.

                                   ARTICLE V

                  REPRESENTATIONS AND WARRANTIES OF SMALL WORLD

Small World represents and warrants to Neurosmith as follows:

5.1 Due Incorporation; Power. Small World is a corporation duly organized,
validly existing and in good standing under the Applicable Laws of its
jurisdiction of incorporation. Small World has all requisite power, authority
and approvals required to enter into, execute and deliver this Agreement and all
of the other transaction documents to which it is a party, and to perform fully
Small World's obligations hereunder and thereunder.

5.2 Authority to Execute and Perform Agreements. Small World has all requisite
power, authority and approval required to enter into, execute and deliver this
Agreement and the other Small World Documents and to perform fully Small World's
obligations hereunder and thereunder.

5.3 Due Authorization; Enforceability. Small World has taken all corporate
actions necessary to authorize it to enter into and perform its obligations
under this Agreement and all other documents to which it is a party and to
consummate the transactions contemplated herein and therein. This Agreement has
been duly and validly executed by Small World and (assuming the due
authorization, execution and delivery by Neurosmith) constitutes the legal,
valid and binding obligations of Small World, enforceable in accordance with its
terms, except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar Applicable Laws affecting creditors'
rights generally or by general equitable principles affecting the enforcement of
contracts.

5.4 No Violation. Neither the execution and delivery of this Agreement and all
other transaction documents to which Small World is a party, nor the
consummation of the transactions contemplated hereby and thereby will (with or
without notice or lapse of time or both): (i) violate any provision of the
Articles of Incorporation or bylaws of Small World; (ii) require the consent of
any party; or (iii) violate in any material respect any Applicable Laws or
Orders, the violation of which may affect the transactions contemplated by this
Agreement.

                                       6
<PAGE>

5.5 Regulatory Approvals. No consent, approval,  authorization,  notice, filing,
or exemption is required to consummate the transactions contemplated herein.

5.6 Representations and Warranties on Closing. The representations and
warranties contained in this ARTICLE V shall be true and complete in all
material respects at and as of the Effective Time.

                                   ARTICLE VI

                     COVENANTS AND AGREEMENTS OF THE PARTIES
                           EFFECTIVE PRIOR TO CLOSING

The parties hereto covenant and agree as follows:

6.1 Business Examinations and Physical Investigations of Assets. Prior to the
Effective Time, Small World shall be entitled, through its employees and
representatives, including, without limitation, Loeb & Loeb LLP and Lewis Anten,
to make such investigations and examinations relating to the Purchased Assets as
Small World may reasonably request (including where reasonably related to the
Purchased Assets the Books and Records of Neurosmith). Neurosmith shall furnish
Small World and its representatives during such period with all information
concerning the affairs of Neurosmith as Small World or such representatives may
request and cause Neurosmith's officers, employees, consultants, agents,
accountants and attorneys to cooperate fully with Small World and such
representatives and to make full disclosure of all information and documents
requested by Small World and/or such representatives. No investigation by Small
World shall, however, diminish or obviate in any way, or affect Small World's
right to rely upon, any of the representations, warranties, covenants or
agreements of Neurosmith contained in this Agreement.

6.2 Conduct of Business. From the date hereof through the Effective Time,
Neurosmith shall not undertake, and shall use reasonable commercial efforts to
avoid failing to undertake, any action if such action or failure would render
any of its warranties and representations untrue as of the Effective Time. The
failure of Neurosmith to fulfill its obligations shall, if material, permit
Small to terminate this Agreement as Small World's sole and exclusive remedy for
such failure.

6.3 Arrangements with Employees. From the date hereof until the Effective Time,
Neurosmith shall permit Small World to approach and negotiate with any or all of
the ex-employees of Neurosmith with respect to their employment by Small World
following the Closing. Neurosmith shall use reasonable efforts to assist Small
World in such negotiations.

6.4 No Solicitation or Negotiation. Neurosmith and its members shall not cause,
suffer or permit any of Neurosmith's members, directors, officers, employees,
representatives, agents, investment bankers, advisors, accountants or attorneys
to (a) initiate or solicit any inquiries or the making of any proposal, or (b)
engage in negotiations or discussions with any Person, or (c) provide any
confidential information or data to any Person, with respect to any acquisition,
business combination or purchase of all of any significant part of the Purchased
Assets.

                                       7
<PAGE>

6.5 Risk of Loss. Neurosmith hereby assumes all risk of material adverse change,
loss, damage and destruction to all or any part of the Purchased Assets until
the Effective Time from any cause whatsoever.

6.6 Title to Chips and Tooling Small World and Neurosmith shall obtain
confirmation from the factories holding the Tooling and Chips that, upon the
Effective Date the Tooling and Chips will be the sole property of Small World
and that such factories are not owed any amount from Neurosmith or otherwise
with respect to the Purchased Assets. In connection therewith, it is understood
that Neurosmith's representations regarding title to the Tooling and Chips are
subject to the receipt of such confirmations without the payment of any monies
by Neurosmith. If such confirmation is not obtained, the sole right of either
party shall be to terminate this Agreement and there shall be no breach of this
Agreement or claim of default in such circumstance.

                                  ARTICLE VII

                     CONDITIONS PRECEDENT TO THE OBLIGATION
                             OF EACH PARTY TO CLOSE

The obligations of Neurosmith and Small World to consummate the transactions
contemplated herein shall be subject to the fulfillment, at or prior to the
Closing of all of the conditions set forth below in this ARTICLE VII.

7.1 No Action or Proceeding. No action, suit, or proceeding shall have been
instituted or threatened before any court or governmental body seeking to
challenge or restrain the transactions contemplated herein which presents a
substantial risk that such transactions will be restrained or that either party
hereto may suffer material damages or other relief as a result of consummating
such transactions.

7.2 Governmental and Other Approvals. Any and all permits and approvals from any
Authority required for the lawful consummation of the transaction contemplated
herein shall have been obtained.

7.3 Tinkers & Chance License Agreement; Release. Small World shall have entered
into a license agreement with T&C in form and substance reasonably acceptable to
Small World and Neurosmith (solely as to the T&C Release) pursuant to which T&C
will grant a non-exclusive worldwide license under those patent and patent
applications owned by T&C relating to the Products. T&C will have executed and
delivered the T&C Release.

                                  ARTICLE VIII

                     CONDITIONS PRECEDENT TO THE OBLIGATION
                             OF SMALL WORLD TO CLOSE

The obligation of Small World to consummate the transactions contemplated herein
shall be subject to the fulfillment, at or before the Closing Date, of all of
the conditions set forth below in this ARTICLE VIII.

                                       8
<PAGE>

8.1 Representations and Warranties. The representations and warranties of
Neurosmith contained in this Agreement and in each other transaction document
shall have been true and correct when made and shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date, other than such representations
and warranties as are made as of another specified date, which shall be true and
correct as of such date, and at the Closing, Neurosmith shall deliver to Small
World a certificate to such effect.

8.2 Performance of Covenants. Each obligation of Neurosmith to be performed by
it on or before the Closing Date pursuant to the terms of this Agreement and
each other transaction document shall have been duly performed on or before the
Closing Date, and at the Closing Neurosmith shall have delivered to Small World
a certificate to such effect.

8.3 Updated Schedules. Neurosmith shall have delivered to Small World an updated
Neurosmith's Disclosure Schedule reasonably acceptable to Small World and dated
no later than one business day prior to the Closing Date.

                                   ARTICLE IX

                     CONDITIONS PRECEDENT TO THE OBLIGATION
                             OF NEUROSMITH TO CLOSE

The obligation of Neurosmith to consummate the transactions contemplated herein
shall be subject to the fulfillment, at or before the Closing Date, of all the
conditions set forth below in this ARTICLE IX.

9.1 Representations and Warranties. The representations and warranties of Small
World contained in this Agreement shall be true on and as of the Closing Date in
all material respects with the same force and effect as though made on and as of
the Closing Date, other than such representations and warranties as are made as
of another specified date, which shall be true and correct as of such date, and
at the Closing Small World shall have delivered to Neurosmith a certificate to
such effect.

9.2 Performance of Covenants. Each of the obligations of Small World to be
performed by it on or before the Closing Date pursuant to the terms of this
Agreement shall gave been duly performed on or before the Closing Date, and, at
the Closing, Small World shall have delivered to Neurosmith a certificate to
such effect.

                                   ARTICLE X

                                 INDEMNIFICATION

10.1 Indemnification by Neurosmith. Neurosmith shall, indemnify, defend and hold
harmless (i) Small World, (ii) each of Small World's Affiliates, assigns and
successors in interest, and (iii) each of their respective shareholders,
directors, officers, employees, agents, attorneys and representatives, from and
against any and all damages, awards, judgments, payments, diminutions in value
and other losses (including, without limitation, legal fees and expenses)
however suffered or characterized, which may be incurred or suffered by any such

                                       9
<PAGE>

party and which may arise out of or result from (i) any breach of any
representation, warranty, covenant or agreement of Neurosmith contained in this
Agreement; (ii) litigation, arbitration, governmental investigation, suit,
action or other proceedings related to the Purchased Assets of Neurosmith
arising from any occurrence prior to the Effective Time; (iii) any tax
obligation of Neurosmith relating to any period prior to the Effective Time;
(iv) any debt, liability or obligation of Neurosmith direct or indirect, fixed,
contingent or otherwise, now or as of the Effective Time known or unknown, and
whether or not then due or payable, which exists at or as of the Effective Time
or which arises after the Effective Time but which is based upon or arises from
any act, omission, transaction, circumstance, sale of goods or services, state
of facts or other condition which occurred or existed at or before the Effective
Time; and (v) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses (including, without limitation, legal
fees and expenses) incurred in enforcing this indemnity.

10.2 Indemnification by Small World. Small World shall, indemnify, defend and
hold harmless (i) Neurosmith (ii) each of Neurosmith's Affiliates, assigns and
successors in interest, and (iii) each of their respective shareholders,
members, directors, officers, employees, agents, attorneys and representatives,
from and against any and all damages, awards, judgments, payments, diminutions
in value and other losses (including, without limitation, legal fees and
expenses) however suffered or characterized, which may be incurred or suffered
by any such party and which may arise out of or result from (i) any breach of
any representation, warranty, covenant or agreement of Small World contained in
this Agreement; (ii) litigation, arbitration, governmental investigation, suit,
action or other proceedings related to the Purchased Assets arising from any
occurrence from and after the Effective Time (including any such matters raised
by T&C with arising from the Purchased Assets after the Effective Time); (iii)
any tax obligation of Small World relating to any period from and after the
Effective Time; (iv) any debt, liability or obligation of Small World, direct or
indirect, fixed, contingent or otherwise, known or unknown, and whether or not
then due or payable, which arises from and after the Effective Time; and (v) any
and all actions, suits, proceedings, claims, demands, assessments, judgments,
costs and expenses (including, without limitation, legal fees and expenses)
incurred in enforcing this indemnity.

                                   ARTICLE XI

                              TERMINATION; REMEDIES

11.1   Termination   Without   Default.   Anything   herein   to  the   contrary
notwithstanding,  this Agreement may otherwise be terminated  before the Closing
only as follows (and in no other manner):

      11.1.1 Mutual Consent. By the mutual consent in writing of the parties.

      11.1.2 Conditions to Small World's Performance Impossible.  By Small World
upon  written  notice to  Neurosmith  if any event  occurs  which  would  render
impossible  the  satisfaction  of one or more  conditions to the  obligations of
Small World set forth in ARTICLE VII and ARTICLE VIII.

                                       10
<PAGE>

      11.1.3 Conditions to Neurosmith's  Performance  Impossible.  By Neurosmith
upon  written  notice to Small  World if any event  occurs  which  would  render
impossible  the  satisfaction  of one or more  conditions to the  obligations of
Neurosmith set forth in ARTICLE VII and ARTICLE IX.

11.2 Termination Upon Default. Either party may terminate this Agreement by
giving notice to the other on or prior to the Closing Date, without prejudice to
any rights or obligations it may have, if (i) after written notice of the
default and the passage of thirty (30) Business Days, or such shorter period as
may end upon the scheduled Closing Date, in the case of a default which by its
nature is capable of being cured and is not cured by the end of such period, the
other party has failed in the due and timely performance of any of its covenants
or agreements herein contained or there shall have been a breach of the other's
warranties or representations herein contained, and (ii) such failure or breach
could reasonably be expected to give the non-defaulting party grounds not to
close pursuant to ARTICLES VII, VIII, and IX, as the case may be. In any such
event the party who is not guilty of the breach may, in addition to all of its
other rights and remedies, recover all Losses incurred by it from the party
responsible for the breach.

11.3 Specific Performance. The parties acknowledge that the Purchased Assets are
unique and cannot be obtained by Small World except from Neurosmith and for that
reason, among others, Small World will be irreparably damaged in the absence of
the consummation of this Agreement. Therefore, in the event of any breach by
Neurosmith of this Agreement, Small World shall have the right, at its election,
to obtain an order for specific performance of this Agreement, without the need
to post a bond or other security, to prove any actual damage or to prove that
money damages would not provide an adequate remedy.

11.4 Attorneys' Fees. If Neurosmith or Small World shall bring an action against
the other by reason of any alleged breach of any covenant, provision or
condition hereof, or otherwise arising out of this Agreement, the unsuccessful
party shall pay to the prevailing party all attorneys' fees and costs actually
incurred by the prevailing party, in addition to any other relief to which it
may be entitled. As used in this Section 11.4 and elsewhere in this Agreement,
"actual attorneys' fees" or "attorneys' fees actually incurred" means the full
and actual cost of any legal services actually performed in connection with the
matter for which such fees are sought calculated on the basis of the usual fees
charged by the attorneys performing such services, and shall not be limited to
"reasonable attorneys' fees" as that term may be defined in statutory or
decisional authority.

                                   ARTICLE XII

                                   DEFINITIONS

12.1  Definitions.  When used in this Agreement,  the following terms shall have
the respective meanings set forth below:

      "Affiliate" shall mean with respect to any Person (i) a Person directly or
indirectly controlling,  controlled by or under common control with such Person;
(ii) a  Person  owning  or  controlling  10% or more of the  outstanding  voting
securities of such Person; or (iii) an officer,  director,  member or partner of
such Person.  When the Affiliate is an officer,  director,  member or partner of
such Person,  any other  Person for which the  Affiliate  acts in that  capacity
shall also be  considered an Affiliate.  For these  purposes,  control means the
possession, direct or indirect, of the power to direct or cause the direction of
the  management  and policies of a Person,  whether its the  ownership of voting
securities, by contract or otherwise.

                                       11
<PAGE>

         "Agreement" shall mean this Asset Purchase Agreement, including all
exhibits and schedules thereto, as the same may hereafter be amended, modified
or supplemented from time to time in accordance with the provisions of Section
13.6.

         "Applicable Law" shall mean, with respect to any Person, any domestic
or foreign, federal, state or local statute, law, ordinance, rule,
administrative interpretation, regulation, Order, writ, injunction, directive,
judgment, decree or other requirement of any Authority applicable to such Person
or any of its Affiliates or any of their respective properties, assets,
officers, directors, general partners, managers, employees, consultants or
agents (in connection with such officer's, director's, general partner's,
manager's, employee's, consultant's or agent's activities on behalf of such
Person or any of its Affiliates).

         "Authority" shall mean any governmental, regulatory or administrative
body, agency or authority, any court of judicial authority, any arbitrator or
any public, private or industry regulatory authority, whether Federal, state,
local or foreign.

         "Books and Records" of a Person shall mean all books and records,
ledgers, employee records, customer lists, files, correspondence, computer data
bases, accounting information and other records of every kind, whether written,
computerized or maintained in any other medium, which are owned by that Person
or in which that Person has any interest.

         "Chips" shall mean those computer chips and other parts listed on
Exhibit "B".

         "Closing Date" shall mean the date upon which the Closing occurs.

         "Contracts" of a Person shall mean all contracts, agreements,
warranties, guaranties, indentures, bonds, options, leases, subleases,
easements, mortgages, plans, collective bargaining agreements, licenses,
commitments or binding arrangements of any nature whatsoever, express or
implied, written or unwritten, and all amendments thereto, entered into or
binding upon that Person or to which any property of that Person may be subject.

         "Intellectual Assets" shall mean all Intellectual Property Rights in
the Products and in the Miscellaneous Rights.

                                       12
<PAGE>

         "Intellectual Property Rights" shall mean: (i) all registered and
unregistered trademarks, service marks, trade names (including product names),
trade dress, logos, corporate names, tag lines, slogans and commercial symbols
associated with such asset, including all applications therefore, and all
associated goodwill; (ii) all statutory, common law and registered copyrights,
all applications therefore and all associated goodwill required for the
manufacture and exploitation of such asset; (iii) all patents and patent
applications, all associated technical information, shop rights, know-how, trade
secrets, processes, operating, maintenance and other manuals, drawings and
specifications, process flow diagrams and related data, and all associated
goodwill required for the manufacture and exploitation of such asset; (iv) all
software (source and object code) required for the manufacture and exploitation
of such asset and all documentation thereof (including all electronic data
processing systems and program specifications, functional specifications, source
and object codes, algorithms, architecture, input data, report layouts and
format, record file layouts, diagrams, narrative descriptions and flow charts)
other than "off the shelf" software purchased in retail transactions; (v) all
other mask works, moral rights, inventions, discoveries, conceptions,
improvements, reductions to practice, plans (including advertising materials),
processes, formulae (secret or otherwise), data, drawings, specifications, trade
secrets, confidential information, financial, pricing and cost models and
information, operating procedures, supplier lists required for the manufacture
and exploitation of such asset; (vii) all drawings, copy, art (including
packaging artwork), Product content (including any rights to music and any
licenses for such music, to the extent transferable), records, books or other
tangible media embodying the foregoing; (viii) all rights to obtain and rights
to register patents, trademarks and copyrights; (ix) all rights, if any in the
URL "Neurosmith.com" and the "content" for such URL. For purposes of this
Agreement, Intellectual Property Rights does not include any rights to sue or
recover and retain damages and costs and attorneys fees for infringement of any
of the foregoing arising prior to the Effective Time.

         "Knowledge" shall mean, with respect to Neurosmith, the actual
knowledge of each Barre Rorabaugh, John Sosoka and Brooke Abercrombie.

         "Licenses and Permits" of a Person shall mean all licenses and permits
issued to that Person or in which that Person has any interest (including the
right to use).

         "Lien" shall mean any lien, 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.

         "Miscellaneous Assets" shall mean those items of Intellectual Property
Rights listed on Exhibit "B".

         "Models" shall mean models of Products that were in development for
2004; models are non-working mock-ups of Products in various stages.

         "Order" shall mean any decree, order, judgment, writ, award,
injunction, rule or consent of or by an Authority.

         "Permitted Liens" shall mean Liens set forth on Section 4.4 of
Neurosmith's Disclosure Schedule.

         "Person" shall mean any entity, corporation, company, association,
joint venture, joint stock company, partnership, trust, organization, individual
(including personal representatives, executors and heirs of a deceased
individual), nation, state, government (including agencies, departments,
bureaus, boards, divisions and instrumentalities thereof), trustee, receiver or
liquidator, as well as any syndicate or group that would be deemed to be a
Person under Section 13(d)(3) of the Securities Exchange Act of 1934.

                                       13
<PAGE>

         "Prepaid Items" of a Person shall mean all prepaid items (such as
insurance deposits, municipal or local tax payments or deposits, utility
deposits and the like), deferred charges, reserve accounts and other security
and similar deposits owned by that Person or in which that Person has any
interest.

         "Products" shall mean those toys and related items described as
products on Exhibit "A".

         "Purchased Intellectual Property" shall mean all intangible rights in
the Products and all Intellectual Property Rights associated with such toys and
related products, together with all rights in the name "Neurosmith".

         "Prototypes" shall mean those prototypes of Products that were under
development for 2004; a prototype is a model of a product with some working
features, although there is no representation as to completeness of the
Prototype.

         "Purchased Assets" shall mean solely the Purchased Intellectual
Property, the Prototypes, the Models, the Chips and the Miscellaneous Assets.

         "Neurosmith's Disclosure Schedule" shall mean the schedule entitled
"Neurosmith's Disclosure Schedule", dated of even date herewith, delivered to
Small World and executed by Neurosmith. Neurosmith's Disclosure Schedule shall
be considered a part of this Agreement.

         "Tangible Assets" means the Tooling, Chips, Models and Prototypes.

         "Tangible Personal Property" of a Person shall mean all tooling, chips,
equipment, furniture, trade fixtures, computers, supplies, spare parts, tools,
inventories, stores, Books and Records and other tangible personal property
owned by that Person, leased by that Person or in which that Person has any
other interest (including the right to use).

         "Tax" shall mean any federal, state, local or foreign tax, charge, fee,
levy, deficiency or other assessment of whatever kind or nature (including
without limitation, any net income, gross income, gross receipts, sales, use,
value added, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, unemployment, excise, estimated, severance, stamp,
occupation, real property, personal property, intangible property, occupancy,
recording, minimum, environmental and windfall profits tax, including any
liability therefore as a transferee (including without limitation under Section
6901 of the Code or any similar provision of Applicable Law), as a result of
Treasury Regulation Section 1.1502-6 or any similar provision of Applicable Law,
or as a result of any tax sharing or similar agreement, together with any
interest, penalty, addition to tax or additional amount imposed by any Tax
Authority. "Taxing" and Taxable" shall have the correlative meanings.

         "T&C Claims" shall mean any and all claims, demands, cause of actions
and similar rights that T&C may at any time assert against the Purchased Assets
or Neurosmith including any claims that any of the Purchased Assets or the
Intellectual Property Rights therein violate or infringe upon in any manner any
of the T&C Rights.

                                       14
<PAGE>

         "T&C Rights" shall mean any Intellectual Property Rights claimed by
T&C, including rights in patents and patent applications and the subject
inventions, as well as all other Intellectual Property Rights in such
inventions.

12.2 Other  Defined  Terms.  In  addition  to those  terms  defined  above,  the
following terms shall have the respective meanings given to them in the Sections
indicated below:

         Term                               Section

         Effective Time                     Section 4.1
         Purchase Price                     Section 2.1
         Small World                        Preamble
         Neurosmith                         Preamble
         T&C                                Section 2.1
         T&C Payment                        Section 2.2
         Neurosmith Parties                 Section 2.2
         Neurosmith Release                 Section 2.2

12.3 Other Interpretive Provisions. References in this Agreement to "Articles,"
"Sections," "Exhibits" and "Schedules," shall be to the Articles, Sections,
Exhibits and Schedules of this Agreement, unless otherwise specifically
provided; where the context or construction requires, all words applied in the
plural shall be deemed to have been used in the singular, and vice versa; the
masculine shall include the feminine and neuter, and vice versa; and the present
tense shall include the past and future tense, and vice versa; the words
"herein", "hereof" and "hereunder" and words of similar import, when used in
this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement; and except as otherwise specified in
this Agreement, all references in this Agreement (a) to any Person shall be
deemed to include such Person's permitted heirs, personal representatives,
successors and assigns, (b) to any agreement, any document or any other written
instrument shall be a reference to such agreement, document or instrument
together with all exhibits, schedules, attachments and appendices thereto, and
in each case as amended, restated, supplemented or otherwise modified from time
to time in accordance with the terms thereof prior to the Effective Time and (c)
to any law, statute or regulation shall be deemed references to such law,
statute or regulation as the same may be supplemented, amended, consolidated,
superseded or modified from time to time prior to the Effective Time. All
accounting terms used herein have the meanings ascribed to them under GAAP.

                                  ARTICLE XIII

                                  MISCELLANEOUS

13.1 Expenses of Sale. Each Party shall bear its own direct and indirect
expenses incurred in connection with the negotiation and preparation of this
Agreement and the other transaction documents and the consummation and
performance of the transactions contemplated herein and therein.

                                       15
<PAGE>

13.2 Publicity.  No publicity release or announcement  concerning this Agreement
or the transactions  contemplated herein shall be issued without advance written
approval of both  parties,  except as may be required by  applicable  securities
laws in which case the parties  shall  consult  with each other with  respect to
text and means of communication of any such release or announcement.

13.3 Notices. All notices,  requests and other communications hereunder shall be
in writing and shall be delivered by courier or other means of personal  service
(including by means of a nationally recognized courier service or a professional
messenger service),  or sent by telex or telecopy or mailed first class, postage
prepaid, by certified mail, return receipt requested, in all cases, addressed to
the other party at its last known address.

13.4 Survival of Representations and Warranties;  No Other Representations.  The
representations, warranties, covenants and agreements made by the parties hereto
in the  Agreement,  and any  schedule  or  document  delivered  pursuant  to the
Agreement,  shall  survive the  Closing  for a period of two (2) years.  Neither
party is making any  representation  or warranty not  expressly set forth herein
and   all   other   representations   and   warranties,   including   those   of
merchantability,  fitness for a particular purpose and infringement,  are hereby
disclaimed.

13.5  Further  Assurances.  Each of the  parties  shall use its  reasonable  and
diligent  best efforts to proceed  promptly with the  transactions  contemplated
herein, to fulfill the conditions precedent for such party's benefit or to cause
the same to be fulfilled and to execute such further  documents and other papers
and perform  such  further  acts as may be  reasonably  required or desirable to
carry  out the  provisions  hereof  and the  transactions  contemplated  herein.
Without limiting the foregoing,  Neurosmith shall take such further actions,  as
Small World may  reasonably  deem  necessary  or desirable in order to transfer,
convey and assign to Small World,  and to confirm Small World's title to, all of
the Purchased Assets to assist Small World in exercising all rights with respect
thereto  (provided that any material cost of such  assistance  shall be borne by
Small World.)

13.6  Amendments.  This  Agreement  may be modified or amended only by a written
instrument signed by the party sought to be bound.

13.7 Entire  Agreement.  This  Agreement,  and any documents  attached hereto or
incorporated  herein by reference,  constitutes the entire agreement between the
parties with respect to the subject matter hereof.

13.8 Governing Law and Venue.  This Agreement is to be governed by and construed
in  accordance  with the laws of the State of California  without  regard to the
conflicts  of laws  principles  thereof.  Any suit  brought  hereon,  whether in
contract,  tort,  equity or otherwise,  shall be brought in the state or federal
courts sitting in Los Angeles, California, the parties hereto hereby waiving any
claim or defense that such forum is not convenient or proper.

13.9  Arbitration.  Except as  otherwise  provided  in this  Section  14.9,  the
exclusive  method for  resolving any  disputes,  controversies  or claims of any
nature,  including  those arising out of or relating to this  Agreement,  or the
making, validity, interpretation, performance or breach of this Agreement, shall
be arbitration in Los Angeles,  California,  U.S.A.  before a single  arbitrator
under the auspices of, and in accordance with the commercial  arbitration  rules
of, the American Arbitration  Association.  The single arbitrator shall have the
power to  award  any and all  remedies  and  relief  whatsoever  that is  deemed
appropriate  under  the  circumstances,  including,  without  limitation,  money
damages and equitable relief. The award shall be final, binding and enforceable,
and may be  enforced  by any  court of  competent  jurisdiction.  The  procedure
whereby the evidence (oral and/or  written)  relating to the matter is presented
in the  arbitration  shall be as agreed  to by the  parties  hereto,  and in the
absence of such agreement,  shall be as determined by the arbitrator;  provided,
that each party hereto shall have the right to discovery,  to call witnesses and
to cross-examine  (either through legal counsel,  expert witnesses or both). The
decision of the arbitrator  shall be rendered  within thirty (30) days following
the  conclusion  of  the  arbitration  proceeding,  but in the  event  that  the
arbitrator  does not render an award  within  such period the  arbitrator  shall
nonetheless retain jurisdiction of the matter for the purpose of making an award
as soon as  reasonably  possible.  Such  arbitration  proceedings  shall  be the
exclusive  means to resolve any disputes,  controversies  or claims  between the
parties hereto; provided, however, that either party hereto shall have the right
to seek temporary and/or preliminary injunctive relief in any court of competent
jurisdiction to enjoin  violations of this Agreement pending final resolution of
the controversy in arbitration.

                                       16
<PAGE>

13.10  Attorneys'  Fees. If either party shall bring an action against the other
arising out of or related to this Agreement, the unsuccessful party shall pay to
the  prevailing  party all attorneys'  fees and costs  actually  incurred by the
prevailing party, in addition to any other relief to which it may be entitled.

13.11 Binding Effect. This Agreement and the rights,  covenants,  conditions and
obligations  of the  respective  parties  hereto and any instrument or agreement
executed  pursuant hereto shall be binding upon the parties and their respective
successors, assigns and legal representatives.

13.12  Assignment.  Neurosmith  may not assign or transfer  any of its rights or
obligations  under  this  Agreement.  Small  World may  assign  its  rights  and
obligations  to any of  its  affiliates  or  subsidiaries  without  Neurosmith's
consent.

13.13 Counterparts.  This Agreement may be executed simultaneously in any number
of  counterparts,  each of which  shall be deemed an  original  but all of which
together shall constitute one and the same instrument.

13.14 Severability. In the event that any provision or any part of any provision
of this Agreement shall be void or unenforceable for any reason whatsoever, then
such  provision  shall be stricken and of no force and effect.  However,  unless
such stricken  provision goes to the essence of the consideration  bargained for
by a party,  the remaining  provisions of this Agreement  shall continue in full
force and  effect,  and to the extent  required,  shall be  modified to preserve
their validity.

13.15 No Third Party Rights.  This  Agreement is not made for the benefit of any
third party except for Small World's successors and assign.

                                       17
<PAGE>

13.16  Construction.  The language in all parts of this  Agreement  shall in all
cases be construed simply,  according to its fair meaning,  and not strictly for
or against  any of the parties  hereto.  Without  limitation,  there shall be no
presumption  against any party on the ground that such party was responsible for
drafting this Agreement or any part thereof.

13.17  Limitation  on Liability  and Damages.  In no event shall either party be
liable or responsible for any type of damages other than actual, direct damages.
Without  limiting  the  foregoing,   neither  party  shall  be  liable  for  any
consequential,  special, indirect,  punitive or other type of damage, whether or
not such  party has  knowledge  of any such  other  damages  or facts that would
result in such  damage.  In  addition,  in no event shall  either party have any
liability  for any amounts  which in the  aggregate  exceed the  Purchase  Price
(including  the T&C  Payment),  provided  that the  foregoing  shall  not  limit
indemnification claims under Article 10 with respect to liabilities or claims of
third parties.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.

<TABLE>
<CAPTION>
<S>                                                <C>
SMALL WORLD TOYS                                   NEUROSMITH, LLC
A California corporation                           A California limited liability company

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

   Debra Fine, Chief Executive Officer               Mark R. Herron, Chief Executive Officer
</TABLE>

                                       18
<PAGE>

                            ASSET PURCHASE AGREEMENT

                                     Between

                             SMALL WORLD KIDS, INC.
                                  as purchaser

                                       and

                                 NEUROSMITH, LLC
                                    as seller

                                     Dated:

                               September 16, 2004

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                              Page
<S>                                                                                                            <C>
ARTICLE I         SALE AND PURCHASE OF ASSETS...................................................................1

         1.1      Assets to be Transferred......................................................................1

         1.2      No Other Assets...............................................................................1

         1.3      Title to Purchased Assets.....................................................................1

         1.4      No Assumption of Liabilities..................................................................1

ARTICLE II        PURCHASE PRICE, PAYMENT AND RELATED MATTERS...................................................2

         2.1      Purchase Price; Payment of the Purchase Price.................................................2

         2.2      Tinkers &Chance...............................................................................2

         2.3      Taxes.........................................................................................2

ARTICLE III       CLOSING.......................................................................................3

         3.1      Time and Place................................................................................3

         3.2      Transactions at the Closing...................................................................3

ARTICLE IV        REPRESENTATIONS AND WARRANTIES OF NEUROSMITH..................................................4

         4.1      Organization; Authority; Due Authorization....................................................4

         4.2      No Violation..................................................................................4

         4.3      Regulatory Approvals and Other Consents.......................................................4

         4.4      Title to Tangible Assets......................................................................4

         4.5      Intellectual Assets...........................................................................5

         4.6      Contracts.....................................................................................5

         4.7      Litigation....................................................................................5

         4.8      Applicable Law................................................................................6

         4.9      Representations and Warranties on Closing ....................................................6

ARTICLE V         REPRESENTATIONS AND WARRANTIES OF SMALL WORLD.................................................6

         5.1      Due Incorporation.............................................................................6

         5.2      Authority to Execute and Perform Agreements...................................................6

         5.3      Due Authorization; Enforceability.............................................................6

         5.4      No Violation..................................................................................6

         5.5      Regulatory Approvals..........................................................................7

         5.6      Representations and Warranties on Closing.....................................................7

ARTICLE VI        COVENANTS AND AGREEMENTS OF THE PARTIES EFFECTIVE PRIOR TO CLOSING............................7

         6.1      Business Examinations and Physical Investigations of Assets...................................7

         6.2      Conduct of Business...........................................................................7

         6.3      Arrangements with Employees...................................................................7

         6.4      No Solicitation or Negotiation................................................................7

         6.5      Risk of Loss..................................................................................7

         6.6      Title to Chips and Tooling....................................................................8
</TABLE>

                                       i
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                                            <C>
ARTICLE VII       CONDITIONS PRECEDENT TO THE OBLIGATION OF EACH PARTY TO CLOSE.................................8

         7.1      No Action or Proceeding.......................................................................8

         7.2      Governmental and Other Approvals..............................................................8

         7.3      Tinkers & Chance License Agreement............................................................8

ARTICLE VIII      CONDITIONS PRECEDENT TO THE OBLIGATION OF SMALL WORLD TO CLOSE................................8

         8.1      Representations and Warranties................................................................9

         8.2      Performance of Covenants......................................................................9

         8.3      Updated Schedules.............................................................................9

ARTICLE IX        CONDITIONS PRECEDENT TO THE OBLIGATION OF NEUROSMITH TO CLOSE.................................9

         9.1      Representations and Warranties................................................................9

         9.2      Performance of Covenants......................................................................9

ARTICLE X         INDEMNIFICATION...............................................................................9

         10.1     Indemnification by Neurosmith.................................................................9

         10.2     Indemnification by Neurosmith.................................................................9

ARTICLE XI        TERMINATION; REMEDIES........................................................................10

         11.1     Termination Without Default..................................................................10

         11.2     Termination Upon Default.....................................................................11

         11.3     Specific Performance.........................................................................11

         11.4     Attorneys' Fees..............................................................................11

ARTICLE XII       DEFINITIONS..................................................................................11

         12.1     Definitions..................................................................................11

         12.2     Other Defined Terms..........................................................................15

         12.3     Other Interpretive Provisions................................................................15

ARTICLE XIII      MISCELLANEOUS................................................................................15

         13.1     Expenses of Sale.............................................................................15

         13.2     Publicity....................................................................................16

         13.3     Notices......................................................................................16

         13.4     Survival of Representations and Warranties; No Other.........................................16

         13.5     Further Assurances...........................................................................16

         13.6     Amendments...................................................................................16

         13.7     Entire Agreement.............................................................................16

         13.8     Governing Law and Venue......................................................................16

         13.9     Arbitration..................................................................................16

         13.10    Attorneys' Fees..............................................................................17
</TABLE>

                                       ii
<PAGE>

<TABLE>
<CAPTION>
<S>                                                                                                            <C>
         13.11    Binding Effect...............................................................................17

         13.12    Assignment...................................................................................17

         13.13    Counterparts.................................................................................17

         13.14    Severability.................................................................................17

         13.15    No Third Party Rights........................................................................17

         13.16    Construction.................................................................................18

         13.17    Limitations on Liabilities and Damages.......................................................18

</TABLE>

                                       iii
<PAGE>

                                    Exhibit A

                                Purchased Assets

Products

         1.  Proposed 2004 Products.

         The following Products were proposed to be manufactured and produced by
Neurosmith as its 2004 new Products. These toys were never reduced to production
and exist only in various stages of development. There is no tooling for these
Products. The Intellectual Property Rights in these products are provided only
in the actual stage of development and not as completed Products: (1) Mozart's
Rolling Orchestra; (2) Touch `N Sing Animal Block (3 sets); (3) Pinball Math;
(4) Lingo the Learning Bird; (5) Pet Me Platypus (revised); (6) Together Tunes
Sing-Along Book; (7) Edgar (the Elephant); (8) Abigail (the Alligator") and (7)
a special private version of Sunshine Symphony.

         Prior to the Closing, Neurosmith will provide to Small World all design
documentation, marketing data, electronic engineering documents (including
schematics) and manufacturing data, to the extent those items exist. The design
documents include industrial design, fabric design, decoration design and
packaging design. Industrial design documents may include 2-D and 3-D drawings
to assist in creating tools for injection molding. Marketing data may include
competitive marketing analysis, focus group test reports, play group test
results, budget analysis and detailed schedules. Manufacturing data includes
quotes from manufacturing vendors, cost of goods results, vendor correspondence
and financial analysis. Neurosmith will also deliver preliminary programming
code and original and code level audio recordings to the extent these exist.
(The foregoing deliveries are referred to herein as the "Proprietary Data".)

         Prior to the Closing, Neurosmith will provide Small World with all
existing Prototypes and Models for the above-Products. By Closing, Small World
will be acknowledging that it has received all Prototypes and Models to be
provided by Neurosmith pursuant to this Agreement.

         Except as expressly set forth in Article IV of the Agreement and
subject to the disclaimers in the Schedules hereto, Neurosmith makes no
representations or warranties regarding the foregoing and, without limiting the
foregoing, makes no representation as to the completeness of the Proprietary
Data, the accuracy thereof or whether the programming has any errors. By
effectuating the Closing, Small World will be acknowledging that it is satisfied
that it has done its own review of the Proprietary Data provided and that such
Proprietary Data is sufficient for its purposes and therefore that the
Proprietary Data constitutes full and complete delivery by Neurosmith of
everything regarding the Products that Neurosmith is obligated to provide.
Notwithstanding the foregoing, if Neurosmith later learns of additional
information or data that has not been provided to Small World, Neurosmith will
promptly deliver such additional data and/or information to Small World.

         2. 2003 and Before and Cartridges

<PAGE>

                  a. 2003 Products. The following Products were manufactured and
produced by Neurosmith as its 2003 new Products: (1) Music Blocks Composer; (2)
Music Block Creativity Cartridge; (3) Pet Me Platypus; (4) Grow & Discover
Block; (5) Alphabet Ball; (6) Together Tunes; (7) Musini Preschool; (8)
Magnaphonics; (9) Musini Preschool Quintet Cartridge; and (10) Musini Magic Wand
Set.

                  b. Pre-2003 Products. The following Products were manufactured
and produced by Neurosmith prior to 2003. Those Products that were  discontinued
by 2004 are noted:  (1) Music  Blocks;  (2) Jumbo Music  Blocks  (Discontinued);
Sunshine  Symphony;  (4) Little Linguist  (Discontinued);  and (5) Phonics Tiles
(Discontinued).  (6); (6) Babbler; (7) Little Linguist;  (8) Magic Sensor (i.e.,
Musini Wand) (Discontinued);  (9) Rhythm Roller (Discontinued); and (10) Phonics
Blocks (Discontinued).

                  c. Cartridges. All "Cartridges" for any of the other Products,
such as for Music Blocks,  Jumbo Music Blocks,  Music Blocks  Composer,  Phonics
Tiles,  Together Tunes,  including the following:  Rhythms (Target),  Orchestra,
Jazz  (Target),  Opera,  Bach,  Nutcracker,  Rock  (Target),  Cinderella,  Pooh,
Poppins, World, Kids Classics, Classical.

                  d.  Products.  Wild  Instruments - This line of toys was never
developed past the model stage.

         At or before the Closing, Neurosmith will provide to Small World all
Proprietary Data regarding all of the foregoing Products in a., b. and c. above
(the "Old Products"), to the extent such data exists. It is understood that,
because the Old Products have already been manufactured, some of the Proprietary
Data for the Old Products may no longer remain in Neurosmith's possession (but
may be in the hands of the companies that manufactured such items). On the other
hand, the Proprietary Data for the Old Products may contain additional types of
data, such as purchasing information and sales reports.

      Except as expressly  set forth in Article IV of the  Agreement and subject
to the disclaimers in the Schedules hereto,  Neurosmith makes no representations
or warranties regarding the foregoing and, without limiting the foregoing, makes
no  representation  as to the completeness of the Proprietary Data, the accuracy
thereof or whether the programming has any errors.  By effectuating the Closing,
Small World will be acknowledging  that it is satisfied that it has done its own
review  of the  Proprietary  Data  provided  and that such  Proprietary  Data is
sufficient for its purposes and therefore that the Proprietary  Data constitutes
full and complete  delivery by Neurosmith  of everything  regarding the Products
that  Neurosmith  is obligated to provide.  Notwithstanding  the  foregoing,  if
Neurosmith  later  learns of  additional  information  or data that has not been
provided to Small World,  Neurosmith will promptly  deliver such additional data
and/or information to Small World.

Chips and Other Parts

<PAGE>

Neurosmith  will deliver all of the following  chips and other items.  Except as
set forth in Article IV of the Agreement and subject to the  disclosures  in the
schedule hereto,  Neurosmith makes no representation as to items to be provided,
including as to their condition or the exact quantity.

1. Items believed to be in the possession of Verifan, Ltd.

            a. Roms for Music Block Cartridges, for Mozart, Rhythms,  Orchestra,
Bach, Jazz, Nutcracker,  Opera,  Cinderella,  Pooh, Poppins, Rock, Mozart v.2.0;
OSC for Mozart v.2.0, Controller 3-1 Cart.

            b.  Neurosmith has provided Small World with a "Physical  Inventory"
dated April 1, 2004 from Verifan and an Inventory  Analysis of Neurosmith  dated
as of November 30, 2003.  Neurosmith makes no  representation  as to the correct
amount of such items (i.e.,  how many are part of the Purchased  Assets),  their
condition or any claims or Liens that Verifan may assert.

2. Items believed to be in the possession of Jetta

            a. Roms for Maestro  Edition,  World  Music,  Classical  Collection,
Phonics Tiles, Rock Around the Block,  Maestro (Ed Bulk Pack),  SC615 (Challenge
Cart), Magnaphonics; Together Tunes; I/C for Phonics Tiles (SC614).

            b. Neurosmith has provided Small World with an Inventory Analysis of
Neurosmith dated as of November 30, 2003.  Neurosmith makes no representation as
to the correct  amount of such items (i.e.,  how many are part of the  Purchased
Assets), their condition or any claims or Liens that Jetta may assert.

3. Items believed to be in the possession of Wynnewood

            a. Roms for Quintet, Preschool Favorites, Musini Preschool.

            b. Neurosmith has provided Small World with an Inventory Analysis of
Neurosmith dated as of November 30, 2003.  Neurosmith makes no representation as
to the correct  amount of such items (i.e.,  how many are part of the  Purchased
Assets), their condition or any claims or Liens that Wynnewood may assert.

            c. The  Inventory  Analysis  shows  inventory  for Roms for Sequence
Cartridge.  Neurosmith does not know the present location, if any, of such Roms,
although  Wynnewood was the  manufacturer of that cartridge.  All rights to such
Roms are part of the Purchased Assets, but Neurosmith makes no representation as
to the correct  amount of such items (i.e.,  how many are part of the  Purchased
Assets), their condition or any claims or Liens that Wynnewood may assert.

Miscellaneous Assets

<PAGE>

The URL:  "Neurosmith.com"  and any of the  trade or  service  marks  listed  on
Exhibit  "C" that do not  relate to  Products  that were  actually  produced  or
marketed.

The list of  Purchased  Assets  is  intended  to  cover  all  Products  in which
Neurosmith has any  Intellectual  Property  Rights,  including all  discontinued
Products.  In the event that it is later  determined that there are any Products
not listed,  such Products shall be transferred to Small World as Products under
this Agreement;  however,  Neurosmith makes no representation or warranty of any
nature  whatsoever  about any such Product or any  Intellectual  Property Rights
therein.

<PAGE>

                                   Exhibit "B"

                                Form of Releases

<PAGE>

                                   Exhibit "C"

                 Trademarks and Patents and Patent Applications

                                   Trademarks

      1.    Music   Blocks   -   U.S.   Application   75459420.   Reg.   2545293
            (Supplemental) (No separate registration for Music Block Composer or
            Music Block Creativity Cartridge.

      2.    Pet Me Platypus - U.S. Application 76497493

      3.    Grow & Discover Block - U.S. Application 76570542

      4.    Alphabet Ball - No application

      5.    Together Tunes - U.S. Application 76497490

      6.    Musini - U.S.  Application  76381083  (No separate  application  for
            Musini Preschool or Magic Wand or Preschool Quintet Cartridge)

      7.    Magnaphonics - U.S. Application 76497492

      8.    Phonics Tile - U.S. Application Abandoned (Product Discontinued)

      9.    Jumbo  Music  Block  -  U.S.   Application   2641320  Reg.   2641320
            (Supplemental)

      10.   Sunshine Symphony - U.S Application 78044454. Reg. 2807383

      11.   Little Linguist - U.S. Application 754588875. Reg. 2423716

      12.   Babbler - No application

      13.   Mozart's Rolling Orchestra - No Application and no trademark search

      14.   Touch `N Sing Animal Block (3 sets) - Registration Abandoned

      15.   Pinball Math - No Application and no search

      16.   Lingo the Learning Bird - U.S. Application 76570549

      17.   Together  Tunes  Sing-Along  Book  - No  separate  application  from
            Together Tunes

      18.   Edgar (the Elephant) - No U.S. Application and no search

      19.   Abigail (the Alligator - No U.S. Application and no search

      20.   Smart Toys for Developing Minds - (Tagline) No U.S.  Application and
            no search

      21.   Phonics Block - U.S. Application 75465684; Reg. 2485558

      22.   Magic Sensor - U.S. Application 76449802 - Abandoned

      23.   Touch `N Sing - U.S. Application 76566213

      24.   Rhythm Roller - U.S. Application 76570547

      25.   Cyber Cartridge - U.S Application 75709657; Reg 2621740

Patents and Patent Applications.

U.S. Patent 6,353,168 (March 5, 2000) - Educational Musical Instrument for
Children

U.S. Patent D410,972 (June 5, 1999) - Design for Music Blocks

U.S. Provisional Patent Application Entitled: Interactive Sound Generator

      Application  Serial No.:  60/355,776;  Filing Date:  February 9, 2002,  as
      superceded  by  U.S.  Patent  Application   Entitled:   Interactive  Sound
      Generator
      Application Serial No.: 10/360,416; Filing Date: February 7, 2003

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                              Disclosure Schedules

                                  Schedule 4.4

All  chips  and  tooling  are in the  possession  of  the  manufacturers  of the
applicable products, such as Wynnewood, Jetta and Qualiman.  Although Neurosmith
and Small World have each contacted these manufacturers, it is not clear whether
these  manufacturers  are making any claims that they own or have a lien on such
chips  and/or  tooling,  including  as to whether  they must be paid any amounts
before  Neurosmith  and/or any successor to Neurosmith,  such as Small World may
have  possession  of or title  thereto.  Neurosmith is delivering to Small World
only such title in chips and tooling as Neurosmith  may have,  not including any
claims  that such  manufacturers  may make and such  claims  are  exceptions  to
Neurosmith's  representations  hereunder,  including  those in  Article  IV. The
description of the chips and tooling and the exceptions to  representations  set
forth therein set forth in Exhibit "A" are incorporated herein.

Schedule 4.5

There are no known exceptions.  However,  Neurosmith did not undertake trademark
searches on most proposed names for its 2004 Products

Schedule 4.7

Pierre Belvedere,  Inc.  ("Belvedere"),  a Canadian  distribution  company, has
filed suit in Canada claiming that Neurosmith wrongfully terminated Belvedere as
Neurosmith's  Canadian  distributor.   Neurosmith  is  contesting  this  matter.
Belvedere has claimed damages of between $300,000 and $400,000 Canadian dollars.
This matter should not affect the Purchased  Assets;  Neurosmith shall indemnify
Small World with respect to this matter.

KB Toys of  Massachusetts,  Inc.  ("KB"),  a purchaser of  Neurosmith  Products,
notified  Neurosmith  in a letter dated  August 26,  2004,  that KB, which is in
Chapter  11  Bankruptcy  proceedings  in  Delaware,  is  owed  $125,224.71  as a
pre-petition  claim.  Neurosmith is investigating  this matter,  but its initial
review shows nothing to support this claim. In any event,  the matter should not
affect the Purchased  Assets and Neurosmith  shall  indemnify KP with respect to
such claim.

Schedule 4.8

The Musini Wand may not comply with all FCC requirements.

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7The battery case for an earlier design of Sunshine Symphony was found to permit
the  positive  and negative  contacts to touch in extreme  circumstances,  which
could lead to "warming". This defect was fixed. It is noted that this defect was
reported to the Consumer Protection Safety Commission which did not consider the
defect to be a safety hazard,  because the warming was not enough to cause burns
or start a fire.  Any  liability  relating to the sale of the Sunshine  Symphony
with the earlier design of the battery case remains Neurosmith's, subject to the
indemnification obligations hereunder.

Some Pet Me Platypus products were incorrectly manufactured by Qualiman and were
recalled. While Neurosmith retains any liability for any such products that were
sold by  Neurosmith  prior to the  Effective  Date,  Small World shall have full
responsibility for products sold after the Effective Date.

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